I'm a digital nomad. Should I renounce my US citizenship?
fireshouter.substack.com
fireshouter.substack.com
https://www.irs.gov/individuals/international-taxpayers/fore...
This is a huge tax break. You can exclude income earned from US sources too.
If you live in a foreign country and pay taxes there you may be able to deduct those from US taxes, depends on reciprocal tax agreements.
I used ustax.bz to help me figure this out, was worth it to me.
What a joke. I'm all for getting medical care to people in general, but you can't redeem Medicare abroad. There are no shared medical treaties. You can't get a voucher. You can't even get exemptions for living abroad. You just pay in, and if you want value for paying in your whole life, you have to expend greenhouse gases flying back to the US and pay their extortionate health care prices which are probably cheaper uninsured where you are (at least it has been for me).
That picture people have of retiring on a beach abroad, well, most of them stop once they realize they won't be covered for basically anything at their retirement age. https://www.cnbc.com/2019/08/08/retiring-overseas-how-medica...
More info: https://www.medicare.gov/Pubs/pdf/11037-Medicare-Coverage-Ou...
You can collect Social Security while living abroad.
And remember the reaction to the House press secretary Jen Psaki saying the US would provide vaccines to all Americans and then immediately walking that back when a reporter ask about those abroad with, "we have not historically provided private healthcare for Americans living overseas, so that remains our policy"? I'd say this was joke if it wasn't about the health of US citizens not getting care while paying their whole lives for it (this isn't Medicare, but still the reaction and aversion to health services aboard).
Personally, my goal was traveling and living nomadically out of the US. I did that for over six years. Medical care was cheap almost every place I went, and I’m older than the typical 20- and 30-something nomads. My goal was not debating or trying to reform Medicare or the US health care system. Those are noble goals I suppose but not something I want to spend my time on.
This is really why I should donate to the "abroad" political arms. Both Republican AND Democrats agree on fixing Medicare, FBAR, etc. because citizens abroad are always an afterthought. I wouldn't mind being an afterthought if it wasn't sapping the biggest part of my paycheck while being utterly useless to me later in life or sucking out all of my time come tax season.
For a self-employed person Social Security is 12% on the first $147K of self-employment income, maxing out at $18,228/year. Medicare is 2.9% on the first $200K and 3.9% on income over $200K. So for a person making $200K+ the total of those is 12% + 3.9% = 15.9%.
For a person with a regular employer (you mentioned “paycheck” in your comment) the employer pays half of those taxes, so the employee portion is a little less than 8%.
That’s a significant chunk of income paid for Social Security and Medicare but I wouldn’t call it “the biggest part.”
Americans living abroad can collect Social Security, so that part is not necessarily utterly useless. Currently Medicare benefits only pay for treatment in the US, but in that case the percentage of income paying into that is no more than 2.35%.
If you have parents or relatives on Medicare you are actually funding them, think of it that way. Because of demographic changes America has a growing aged population and a shrinking population of young people. If you want to address that problem have more children.
If preparing and filing tazes is sucking out all your time come tax season maybe get a professional tax preparer to do it for you. I have been self-employed for over a decade, earning well over $150K/year, lived overseas more than half that time, and I never spent more than a couple of hours a year preparing and filing my taxes. Some people have more complex tax situations than others but most returns are not that complex if you keep your records and receipts organized.
It would be nice if US tax laws and Medicare and so on accommodated expats and nomads. That would likely benefit me. But I chose to live an unusual and minority lifestyle as a nomad, so I have to take the good with the bad. It's not worth my time, effort, or money to get involved with political lobbying on a niche issue that doesn't interest or concern the vast number of US citizens or the people in Congress who might make changes. The government will always have bigger and more pressing issues than unfair taxation of expats, and we will always be a tiny minority of constituents.
More than once I have encountered Americans who interpret my choice to live abroad as somehow "abandoning" my country, or running away from it. And most Americans don't know about taxes on expats/nomads, they assume that if I live in, say, Thailand I am not paying US income taxes. When I explain that Americans are taxed based on citizenship they are surprised -- why would an American who lives and works in the US know about that? Likewise Americans are usually not aware that getting a tourist visa to visit the US (for a foreigner) is often difficult and time-consuming -- they have never had to deal with USCIS. So that presents a political challenge: the expat/nomad lifestyle is not something the majority of Americans (or their elected representatives) understand or care much about.
Good luck with the uphill battle. There is an advocacy/lobbying organization for Americans living abroad:
https://www.americansabroad.org
Of course they ask for money. I choose not to get too involved with trying to reform the government or tax policies. It's a fact of life I can deal with, I have better things to give my attention to.
It's compounded though because of the other side: host country. They don't have a modern definition of "work" and so the rules put you in a gray zone so you can't or it would be prohibitively expensive to start a business and hire workers to meet the business requirements for visas (and sole-proprietorships not being allowed to foreign residence)--all for a self-employed remote work which only requires internet, a computer, and caffeine. If I could pay local taxes, then I could support the local community and subtract it from the US side. And I'd rather pay taxes to the local community. Applying for local citizenship is daunting and requires a long residency period and being on a wait list. Some countries like Estonia make it a lot easier.
It is a non-standard and often glamorized lifestyle, but it is filled with so many caveats.
On the other hand, finding the information you need to travel and live abroad is fairly easy these days. A little planning and setting your expectations smooths the process out. It’s not for everyone, and definitely gets presented as more glamorous and exciting than it sometimes turns out. A person who is unhappy, lonely, insecure, financially unstable, or operating from unrealistic assumptions will just take those problems with them — living abroad isn’t a clean slate.
Some things in life you can change. Some things you can’t. It’s not always worth getting mad or fighting against screwed up rules or banging your head against obstacles. Every person has to make their own decisions about what they can live with.
unless you earn less than $400/yr.
> International Tax Gap Series
> If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad.
> The self-employment tax is a social security and Medicare tax on net earnings from self-employment. You must pay self-employment tax if your net earnings from self-employment are at least $400.
https://www.irs.gov/individuals/international-taxpayers/self...
Only if your spouse also qualifies, which isn’t necessarily just because they have an ITIN (oh, and it only applies to their income, and not yours…which often won’t work out if your spouse is earning local wages). SS and Medicare aren’t collected on income earned abroad, but you also have to be careful because your credits towards benefits don’t accrue either.
I quickly dropped the FEIE in favor of the foreign tax credit. Turns out I paid more in Chinese taxes than I would have paid USA taxes, and computing the FTC on top of the FEIE was just too complex by hand.
The US is like this -- it's illegal to work in the US without a work permit or visa that allows work. If a French citizen comes to the US on a tourist visa and works for their employer remotely they are technically violating the conditions of their tourist visa, which prohibits any kind of work. Practically there's little to no enforcement for people working on laptops from coffee shops.
I'm not saying I don't believe you, I just haven't heard of any country requiring local taxes unless you have a work permit or some kind of visa that specifically allows you to work remotely. I can't see how those governments would enforce that unless they raided every coffee shop and hotel room looking for foreigners with laptops.
I know some countries have so-called digital nomad visas that allow working for a foreign employer remotely. I don't think that's what you're describing, though.
Do not give up your US Citizenship for tax avoidance unless you are earning > $200k per year or making a lot of unearned income outside of the US.
Or you are in some weird situation where you permanently want to be in the US more than 35 days a year, but you don't work in the US, and don't want to be a citizen for some reason.
If you make enough money that renouncing citizenship looks like a good option the cost of tax preparation and opening a foreign bank account are going to be trivial details someone else will handle for you.
It’s a hassle for Americans to open bank accounts in some countries because of IRS reporting, but if you have a few million dollars to deposit you won’t have any problems.
Intuit may be an evil company, that’s a different subject. But their TurboTax product does handle the FEIE, which is the point I meant to make. You don’t have to hire a tax pro for that, though it may be worth it for complex tax situations or if you have income over $200k/year.
Source doesn't mean what it does to the layman for intl taxes.
Mr X is a US citizen who lives outside the US, files and pays US taxes (with deductions taken for locally paid taxes). Mr X wants to also pay into social security and medicare (and whatever other right accrual systems) so that, if they decide to go back to the US so that -- when they retire -- they are entitled to social security benefits and medicare coverage.
The question is: How does Mr X technically pay into these systems, without having any US based income. He knows how to pay income tax (and does), but can't figure out a way to pay SS/Medicare (and doesn't).
If Mr. X has no US-source income and earns income in a country with no totalization agreement with the US he can save the money he’s not paying for Social Security and Medicare in a savings account, IRA, etc. it’s not like the government-run programs are paying high interest.
On the flip side currently if you renounce your US citizenship it immediately triggers a 5 year back tax audit by the IRS and you have to clear your bill before they'll let you renounce.
"Income tax" on "earned income" does not include Social Security, medicare/caid tax so you still pay some. It also doesn't cover "unearned" income like capital gains or rent.
I said earn > $200k because I'm sure citizenship is worth at least $88000 per year to most people. You would also need to be very confident that that income level is never going to to go away.
Further, most developed countries where you would be more likely to be earning that much money have tax reciprocity treaties with the US that cover the rest of your earned income.
> medicare/caid tax so you still pay some
exactly. You're still 'on the hook' annually to pay for subpar services you'll most likely never use, assuming they exist when you're eligible for them.
> I'm sure citizenship is worth at least $88000 per year to most people.
I'm sorry, but that makes me laugh HARD. By your math I would have paid approximately $1.9 million dollars in the past 21 years just to hold the US passport I might have used 10-15 times in that timeframe to gain entry to the US. Do you honestly think the right to visit the US 15 times over 2 decades is worth $2 million USD? Especially when you can visit the US without a US passport fairly easily (assuming you're not a cryptobro acting like a fool?).
Full disclosure, I'm a US expat who's lived in Australia for over 20 years and was granted Australian Medicare YEARS before I was a permanent resident.
There’s no good reason for you to keep your US citizenship just like there’s no good reason for the average Australian citizen to gain US citizenship.
This is in the context of digital nomads who probably aren’t seeking citizenship in Australia or a similar country.
Ending US citizenship purely for tax avoidance without considering FEIE (like this article does) aimed at a target audience of young people who probably don’t know much about where they are going or how taxes work (digital nomads) is not smart.
US citizenship has benefits beyond the passport. What that is worth depends on the individual. People from all over the world wait years for US visas and work permits, so there’s some value and demand implied.
I have children and family in the US, so I don’t put a price tag on my passport. Any place desirable enough for me to get citizenship there and renounce my US citizenship is going to tax me too.
Your mileage may vary, but for most people considering the digital nomad thing taxes are not complex or expensive. Very few nomads I met in six years traveling made a lot of money. Their main hassle was self-inflicted: not setting up a US address and keeping a US bank account before they went traveling.
Renouncing citizenship requires finding another country that will give you citizenship, preferably a country with a strong passport and lower taxes than the US. That option really only makes sense for the wealthy.
Is this true? I thought that was only the case if they could prove you are an active resident. Of course, if you maintain a mailing address or residence in California/NY then you better believe they'll make sure you pay. If you cut ties completely, they don't have grounds to come after you.
I ended up having to go to court over it, twice so far. The first time was a “tax court”, and they deferred the judgement until I could obtain acceptable proof that I had held a driver’s license in another state for that year. The license itself wasn’t enough. The second time was after the judgement was issued anyways, and I had to file for it to be vacated.
If you have an address outside the US, it is a good idea to tell the IRS to mail you at that address, the states seem to be content with that as evidence that you live out of state.
If you don’t have family or friends that will let you use their address you can use a mail receiving service (I used Traveling Mailbox for years). An attorney will usually let you use their address for a nominal fee. There’s actually a pretty big selection of services geared to expats and constant travelers, like people who live in RVs. Do some research, it’s not a big deal.
Indeed, Maryland is not a no-income-tax state; However, tax issues are not the only thing one should care about, and I wouldn't just move to a state "on paper" without a good knowledge of what that might legally require me to do.
Do no-personal-income tax states never require that you file anything? Whether it is tax related, or not?
Some states hold on to former residents harder than others: California and Virginia are notorious for trying to continue taxing people who leave. How you deal with this will depend on individual circumstances. Get professional tax advice if you expect problems with state tax authorities.
I wouldn't call it a tax break; the US is the only country that double taxes its citizens on foreign-earned income.
Double taxation would only happen if you had to pay taxes to a foreign country and the US. If you plan to work or earn income abroad as a US citizen it would be wise to choose a country that has tax reciprocity with the US, to avoid double taxation. That would include most countries that would be on the list of places worth renouncing US citizenship for.
So hey if you have a citizenship somewhere else that is among one of the cool, slightly respecting rights of citizens countries in the world, and you never want to go to the U.S because reasons (including never wanting to work there - which seems weird given your digital nomad lifestyle) go ahead, renounce it.
https://www.forbes.com/sites/robertwood/2015/10/23/u-s-has-w...
Presumably they are easy to spot due to the mass emigration.
What is there to be prejudiced against for Singapore? It is a singularly good place to live by basically every metric an actual human being could care about. Low crime, clean, high resident satisfaction, good schools, etc.
on edit: still criminal system seems overly harsh.
not a very good article, without comparing U.S vs another country tax system/medicare pros and cons, it is impossible to make an enlightened decision, therefore making the title of this article irrelevant.
we would need one article per country vs the U.S for this to be informative imo.
This sadly was the case for my friend Amy, who couldn't travel back to Vermont for her grandmother's funeral. All because of "trivial" things like money and tax!
Establishing a "reason to leave" when visiting the US might mean you need to buy a house elsewhere if you do renounce.
To use the article's own example, if you had an Irish passport I wouldn't see a lot of reason to keep hold of a US one (unless, of course, you did want to live or work in the US) - sure, in the event that you suddenly want to go to Equatorial Guinea some time, it'll cost you $200 and a bit of bureaucracy. But you'd make that back in the first year or two of not being subject to US taxation.
Please. Every document costs triple what it should be and then you are responsible for paying shipping and return shipping even if they decide to decline you. You are treated like a foreigner by your own country.
Let's talk about COVID-19: While countries like China and France procured vaccines for its citizens, the US did not. They gave out vaccines to other countries, but refused any assistance to its citizens saying it was the local government's responsibility (meanwhile every ambassador and foreign worker inside the embassy got priority shots). It's not their problem why?
The embassy prioritizes galas and showmanship more than actually helping citizens. If they cared, they'd be fighting to fix the stupid FBAR situation; you should not be treated like a criminal for having $10k in a bank in the country of your domicile, where you have a home and a family to look after.
Regardless of what you decide there is a 30,000 person waiting list for applications to be processed. They conveniently stopped during the pandemic and even now are processing maybe a dozen a month (all the names are published in the federal register so you can track it yourself).
Most embassies and consulates aren't even taking appointments to process the form: https://uk.usembassy.gov/u-s-citizen-services/citizenship/lo...
“The U.S. Embassy London is currently unable to accept appointments for Loss of Nationality applications.”
No, they are not “unable”, they are unwilling or refusing.
If you aren't paying taxes (aside from sales taxes) you are at some remove leeching. Maybe there's a debate here, maybe you have registered as a resident alien in the places you nome to, but most nomads as I understand it seek to be visitor-status for as long as possible.
I know the digital nomad economy includes people who want to sublet their place to you and then get very upset when you show them you've registered as a resident: It plays both ways.
So by all means cease to be american, but please: pay your taxes wherever you are.
Probably bad idea to drop your passport if you don't have decent alternatives in place
It will be a huge Opportunity Loss. Plus the way the world is shaping up, you will be better off with the country's Economic/Financial/Military Systems behind you.
What support can he expect? under what circumstance? (hint-- it might be less than you think)
If you can replace your American passport with a Canadian, Australian or Singaporean passport, it's not too bad: people from these countries have an easy time getting a visa to work in the US. [0] All while not being subject to American taxes while outside the US.
> Plus the way the world is shaping up, you will be better off with the country's Economic/Financial/Military Systems behind you.
Eh, it's a two-edged sword. On this aspect you are probably better off with the passport of a country that's clearly in the Western sphere, but also one that no-one actually hates. Think Canada or Switzerland.
[0] Though I don't know how well that works for former citizens?