01/06/21

US: Americans Abroad Feel Neglected by Government and Overburdened by Taxes, according to survey.

As published on mychesco.com, Tuesday 1 June, 2021.

GRANDVILLE, MI — Americans living abroad have a history of feeling neglected by the US government and overburdened by tax regulation. According to Greenback Expat Tax Services’ 2021 survey of US ex-pats, 23% of Americans living overseas are seriously considering citizenship renunciation. Another 42% would not rule it out.

When asked why they wanted to give up their US citizenship, 42% of ex-pats cited the burden of filing US taxes as the primary reason.

Other common reasons for wanting to renounce included disappointment with the direction of the American government (10%), concern about the current political climate (11%), and being married to a non-US citizen abroad (12%).

The majority of ex-pats (69%) object to the US’s strict citizenship-based taxation rule, which requires US citizens to pay taxes on their worldwide income no matter where they live or work. Because the majority of the world’s countries have residence-based taxation models, most Americans overseas must file and pay taxes twice.

When asked about the tax reform they would like to see, 47% of ex-pats said they would like to replace citizenship taxation with a residence-based model. Doing so would exempt US citizens living outside the country from filing US taxes.

Many Americans abroad would also respond favorably to more simplified tax rules (19%) and additional measures to reduce their US tax liability and help them avoid double taxation while living overseas (10%).

In addition to tax-filing requirements, American ex-pats must also disclose foreign financial accounts to the US government once they reach a certain threshold.

The Foreign Bank Account Report (FBAR) requires US citizens to disclose foreign bank accounts to the US Treasury if the combined balance across all accounts exceeds $10,000.

Similarly, the Foreign Account Tax Compliance Act (FATCA) requires ex-pats to file Form 8938 to report offshore accounts to the IRS if they exceed $200,000 at the end of the year or $300,000 at any point during the year (these amounts are doubled for married filers).

While both rules are intended to thwart tax cheats from hiding money in offshore accounts, they disproportionately affect ex-pats. Failing to file the FBAR or Form 8938 can lead to penalties of over $10,000 per violation. Despite this, a significant number of ex-pats indicated that they were unaware of their FATCA (24%) and FBAR requirements (7%).

On top of ex-pats’ concerns about taxation, 85% do not feel fairly represented in US government.

The Coronavirus pandemic has compounded ex-pats’ disappointment. 60% disapproved of how the US government handled the crisis and many (32%) say they more likely to stay abroad following the pandemic.

Last year, these frustrations led to a record number of US citizens renouncing their citizenship—although many US Embassies were closed or had limited services during the COVID-19 pandemic. Based on the survey results, citizenship renunciation numbers may continue to rise if ex-pats’ concerns are not addressed.