It’s imperative to note that renouncing the citizenship status of the United States is a significant and sensitive decision. If you renounce, you could be giving up the privileges and access to some benefits of a citizen. Therefore know that once you decide to renounce your status, it can’t be reversed. Various implications are associated with renouncing U.S. citizenship, and as we move on, some will be discussed.
Legal Implications of Renouncing US Citizenship
Notably, once an individual decides to renounce the citizenship status of a country, some ramifications will occur. And this doesn’t exclude the United States either. If you renounce your U.S. citizenship, that means you’ll no longer be able to get protection from the government. Also, it becomes impossible to get a United States passport and participate in the elections.
If whenever, at any time, you decide to visit the U.S., certain limitations can be placed on your visa. You can be denied entry into the United States. You may also have to pay outstanding taxes before being allowed to enter. Therefore, carefully giving it (U.S. citizenship renunciation) a thought is vital to avoid unnecessary future occurrences.
How Renouncing U.S Citizenship Affects People
Renouncing U.S. citizenship has dealt with having intentions and taking voluntary actions to relinquish the nationality. It’s an irrevocable act under the law of U.S. personality, and several complexities are involved with it. However, it’s essential to understand the consequences of losing your U.S. citizenship, and not simply focus on lowering your taxes. That being said, let’s take a look at how the renunciation of U.S citizenship affects individuals:
1. Exit Tax
People who renounce are liable to an exit tax. The exit tax was prepared to ensure that people who renounce their status don’t have to pay U.S. taxes. The exit tax is taxation on the unrealized earnings of a person’s asset when renouncing U.S. citizenship.
2. Social Security Benefits Ineligibility
Another thing to consider when someone loses their U.S. citizenship is the ineligibility to get social security benefits. Citizens are the ones qualified to get social security benefits that include survivor and retirement benefits. Once you renounce your U.S. citizenship, it’s impossible to acquire social security benefits even if you’ve paid for them.
3. Loss of U.S. Passport
Renouncing U.S. citizenship simply means giving up everything as regards the rights of the United States. Once you abandon your citizenship status, the laws and regulations of the United States don’t apply to you anymore. Also, you have to relinquish your passport and get another one from a country to avoid problems when traveling.
Reasons Why People Renounce U.S Citizenship
According to reports by the Federal Register, the number of American citizens giving up their passports has increased to about 6,045 in 2020. Since then, more and more people have continued to submit their requests to renounce their citizenship status.
There are reasons why this keeps happening, and some include:
1. Foreign Account Tax Compliance Act (FATCA)
Part of why American citizens want to renounce their citizenship status is because of the regulations embedded inside the foreign account tax compliance act, also known as FATCA. The FATCA mandates all Americans to not only pay and file their taxes but also include their foreign bank accounts. Because of the complicated paperwork, American citizens decide to resign from their nationality status to avoid dealing with a high level of complications. However, they should also see how this might affect foreign tax credits.
2. Transition Tax
Another reason why folks are renouncing their U.S. citizenship status is due to the “transition tax,” which is a new tax law created during the Trump tax reform. People living in nations with high taxes now have to pay a transition tax of 15% of earnings they’ve made for more than 30 years since the tax overhaul of 1986. Rather than deal with this trouble, U.S. citizens renounce their citizenship status.
3. Taxation Based on Citizenship Status
As a U.S. national, you must pay taxes no matter where your location abroad, and that’s why many decide to carry out renunciation. Another problem is that some folks believe that running businesses alone in the US only requires taxing, and the ones outside don’t. But unfortunately, the new tax laws done under the “Trump America First Tax Reform” mean taxes must be paid even on businesses done outside the United States, and complications may arise for folks involved. That’s why renouncing their citizen status becomes the best option.
To officially ensure that your renunciation is well documented, you must obtain a certificate of loss of nationality after completing the required steps. Remember that renouncing U.S. citizenship status now is irreversible except if done before reaching 18 years of age. Carefully weigh your options before deciding on renunciation.