Can You Avoid U.S Income Taxes by Dual Citizenship?

by Luke Arthur ; Updated July 27, 2017

When you move to another country, you can retain your citizenship in the U.S. even if you take on the citizenship of the other nation. While you live in the other country, you may be able to get out of paying income taxes in the U.S.; however, this does not release you from having to file an income tax return.

Tax Credits and Exclusions

When you have dual citizenship, you may be able to take advantage of tax credits and exclusions that will allow you to avoid paying any income taxes to the U.S. If you live and work in another country, the U.S. allows you to get a tax credit for the amount of taxes that you paid to another government. Your taxable income is based on your global income, but you can deduct any money that you already paid taxes on. At the time of publication, you can deduct up to $91,500 per year of income if you live abroad for 330 days out of the year.

Tax Filing

Filing a tax return will let you know if and how much money you need to pay to the U.S. government. Even if you live in another country and make no money inside the country, you have to legally file an income tax return with the Internal Revenue Service. If you fail to file a return, you may no longer be eligible for tax exclusions and could end up liable for taxes you may already be paying in the other country of citizenship.

Documentation

When filing your tax return with the Internal Revenue Service, you may come across some issues with documentation. For example, some foreign employers will not be able to provide you with tax documents, such as a W-2. If this is the case, you can still file your tax return with the IRS. You can simply input the amount of income that you made during the year without providing any tax documents. In the event of an audit, however, you will need to provide the IRS with bank statements, pay stubs or other documents to verify your income.

Social Security and Medicare

In addition to paying regular income taxes, most employees in the U.S. also contribute to the Social Security and Medicare systems. This adds to the total amount of money that you have to pay in taxes. If you do not plan on participating in these programs, you do not have to contribute to them if you have a viable alternative with your country of residence. As long as the country has a similar program, you can choose to contribute to it instead. If the country doesn't or you don't pay for a similar program, however, you must pay these taxes to the U.S. accordingly. At the time of publication, the combined tax rate for these expenses is 15.3 percent if your employer does not pay part of the tax for you. If the tax rate in the other country for similar programs is lower, it might make sense to use it instead.

About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.