But I’m still here.
Because as much as I can’t afford to be here, I also can’t afford to not be here.
Here’s why. The Foreign Account Tax Compliance Act (FATCA) was passed in 2010 to make it harder for super-rich Americans — wherever they lived — to offshore their cash and skip out on taxes. Basically, it means that if you are an American, you pay taxes on your income, regardless of where it comes from and where you live. I was onboard with this new rule when I originally read about it because I’ve worked and paid taxes faithfully in the United States since I was 13. Fair’s fair, right?
Not quite. What FATCA really did was clobber tens of thousands of middle-class and lower-income people who happen to live outside the United States. Some were U.S. citizens living abroad, and others were dual citizens living in their other home countries. Some didn’t even know they were U.S. citizens since they’d lived elsewhere their entire lives.
When FATCA was implemented, citizens abroad were served intimidating notices by their local banks inquiring about citizenship and notified that their answers would be turned over to the IRS in order to follow up with them about taxes owed. A few were very wealthy people, like U.S./UK citizen and Brexit enthusiast Boris Johnson, who soon renounced his American citizenship. But others were just regular people who were living and paying taxes in the countries in which they lived. Foreign tax credits allowed them to get out of some U.S. taxes, but not all.
If the bank didn’t comply, it — along with its customer — could face penalties of up to $50,000 — for any mistakes made on their forms for the U.S. Treasury Department. “I’ve got people calling me saying, ‘This can’t be for real, right?’” after receiving demands for U.S. taxes after decades, or even lifetimes lived outside the country, says John Richardson, a Canadian immigration attorney and an expert in U.S. citizenship renunciation. The United States, he tells me, is the only country in the world besides Eritrea that taxes based upon citizenship.
To cope with the record-setting number of aspiring ex-citizens, the U.S. hiked the expatriation fee 422%.
This put me in a tough spot. Of course, I can just move to Australia, enjoy the benefits of citizenship, and start working there whenever I want. I can do it tomorrow. But if I do, I’ll be paying both Aussie taxes and U.S. taxes, including 100 percent of my Social Security taxes in the United States, because, as a freelance writer, I’m technically my own small business. Even if my tax liability is minimal—I really never know how much I’ll make in a year—I’ll need expert help, which is also expensive. It’s clearly in my interest to renounce, so I’m renouncing.
I’m far from alone. Numbers of expatriations have skyrocketed since FATCA went into effect in 2014, with 5,132 people expatriated in 2017, as reported by the Federal Register — compared with around 500 to 600 a year a decade ago. Perhaps to try to cope with the record-setting number of aspiring ex-citizens (and to fund the State Department’s efforts to process all the requests), the United States hiked the fee 422 percent, from $450 to $2,350, in 2015. And while “no other country generates an exit tax based on income,” Richardson says, the United States does — on top of the renunciation fee. This exit tax is on accumulated wealth worth more than $2 million.
That’s certainly not me. But it’s easily a lot of responsible middle-income people who have saved diligently — experts suggest $1.2 million for retirement if you make $75,000 a year — and maybe bought houses in markets that have shot up in value over the past 10 years. Shockingly, as soon as you retire abroad, the United States treats your retirement funds like earned income and taxes you at the highest rate — almost 40 percent. People have lost large chunks of their retirement accounts as a result of this, Richardson says. “It’s a separate and more punitive taxation.”