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Students renouncing US citizenship - tax compliancy question
We moved back to the UK in 2012 and my husband & I renounced our US citizenship soon afterwards.
Now the kids are considering doing the same, but we're not sure what it means for them to be tax compliant as, being impoverished students/schoolkids, they have never had to file UK or US taxes! Son 1: Aged 24, born in UK but naturalised US citizen, graduated this summer. Paid US taxes for 1-2 years on part time job in the US before we moved back. Hasn't earned enough money from casual work at uni to trigger the need to file US taxes (should his student loan be added to this?) , bank account has not met the $10k FBAR requirement. Son 2: Aged 21 born in US, at uni on student loan, no part time work, no FBAR requirement Daughter: Aged 18, born in US at uni on student loan, worked part time for a year before starting, only earned £4k, no FBAR requirement. Not sure how to answer the 'Are you 5 (or is it 3) year tax compliant' section? Should they tick the Yes box, file the required number of back taxes anyway with $0, or do they just leave it blank? The government site is obviously geared on the assumption that the renouncing citizen has been earning money!. |
Re: Students renouncing US citizenship - tax compliancy question
I have a similar situation. I've retained my US citizenship and still file taxes as being a citizen I need to declare worldwide income. My daughter is now 20, US citizen and is a poor student with loan. For as long as she is a student, I will declare her as my dependent on my return; however there is a financial threshold that once met, a person should complete a U.S. tax return.
From Turbo Tax "In 2018 for example, if you are under age 65 and single, you must file a tax return if you earn $12,000 or more, which is the 2018 standard deduction for a single taxpayer." So until your children earn $12k which at the awful exchange rate currently is around 9300 GBP, then they are not required to file a return. In reality, students are not going to earn more than $12k so there's no need to think about filing until they've found a job paying more than $12k depending on the exchange rate at the time.. Remember, with the foreign earned income exclusion, US citizens can earn up to $103,900 before they are taxed by the US so even when they do find a decent paying job, all they will need to do is file a tax return using one of the free software packages that are available and job done and they get to keep their US citizenship if they choose to. |
Re: Students renouncing US citizenship - tax compliancy question
Originally Posted by SadInStates
(Post 12591732)
Not sure how to answer the 'Are you 5 (or is it 3) year tax compliant' section? Should they tick the Yes box, file the required number of back taxes anyway with $0, or do they just leave it blank?
For the purposes of 8854, Part IV, Section A, (are you compliant), it asks for the tax liability for each of the past 5 years. If the liability was $0, then put that amount. Someone with a $0 tax liability or someone who was below the threshold for filing, are compliant for that year. As noted in the post from bromleygirl, a single person below the age of 65 for US tax year 2018 must have an income of $12,000 (the unofficial draft figure) before they are required to file, but be aware that if the individual is married and filing as 'married filing separately', the unofficial threshold (draft) for 2018 filing drops to $5 if under 65. Some commentators are suggesting it will officially be $12,000, but until the official thresholds are released, we won't know for sure. (They haven't eloped and not told, have they? :) ) https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf |
Re: Students renouncing US citizenship - tax compliancy question
Very brave to renounce your US citizenship. I wonder if the kids will ever regret doing so?
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Re: Students renouncing US citizenship - tax compliancy question
Thanks for your replies.
So the fact they haven't needed to file prior to renouncing shouldn't be a problem then, and they should just file a "leaving" tax report, as per 8854, with whatever paltry earnings/student loan they have received that year.
Originally Posted by UkWinds5353
(Post 12592336)
Very brave to renounce your US citizenship. I wonder if the kids will ever regret doing so?
Plus they've all seen how stressful it was for us having to remember US tax deadlines, FBAR deadlines, extension deadlines UK tax deadlines, knowing which other forms needed to filed etc, not to mention the cost of having to appoint someone to file the US ones for us as none of the software was compatible with living outside the USA! Obviously it was money well spent for us to know it was done correctly (believe me, we tried to do it ourselves first, but it was just too complicated), but they can't afford that and don't want the hassle of having to do it themselves or that millstone round their necks. It was like taxes were never out of our minds, and was spoiling our enjoyment of finally being back in the UK. The uncertainty of Brexit doesn't seem to worry them at the moment, but I doubt they'll have started the process before next Spring when (hopefully) we will have a better idea of what's in store for us! |
Re: Students renouncing US citizenship - tax compliancy question
Originally Posted by SadInStates
(Post 12593870)
Thanks for your replies.
So the fact they haven't needed to file prior to renouncing shouldn't be a problem then, and they should just file a "leaving" tax report, as per 8854, with whatever paltry earnings/student loan they have received that year. Their main concern is if they ever have to work in the US, but then we pointed out it'd be just the same as when we went over - their employer will sort out the necessary visas. None of them want to go over without a job - they know how brutal life in the US can be for those on minimum wage with no benefits or family around! The eldest tried to go it on his own for a year before eventually losing his job and asking for a plane ticket to join us in the UK. Plus they've all seen how stressful it was for us having to remember US tax deadlines, FBAR deadlines, extension deadlines UK tax deadlines, knowing which other forms needed to filed etc, not to mention the cost of having to appoint someone to file the US ones for us as none of the software was compatible with living outside the USA! Obviously it was money well spent for us to know it was done correctly (believe me, we tried to do it ourselves first, but it was just too complicated), but they can't afford that and don't want the hassle of having to do it themselves or that millstone round their necks. It was like taxes were never out of our minds, and was spoiling our enjoyment of finally being back in the UK. The uncertainty of Brexit doesn't seem to worry them at the moment, but I doubt they'll have started the process before next Spring when (hopefully) we will have a better idea of what's in store for us! |
Re: Students renouncing US citizenship - tax compliancy question
Originally Posted by UkWinds5353
(Post 12594735)
America is one of the worse western countries in the world to live poor. But my question is can the welfare system in the UK actually make a difference in a person's life that is stranded with no place to be sheltered and zero money? I'm thinking most people are up the creek without a paddle unless of course we are talking about countries like in Scandinavia. But of course I could be wrong.
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