Tax
Citizenship-based federal taxation, plus state income and sales taxes
The United States is one of the very few countries that taxes its citizens and permanent residents on worldwide income wherever they live. The Internal Revenue Code is administered by the IRS, and disputes go to the Tax Court, which a taxpayer may petition without first paying the disputed amount. States add their own income taxes at widely differing rates, and several — Florida, Texas, Washington among them — levy none.
Key rules
- Jurisdiction — Federal taxation follows citizenship and residence; state taxation follows domicile and source
- Deadline — Individual return: 15 April, extendable to 15 October
- Deadline — Citizens abroad: automatic extension to 15 June
- Deadline — FBAR: 15 April with an automatic extension to 15 October
- Deadline — Tax Court petition: 90 days from the notice of deficiency, or 150 days if abroad
- Deadline — Assessment: three years generally, six if income is understated by 25 per cent
Governing law
- Internal Revenue Code, 26 U.S.C.
- 26 U.S.C. § 911foreign earned income exclusion
- Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471 to 1474
- Bank Secrecy Act (FBAR reporting), 31 U.S.C. § 5314
In practice
Citizenship-based taxation means an American who has never lived in the country still files, and FATCA enforces it by requiring foreign banks to report accounts held by US persons — which is why some institutions decline them as customers. Relief comes through the foreign earned income exclusion and foreign tax credits rather than exemption, and renouncing citizenship can trigger the section 877A expatriation tax on unrealised gains.