I’m a 23-year-old US citizen living and working minimum wage in New Zealand. Last year, I filed taxes for the first time, and it was frustrating and costly. I have an unrealized eTrade investment in the US that my parents set up, but I don’t have any other assets in the US. I don’t plan to live in the US again, but I might visit and eventually want to deal with the investment. I also can’t afford to renounce my citizenship. What will happen if I stop filing?
The US is one of the few countries that taxes based on citizenship, not where you live. Even if you don’t owe taxes, you still have to file annually, including reporting your global income. There’s a tax treaty between the US and NZ, so you shouldn’t get taxed twice, but not filing can lead to penalties. If you’re sure you’ll never live in the US, you could close the eTrade account and renounce citizenship, but that costs $2,350.
@Lior
OP mentioned they can’t afford the renunciation fee. That’s a lot for anyone earning minimum wage.
How much is ‘expensive’? Filing taxes while earning minimum wage overseas should be relatively affordable, and you likely owe nothing. Do you also have New Zealand citizenship? The issue with not filing is the FBAR requirement for foreign accounts, which can lead to harsh penalties if missed. Even renouncing citizenship won’t get you out of the IRS’s 10-year filing requirement in some cases. My advice? File the simplest way possible. You’re only 23, so you have time to decide whether to renounce.
It’s a Rugby thing. My wife is from South Africa, home of the Springboks. ‘Bokke’ is a nickname for the team. They’ve got a rivalry with NZ’s All Blacks, so this was a cheeky jab.
Ash said:
@Van
Oh, got it. I thought you mixed them up at first!
Haha, nope! Thanks for catching that.
If you stop filing, it could cause issues with renewing your US passport or traveling to the US.
Darby said:
If you stop filing, it could cause issues with renewing your US passport or traveling to the US.
How much unpaid tax triggers that?
Darby said:
If you stop filing, it could cause issues with renewing your US passport or traveling to the US.
How much unpaid tax triggers that?
It’s considered ‘seriously delinquent tax debt,’ which starts at $62,000. Here’s a link for more details: https://www.cnbc.com/2024/08/25/how-a-seriously-delinquent-tax-debt-could-get-your-passport-revoked.html.
@Darby
You can hit that number fast with penalties for failing to file, failing to pay, and interest. Not to mention, the IRS may see non-filing as willful, which can increase penalties. Always better to file.
Darby said:
If you stop filing, it could cause issues with renewing your US passport or traveling to the US.
How much unpaid tax triggers that?
If the IRS processes your foreign address and notices you haven’t filed, they can pursue you for unpaid taxes. Here’s a link explaining it: https://www.law.cornell.edu/uscode/text/26/6039E.
@Zen
There are millions of Americans overseas who don’t file. Why do you think the IRS doesn’t go after them?
Jay said:
@Zen
There are millions of Americans overseas who don’t file. Why do you think the IRS doesn’t go after them?
How would the IRS know you’re earning below the threshold if you don’t file? They rely on reported info to determine compliance.
If you’re under the income threshold, you technically don’t need to file, but if you’re over it—especially for FBAR—you could face severe penalties. Most people don’t get caught, but those who do really regret it. The foreign earned income exclusion means you likely owe no US tax, but missing forms like FBAR can cost $10k per year. Filing is always safer, and renouncing citizenship is only an option if your filings are up to date.
@Frey
You don’t need to be up to date on taxes to renounce citizenship. That’s only if you want to avoid being labeled a ‘covered expatriate.’