Whilst we do our best to publish articles covering different subject areas, we are consistently asked to write further on renunciation of US citizenship. As with most things “US Tax”, there are always a large number of questions which need to be addressed.

In todays article, we’ll go over our 6 most commonly asked questions from US citizens considering renunciation.

1)      Will I keep my US social security after I renounce my US citizenship?

This one is a maybe, as it depends on what other citizenship you hold. The US has “totalisation agreements” in place with a number of countries, which means its possible to continue receiving social security after renunciation. In the case of an individual who holds NZ citizenship only, unfortunately its not straight forward, and whilst it is possible to retain social security, it comes with conditions attached (such as travelling to the US periodically).

A tool provided by the Social Security Administration is available here, to check your eligibility for social security as a sole NZ (or other) citizen.

It is best to obtain confirmation from a professional on your specific circumstances, prior to renouncing.

2)      Can I still go to the US after renouncing?

You can indeed. There is nothing preventing you from travelling to the US after renouncing, however we do recommend checking in on the immigration implications with Amanda Sadlier of Optimum Law, prior to renouncing

3)      Will I pay an exit tax to renounce?

Possibly, but unlikely. The US does indeed have an exit tax system, whereby those with a net worth of greater than $2m USD as of the day prior to renouncing, can be subject to an exit tax. It can also apply in some other circumstances, but in practice, it is rare. Of around 60-70 renunciations that I assist with in some capacity each year, less than 2 or 3 are usually subject to an exit tax

4)      I haven’t filed any US tax returns, do I need to file first?

Yes, you do indeed need to file. Whether you file before or after renouncing can depend on certain circumstances, and whether you qualify for entry into an amnesty program. Nevertheless, filing is required.

I would recommend obtaining advice prior to booking your renunciation appointment, to confirm the best route ahead for you

5)      I’m about to sell my house, can I renounce before I sell?

Renouncing in the knowledge that you are about to receive a large amount of taxable income, could be (and likely to be) sufficient to treat you as a covered expatriate. In this situation, you may be deemed to be renouncing for tax purposes. In short terms, this would mean you’d be subject to the exit tax, and we would strongly recommend against renouncing in these circumstances

6)      My kids are US citizens, can they renounce too?

Whilst technically speaking, there is nothing preventing a minor from renouncing, in practice it is quite difficult. The person renouncing citizenship must be able to satisfy a consular official that the decision is entirely their own, and no persuasion from anybody else has occurred. This can be very difficult for a minor, and I generally recommend against attempting to renounce prior to adulthood. Again, legal assistance is suggested here.

It is important to ensure that your children do not fall into any US tax traps prior to renunciation, and we do offer advice on this issue.

Summary

So there we are, our 6 most commonly asked questions on renunciation. As you’ll see, for many, there isn’t a clear answer, but advice should usually be sought to ensure you enter the process with a clear path ahead and in full knowledge of the implications.

If you’re considering renunciation and would like clarification on the correct approach, contact New Zealand's US tax specialist advisors today – info@usatax.nz – 09-242-3445