GeoBlue International Health Insurance

Top 3 Questions About Accidental Americans

By David McKeegan

Summary: What happens when an expat - or the child of an expat - is deemed by the IRS to be a U.S. citizen and consequently - a U.S. taxpayer. David McKeegan of Greenback Expat Tax Services provides expert insight on how to manage this scenario.

Expat Tax - Top 3 Questions About Accidental Americans

Among an estimated 8.7 million U.S. citizens living abroad, there is a group that has always thought of itself as "foreign" yet is actually composed of U.S. citizens. Dubbed "Accidental Americans," these individuals are discovering that the IRS is interested in them.

There are several ways that someone could be classified as an "Accidental American" and all of these individuals share a common concern - they are subject to U.S. Tax and FBAR reporting. In most of these cases, the taxpayer doesn't find out he or she has any connections to the U.S. until well into adulthood. If you discover you're an Accidental American, you need to decide how you will deal with your U.S. tax filing requirements.

How can someone be an Accidental American?

The four most common scenarios that would make you an Accidental American are:

  • Your parents are non-U.S. citizens, but were in the U.S. on a temporary work assignment when you were born. Shortly after your birth, your family moved back to your parents' home country and you haven't lived in the U.S. since.
  • You were born outside the U.S. to parents with U.S. citizenship. You received U.S. citizenship at birth by virtue of being born to U.S. citizens. You have lived your entire life in the country you were born, only making short trips to the U.S. to visit extended family.
  • You applied for and received a U.S. Permanent Resident Card (Green Card), but then moved out of the U.S. before applying for U.S. citizenship. You became a citizen of your new home country.
  • You were at one point a U.S. citizen, but moved out of the U.S. and became a citizen of another country. You thought or were told that by gaining citizenship in your new country you automatically forfeited your U.S. citizenship.

If you fall into any of these scenarios and haven't already filed U.S. taxes, you are considered a U.S. taxpayer, because the U.S. has a very complex tax system that is based on citizenship, not location. With a citizenship criterion that is different than many other countries, this can create a difficult situation for U.S. citizens living abroad-especially individuals who may not have realized they were U.S. citizens and had any filing/reporting requirements to the U.S. Government.

As an Accidental American, you need to catch up on your taxes. Keep in mind that U.S. Taxpayers are required to report their worldwide income regardless of where it was earned, not just the income that can be explicitly traced to a U.S. source.

The good news is that you may be able to take advantage of the Foreign Tax Credit and Foreign Earned Income Exclusion, thereby reducing or completely eliminating their tax due.

How can an Accidental American owe the IRS?

In the past, the IRS hasn't actively pursued the delinquent taxes of those Americans living abroad, so Accidental Americans were never alerted to their surprising citizenship status. Everything changed in 2010 when the U.S. launched a major initiative to uncover tax cheats hiding money and assets abroad.

The most well known part of this initiative is FATCA, the Foreign Account Tax Compliance Act. FATCA requires taxpayers to report specified foreign assets if they exceed certain thresholds (which vary based on filing status and residency). In addition, foreign financial institutions are now required to report on the assets of their American clients. With this renewed focus by the IRS, many expats have been compelled to come forward to declare their U.S. status and get caught up with their tax filings. Foreign governments and banks have agreed to assist the U.S. government by coming down hard on all their accountholders, going so far as to withhold 30% of banking and investment balances and turning over information and details of accounts to the IRS. The urgency brought on by recent government actions worries many expats, who now wish to get back into compliance while they still control their own situation.

How can you catch up with several years of past-due tax filings and what information will you need?

The IRS developed a program specifically to assist people in these situations. Assuming you were non-willful in your failure to file, you may qualify for the Streamlined Filing Compliance Procedures. This program requires you to send in a package of tax returns for the last three past-due tax years. If there is any tax due after taking advantage of all available deductions, exclusions and credits, you will have to pay the tax due along with some interest on that tax. When you submit you package of returns, you will also submit a signed certification of non-willfulness, stating you were not intentionally avoiding your filing obligation.

In some cases, you may be required to report certain details of your financial accounts. If the maximum value of all your foreign financial accounts during a calendar year exceeds $10,000, then you must submit FinCEN Form 114 for that year, also known as an FBAR report. This would include details for securities, brokerage, savings, demand, deposit, time deposit, and life insurance accounts with a cash surrender value component. FBAR reports for the prior six years need to be submitted in your Streamlined Filing package along with your tax returns and non-willful certification.

In addition to tax and interest due, there is a penalty due equal to 5% of the highest aggregate balance achieved during the last six years. But to encourage more Accidental Americans to come forward and get caught back up, the IRS has granted special treatment to taxpayers living overseas. Specifically, for those who were physically outside the U.S. for at least 330 full days during any of the last three tax years, the 5% penalty is completely waived and only tax plus interest is due with the Streamlined package.

Have more questions?

Our expert accountants are here to help! Simply contact us today and we will be in touch within one business day.

About the Author

The Greenback team specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and EAs who have extensive experience in the field of expat tax preparation. For more information about Greenback Expat Tax Services, FATCA, FBARs, or other issues related to US expat taxes, don't be shy! Contact the Greenback Team right away to get started.

First Published: Nov 10, 2015

GeoBlue International Health InsuranceExpatriate Health Insurance

Get a quote for expat health insurance from our partner, GeoBlue.
Get a Quote

Get a quote for expat health insurance from our partner, GeoBlue.
Get a Quote Call  

Latin-AmericaExpats Talk About The Biggest Challenges They Face Living in Latin America

Expats talk about some of the biggest challenges they've faced living in Latin America. Whether you're moving to Panama City or Punta del Este, this article is a must read to help you prepare (hint: you'll be much happier if you learn the language) and adjust your expectations (realities: the roads are rough, the pace of life is slower and bureaucracy is unavoidable). Despite all of the challenges, the list of what expats like about life in Latin America far exceeds the challenges.

Expats talk about some of the biggest challenges they've faced living in Latin America. Whether you're moving to Panama City or Punta del Este, this article is a must read to help you prepare (hint:...

Moving-OverseasYou're Not Too Old To Live Abroad

Who doesn't want to get out there and see the world? So many of us put off the prospect of moving overseas until later in life, and that shouldn't keep you from considering retiring abroad.

Who doesn't want to get out there and see the world? So many of us put off the prospect of moving overseas until later in life, and that shouldn't keep you from considering retiring abroad....

Living-OverseasThe 9 Best Islands for Expats and Global Nomads

Does life have you dreaming of moving to an island and living a simpler life? Explore island life from the Caribbean to the Pacific.

Does life have you dreaming of moving to an island and living a simpler life? Explore island life from the Caribbean to the Pacific. ...

Living-Overseas7 Best Places to Live on the Beach in Central America

Want to live on the beach without breaking the bank? Central America is home to dozens of beach towns and cities beloved by expats and global nomads. From Belize down to Panama, we explore 7 of the best places to live on the beach in Central America.

Want to live on the beach without breaking the bank? Central America is home to dozens of beach towns and cities beloved by expats and global nomads. From Belize down to Panama, we explore 7 of the ...

Global-NomadCountries Introduce Global Nomad Visas During Pandemic

Many people are escaping their routines and temporarily moving overseas during the pandemic. These countries are welcoming them with open arms by making it easy for visitors to stay and work remotely for months or even a year. The most recent addition to the list is Croatia - they've just launched online applications for their digital nomad visa.

Many people are escaping their routines and temporarily moving overseas during the pandemic. These countries are welcoming them with open arms by making it easy for visitors to stay and work remotely...

Living-Abroad10 Best Countries for Expats

Expats around the world shared their opinions of what it's like to live overseas in our Best Places to Live 2020 Survey. Here are the 10 countries that came out on top. It's a must-read for anyone thinking about moving overseas or becoming a global nomad.

Expats around the world shared their opinions of what it's like to live overseas in our Best Places to Live 2020 Survey. Here are the 10 countries that came out on top. It's a must-read for anyone t...

Culture-Shock-in-CozumelAn Expat Talks about Culture Shock & Living in Cozumel, Mexico

An expat in Cozumel appreciates that good friendships feel like family, the community sticks together and the family-oriented culture.

An expat in Cozumel appreciates that good friendships feel like family, the community sticks together and the family-oriented culture....

Living-in-BangaloreAn Expat Discusses Living in Bangalore, India

An expat living in Bangalore for the second time talks about what it's like living there, international schools, Indian weddings, Bangalore's friendly people and more.

An expat living in Bangalore for the second time talks about what it's like living there, international schools, Indian weddings, Bangalore's friendly people and more. ...

International-Health-Insurance-GlossaryInternational Health Insurance Glossary

Here's a glossary filled with terms related to international health insurance. Covers general terms as well as those that may help you understand what to look for in a policy.

Here's a glossary filled with terms related to international health insurance. Covers general terms as well as those that may help you understand what to look for in a policy....

How-to-Buy-International-Health-InsuranceHow to Buy International Health Insurance

Learn about International Health Insurance and get started on the process of purchasing a policy that is right for you and your loved ones.

Learn about International Health Insurance and get started on the process of purchasing a policy that is right for you and your loved ones....

International-Health-Insurance-FAQInternational Health Insurance FAQ

Here are some frequently asked questions that expats have related to international health insurance. Information related to insurance options, costs, coverages and more.

Here are some frequently asked questions that expats have related to international health insurance. Information related to insurance options, costs, coverages and more....

10-Tips-For-Buying-International-Health-Insurance10 Tips For Buying International Health Insurance

Ensuring you have International Health Insurance is one of the most important aspects of life abroad. These tips will get you on your way to finding the best policy for you and your loved ones.

Ensuring you have International Health Insurance is one of the most important aspects of life abroad. These tips will get you on your way to finding the best policy for you and your loved ones....

Living-in-Mexico-Guide-2021Living in Mexico Guide 2021

Our Living in Mexico Guide is an introduction to everything about the basics for moving to Mexico: best places to live, cost of living, pros and cons, healthcare and insurance, and more.

Our Living in Mexico Guide is an introduction to everything about the basics for moving to Mexico: best places to live, cost of living, pros and cons, healthcare and insurance, and more....

Cost-of-Living-in-MexicoCost of Living in Mexico

The cost of living in Mexico is one of the first topics considered by expats exploring the idea of moving there. Here's an idea of what your expenses will be if you choose to one of the expat hotspots in Mexico.

The cost of living in Mexico is one of the first topics considered by expats exploring the idea of moving there. Here's an idea of what your expenses will be if you choose to one of the expat hotspot...

Copyright 1997-2021 Burlingame Interactive, Inc.

Privacy Policy Legal