Renouncing U.S. Citizenship or Giving Up a Green Card? Understanding the U.S. Exit Tax
Regardless of the motivation, whether it be political, familial, or financial, renouncing US citizenship can be a lengthy and complex process depending on your tax and financial situation.
Whether you’re an “Accidental American” who wants relief from annual filing requirements, or a green card holder planning to leave the US, it pays to be prepared, and we aim to equip you with the knowledge and tools you’ll need to successfully navigate that process, should you choose to undertake it.
What is the “Exit Tax” and who needs to pay it?
The exit tax, also known as the expatriation tax, is a one-time tax levied on individuals who renounce their US citizenship or long-term residence (green card). In this section, we’ll explain everything you need to know about:
Determining if you need to pay the tax (are you a “covered expatriate”)
Calculating how much exit tax you owe, if you are a covered expatriate
Strategies, tips, and tricks for planning ahead to reduce your exit tax if you plan to expatriate in the future.
Determining if you are a “Covered Expatriate”
A covered expatriate is the term applied to any individual who renounces their US citizenship or permanent residence, and passes any of the three following tests:
The Net Worth Test
If your total net worth (combined value of all your assets) reaches or exceeds US$2 million on the date of your expatriation.
Note: If your net worth conspicuously dropped below US$2 million shortly before your expatriation date, you may be subject to additional scrutiny and asked to provide additional explanation, documentation, and financial records to the IRS.
The Average Tax Liability Test
If your annual net income tax for the previous 5 years ending before the date of expatriation is more than a specified amount (US$206,000 in 2025 or US$211,000 in 2026).
Note that this amount is per tax return and not per person, meaning that joint filers may be subject to covered expatriate status even if they are not the primary earner in the household.
Also note that this amount is calculated based on the actual amount of tax paid after all deductions, exclusions, and credits for the previous 5 years.
The Compliance/Certification test
If you fail to certify that you have been fully compliant with US Tax code and filing requirements for the past 5 years by filing IRS Form 8854 (Initial and Annual Expatriation Statement)
Important: Even if you do not meet the criteria for passing the net worth or tax liability tests, failure to submit Form 8854 will automatically designate you as a covered expatriate! A US$10,000 penalty may also be imposed for failure to file this form.
Differences for Green Card Holders
Green card holders will only be subject to the normal covered expatriate tests if they have held a green card for 8 of the last 15 years.
If you have been a green card holder for 7 years or less, you will still have final-year filing obligations, but most likely will not be subject to any exit tax, or treated as long-term residents for exit tax purposes.
Other Covered Expatriate Exceptions
To qualify for these exceptions, you will need to prepare and submit supporting documentation (and still file Form 8854).
Dual citizens by birth.
Any individual born as a citizen of both the US and another country is exempt from this status, as long as:
They are still citizens and tax residents of the other nation
They have not lived in the US for more than 10 out of the last 15 years.
Minors (Under 18)
Minors who have also not been a US tax resident for more than 10 years are generally not classified as covered expatriates.
Importantly, these exceptions protect only against the net worth and tax liability tests; they do not excuse failure to meet the five-year tax compliance certification requirement.
Determining the actual date of expatriation
The actual date of expatriation will be a significant factor in calculating your total exit tax liability. The IRS defines your expatriation date as the earliest of four possible dates:
The date of the act of renunciation before a US diplomatic or consular officer
The date of submission of a signed statement of voluntary relinquishment
The date the US Department of State issues a certificate of loss of nationality
The date a certificate of naturalization is canceled by a US court.
Typically, only high-net-worth taxpayers, or those who fail to submit Form 8854, will be impacted by the exit tax.
In cases of renunciation or voluntary relinquishment of citizenship, the statute also requires formal verification through a certificate of loss of nationality – indicating that the Department of State or Department of Homeland Security has been notified of the act – in addition to filing Form 8854, before the renunciation or relinquishment is considered fully in effect for tax calculation purposes.
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