Dual Citizenship: U.S. Taxation for Dual Nationals
- Del Sol CPA
- 2 days ago
- 4 min read
Do I need to pay U.S. taxes if I’m a dual US citizen?
The simplest answer to this question is:
You (almost) certainly need to file your taxes, even if you are living outside of the US. (See our previous articles for a full breakdown of who must file: "How do I file U.S. income tax as an expat in Taiwan? Form 1040 Guide'')
Whether or not you will owe tax in a given tax year depends entirely on your financial situation.
As a dual citizen, you are required to file IRS Form 1040 each year and report all worldwide income, even when another country taxes the income. However, your tax burden may be subject to mitigations such as:
You will likely also be subject to additional reporting requirements if you have assets and financial accounts overseas, such as FBAR and FATCA – each of these with distinct reporting thresholds and filing procedures. Many taxpayers mistakenly think FBAR and FATCA are interchangeable, or that they replace other tax filing requirements. If you need a refresher on the basics of tax filing for expats, refer to our previous guides on the topic "Understanding FBAR Filing Requirements as an Expat: What is an FBAR?"
The bottom line: Virtually all US Citizens (and tax residents) are required to file and pay US taxes if owed – but most citizens abroad can usually mitigate the effects of double taxation with careful planning. Relief is neither automatic nor is it guaranteed; It pays to plan ahead.
We’ve written extensively in the past about determining US Tax residency status and tax filing procedures for expats, but to summarize:
If you are a US citizen (dual citizen or not), a green card holder, or permanent resident of the US, you are a tax resident.
If you meet the criteria of the substantial presence test, or the green card test, you are a US Tax resident.
What is Dual-Status Taxation? U.S. taxation for dual nationals
Dual-status tax is a concept that applies to taxpayers who qualify as both resident and nonresident US taxpayers in the same tax year. Although dual-status taxation is an altogether distinct concept from dual nationality, dual nationals may be more likely to encounter dual-status tax situations and there is often significant overlap between the tax rules and procedures for people in these two groups.
How Can I Tell if I am a Dual-Status Taxpayer?
This is where things can get tricky. If your residency status changes in the middle of a tax year, you are classified as a dual-status individual – a unique situation that requires specialized tax filing procedures and additional complexity. Dual-status years are commonly the years in which you arrive or depart from the US as a physical resident.
According to IRS guidance for dual-status individuals, you qualify as a dual-status individual if you:
Received or surrendered a green card in a given calendar year
Met the criteria of the substantial presence test for only part of a calendar year.
Remember that dual nationals are always tax residents and will (almost) never be considered a dual-status taxpayer because citizenship confers tax residency for the entire calendar year and overrides both the substantial presence test and the green card test.
The only exceptions to this principle are:
The year of naturalization (when you became a US citizen)
The year of expatriation (when you renounce US citizenship)
The year you gain or relinquish permanent resident status (applies to green card holders only)
If you find yourself transitioning to or from the US as a tax resident, there are also special rules and exceptions that can affect how your duals-status taxes are reported and calculated:
First-year choice
Any nonresident who will become a US resident under the substantial presence in the next tax year may choose to be treated as a dual status resident this year under the first-year choice rules.
Expatriation
If you are giving up your citizenship or permanent residence, the year in which you renounce will be treated as a dual-status year, and you will be required to submit IRS Form 8854 to certify that you have been in compliance with US Tax Code for the past 5 years. We will cover this more in depth below.
The Closer Connection Exception
In some cases, even if you meet the criteria of the substantial presence test, you can be treated as a tax nonresident if you meet specific criteria:
You were present in the US less than 183 days in the given year
Had a “closer connection” during the year to one (or two, but not more than two) foreign countries in which you have a “tax home”
You maintained a “tax home” in that foreign country for the entire year
You took no steps toward or had no pending application for a US green card during the yearClaiming the closer connection exception requires submission of IRS Form 8840. There is also a special variation of the exception for students and individuals who have connections to two foreign countries – complete information can be found on the IRS Website’s Closer Connection page. The rules for this exception are specific and nuanced, and we strongly recommend those who may qualify to seek professional guidance from a certified tax professional.
Claiming the closer connection exception requires submission of IRS Form 8840. There is also a special variation of the exception for students and individuals who have connections to two foreign countries – complete information can be found on the IRS Website’s Closer Connection page.
The rules for this exception are specific and nuanced, and we strongly recommend those who may qualify to seek professional guidance from a certified tax professional.
📚 Article Series: Dual Citizenship & U.S. Taxes
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