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It is known, that the USA not only taxes their residents, but their citizens as well. But what happens if someone is a US citizen at birth, who never lived in the USA? Do they also need to pay taxes? I think if they never want to have anything to do with the USA, then it won't really be a problem from them, but there might be cases when you want to use your US citizenship, and have to deal with the USA.

For example consider the following scenarios:

  1. Never lived in the USA, and doesn't intend to, but might visit the USA for travel (and intends to use the US citizenship to enter the country)
  2. Never lived in the USA, has already worked in another country, but intends to move to the USA.
  3. Never lived in the USA, but wants a US passport, to make it easier to get visas for other countries. Doesn't really intend to go to the USA.

What happens in these cases? Do you have to retroactively pay the taxes on your income? Or do you only need to start doing it once you "formalized" your US citizenship (be getting your passport / entering the country, etc.)

Edit: Since it seems you need to do your US taxes as well, I'm mainly interested in the answers the various sanctions you might get if you don't do them. This might be quite common, as someone who never lived in the US will probably not know his obligations to a state he never lived in.

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  • If one is to go by Publication 54 you still need to file and/or pay taxes to the IRS.
    – Karlson
    Commented Jul 22, 2014 at 12:46
  • Isn't there a rule that you need to establish residence in US at least for some time before you turn 25 in order to maintain the citizenship?
    – vartec
    Commented Jul 22, 2014 at 12:59
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    @vartec: you can still have income in other countries before your 25th birthday
    – SztupY ♦
    Commented Jul 22, 2014 at 13:08
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    @vartec: Retention requirements only affected people born between May 24, 1934 and October 10, 1952, and only for people with only one U.S.-citizen parent.
    – user102008
    Commented Jul 22, 2014 at 18:14
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    @User58220: I am not sure what the OP meant by "formalizing". But perhaps they meant getting proof of citizenship, like a Consular Report of Birth Abroad (CRBA), or a U.S. passport.
    – user102008
    Commented Jul 23, 2014 at 0:12

3 Answers 3

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The US taxes all its citizens. Where you live is of no consequence for that fact.

You may be eligible for tax treaty benefits, or foreign earned income exclusion, but you're still liable to the US for your taxes and must submit a tax return if you qualify for any benefits or exclusions and want to claim them. Otherwise you're taxed the same (or significantly more) as a US citizen living in the US.

The answer is the same for all your scenarios, as long as you're a US citizen (even if you have never had an actual passport, you're still citizen by birth) - you're liable for taxes, FBARs, FATCAs, PFICS and whatever else punishments the US government imposes on its citizens who dare to live outside of its boundaries.

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  • 5
    @ScottEarle it doesn't matter how wealthy they are. Irrelevant piece of information. People born on the US soil are generally US citizens by birth (except for very specific cases like children of diplomats). As I said - US taxes all its citizens. Even the extremely wealthy ones. There's no such thing as "claiming US citizenship". You either are a citizen or are not. Nothing to claim. If you are not - you can naturalize into one, you cannot claim being one.
    – littleadv
    Commented Jul 23, 2014 at 4:25
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    I only added the 'extremely wealthy' bit because the IRS is more likely to chase someone with huge amounts of cash than someone with very little. The bit about diplomats is also interesting, as I had thought that anyone born on US soil could claim citizenship. No trolling - it's a genuine question to which I did not know the answer. I guess I have read so many threads about "I believe that I qualify for US citizenship, how do I claim it?" that I had not thought of it the other way round.
    – Scott Earle ♦
    Commented Jul 23, 2014 at 4:31
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    @Scott the only country in the world. They don't need to. Average American never leaves his State, let alone country. They just can't comprehend that there's a whole big world outside of their borders. Take it from me, I live in California.
    – littleadv
    Commented Jul 23, 2014 at 5:55
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    This has not gone unnoticed. I have experience of Americans in Paris, complaining that people in small shops don't speak much English. Or accept USD. :)
    – Scott Earle ♦
    Commented Jul 23, 2014 at 6:29
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    @user102008 I had a discussion about that before on this forum. Eritrea is not in the same category. They have a special expat tax, not a regular income tax which is charged regardless of residency. Also, Eritrean tax has been declared, ironically, as illegal - by the US. Besides, it speaks volumes about the US that the only other country they can compare themselves to is one of the most undeveloped in the Third world. I'd be ashamed had I been an American.
    – littleadv
    Commented Jul 23, 2014 at 23:03
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Generally, the previous answer is accurate. However, the US tax system is dependent on you reporting your income to them by filing tax returns. Part of that process would be calculating how much you owe and making that payment. However, if you do not file tax returns then the US government would not know what you owe to them. The US government would not have any idea how much money you have or how much you owe - so they would likely leave you alone. The only issue may come if, at some point in the future, you want to move to the USA as a citizen. In that case, you may be asked to provide historical tax returns and pay back taxes.

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The US Internal Revenue Service has a web page about filing tax returns late. An important point is there is no penalty if there was no tax due.

If the tax treaties and/or credits for foreign taxes paid result in no US tax being due, filing the return late shouldn't result in a penalty.

Also notice the penalties won't apply if their was a good reason for not filing. Being unaware that one was a US citizen might qualify as a good reason.

I don't have experience with living long term in another country, so I don't know if there could be penalties associated with failing to report foreign bank accounts, foreign stocks, etc.

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