The term “accidental American” is often used to refer to individuals who have U.S. citizenship because they were born in the United States, but who have spent little or no time in the United States and may not consider themselves American. The United States follows the principle of jus soli (place of birth) as stated in the 14th Amendment to the U.S. Constitution. This means that almost everyone born in the U.S. is automatically granted U.S. citizenship at birth, regardless of their parents’ nationality or immigration status.
For example, if a child is born in the U.S. to parents who are citizens of another country (such as Japan) and the family returns to that country (Japan) shortly after the child’s birth, the child is a U.S. citizen due to the birthright citizenship rule (Latin jus soli, English birthright citizenship). Such a child may grow up with little or no connection to the U.S. but will still be an American with U.S. citizenship and a Japanese with Japanese citizenship, making him or her a dual national. Such a person is called an “Accidental American”.
The term is often used in the context of discussions about U.S. taxation. The U.S. is one of the few countries that taxes its citizens on their worldwide income, regardless of where they live. Thus, “accidental Americans” can find themselves subject to U.S. tax obligations even though they live in another country and may not have significant connections to the U.S. This has been a point of controversy and debate, particularly for those who find themselves unexpectedly subject to complex U.S. tax laws.
When does one become an Accidental American?
Let’s imagine a couple who are citizens of Japan. They are temporarily living in the United States because one of them has a short-term work assignment. During their time in the U.S., they have a baby. According to the principle of birthright citizenship (jus soli), their child automatically becomes a U.S. citizen because they were born on U.S. soil.
The family then returns to Japan when the work assignment is over, and the child is raised in Japan, speaks Japanese as a first language, and culturally identifies as Japanese. This child might not even be aware of their U.S. citizenship if the parents do not register it or obtain a U.S. passport for the child. They might only discover their “Accidental American” status later in life, for example, when opening a bank account (as banks are obliged to ask about U.S. citizenship due to the Foreign Account Tax Compliance Act, or FATCA), applying for a visa, or when filing taxes.
At that point, they may find that they have U.S. tax obligations, even though they have lived their entire life in Japan and may never have worked or earned income in the U.S. These obligations are due to U.S. law that taxes its citizens on worldwide income, regardless of where they live or earn their income.
What if you find out you are an Accidental American?
If you discover you are an “Accidental American,” there are several steps you might consider:
- Consult with a tax professional:
This should be your first step. You’ll want to get professional advice regarding your obligations to the U.S. Internal Revenue Service (IRS).
- Understand your tax obligations:
U.S. citizens, regardless of where they live, are generally required to file U.S. tax returns and pay any taxes due. This is the case even if you also must pay taxes in your country of residence. However, there are several exclusions and credits available that might reduce or eliminate your U.S. tax liability. These include the Foreign Earned Income Exclusion and the Foreign Tax Credit. Again, you should consult with a tax professional to understand these provisions and how they apply to you.
- FATCA and FBAR Reporting:
The Foreign Account Tax Compliance Act (FATCA) and the Report of Foreign Bank and Financial Accounts (FBAR) require U.S. taxpayers to report certain foreign financial accounts and offshore assets. You’ll want to understand your reporting obligations under these regulations.
- Social Security and Medicare:
If you’ve been working and paying taxes in a foreign country like Japan, you might not have been paying into the U.S. Social Security and Medicare systems. This could affect your eligibility for these benefits later in life.
- Renouncing U.S. Citizenship:
Some Accidental Americans choose to renounce their U.S. citizenship to avoid the tax implications. However, this is a serious decision with potentially significant consequences. There can be costs associated with renunciation, including a significant fee and possible “exit tax.” Also, renouncing your citizenship may affect your ability to travel to or live in the U.S. in the future. It’s very important to consult with a legal professional before taking this step.
Remember, every individual’s situation is unique. What’s appropriate for one person may not be for another. It’s very important to consult with a tax professional to understand your specific circumstances and obligations.
References:
Renunciation of U.S. Nationality Abroad: https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/Renunciation-US-Nationality-Abroad.html
Expatriation Tax: https://www.irs.gov/individuals/international-taxpayers/expatriation-tax
Foreign Account Tax Compliance Act (FATCA): https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca
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CDH provides tax return preparation and tax consulting services for Cross-Border individuals living in the United States or foreign countries and strives every day to solve and explain various problems and questions of these people. Issues these people face are complex and wide-ranging, including the tax laws of your country and the United States, immigration law, life insurance, and retirement rules. This article makes complex tax laws and regulations easy to understand. Therefore, there are many exceptions. There is also a risk that the rules have already changed by the time you’ve read them. Please contact us from the following website for the latest practices. Also, consult with tax and legal affairs experts before you take action.
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