Born in the US But Never Lived There – Do You Have to File US Taxes?
There are several routes to American citizenship, but the main one is that if you’re born in the US then you automatically become an American citizen.
Some people are born in the US to foreign parents who may be there temporarily though, perhaps studying, on a temporary work assignment, or just on holiday. These families often return to their ‘home’ country without applying for a US passport for their child who was born in the US.
US law however recognizes children born in the US as US citizens regardless of whether they ever subsequently live there or apply for a US passport or Green Card.
US law also requires all US citizens to file US taxes, reporting their global income, whether they live in the US or abroad.
US tax filing rules for American citizens living abroad
American Citizens living abroad receive an automatic two-month filing extension until June 15th. This is to give them time to file foreign taxes first if they have to. If they still require more time, they can request a further extension until October 15th.
When they file, they can claim IRS exclusions or credits such as the Foreign Earned Income Exclusion or the Foreign Tax Credit that reduce most people’s US tax bill to zero. No one should ever end up paying the higher out of either the US income tax or and the income tax rate of their foreign country of residence overall, though.
Americans living abroad also often have to report their foreign bank and investment accounts, their business interests, and sometimes their assets.
“The U.S. Constitution directs that all persons born in the United States are U.S. citizens. This is the case regardless of the tax or immigration status of a person’s parents.” – the IRS
Options for people born in the US but never lived there
In 2010, the US government passed the Foreign Account Tax Compliance Act (FATCA), which requires all foreign banks and other financial (such as investment) firms to report their American account holders’ names, addresses, and balances to the IRS. Those firms that don’t do this face a tax when they trade in US markets. Nearly all foreign financial firms are now complying, in order to avoid the tax.
This means that the IRS now knows who should be filing, and where they live, globally.
Foreign banks are also required to confirm that their US citizen clients are compliant with their US tax filing, and firms can face fines for offering services to Americans who aren’t compliant. This can leave people who were born in the US but never lived there in a difficult situation.
So what options do these folks have? Some consider formally renouncing their US citizenship, however renouncing is an expensive process and requires Americans to be up to date with their tax filing anyway.
Others choose to remain non-compliant, however this can lead to issues with banking services.
The final option is to become compliant under an IRS amnesty program such as the Streamlined Procedure. The majority of people who use this program don’t end up owing any US tax, so the only cost is the cost of filing.
In fact, many people, such as parents, can end up receiving money from the US government in the longer term, in the form of refundable tax credits.
Each person’s circumstances are unique, and the most sensible option for people who were born in the US but never lived there to avoid possible issues is to seek specialist advice from a US expat tax expert.