If I Renounce My US Citizenship, Do I Still Have to Pay Taxes?

If you renounce your U.S. citizenship, you still have to pay taxes in two ways: a possible one-time “exit tax” when you leave the system, and ongoing U.S. income tax on anything you earn from U.S. sources for the rest of your life. Renunciation ends your worldwide tax exposure going forward, but it does not wipe the slate clean on the way out, and it does not sever the IRS’s claim on income tied to the United States.

The Exit Tax on the Way Out

The IRS treats renunciation as a taxable event for anyone who qualifies as a “covered expatriate.” If you fall into that category, the government acts as though you sold everything you own the day before your expatriation date and taxes the unrealized gain. This is called mark-to-market treatment.¹

For someone expatriating in 2026, the first $910,000 of combined gain is excluded. Anything above that gets taxed at the applicable capital gains rate.² You haven’t actually sold anything, so no cash comes in, but the tax bill is real. A long-held home, an appreciated portfolio, and a few investment accounts can add up fast.

Retirement accounts get special treatment. Traditional IRAs and 529 education savings plans are treated as fully distributed the day before expatriation, so the entire balance becomes taxable in your final year as a citizen. That deemed distribution can push you into a much higher bracket. Eligible deferred compensation plans like certain employer pensions work differently: the plan administrator withholds 30% of each distribution to a covered expatriate when it’s actually paid out.¹

Who Counts as a Covered Expatriate

You are a covered expatriate if you trip any one of three tests:

Your worldwide net worth is $2 million or more on your expatriation date, counting real estate, investments, retirement accounts, and everything else, minus debts. Your spouse’s assets are not included.¹
Your average annual net federal income tax over the past five years exceeds $211,000 for someone renouncing in 2026. That’s actual tax paid, not income.²
You cannot certify on Form 8854 that you’ve met every federal tax obligation for the five years before expatriation. Fail this one and you’re a covered expatriate automatically, even if your net worth and income are modest.¹

If you were born with dual citizenship, kept the other citizenship, are taxed as a resident of that country, and have not been a U.S. resident for more than 10 of the last 15 years, you may be exempt from the net worth and tax liability tests. The certification test still applies.³

Getting Compliant Before You Renounce

You have to certify under penalty of perjury that you’ve complied with all federal tax obligations for the five tax years before your expatriation date. That includes income tax returns, employment tax returns, gift tax returns, information returns, and foreign account reports like the FBAR. All taxes, penalties, and interest from those years must be paid in full.⁴

Skipping or failing this certification is what triggers the automatic covered-expatriate status mentioned above. So if you’ve fallen behind, fix it before you renounce, not after.

Americans who have lived abroad and didn’t know they had to file can often use the Streamlined Foreign Offshore Procedures. The failure to file must have been non-willful, and you need to have been physically outside the United States at least 330 full days in one of the three most recent tax years. The program covers three years of back returns and six years of delinquent FBARs without the standard late-filing penalties.⁵ Clearing the backlog this way before you expatriate keeps you out of covered-expatriate status on the certification test.

U.S. Taxes You Still Owe After Renouncing

Once you’re no longer a citizen, the United States taxes you only on U.S.-source income, the same way it taxes any other foreign national. That sounds like a clean break, but the categories cover more than people expect: U.S. rental property, dividends from U.S. stocks, work performed inside the country, and other income tied to a U.S. source all remain taxable.⁶

U.S.-source income paid to a nonresident alien is generally subject to a flat 30% withholding tax. A tax treaty between the U.S. and your country of residence may reduce that rate. If you have ongoing U.S.-source income, you file Form 1040-NR each year.

Keep an Eye on Your Days in the U.S.

After renouncing, you enter the country as a foreign national. Spend too many days here and the IRS can reclassify you as a tax resident under the substantial presence test. The formula adds all days present in the current year, one-third of days from the prior year, and one-sixth of days from two years back. If the total hits 183, you’re treated as a U.S. resident and owe tax on your worldwide income again.⁷ A closer connection exception exists if you spend fewer than 183 actual days in the U.S. during the year and maintain a tax home abroad, but limiting your visits is more reliable than relying on exceptions.

A Much Smaller Estate Tax Exemption

If you die owning U.S.-situated property after renouncing, your estate faces federal estate tax under the nonresident alien rules. The filing threshold is just $60,000 in U.S.-situated assets, with no inflation adjustment.⁸ U.S.-situated assets include American real estate, shares of U.S. companies, and tangible property located in the country. A tax treaty with your country of residence may raise the effective exemption, but the baseline is drastically lower than what citizens receive, and it catches people off guard.

Gifts and Bequests to Your U.S. Heirs

If you leave as a covered expatriate, any gifts or bequests you later make to U.S. citizens or residents are subject to a special tax under IRC 2801. The recipient pays it, not you, at the top federal estate tax rate, currently 40%.⁹ The tax applies only to the extent that covered gifts and bequests received during a calendar year exceed the annual gift tax exclusion, which is $19,000 for 2026.¹⁰ If foreign gift or estate tax has already been paid on the transfer, the IRC 2801 liability is reduced by that amount. Decades after you expatriate, your covered status still affects the people you leave money to.

Social Security

Renouncing doesn’t erase the Social Security credits you earned, but collecting benefits abroad as a noncitizen gets complicated. The Social Security Administration generally stops payments after you’ve been outside the United States for six consecutive calendar months. To restart them, you’d need to return and remain physically present in the U.S. for at least 30 consecutive days before the end of that sixth month.¹¹

The six-month suspension generally does not apply if you live in a country that has a totalization agreement with the United States. About 30 countries do, including Canada, the United Kingdom, Germany, Japan, Australia, and most of Western Europe.¹² If you settle elsewhere, plan around the payment restrictions or accept the loss.

The Paperwork

Form 8854, the Initial and Annual Expatriation Statement, is the central document. You attach it to your income tax return for the year that includes your expatriation date. It requires a detailed balance sheet of your worldwide assets and a summary of income and tax liability for the five-year look-back period, and it is how the IRS determines whether you are a covered expatriate and calculates any exit tax owed.⁴

For the year you renounce, you file a dual-status return: Form 1040 for the part of the year you were still a citizen, and Form 1040-NR for the part after. If you aren’t otherwise required to file an income tax return, you still have to send Form 8854 to the IRS by the date a return would have been due.⁴ In later years, ongoing U.S.-source income means an annual Form 1040-NR, and U.S. heirs who receive covered gifts or bequests from you report them on Form 708.

1
Internal Revenue Service. Expatriation Tax
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Internal Revenue Service. Revenue Procedure 2025-32
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Office of the Law Revision Counsel. 26 U.S. Code 877A – Tax Responsibilities of Expatriation
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Internal Revenue Service. Instructions for Form 8854 (2025)
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Internal Revenue Service. U.S. Taxpayers Residing Outside the United States
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Internal Revenue Service. Nonresident Aliens – Sourcing of Income
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Internal Revenue Service. Substantial Presence Test
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Internal Revenue Service. Estate Tax for Nonresidents Not Citizens of the United States
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Office of the Law Revision Counsel. 26 USC 2801 – Imposition of Tax
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Internal Revenue Service. Frequently Asked Questions on Gift Taxes
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Social Security Administration. Social Security Payments Outside the United States
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Social Security Administration. Country List 3