# Dual citizenship - never paid US taxes



## GermanHello

Hello dear community members!

I have a few questions concerning US Taxes an maybe someone can give me a litte help, i would really appriciate any advice!

Since my dad is American and my mother is German I have dual citizenship.
I have found out that I basically also have to file taxes in the USA, even though I do not live there.
I was not aware of this, so I did not ever file my taxes yet.

Now I would like to get things straigt but I am having a real hard time to figure out what I have to do. It is difficult for me, since I hardly know anything about taxes (I am 23 and was still going to school until recently so I never filed taxes before) and my english ist not perfect.

After I was 18 I spent a half year in the US and worked for a couple months (I earned about 3000 - 4000 $), but I also never filed taxes for this because I was stupid. Could this be a problem?

Is there any guideline for people in my situation or where can I find out which forms I must fill out?

Thank you very much for any help!


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## BBCWatcher

GermanHello said:


> I have found out that I basically also have to file taxes in the USA, even though I do not live there.


Maybe. If you meet the filing threshold -- if you are receiving more income than the minimum -- then you are obliged to file a U.S. tax return, yes. However, the penalty for failure to file a U.S. tax return is zero if you genuinely owe zero U.S. tax. It's very likely you owe zero U.S. tax if you're a resident of Germany.

Before we get to tax returns, more importantly, you are a young adult male U.S. citizen. All young adult male U.S. citizens and U.S. residents (legal or illegal) are required to register with U.S. Selective Service. Get that done now -- it'll take you about 5 minutes, probably. If you get that done not only will you be complying with the law but you'll also maintain eligibility for certain U.S. government benefits and employment -- it keeps some future options open, in other words.

The United States ended its military draft in 1972, but it does require young adult males to register. For comparison, Germany ended its military draft much later, in 2011.



> After I was 18 I spent a half year in the US and worked for a couple months (I earned about 3000 - 4000 $), but I also never filed taxes for this because I was stupid. Could this be a problem?


I doubt it. Let's suppose you earned US$4,000 in 2010 in the U.S. working for an employer -- maybe working as a camp counselor at a summer camp, for example. (You're age 23 now, so if you worked at age 18 that was probably in 2010. I'm picking the higher income number you provided.) Let's further suppose you had another US$5,000 in income that year from other countries. You didn't mention any other income that year, but let's suppose you had some. Guess what? You weren't _required_ to file a tax return! You only earned US$9000, and in that year (2010), unless you had some self-employment income, or (maybe) unless you were married, you weren't required to file unless you had $9,350 or more in total income.(*)

So that's the second rule (after Selective Service): "Don't panic." You're probably in much better shape than you realize.

(*) But you really should have filed an U.S. income tax return, especially that year. The U.S. government was handing out free money to most U.S. citizens through the IRS in 2009 and 2010. Remember the financial crisis? Well, to combat the effects of the financial crisis the government sent Americans free money through something called the Making Work Pay Tax Credit. That was worth $400 in free money each year from the IRS for two years. There's also something called the Earned Income Tax Credit (EITC), and you probably qualified for that free money in 2010, too. Sadly it's too late to collect all that free money, but better late than never since, going forward, that could happen again.



> Is there any guideline for people in my situation or where can I find out which forms I must fill out?


Absolutely. The best single document is probably IRS Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad. This forum is also pretty good -- there are a lot of threads discussing the various tax-related subjects. Take it slowly and carefully.

I'll pause here. Do you have any follow-up questions at this point in time?


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## Bevdeforges

The other thing about that time you worked in the US over the summer: it's very likely that the employer withheld taxes from your paycheck during that time. If you didn't owe any taxes for that year (also very likely) then you would have been entitled to get back those taxes withheld. (US taxes work rather differently from German taxes in that regard.)

As BBC says, IRS publication 54 is probably the best starting point. Chances are that, at age 23 and just out of school, you probably weren't earning enough to have to file anyhow, so actually you can just study up and start filing next year (i.e. for the 2015 tax year).

Don't get too bogged down in the details with Pub 54. It's written to try to cover "all" circumstances and most of the content won't really apply to you. The basic "everything you ever wanted to know about US taxation" guide is IRS publication 17 - but again, just dip into that one or you'll get hopelessly bogged down in the detail.

Probably the easiest thing to do early next year would be to try out one of the free online tax prep software sites and see how your forms come out. But knowing a bit of what you're trying to accomplish by reviewing pubs 54 and 17 certainly will help.
Cheers,
Bev


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## BBCWatcher

You can easily check to see if your employer withheld taxes when you worked in the United States. Go to the Social Security Administration's Web site and register for an account with your U.S. Social Security number. (You do have a U.S. Social Security number, correct?) Once you get access -- which might take a little while and some verification, but eventually you'll get access -- you can look at your U.S. earnings history as it was reported to Social Security. From your description you should see about 3 Social Security "credits" if your employer withheld taxes properly back then. (In 2010 you needed to earn $1,120 in wages to get one Social Security credit, and you can get a maximum of 4 credits per year. So if you earned at least $3,360 then you should have 3 credits for 2010.) If you can get at least 6 credits total then, combined with your German social insurance contributions, that'd be enough to qualify for a modest U.S. Social Security retirement benefit. For example, if you have 3 credits already, and if hypothetically you worked in the United States this year (2015), you'd only need to earn another US$3,660 in wages to get your 3 more credits. (Not bad! The amount to earn one credit increases slightly each year with inflation.)

U.S. Social Security retirement benefits can be started as early as age 62 and as late as age 70. The longer you wait, the higher your monthly benefit. Your spouse is also usually eligible for a spousal benefit, even if he/she -- yes, same or opposite sex spouse -- never even stepped foot in the United States.

These U.S. retirement benefits are indeed quite modest if your contributions into the U.S. system are limited, but "modest" is a lot better than zero, of course. And the Social Security Web site is a really good way to make sure a U.S. employer is properly reporting your wages.


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## Nononymous

So to summarize all that...

If you file a 2010 tax return you might receive some money if taxes were withheld by your employer in the US. 

If you do not meet the minimum threshold for worldwide income, you are not required to file, so in your case everything is probably fine unless you've been working quite a bit while going to school in Germany. 

Now, you have two options going forward:

1) Be fully compliant, file US tax returns every year on your worldwide (i.e. German) income when it exceeds the minimum, file FBARs when your bank balances exceed $10k, and so on. You probably won't owe the US any money because you can exclude foreign income and/or credit foreign taxes - it's just paperwork. 

2) If you don't think it's likely you'll be working or studying in the US, ignore the obligation. Make sure that banks and financial institutions do not know about your US citizenship (easy if you don't have a US birthplace) and you're FATCA-proof. If you decide to move to the US at some point, deal with it then.

I would ignore the Selective Service requirement unless you actually need something from the US government before you turn 26. They don't seem to mind late registration - I signed up with only a few months left when I applied for a student loan - and after 26 you're free of it.


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## BBCWatcher

No, that's not correct, Nonymous. Any refunds or refundable tax credits from 2010 are no longer possible to collect -- it's too late to get those.


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## Nononymous

Ah. Well then, nothing to be done. To the OP I'd say not give this a second thought until such time as you're thinking of a move to the US.


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## Zendo

Nononymous said:


> So to summarize all that...
> 
> 
> Make sure that banks and financial institutions do not know about your US citizenship (easy if you don't have a US birthplace) and you're FATCA-proof.


So, what if you, as a dual-citizen, are known as such to your bank and you're not FATCA-proof, but have an income below the foreign exclusion threshold, have no assets in the USA, have never filed because having never worked there and will never go to the USA either to visit or live. What then?


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## Nononymous

Zendo said:


> So, what if you, as a dual-citizen, are known as such to your bank and you're not FATCA-proof, but have an income below the foreign exclusion threshold, have no assets in the USA, have never filed because having never worked there and will never go to the USA either to visit or live. What then?


In that case your options would be:

(1) Begin filing tax returns every year, which would have $0 owing because your income would be excluded under the FEIE. If you have more than $10k in bank or financial accounts you would also begin filing FinCEN (formerly FBAR) reports every year, which would match up with anything reported by your bank under FATCA.

(2) Continue ignoring this because the US has no record of you other than a name, account number and balances sent by a foreign bank. Will they be able to track you down, impose penalties, and successfully collect them? I doubt it, but of course there are no guarantees.

(3) Find another bank that either doesn't know about your US citizenship (difficult if you were born there) or does not report under FATCA - possibly some small institution similar to a credit union? - and continue ignoring it. 

My personal approach is number 3, though in my case I've had to lie to one financial institution to stay off the FATCA radar. This may be more difficult in Switzerland, given recent history.


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## iota2014

Nononymous said:


> In that case your options would be:
> 
> (1) Begin filing tax returns every year, which would have $0 owing because your income would be excluded under the FEIE. If you have more than $10k in bank or financial accounts you would also begin filing FinCEN (formerly FBAR) reports every year, which would match up with anything reported by your bank under FATCA.
> 
> (2) Continue ignoring this because the US has no record of you other than a name, account number and balances sent by a foreign bank. Will they be able to track you down, impose penalties, and successfully collect them? I doubt it, but of course there are no guarantees.
> 
> (3) Find another bank that either doesn't know about your US citizenship (difficult if you were born there) or does not report under FATCA - possibly some small institution similar to a credit union? - and continue ignoring it.
> 
> My personal approach is number 3, though in my case I've had to lie to one financial institution to stay off the FATCA radar. This may be more difficult in Switzerland, given recent history.


Mightn't option (2) lead to a 30% withholding?


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## Nononymous

iota2014 said:


> Mightn't option (2) lead to a 30% withholding?


Withholding of what, and by whom? He has no US assets or income.


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## iota2014

Nononymous said:


> Withholding of what, and by whom? He has no US assets or income.


Withholding from a FATCA'ed account. Or have I misunderstood? I thought this was one of the possible sanctions.


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## Nononymous

No, FATCA is just reporting, I don't believe it provides any facility to seize money from non-US accounts. 

What exactly would be "withheld"? As I understand it, withholding means some part of a payment being held back - most relevant for expats would be 30 percent of some US-based pension or investment being withheld for non-residents or non-citizens or something like that (I'm sketchy on the details). If any chunk of that 30 percent was owed back to you, you'd collect after filing a tax return to claim it back.

I don't think FATCA gives the US the right to tell a Swiss or Canadian or UK bank to send them 30 percent of whatever is in someone's account. It's bad, but not that bad.


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## iota2014

I must admit, I can't fathom it. I've read through what seems to be the relevant section (as shown at https://www.law.cornell.edu/uscode/text/26/1471) several times without feeling much wiser.

The FFI can be required to withhold a 30% tax on (certain) payments to recalcitrant account holders, but only if it's a US account which, it turns out (I think), only includes accounts with a balance over the $50,000 threshold so it wouldn't apply. Unless what I've read actually means something entirely different. I give up.


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## Nononymous

Right, so if the person who asked the question has no US bank accounts or US sources of income, it's not an issue.


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## iota2014

Apparently not. Apologies, Germanhello, for the diversion.


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## Nononymous

The key word in the legal text is "to" - it refers to payments _from_ the US _to_ a foreign bank or financial institution. In this person's case, there would never be payments from the US, so nothing to be withheld.


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## iota2014

In (B)(1)(D) it says:


> to deduct and withhold a tax equal to 30 percent of—
> (i) any passthru payment which is made *by such institution* to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection...


and elsewhere (Foreign Account Tax Compliance Act (FATCA)) there's some commentary that seems to suggest the withholding could apply to all payments to a recalcitrant account, not just those traceable to U.S. sources. But that's only comment, and may not be correct, and in any case doesn't seem to apply to accounts under the $50000 threshold. So I think you are right.


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## Nononymous

It does read that way, but I can't totally see how the US would have the leverage to siphon off 30 percent of a non-US-source payment from one UK bank to another, just because the recipient is deemed to be recalcitrant. Note also that "recalcitrant" means non-cooperative, refusing to the answer the bank's question about citizenship, essentially; that's not the same thing as having a bank report you under FATCA then remaining non-compliant on taxes or otherwise ignoring any potential consequences.


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## BBCWatcher

There's another option, and it's a common one -- let's call it "Option 1A." That would be to file FinCEN Form 114 (if you meet the filing threshold) but not to file a U.S. tax return. There is a published penalty for non-filing (or late filing) FinCEN Form 114, or for filing an willfully false report. There is no penalty if you fail to file (or file late) a U.S. tax return _if you genuinely owe zero U.S. tax_. That's a significant difference.

I'd also toss in Selective Service registration for young adult male U.S. persons (U.S. citizens, U.S. nationals, and U.S. residents, legal or illegal). That takes about 5 minutes to do and eliminates potential future U.S. penalties (in terms of lost benefits and opportunities), so I think it's well worth ticking that box.

IRS Forms 3520 and 3520-A would be considered in the same category as FinCEN Form 114 if you're required to file a 3520 and/or 3520-A.


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## iota2014

Nononymous said:


> It does read that way, but I can't totally see how the US would have the leverage to siphon off 30 percent of a non-US-source payment from one UK bank to another, just because the recipient is deemed to be recalcitrant. Note also that "recalcitrant" means non-cooperative, refusing to the answer the bank's question about citizenship, essentially; that's not the same thing as having a bank report you under FATCA then remaining non-compliant on taxes or otherwise ignoring any potential consequences.


Yes, it seems the worst they can do to a no-US-assets "recalcitrant" account holder who refuses to provide requested information / waive local rights to privacy is to require that the account be closed (by the FATCA-compliant bank where it's held). 

With regard to the implementation of the "withholdable" tax, as I read it, the bank would do the withholding at the behest of the IRS (in IGA Model 2 countries) on pain of 30% withholding tax on all the bank's own US-source transactions. But you would think this would surely risk legal challenge?

Perhaps the "withholding" threat is there more to push the boundaries. And scare the banks into total obedience on the reporting measures.


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## BBCWatcher

iota2014 said:


> But you would think this would surely risk legal challenge? ....And scare the banks into total obedience on the reporting measures.


A more charitable interpretation is that FATCA is cajoling banks and governments into closer collaboration on fighting international, financially-oriented crimes in their joint mutual interest, particularly among developed economies.

There's a fair amount of circumstantial evidence that several governments, though perhaps grousing for domestic political reasons, are quite happy for the U.S. to be leading this particular charge.


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## iota2014

I partly agree, though I would put it differently: what most interests the U.S. and the developed countries you refer to, I am guessing, is automated exchange of financial information on a global scale. I agree that the other countries are happy to let the U.S. take the lead, indeed are licking their collective chops at the possibilities opened up by the prospect.

I'm afraid I don't see FATCA in a charitable light, but I do see it, or something similar, as inevitable. What _can_ be done, _will_ be done, as they say. And perhaps the U.S. tax code, together with U.S. financial dominance and U.S. CBT, was the least worst way to start. We'll just have to wait and see how it gets modified in practice, as it sure does seem to be causing a lot of incidental unwanted annoyance in its present implementation. And that's inefficient.


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## BBCWatcher

That's a common set of problems with "first movers," though I'm surprised just how smoothly FATCA has proceeded. _Pleasantly_ surprised? Like you, I'd like to reserve my judgment for now.


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## Nononymous

iota2014 said:


> Yes, it seems the worst they can do to a no-US-assets "recalcitrant" account holder who refuses to provide requested information / waive local rights to privacy is to require that the account be closed (by the FATCA-compliant bank where it's held).
> 
> With regard to the implementation of the "withholdable" tax, as I read it, the bank would do the withholding at the behest of the IRS (in IGA Model 2 countries) on pain of 30% withholding tax on all the bank's own US-source transactions. But you would think this would surely risk legal challenge?
> 
> Perhaps the "withholding" threat is there more to push the boundaries. And scare the banks into total obedience on the reporting measures.


We'll find out when we get there. 

I'm still not clear what's being withheld in the case of payments without a US source - 30 percent of all payments into an account? And what happens to it - surely not shipped off to the IRS? So that doesn't really make sense to me.

I had forgotten about the withholding threat leveled at banks for non-compliance overall. But that seems like the nuclear option so would need a pretty high degree of violation I'd hope.


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## iota2014

Nononymous said:


> I'm still not clear what's being withheld in the case of payments without a US source - 30 percent of all payments into an account?


According to that Pinsent Masons page: 

"_The IRS has indicated that the withholding amount will be based on a very broad calculation of the percentage of US assets held by the relevant compliant FFI. This calculation is known as the 'passthru payment percentage' and will be used by the FATCA compliant FFI to determine the percentage of any payment made to a non-FATCA compliant FFI *or recalcitrant account holder* that is subject to the withholding tax. This percentage will be applied to all payments made to a non-FATCA compliant FFI, whether or not they are directly or indirectly attributable to any US income._"

Foreign Account Tax Compliance Act (FATCA)



> And what happens to it - surely not shipped off to the IRS? So that doesn't really make sense to me.


It's called a tax, and it's based on (notional) US source income and is to be applied to accounts called "US accounts". I don't see how it could be going to anyone but the IRS, for Model 2 countries. In Model 1 countries it might go to the domestic tax authority, but if so it would presumably be passed on to the US.

However, it doesn't seem to have happened yet (to an account holder at least) and may never happen.



> I had forgotten about the withholding threat leveled at banks for non-compliance overall. But that seems like the nuclear option so would need a pretty high degree of violation I'd hope.


Let's hope most banks would rather close the account than act as withholding agent.


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