# Revoking U.S. citizenship- tax liability



## spuds&taters

Have dual U.K./U.S. citizenship and will revoke my U.S. citizenship beginning early next year. Was going to cash in the rest of my U.S. I.R.A. (Terrific exchange rate right now). I am retired. However, it will put me in the next tax band if I do. I know Federal Income Tax is withheld from distributions but will the lump sum still be counted as gross income, thus putting me in the next tax band? My only other income is my U.S. Social Security. My alternative is to take a lump sum that keeps me in my present tax band and then take the remainder next year. I’m only talking of moving from 12% - 22% tax band as I’m definitely not rich! Hope this question is clear!


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## Bevdeforges

spuds&taters said:


> I know Federal Income Tax is withheld from distributions but will the lump sum still be counted as gross income, thus putting me in the next tax band?


If you may your withdrawals before your date of renunciation, then yes, the entire amount will be taxed to you (as a citizen/resident) in the normal manner (i.e. the entire withdrawal is considered gross income). If you withdraw anything from your IRA on or after your date of renunciation (i.e. the date of your appointment at the embassy/consulate that finalizes the act and where you pay your $2350 to do the deed), then you will be considered a non-resident taxpayer and they will withhold 30% of the withdrawal. 

And by the way, your US Social Security will have the NR rate of 30% deducted from the monthly payment, too, starting the month after your renunciation date. Well, 30% of 85% of the gross amount. They give you a 15% allowance on your Social Security benefit. For a net deduction of 25.5% from the gross amount.


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## spuds&taters

Bevdeforges said:


> If you may your withdrawals before your date of renunciation, then yes, the entire amount will be taxed to you (as a citizen/resident) in the normal manner (i.e. the entire withdrawal is considered gross income). If you withdraw anything from your IRA on or after your date of renunciation (i.e. the date of your appointment at the embassy/consulate that finalizes the act and where you pay your $2350 to do the deed), then you will be considered a non-resident taxpayer and they will withhold 30% of the withdrawal.
> 
> And by the way, your US Social Security will have the NR rate of 30% deducted from the monthly payment, too, starting the month after your renunciation date. Well, 30% of 85% of the gross amount. They give you a 15% allowance on your Social Security benefit. For a net deduction of 25.5% from the gross amount.


Thanks so much for the info. I had absolutely no idea that I would be taxed on my Social Security. I think it’s pretty outrageous since I paid into the system for 30yrs but that’s the way it goes with the insane U.S. taxation system, never mind FATCA, FBAR and on and on. I now realise that it is just not worth it for me financially to renounce my citizenship. 
Thanks again.


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## Bevdeforges

The taxation on the Social Security benefits can vary, depending on where you are resident when you receive the payments. Certain countries (and I think the UK may be one of them) tax US SS payments paid to UK resident, as does Germany. Check the IRS publication regarding Social Security (Pub. 915). There is a section in the early pages of the publication headed up "US Citizens Residing Abroad" where they list the countries involved.


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## Harry Moles

spuds&taters said:


> I had absolutely no idea that I would be taxed on my Social Security. I think it’s pretty outrageous since I paid into the system for 30yrs but that’s the way it goes with the insane U.S. taxation system


In most cases, government pensions are taxable income. That would be true if you lived in the US and collected SS benefits, or lived in Canada and collected CPP. If you live in one country and collect a pension from another, you'll probably pay tax on it somewhere. This is not unique to the US.


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## srendipitymad

I live in Spain and pensions are taxable here. So I agree that the US is not unusual in this regard.


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## Bevdeforges

The US taxation of SS benefits is a little "odd" by general standards. If SS is your main source of income, it's not generally taxable. If your other sources of income exceed a certain amount, then there is a calculation to do to determine what portion of your US SS is taxable.

But like most other countries, if you're a non-resident (in the US sense - i.e. not a US citizen and don't reside in the US) then they just withhold the NR taxes before they ever pay it out to you.


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