|Source: Comic Strip of the Day.com|
Many people don't know this, but the United States requires every American citizen to pay income tax whether they live in the United States or not. Yes, you heard that right: the IRS (Internal Revenue Service, the tax-collecting agency of the United States government) taxes American citizens for income earned anywhere in the world, regardless of where the American in question lives. The United States is one of only two countries in the world that does this (for reference, the other one is Eritrea, which at least reduces the tax rate for non-residents). There are limits, though, thank goodness: the first ~$100,000 of earned income (meaning income earned from an employer but excluding things like investment and rent income) are exempt from taxation. This sounds pretty good, but there are still well-off expats out there who are forced to pay taxes on their income twice, once in their country of residence and once in the United States. But that earned income limit is high, so I should be safe from American tax filing while I'm in Germany, right?
Just because I don't qualify to pay expat income taxes doesn't mean I don't have to file a tax return. Since the United States is stubbornly determined that anyone earning, saving or investing money outside the United States must be trying to evade their tax responsibilities, expats are advised to file a tax return every single year, even if they don't have any income at all, just so there's no misunderstanding. In addition, the US government has taken its ruthless pursuit of foreign income and assets to draconian, and what seems to me potentially illegal, lengths and now requires foreign banks to report the balance of every financial account belonging to an American to the IRS. This explains why I had to fill out an IRS form when I opened my bank account in Germany, a requirement which I found highly odd. And I was lucky that's all I had to do.
Some foreign banks are so afraid of the new omnipotent powers of the IRS that they are refusing to allow Americans to hold accounts, and I don't blame them for their fear. The penalty for not exactly reporting the value of all assets held in accounts by American customers is high: 30% of the value of those accounts. Because of the fear the IRS now instills in even Swiss banks, some long-time American customers are being told their accounts will be shut down, and new American customers are being barred by some banks from opening new accounts or even co-signing on an account of a spouse of another nationality. Some Americans who are dual citizens, with no other logical options, are even being forced to renounce their citizenship over this.
But wait, it gets better. The troubles don't stop with deciding to renounce citizenship. In an attempt to stop Americans in this situation from renouncing, the US government, instead of reviewing the policies that are causing people to renounce in the first place, have simply raised the cost of renouncing citizenship. Yes, there is a price: $2,350, to be exact. Just a few years ago this fee was $450, but when the new tax law started a wave of renunciations, America upped the ante.
I can see where these tax laws come from and who they are intended to target. The hope was to stop the super-rich from stashing money in off-shore accounts and evading their tax responsibility, and stopping crimes like this is an admirable goal that I support. But the way it is being implemented is harming average American citizens who have no intention of doing anything wrong. For a law that supposedly targets off-shore tax evasion, it makes absolutely no sense to go after people who are legally residing in another country. The whole point of stashing money off-shore is so you can continue to live in the United States and not pay your fair share of taxes to the country that allowed you to become wealthy. The law should be targeting exactly those people: the ones who are still US residents. The law in practice ends up affecting exactly the wrong people: those who are happily living their lives, earning their money and paying their taxes outside the United States.
Those of you who are not in this situation may have a hard time understanding why this is infuriating, but it makes me incredibly angry! Because of the obsessive nature of America's pursuance of criminal tax evaders like -- apparently -- me, I spent a large part of today gathering together tax forms I didn't think I would need and attempting to file my taxes from halfway across the world. My frustration has only grown as I've run from one "free" tax filing website to another only to find that I don't qualify for free filing at all.
Don't get me wrong, I'm not hating on taxes. Taxes are crucial to keeping a country running smoothly, to building roads and bridges, to educating the next generation, and to almost every part of life you can imagine. If I were living in the United States right now, I would willingly pay my taxes to support the country that allows me to live well within its borders. What I am hating on is having to file a tax return to a country I didn't even live in for the vast majority of the past year, and potentially having to pay a second set of taxes to the US in the future, when I am not benefitting from the above mentioned roads, bridges or schools.
I hope this has been informative for American expats who are reading, both in Germany and elsewhere. I wish this was something we didn't have to deal with, but the fact of the matter is we do. We get to pay for the honor of being citizens of the "greatest country on Earth" (note the heavy sarcasm dripping from that statement), and we also have to pay to give up that privilege. And all the while we get to do extra work to cover our asses, in case the IRS decides we might be dangerous, unpatriotic tax evaders. Welcome to America, the Land of the Free.