Renouncing US citizenship PAYE hypothetical question
Posted by pln4649@reddit | studentloandefaulters | View on Reddit | 24 comments
After Uni I moved abroad, found a job and got married. I have no intention of moving back to the US but as a citizen I file taxes and take advantage of the tax credit which makes payment zero. Thinking long term about retirement and the limited investment options plus punitive taxes I am looking into renouncing citizenship.
If I do this, hypothetically, since I'd no longer be American I wouldn't be required to file taxes or report income. So what would happen to my PAYE status?
Ideas, or even what professional service I can reach out to for clarification would be helpful.
SilverBolt52@reddit
You don't have to renounce citizenship, you can safely default and they can't come after you in another country.
However I don't see the advantage of either case. Renouncing citizenship costs money. Defaulting seems pointless when all you have to do as a PAYE member is certify your $0 income annually. After 20 years of on time ($0) payments, your balance becomes forgiven anyways.
mr-louzhu@reddit
I mean, they can still try and garnish your wages. But since you have no US wages to garnish, and they can't find you as long as you don't tell them where you are, they can't initiate any legal proceedings in your home country to try and effect this. So default basically becomes safe to do from a personal finance standpoint.
That being said, situations can vary by country depending on your home countries laws and its diplomatic relationship with the US. For example, if I defaulted on US based debts as a US-Canadian dual citizen living in Canada, both private and public institutions from the US could come after me in Canadian courts. Canada has such a cozy diplomatic relationship with the US and their legal systems are so similar that the border isn't much of a legal barrier between a defaulter and any creditor gunning for their wallet. The only way I can see to get away from that is if I renounced my US citizenship and stop tax reporting. At which point, even if the US government tried to garnish my wages, they wouldn't have any legal way to find me.
That being said, because of the foreign income exclusion and the fact that having $0 of US based income means you pay $0 in student debt payments to the US Department of Education, that's not really an issue.
If Trump somehow changes the rules up to go after broke ass expats like me, I might renounce my citizenship in protest just because I think the whole Federal student loan system is a predatory scam.
roxemmy@reddit
How can I find out how much US creditors work with legal systems of other countries? I plan on moving (permanently this time) & I’m concerned about some creditors still being able to access my foreign bank account to put a lien on it or whatever it’s called.
mr-louzhu@reddit
There's not a straightforward answer to your question. It depends on the legal system and the diplomatic relationship between the US and your new country. You would have to do research based on the specific country you're going to. It also depends on the amount of debt. If you have a relatively low amount of debt, they may not feel it's worth the expense. They're not going to spend $10,000 on lawyer fees to recover $2000 in debt, for example. On the other hand, a very high amount of debt and they may indeed want to come after you.
But also, banks have a lot f strict privacy laws to abide by. A foreign bank isn't just going to surrender client records to a US based creditor just because they asked for it. That's assuming your creditor even knows you've left the country. If they lack your new international address info, they'll just go by the last known address and contact. For all they know, you're still in the US.
If you skip the country--and your debts--just be aware that your creditors can still pursue action against you within the US. If they're unable to contact you, they're likely to either seek a default claim against you in absentia or they will sell your debt to a collections agency, who will probably do the same thing.
A court ruling against you might result in wage garnishment or asset seizures. So if you have any assets in country or any of your debt has a friend/family co-signer, those could be in jeopardy. That last one is a real concern. Say your parents co-signed a loan with you. Now their assets and wages are in jeopardy because you skipped town.
Now, afaik, in America you can't really be arrested for non payment of debt unless it's child support payments or court fees. But another thing to watch out for is if the court summons you for appearance and you don't show up, they may issue a bench warrant for your arrest to compel you to appear. So the next time you come to the US, you might find yourself getting picked up by the authorities. But I'm honestly not sure how often that sort of thing happens for a simple debt default.
Other than that, if your debt goes into collections and you've been gone and completely out of contact with your creditor or collection agencies for like 7 years, then I think they're legally no longer able to pursue collection actions against you and any black marks on your credit report fall off. However, should you reinitiate contact with them in any fashion whatsoever, it resets the clock. It's weird, I know.
Now, depending on where you're heading and how long you plan to stay there, it may make sense just to default and bolt. On the other hand, it might make more sense just to file bankruptcy before leaving. It depends on your situation.
In my opinion, you need to speak. with a financial advisor and or a legal advisor, because anything Reddit tells you should be taken with a grain of salt. I'm just the internet, after all.
roxemmy@reddit
I appreciate the detailed response! Thankfully no one else is attached to my debts, & they’re not too high of balance for each. I’m more worried about the 3 judgments I already have against me, all for defaulted credit cards & the amount of each is below $10k. I think it’s like $6-7k each. So not sure any company would really go through a huge process to try to levy a foreign bank account for that amount, but I’m also just not familiar with any of this so I don’t really know.
I don’t think there’s anything else the creditors for the judgments could do moving forward except try to levy a bank account of mine. I’m self-employed now with a LLC that I started & I’m keeping majority of my money in business bank accounts so hopefully those are safe from being levied. If I do move out of the country I would still keep my US business & see some US clients because I get paid more in the US, but at some point I’d transition to seeing more local clients instead just because of the big difference in time zones for meeting with US clients.
I don’t have any assets anywhere at this point but I would definitely not gain any in the US, knowing they could be taken from creditors.
mr-louzhu@reddit
I think you need to consult an accountant and a lawyer regarding these, to make sure you understand all the business and personal implication of defaulting while living abroad and what impacts it might have on your various financial interests.
Keeping your money in your LLC's doesn't necessarily protect it. From what I've read, creditors can go after your LLC to hold it accountable for member debts. So then your LLC would be paying for your debt, because you're a member of said LLC. If your LLC is based in the US, that may be a concern.
Again, make sure you consult the right professionals to understand your situation better.
roxemmy@reddit
Yeah I’ll meet with a tax person & see what they know about this. I’d ask attorney but I don’t know what type of attorney to ask. I was working with a bankruptcy attorney but he has no idea what he’s doing, I get the impression he’s not experienced working with clients who are self-employed. He’s already given bad advice & usually doesn’t even have an answer for the different questions I’ve had regarding business income & assets. So what sort of attorney would even have this sort of information?
I’m a mental health counselor. I see all my clients remotely & would continue seeing US clients if I move to another country. I would also see some clients locally wherever I move to.
pln4649@reddit (OP)
My motivation for giving up my citizenship is mostly because of the limited investment options. For example, I cant participate in defined contribution investment (similar to 401k) where I live, and passive foreign investments like EFTs are taxed tremendously high
SilverBolt52@reddit
Are you not currently a citizen of your new country? Because you can do dual citizenship. Renouncing your citizenship now sounds like you wouldn't have citizenship anywhere. Or am I missing something?
pln4649@reddit (OP)
Unfortunately US - Japan dual citizenship doesn't exist ( you need to choose one by 18 years old if you acquired both at birth)
Yes, you're right. I don't have another, ie Japanese citizenship now. Before acquiring Japanese and renouncing US I want to make sure everything is in order for me
Additional-Ad-9088@reddit
What’s the point of renouncing if you gain citizenship elsewhere and dont return to the US except on your other passport?
taekee@reddit
This is a question for a lawyer.
ChanneltheDeep@reddit
You can't renounce your citizenship until you have $0 balance in what you owe the US government. They make you square up first.
mr-louzhu@reddit
Can you provide a source for this? Everything I've read says that's not true.
A consulary official can deny you if they think you're attempting to evade taxes. That's all I know. But there's no prohibition outright just because you have debts to your name.
Renouncing the citizenship doesn't void those debts. But in effect, it would make it impossible--or at least impractical--for any US agency or entity to initiate collections proceedings against you.
ChanneltheDeep@reddit
travel.state.gov after following a link from usa.gov
It came up almost immediately on Google
mr-louzhu@reddit
Those websites are labrynths. Maybe give me a better clue, like providing a link or at least the tile of the applicable article or form.
pln4649@reddit (OP)
Thank you. I knew of the fee to renounce, but not of the zero balance rule.
tweakingforjesus@reddit
How would they do that?
ChanneltheDeep@reddit
Renouncing your citizenship requires fees and paperwork, if you don't pay what you owe they don't process the paperwork and you remain a citizen.
Pretty-Ambition-2145@reddit
When you renounce your citizenship the IRS basically “closes out your tab” with the US. They act as though your assets are liquidated the date of renunciation and you’re taxed on all gains regardless of whether it’s realized or not. It’s very very expensive with misc fees as well. I presume that your SL would come due at once. You’re probably better off not renouncing and just dealing with the inconveniences that come along with it.
mr-louzhu@reddit
Interesting. Do you have sources for this? I'm just trying to learn more about it myself.
Pretty-Ambition-2145@reddit
Looks like the “exit tax” applies under certain consistions only, such as taxable I come thresholds. This article doesn’t address student loans though. https://www.irs.gov/individuals/international-taxpayers/expatriation-tax
mr-louzhu@reddit
Yeah, I see in the form they want your foreign address, presumably so they know where to find you if they need to chase you down to meet tax obligations.
Of course, at that point, what is stopping you from putting a bogus address on there? At which point, I don't imagine any low level IRS clerk being able to do much about it other than make a note in records that they were unable to locate you.
Lacking any other information, such as your foreign citizenship info (i.e. social insurance number, id, etc), you'd be effectively a ghost to anyone but the NSA or maybe the FBI. But what are the odds those agencies are going to work form a taskforce with the IRS to enforce a minor tax obligation on a single foreign national?
Like, it seems like the expatriation tax is targeted solely at high income or high net worth individuals, which probably is not going to be the case for the majority of people looking to renounce.
Pretty-Ambition-2145@reddit
I have a masters degree in accounting, big 4 tax experience, and IRS enrolled agent license, I’m studying to be a cpa, and have applied for dual citizenship in Germany and looked a lot at expat taxation. So I’ve read about it in my studies and recited that off the top of my head here but I can take a look for you