US dual citizens: what you owe the IRS and your tax office at home every year

Two passports feel like double the freedom: live, work and come back wherever you like. For tax purposes, it is more like a double calendar. The US taxes you because you are American. Your country in Europe taxes you because you live there. Your second passport matters surprisingly rarely, but when it does, the stakes are high. This page sets out what you file and report on both sides every year, where the treaty helps and where your European passport does count.

1Who is a dual citizen, and why tax law counts differently

You are American if you were born or naturalized in the US. That is how the Treasury's income tax regulations put it, and for how citizenship is acquired they refer to nationality law. There, 8 U.S.C. § 1401 also governs how citizenship passes to children born abroad to American parents, depending on how long the parents lived in the US before the birth. So a child of German parents born during a research stay in Boston is American, even if they never set foot in the US again. To the IRS, that person is a US citizen like any other.

For tax purposes, another distinction matters more: the US taxes by citizenship, while European countries tax by residence.

2The American side: return, reports, number, passport

2.1The tax return

Regulation 26 CFR 1.1-1 says it in one sentence: all citizens of the United States, wherever resident, are subject to US income tax, whether their income comes from the US or not. Whether you must file depends, under Publication 54, on your worldwide gross income, your filing status and your age; the thresholds are in the instructions for Form 1040. Income you can later exclude under the Foreign Earned Income Exclusion still counts toward that threshold. If you are self-employed, you must file once your net earnings reach $400.

This leads to the most common mistake among dual citizens: because they pay high taxes at home and often owe nothing in the US in the end, they assume the return is unnecessary. It is not. Credit for the tax you pay at home only works through the return.

2.2The reports

Alongside the return come the reports on assets outside the US. The FBAR is due if your accounts outside the US together exceed $10,000 at any point in the year; for a family with a current account, a savings account and a brokerage account, that happens fast. It is filed electronically with FinCEN, not the IRS. Form 8938 is added at higher values: if you live abroad and are single, you must file it once you hold more than $200,000 at year end or more than $300,000 at any point in the year. If you hold shares in a limited company at home, Form 5471 may be required; more on that under Your own company abroad as a US citizen. And European funds and ETFs are a chapter of their own for US citizens: ETFs and funds as PFICs.

2.3The Social Security Number

To file, you need a taxpayer number, and as a US citizen that is your Social Security Number. According to the IRS, an ITIN is only for people who have a tax reason and cannot get an SSN. If you were born abroad to American parents, you often have no SSN and must apply for one first. How that works is explained under Social Security Number in the USA. Families have a second reason: Publication 54 requires an SSN for certain child-related tax benefits and other credits. How child benefit at home and the Child Tax Credit interact is covered under Child benefit and the Child Tax Credit.

2.4The passport

Two points link tax to your passport. Under 8 U.S.C. § 1185(b), a US citizen may generally only enter and leave the US on a valid US passport; your European passport does not replace it there. And Publication 54 points out that the IRS notifies the State Department of taxpayers certified as owing a seriously delinquent tax debt. If you are certified as seriously delinquent, the State Department generally may not issue or renew your passport, and it may revoke a valid one.

3The home side: residence beats passport

Switzerland has one difference, and it favors the Swiss passport. Under Art. 83 of the federal act, employees without a settlement permit pay withholding tax on their wages; Swiss citizens never do. Spouses in an undivided marriage are also exempt if one of them holds Swiss citizenship or a settlement permit. A Swiss-US dual citizen is therefore assessed in the ordinary way, while an American with a residence permit but no Swiss passport initially pays withholding tax.

5How double taxation is still avoided

Whether any US tax is left in the end depends on how much tax you pay at home on the same income and how the US limitation calculation works out; with investment income, US-source income and funds, the result often looks different than with a salary. As an alternative to the credit, earned income qualifies for the Foreign Earned Income Exclusion; which method suits your salary is explained under FEIE or Foreign Tax Credit.

6Where your second passport matters for tax

6.2Withholding tax in Switzerland

As described above: with Swiss citizenship you are assessed in the ordinary way; without it, and without a C permit, you initially pay tax at source.

6.3The exit tax

Your second passport matters most when you give up US citizenship. If you count as a covered expatriate, you are taxed as if you had sold your assets the day before you renounced. You become a covered expatriate through one of three tests: average tax liability, net worth, and certifying that you met all your obligations over the last five years. For dual citizens, 26 U.S.C. § 877A(g)(1)(B) provides an exception from the first two tests. It applies if you were a US citizen and a citizen of another country from birth, are still a citizen of that country and taxed there as a resident when you renounce, and were a US resident for no more than ten of the last 15 tax years.

Two things go with it. First, the third test still applies: if you cannot certify five years of tax compliance, you are a covered expatriate despite the exception. Second, for tax purposes the renunciation only takes effect with the State Department's Certificate of Loss of Nationality, even though it is backdated to the day you renounced before the consul. So if you are a dual citizen from birth and thinking about renouncing, get your US tax record in order first. The process is described in Renouncing US citizenship, the tax consequences in Exit tax and Form 8854.

8Family: spouses and children

If your spouse is not a US citizen, you have several options for Form 1040. One is the election to treat your spouse as a resident and file jointly; Publication 54 describes it and the ways to end it. The election brings both spouses' worldwide income into the US return. Whether it pays off depends on income, children and assets. The trade-offs are covered under Child benefit and the Child Tax Credit.

Children of dual citizens are often dual citizens themselves, and the same rules then apply to them once their income reaches the thresholds. A well-meant investment account opened for a child at home can trigger reporting obligations and PFIC issues for an American child. Apply for the child's SSN early and choose accounts deliberately, and you save yourself a clean-up later; for investment tips, see Investing as a US citizen in Europe.

9If you have never filed a US return

For many dual citizens, this is what actually brings them to the topic: born in the USA, raised in Europe, never filed a return. For taxpayers abroad who did not willfully miss their obligations, the IRS created the Streamlined Foreign Offshore Procedures. They require the returns for the last three years whose deadline has passed, FBARs for the last six years and a certification on Form 14653. If you are eligible and meet all the requirements, the IRS says you face no penalties for late filing and payment, for information returns or for the FBAR.

How the procedure works and who can use it is explained under Streamlined Procedure: catching up on US taxes without penalties; the situation of people who happened to be born in the USA is described in Accidental Americans: filing for the first time.

10Your year as a dual citizen

Once you are up to date, the year of a dual citizen living in Europe is easy to plan. Your return at home is the foundation, the US return credits it, and the reports run alongside:

• Spring: list of last year's accounts with the highest balance of each; FBAR due April 15, automatically extended to October 15.
• By June 15: Form 1040 with the automatic extension for Americans abroad, or Form 4868 for another four months.
• At home: file by your country's deadlines; keep the assessment for the foreign tax credit.
• Whenever something changes: a new account, a new shareholding, marriage, the birth of a child or a move are the moments when new forms come up.

All the dates in detail are in the deadline calendar for Americans abroad, and the guide US tax obligations for Americans in Europe gives an overview of every obligation.

In short

• As a US citizen, you are taxable in the USA on your worldwide income, even if you have never lived there; a second passport changes nothing.
• The treaties' saving clause keeps US taxation in place; crediting your home-country tax prevents double taxation, and with Swiss withholding tax and the exit tax your second passport does count.
• Depending on your situation, Form 1040, the FBAR, Form 8938 and your return at home are due every year; on the US side, nothing works without an SSN.

How we help you

• US taxes for US citizens abroadForm 1040, FBAR and Streamlined for US citizens living in Europe.
• Streamlined FilingCatch up on missed US tax returns and FBARs through the Streamlined procedure.
• Your US Tax ReturnForm 1040 or 1040-NR, handled in English.
• US Tax ConsultationYour US tax question, answered by people who know both sides.