How does the US tax liability work?

The US, together with Eritrea, is the only developed country in the world that has its tax laws based on nationality. This means a US person always has to file a return and in some cases, must pay tax in the US, regardless of his residence and work place.

As a US person is usually regarded, a person who:

  1. is born in the US; or
  2. is a naturalized US citizen; or
  3. is born outside the US, but one or both parents have US nationality; or
  4. meets the so-called “substantial Presence Test”. The current test looks at your days residing in the US during the tax year and the two previous years. It should be 100% of the current tax year, but only 1/3rd of the previous year and the year before that, only 1/6th. If this total is more than 183 days, you are considered a US person in the tax year (subject to exceptions under the tax treaty).

Annual declaration in the US

A US person must in many cases file the following declaration annually in the US:

  1. A tax return (1040) when the annual income (from work and assets) exceeds approx $9,500. You can also use the following tool to determine whether you should file a US tax return:
  1. A statement of non-US bank accounts (the so called FBAR– Report of Foreign Bank Account Report). This is applicable if the maximum balance of all non-US bank account(s) combined, amounts to more than $10,000 for a tax year. All bank accounts outside the US are regarded as ‘foreign’ and all account(s) that you as a US person have control over has to be specified, so not just private accounts but also joint accounts and accounts to which you have signing powers (e.g. that of children, parents, a business account of an employer or a Sports Association).

Not complying or late compliance with these obligations results in (possible) fines being imposed and there is no limitation period. If you expect a refund, you need to file the tax return within 3 years after the deadline of the return to get the refund paid.