Finance

How Dual Citizenship Affects U.S. Taxes

11 May 2021By Tom Andrews
iStock/Jane Kelly

Written by

Tom Andrews

This tax advice is not intended, and cannot be used, to avoid any penalties as a result of taking any position from this column. Thomas Andrews is a CPA and a principal of AvMar Accounting Services. +1 954 764 0404; www.avmaraccounting.com

Tom Andrews explains the basics of dual citizenship and U.S. taxes.

As you may be aware, all U.S. citizens are subject to U.S. income tax regardless of whether they reside in the United States or not. To make matters more complicated, some yacht crew have dual U.S. citizenship with another country. While these circumstances are rare, we do encounter these situations from time to time. 

The typical fact pattern for a dual citizen crewmember is that they were born outside the United States and one of the parents was a U.S. citizen, making them eligible for citizenship. The dual citizen may never have lived inside the United States, but now they are working on a yacht that has entered U.S. territorial waters. In some cases, they would like to take advantage of their U.S. citizenship and travel there in hopes of finding work or possibly working on a U.S.­flagged vessel — something that a nonresident might not be eligible for. As the dual-citizen crewmember is completing the employment paperwork, they're being asked to provide answers to questions that will be given to the IRS. 

While you might have been required to file past tax returns, it doesn't necessarily mean you owed taxes during this time period. 

Many dual-citizen yacht crew are surprised to find that as a U.S. citizen, they may have been required to file a tax return for every year their income exceeded the threshold that requires filing. While this might cause panic, we recommend that the dual citizen step back and analyze the situation more carefully. While you might have been required to file past tax returns, it doesn't necessarily mean you owed taxes during this time period. Chances are, if you were complying with the tax laws of the country that you are domiciled in, you'll probably be entitled to one of several exemptions available to taxpayers. These exemptions include the following: 

  • Foreign-earned income exclusion 
  • Foreign-tax credit 
  • Income-tax treaty 

While these exemptions may reduce or eliminate your tax burden, they do require that you be a tax resident of the country that you are domiciled in. The topic of tax residency can be difficult for some taxpayers domiciled outside the United States, as it requires that you be a resident filer of the country you are domiciled in. Many yacht crew that are domiciled in a foreign country have declared themselves as "nonresidents" for the purpose of avoiding taxes in their home country. 

Dual citizenship is a complicated topic for crew; if you find yourself in this position, I recommend that you consult with a U.S. tax attorney who specializes in these matters — also consult with a tax accountant in the country that you're domiciled . The IRS does provide additional information regarding dual citizens at irs.gov

This article originally ran in the May 2021 issue of Dockwalk.

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