{"id":1049,"date":"2026-08-31T17:02:41","date_gmt":"2026-08-31T11:32:41","guid":{"rendered":"https:\/\/www.aoneoutsourcing.com\/blog\/?p=1049"},"modified":"2026-08-31T17:29:18","modified_gmt":"2026-08-31T11:59:18","slug":"us-expatriation-tax","status":"publish","type":"post","link":"https:\/\/www.aoneoutsourcing.com\/blog\/us-expatriation-tax\/","title":{"rendered":"US Expatriation Tax Explained: Exit Tax Rules and Who Must Pay"},"content":{"rendered":"\n

The US Expatriation Tax is a federal taxation system that impacts US citizens who renounce their citizenship and selected long-term residents who give up their US residency. This guide outlines the US exit tax, rules and principles about covered expatriates, mark-to-market non-resident tax implementation under Section 877A, green card exit taxes, exceptions for dual citizenship, Form 8854 and significant tax considerations before expatriation.<\/p>\n\n\n\n

Moving abroad does not automatically trigger the US expatriation tax. The rules generally become relevant when an individual formally expatriates and must then be evaluated under the covered-expatriate rules.<\/p>\n\n\n\n

This guide explains who may be subject to the US exit tax, how the deemed-sale rules work, how different types of assets are treated, which exceptions may apply, and what individuals should consider before relinquishing US citizenship or terminating long-term US residency. It is intended to provide a clear overview of the rules and the factors that can affect an individual’s potential expatriation tax exposure.<\/p>\n\n\n\n

What Is the US Expatriation Tax?<\/strong><\/strong><\/h2>\n\n\n\n

The US expatriation tax is a federal tax regime under Internal Revenue Code Section 877A<\/a> that can apply to certain US citizens who relinquish their citizenship and certain long-term residents who terminate their US residency.<\/p>\n\n\n\n

It is usually referred to as the exit tax USA since it speeds up the taxation of unrealized profits for a covered expatriate upon exiting the US tax regime.<\/p>\n\n\n\n

Usually, the rule involves the mark-to-market principle. In essence, it implies that the property owned by a covered expatriate will be deemed disposed of for its fair market value before their departure. The ensuing gain or loss is calculated according to the provisions of Section 877A.<\/p>\n\n\n\n

The tax does not simply apply to everyone who moves abroad. First of all, one needs to expatriate in accordance with US tax rules, after which the covered expatriate criteria will be employed to apply Section 877A.<\/p>\n\n\n\n

US Expatriation Tax : Key Figures<\/strong> 2026 <\/strong><\/h2>\n\n\n\n

The most important figures for someone considering expatriation in 2026 are:
<\/p>\n\n\n\n

2026 rule<\/strong><\/td>Amount<\/strong><\/td><\/tr>
Net-worth test<\/td>$2 million or more<\/td><\/tr>
Average annual net income tax liability test<\/td>More than $211,000<\/td><\/tr>
Section 877A net unrealized gain exclusion<\/td>$910,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

These amounts should not be confused with a flat exit-tax rate.<\/p>\n\n\n\n

The $2 million figure is a covered-expatriate test based on net worth on the expatriation date.<\/p>\n\n\n\n

The $211,000 figure relates to average annual US net income tax liability for the five tax years preceding expatriation.<\/p>\n\n\n\n

The $910,000 figure is the 2026 exclusion used to reduce the amount of net gain otherwise includible under the mark-to-market rules. <\/p>\n\n\n\n

These inflation-adjusted numbers may fluctuate yearly and, therefore, it is necessary for anyone thinking of leaving the country to check the appropriate figures for their specific year of emigration.<\/p>\n\n\n\n

Source:<\/strong> 26 CFR 601.602: Tax Forms and Instructions<\/strong><\/a><\/p>\n\n\n\n

What Does It Mean to Expatriate?<\/strong><\/h2>\n\n\n\n

Expatriation is not the same as simply moving to a different country. For a citizen of the United States, expatriation involves giving up citizenship according to existing procedures.<\/p>\n\n\n\n

For those who are lawful permanent residents for an extended period of time, expatriation consists of ending residency in the United States for good.<\/p>\n\n\n\n

A person who leaves the US and relocates to Canada, the UK, France, or Germany, while retaining US citizenship has not automatically expatriated. US citizens usually continue to be subject to tax obligations in the US and have to report to US authorities.<\/p>\n\n\n\n

Green Card Exit Tax: When Does It Apply?<\/h3>\n\n\n\n

The US expatriation rules can also apply to certain former green card holders. As per the US federal tax law and IRS Form 8854 provisions<\/a>, a long-term resident (LTR) is basically an individual who has been a lawful permanent resident of the US for at least 8 years out of the last 15 tax years before the year in which such individual stops being treated as a lawful permanent resident.<\/p>\n\n\n\n

There can be some exclusions in the above-mentioned calculation, provided that the taxpayer was considered a resident in a foreign country based on an applicable tax treaty and did not choose to waive the right to claim treaty benefits.<\/p>\n\n\n\n

Therefore, giving up a green card does not automatically mean that the US exit tax applies. The first question is whether the individual is a long-term resident under the applicable rules. The next question is whether the individual is a covered expatriate.<\/p>\n\n\n\n

Who Is Subject to the Exit Tax?<\/strong><\/h2>\n\n\n\n

The exit tax USA generally focuses on covered expatriates.<\/p>\n\n\n\n

For expatriations occurring in 2026, an individual can generally fall within the covered-expatriate definition if any one of the following tests is met:<\/p>\n\n\n\n

    \n
  1. The individual has net worth of $2 million or more on the expatriation date.<\/li>\n\n\n\n
  2. The individual’s average annual US net income tax liability for the five tax years before expatriation is more than $211,000.<\/li>\n\n\n\n
  3. The individual cannot certify on Form 8854<\/a> that they complied with all applicable US federal tax obligations for the five years preceding expatriation.<\/li>\n<\/ol>\n\n\n\n

    Meeting one of these tests can be enough. You do not have to meet all three.<\/p>\n\n\n\n

    Net Worth Test<\/h3>\n\n\n\n

    You generally meet the net-worth test if your worldwide net worth is $2 million or more on the date of expatriation.<\/p>\n\n\n\n

    The calculation considers worldwide assets and liabilities. Depending on the individual, this can include:<\/p>\n\n\n\n