A survey released by MyExpatTaxes on May 4, 2026, delivered a number that should alarm policymakers in Washington: over 50% of Americans living abroad have considered renouncing their US citizenship. This is not a fringe sentiment from a handful of disgruntled expats. It reflects a deep and growing frustration with the United States' citizenship-based taxation system — a system shared by only one other country in the world, Eritrea. When more than half of the estimated 9 million US citizens living overseas are weighing the permanent, irreversible step of giving up their nationality to escape a tax regime, the system is not working as intended. Combined with the new 1% remittance tax signed into law as part of the One Big Beautiful Bill Act and the IRS's intensifying AI-powered enforcement, 2026 is shaping up to be a tipping point for Americans abroad.
2026 Exit Tax Quick Reference
| Threshold | 2025 | 2026 |
|---|---|---|
| Net Worth Test | $2,000,000 | $2,000,000 |
| Avg Tax Liability (5yr) | $206,000 | $211,000 |
| Exit Tax Exclusion | $890,000 | $910,000 |
| Renunciation Fee | $2,350 | $450 |
Sources: IRS Revenue Procedure 2025-32 (inflation adjustments), US Department of State (fee reduction effective April 13, 2026)
Key Takeaways
- 50%+ of expats surveyed have considered renouncing US citizenship, driven by frustration with citizenship-based taxation
- The State Department fee to renounce is $450 — but the exit tax under IRC Section 877A can cost hundreds of thousands of dollars
- The new 1% remittance tax (OBBBA, signed July 4, 2025) adds a federal levy on certain international money transfers from the US
- IRS AI enforcement is catching more non-filers through automated cross-referencing of FATCA data, foreign bank reports, and passport records
- The exit tax can be devastating if not planned properly — covered expatriates face a mark-to-market deemed sale of all worldwide assets
- Most expats in high-tax countries owe $0 to the US after applying the Foreign Tax Credit — renunciation is often unnecessary
How the Exit Tax Is Calculated Under IRC 877A
Understanding how the US exit tax works under IRC 877A is essential before making any expatriation decision. The exit tax calculation has three distinct components, each targeting different types of assets. Misunderstanding any one of them can result in an unexpected six-figure tax bill.
Step 1 — Mark-to-Market on Appreciated Assets: IRC 877A treats all worldwide assets (stocks, real estate, business interests, crypto, collectibles) as if sold at fair market value on the day before your expatriation date. The net unrealized gain above the $910,000 exclusion amount for 2026 is taxed at applicable capital gains rates — currently 0%, 15%, or 20% depending on your income bracket, plus the 3.8% net investment income tax if applicable. This is a deemed sale, not an actual sale — you owe the tax without receiving any cash proceeds.
Step 2 — Deferred Compensation (401k, IRA, Pensions): Retirement accounts and deferred compensation are carved out from the mark-to-market regime and taxed separately. Eligible deferred compensation items (including 401(k) plans, traditional IRAs, and most employer pensions) are subject to a flat 30% withholding on each future distribution, with no treaty relief available. We cover this in detail in the retirement accounts section below.
Step 3 — Specified Tax-Deferred Accounts: Accounts like traditional IRAs and Roth IRAs that are \"specified tax-deferred accounts\" under IRC 877A(e)(2) are treated as if the entire balance were distributed on the day before expatriation. For a Roth IRA, this means gains that would have been tax-free forever are now fully taxable in a single year.
The underlying cause of these rules is the United States' citizenship-based taxation system — a system shared by only one other country in the world, Eritrea. Every other developed nation taxes based on residence. The filing burden for US citizens abroad goes far beyond Form 1040: FBAR (FinCEN Form 114) for foreign accounts exceeding $10,000, FATCA Form 8938 for higher-threshold foreign assets, and punitive PFIC reporting for foreign mutual funds and TFSAs. Cross-border compliance costs of $2,000 to $5,000 per year are routine. Layer on the new 1% remittance tax from the One Big Beautiful Bill Act and the IRS's expanding AI-powered enforcement, and the 50% considering-renunciation number becomes predictable.
The New 2026 Remittance Tax Explained
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced a 1% federal excise tax on certain international money transfers originating from the United States. The tax applies to outbound remittances made through banks, wire transfer services, money order providers, and other licensed money transmitters. It covers transfers of cash, money orders, cashier's checks, and equivalent instruments sent to recipients outside the United States.
For the 9 million Americans living abroad, this provision creates a new friction point. Expats who maintain US bank accounts — as many do, for receiving Social Security payments, managing US-based investments, or paying US obligations like student loans — now face a 1% levy every time they transfer funds from a US account to their country of residence. A retiree in Mexico transferring $3,000 per month from a US bank account to cover living expenses now pays $30 per month — $360 per year — in remittance tax alone, on top of any wire fees, foreign exchange spreads, and existing tax obligations.
The remittance tax was primarily designed to target undocumented workers sending wages to family members in their home countries. But the statute as written does not distinguish based on the citizenship or immigration status of the sender. US citizens transferring their own after-tax dollars to themselves in another country are subject to the same 1% levy. For expats already frustrated by the compliance burden of citizenship-based taxation, this new tax — however small in absolute terms — feels like one more penalty for the decision to live abroad. It reinforces the narrative that the US tax system treats expatriates as revenue sources rather than citizens exercising their right to live and work internationally.
How Much Does It Cost to Renounce US Citizenship in 2026?
The headline cost of renouncing US citizenship is the State Department administrative fee: $450. This is paid at the time of the formal renunciation appointment at a US consulate or embassy abroad. But the administrative fee is the smallest part of the equation. The real financial exposure comes from the exit tax under IRC Section 877A, which can transform a seemingly straightforward decision into a six-figure tax event.
Who Is a Covered Expatriate Under IRC 877A?
The exit tax applies to "covered expatriates" — individuals who meet any one of three thresholds:
- Net worth exceeds $2 million on the date of expatriation
- Average annual net income tax liability for the five tax years preceding expatriation exceeds approximately $211,000 (2026 inflation-adjusted threshold)
- Failure to certify five years of US tax compliance on Form 8854
What Is the Exit Tax Exclusion Amount for 2026?
If you are a covered expatriate, IRC Section 877A imposes a mark-to-market deemed sale: all of your worldwide assets are treated as if sold at fair market value on the day before your expatriation date. The net unrealized gain above an exclusion amount — approximately $910,000 for 2026 (inflation-adjusted annually) — is taxed at the applicable capital gains rates.
Consider a concrete example: a US-Canadian dual citizen with a primary residence in Toronto worth $1.2 million (cost basis $600,000), an RRSP worth $800,000 (cost basis $400,000), a non-registered investment portfolio worth $700,000 (cost basis $350,000), and $300,000 in other assets. Total net worth: $3 million. Total unrealized gain: $1,350,000. After applying the $910,000 exclusion, the taxable deemed gain is $440,000. At a blended federal capital gains rate, the exit tax bill would exceed $100,000 — paid immediately, on assets that have not actually been sold, with no corresponding cash from a real transaction.
Deferred compensation — including pensions, 401(k) accounts, and traditional IRAs — is subject to separate rules. Rather than a deemed distribution, these accounts are taxed when distributions are actually made, but at a flat 30% withholding rate with no treaty benefits available. For someone with a substantial 401(k), this means a permanent, non-reducible 30% tax on every future distribution, compared to the potentially lower marginal rates that would apply if they had remained a US citizen.
Pro Tip
Before considering renunciation, explore whether the Foreign Tax Credit eliminates your US tax liability entirely. Most expats living in high-tax countries like Canada, the UK, or Germany owe $0 to the US after applying the FTC. Renunciation is irreversible — make sure the math actually justifies it. A cross-border tax specialist can run the numbers in a single consultation and show you exactly where you stand. Book a free consultation before making any decisions.
Exit Tax on Retirement Accounts: 401(k), IRA, and Deferred Compensation
Retirement accounts are one of the most misunderstood areas of the exit tax. Many people assume their 401(k) or IRA is simply included in the mark-to-market calculation. It is not. IRC 877A carves retirement accounts into two separate categories, each with its own punitive rules.
Specified Tax-Deferred Accounts (IRAs)
Traditional IRAs and Roth IRAs are classified as \"specified tax-deferred accounts\" under IRC 877A(e)(2). For covered expatriates, these accounts are treated as if the entire balance were distributed on the day before expatriation. This means:
- Traditional IRA: The full balance is included in gross income for the year of expatriation and taxed at ordinary income rates. A $500,000 traditional IRA could generate a tax bill exceeding $150,000 in a single year — far higher than if distributions were spread over decades of retirement.
- Roth IRA: This is where the exit tax is especially painful. Roth IRA contributions were made with after-tax dollars, and qualified distributions would have been entirely tax-free. Under 877A, the deemed distribution triggers tax on all accumulated gains. A Roth IRA built over 20 years of tax-free compounding loses its entire tax advantage on the day you expatriate.
There is no exception for Roth IRAs in the exit tax rules. The popular misconception that \"Roth distributions are always tax-free\" does not apply to covered expatriates.
Eligible Deferred Compensation (401k, Pensions, Deferred Comp Plans)
401(k) plans, 403(b) plans, employer pensions, and nonqualified deferred compensation are classified as \"eligible deferred compensation items\" under IRC 877A(d)(4). These are not deemed distributed at expatriation. Instead, each future distribution is subject to a flat 30% withholding rate — regardless of your actual tax bracket in your new country of residence. Key details:
- No treaty relief: The 30% rate cannot be reduced by any income tax treaty. Even if your new country of residence has a US tax treaty with a lower withholding rate on pensions, covered expatriates are explicitly excluded from treaty benefits on these distributions.
- Form W-8CE: The covered expatriate must file Form W-8CE with each plan administrator to notify them of covered expatriate status. The plan administrator is then required to withhold 30% from every distribution.
- 30-day election deadline for deferred comp: For nonqualified deferred compensation plans, the covered expatriate has 30 days after expatriation to elect the timing and form of future distributions. Missing this deadline can result in the entire balance being treated as distributed immediately and taxed at 30%.
- Permanent rate: The 30% rate applies for life — there is no mechanism to later reduce it, even if you return to the US or become a resident of a treaty country.
For someone with a combined $1 million in a 401(k) and traditional IRA, the exit tax treatment alone can cost $200,000 to $300,000 more in lifetime taxes compared to remaining a US citizen and taking distributions at normal marginal rates over a 20-year retirement. This is often the single largest hidden cost of renunciation.
