What is Covered Expatriate?
A person who renounces US citizenship or long-term residency and meets certain net worth or tax liability thresholds, triggering the exit tax.
Definition
A covered expatriate is an individual who expatriates (renounces citizenship or terminates long-term residency) and meets any of three tests: (1) average annual net income tax liability exceeds a threshold ($190,000 for 2023) for the five years before expatriation; (2) net worth is $2 million or more on the expatriation date; or (3) they fail to certify five years of tax compliance on Form 8854. Covered expatriates are subject to the exit tax and may face special withholding on future US-source payments.
Who Needs to Know This?
Individuals considering renouncing US citizenship or abandoning long-term resident status who need to determine whether they will be a covered expatriate.
Key Deadline
Determined on the expatriation date; Form 8854 filed with final return
Potential Penalties
Exit tax on unrealized gains; 30% withholding on certain future US-source payments
Related Forms
Common Mistakes to Avoid
- 1Not realizing failure to certify tax compliance automatically makes you covered
- 2Underestimating net worth including worldwide assets
- 3Not planning to reduce net worth below $2M threshold before expatriation
- 4Ignoring the average tax liability test
Related Terms
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