Covered vs. Non-Covered Expatriates

As an expat, you’ve probably heard the terms “covered expatriate” and “non-covered expatriate” throughout your travels. They affect the tax you pay upon leaving the U.S. for good, so it’s important to know the difference and what it means for you.

Need to expatriate from the U.S.? Get started on your expat taxes now and we’ll help you get it sorted out.

What is a covered expatriate?

To break it down for you, an expatriate is someone who has given up their U.S. citizenship or green card through official U.S. government procedures. A covered expatriate is an expatriate who must pay an exit tax on all their assets in their final year.

Who qualifies as a covered expatriate?

You qualify as a covered expatriate if you are a U.S. citizen or long-term resident and meet one of the three requirements below:

1. The expatriate’s average annual net income tax for the period of 5 tax years ending on the date before relinquishing citizenship or residency is greater than $190,000 for those expatriating in 2023 (up from $178,000 in 2022 and $172,000 for 2021)
2. The taxpayer’s net worth is at least $2 million on the date of expatriation
3. The taxpayer fails to certify that he or she has met the requirements of U.S. tax law for the 5 preceding tax years or fails to submit evidence of his compliance that the IRS requires (Form 8854 is used for such certification)

You’d qualify as a long-term resident if you spent 8 of the last 15 tax years as a legal permanent U.S. resident. You are not liable to pay the exit tax if you do not meet any of the three requirements above, but you’d still have to file form 8854.

If you don’t qualify for any of the above, you’d be considered a non-covered expatriate.

Covered expatriate exceptions

There are a few exceptions to the covered expatriate rules. For example, certain minors and certain dual citizens may not be considered covered expatriates even if they qualify under the rules above.

For example, dual citizens who gained U.S. citizenship and citizenship of another country at birth won’t be considered covered expatriates so long as they:

• Were in the U.S. for under 10 years during the 15-tax-year period ending with the tax year during which the expatriation occurred
• Continue to be citizens of and pay taxes in that other country.

Also, those who expatriated before the age of 18 ½ and were a resident of the U.S. for 10 years or less would not be considered covered expatriates.

In most situations, expatriates must still file Form 8854 with their final U.S. tax return.

H&R Block is here to help with expatriation taxes

We’re sad to see you go, but we’re happy to help you sort out your expatriation paperwork and your exit tax, should you owe one. It’s simple and convenient to get started with an Expat Tax Advisor, and we’re standing by waiting to help!