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What is citizenship?

Most people are born in one country and live their entire lives in that country, traveling occasionally around the globe. Some individuals, however, leave their countries of birth at some point in their lives in order to live in another country, either temporarily or permanently. For personal, professional, financial, or legal reasons, some seek citizenship in the country in which they now live, while others want to remain citizens of their birth country. Individuals who live in one country but remain citizens of another are often referred to as aliens.

Being a citizen of a country means that you are legally a member of that country. You owe allegiance to that country and can take advantage of the rights and protection provided by that country’s government (e.g., in the United States, the right to vote). Citizenship requirements vary from nation to nation and may depend upon whether you were born in the country, whether you’ve followed legal procedures for becoming a citizen of the country, and, in some cases, whether a parent is a citizen of the country.

About U.S. citizenship

You become a U.S. citizen in one of three ways. First, if you are born in the United States, you automatically become a U.S. citizen. Second, you may become a citizen by virtue of having one or two U.S. citizen parents, or parents who naturalize before you reach a certain age. Third, you may apply for naturalization once you have resided in the United States as a lawful permanent resident for an established length of time.

To become a naturalized citizen, you must be at least 18 years old, have been lawfully admitted to the United States for permanent residency, and have resided in the United States for at least five years prior to filing for naturalized citizenship. In addition, you must show that you are of good moral character and go through a naturalization process, which includes passing a U.S. history test. In most cases, you must also be able to read, write, speak, and understand English. If you’ve obtained your permanent residence through marriage to a U.S. citizen, you may only have to reside in the United States for three years.

  • Caution

Becoming a naturalized U.S. citizen is not an option for every alien or foreigner seeking citizenship. In some cases, a noncitizen may need to maintain resident alien status.

Dual citizenship

It’s possible to maintain U.S. citizenship when living abroad. Becoming a citizen of the United States, for instance, doesn’t necessarily mean that you lose citizenship in your country of birth. Each country has its own citizenship laws, however, so before becoming a citizen in more than one country, check the laws of each country. U.S. law does not require individuals to choose citizenship of one country over another, and a U.S. citizen who automatically acquires citizenship in a foreign country will not lose his or her U.S. citizenship. However, an individual who applies voluntarily for foreign citizenship and intends to give up U.S. citizenship can lose U.S. citizenship.

  • Caution

Becoming a naturalized U.S. citizen is not an option for every alien or foreigner seeking citizenship. In some cases, a noncitizen may need to maintain resident alien status.

Permanent residence status

A permanent resident alien is not a citizen of the United States, but rather a citizen of another country living in the United States who has been granted permanent resident status in the United States. Legal permanent residents for immigration and nationality purposes are defined as resident aliens for federal income tax purposes and are usually subject to the same tax as U.S. citizens. However, there are other issues affecting resident aliens, such as obtaining a green card.

Nonimmigrant status

Like a permanent resident, a nonimmigrant visitor is not a U.S. citizen. A nonimmigrant is a foreign citizen who is living in the United States but who has not been granted permanent resident status. A nonimmigrant may have the tax status of nonresident alien because he or she has a closer connection to a foreign country and/or because he or she has not maintained a substantial physical presence in the United States. A nonimmigrant may be considered a resident alien for tax purposes, but this will not affect immigration status in a way that would allow the person to accrue residence for naturalization purposes. Among other issues affecting nonresident aliens include monitoring the length and number of stays allowed by one’s visa, and understanding how taxes apply to income earned in the United States.

  • Tip

Some aliens have dual status for U.S. income tax purposes, having been both a resident alien and a nonresident alien during the same tax year. This situation often occurs in the year the person arrived in or departed from the United States.

Why become a citizen of a new country?

Being a citizen of a country has inherent strengths and tradeoffs. As a citizen, you are entitled to numerous rights, privileges, and protections under the laws of that country. On the other hand, you are obliged to obey the laws of your country of citizenship and are subject to the economic and political conditions in that country. Many foreigners seek U.S. citizenship in order to improve their quality of life, sometimes wanting to join family members in the United States. Other foreigners come to work or to be educated in the United States and then decide they want to stay. U.S. citizens who go abroad and decide to become citizens of another country often do so for similar reasons, although escaping U.S. taxes may be why most Americans who renounce their citizenship do so. In short, becoming a citizen of another country means that you want to permanently remain a member of that country.

Income tax considerations and citizenship

One of the reasons individuals change their citizenship status is to avoid paying income tax or to pay less income tax. Before you change your citizenship status, you should be aware of the income tax laws both in your country of birth and the country in which you reside and work.

Income tax considerations for U.S. citizens living abroad

Tax considerations are one of the major issues affecting U.S. citizens living abroad. Giving up U.S. citizenship doesn’t necessarily mean that you will pay less U.S. income tax. It depends on the country in which you live and the tax benefits available to you from the United States. In general, U.S. citizens living abroad must file a U.S. tax return and may have to pay U.S. income tax and/or foreign tax on their earnings. However, U.S. citizens may also be eligible for various income tax credits, exclusions, and treaty provisions that will minimize the amount of tax they owe.

You may come out ahead tax-wise if you live in a foreign country where taxes are low or nonexistent, but may end up paying more taxes if you live in a country where taxes are high. Laws passed by Congress, principally the Health Insurance Portability and Accountability Act of 1996 and the Heroes Earnings Assistance and Relief Act of 2008, make it more difficult to utilize expatriation as a route to save on the payment of taxes. These laws may also make it more difficult for individuals to re-enter the United States, by making excludable persons who have renounced U.S. citizenship for the purpose of avoiding U.S. taxation.

Income tax considerations for resident and nonresident aliens in the United States

Tax issues for resident aliens and nonresident aliens are different. Resident aliens are generally taxed in the United States on worldwide income, following the same rules as U.S. citizens. Nonresident aliens, however, are generally taxed only on income from sources within the United States, but they may not claim the standard deduction.

Estate planning considerations for U.S. citizens living abroad and nonresident aliens living in the United States

Tax issues for resident aliens and nonresident aliens are different. Resident aliens are generally taxed in the United States on worldwide income, following the same rules as U.S. citizens. Nonresident aliens, however, are generally taxed only on income from sources within the United States, but they may not claim the standard deduction.

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