Tax
Expatriation Tax (US Exit Tax)
Also known as: US Exit Tax, Section 877A, Covered Expatriate Tax
Section 877A of the Internal Revenue Code (codified by the HEART Act of 2008) imposes the expatriation tax on individuals who relinquish US citizenship or long-held green-card status. The tax applies only to "covered expatriates," defined as individuals who meet ANY of three tests at the date of expatriation:
1. Net Worth Test — net worth of $2,000,000 or more.
2. Tax Liability Test — average annual net US income tax liability over the 5 years preceding expatriation exceeds the indexed threshold ($201,000 for 2025, indexed for inflation).
3. Compliance Test — failure to certify under penalty of perjury (Form 8854) that they have complied with all US federal tax obligations for the 5 preceding tax years.
Dual citizens at birth, certain minors, and individuals who renounce within 6 months of acquiring US tax-resident status MAY be exempt under specific carve-outs.
Mechanics: at expatriation, the covered expatriate is treated as having sold all worldwide assets at fair market value the day before expatriation. Net unrealised gain in excess of the annual exclusion ($890,000 in 2025, indexed) is recognised and taxed at the applicable rate (long-term capital gains: 0%/15%/20% federal plus net investment income tax of 3.8%). Specific asset categories have special rules: deferred compensation (separate § 877A(d) treatment), specified tax-deferred accounts (IRAs, 401(k)s — taxed as if fully distributed), and interests in non-grantor trusts (separate § 877A(f) treatment).
Green-card holders (lawful permanent residents) trigger expatriation tax not on departure from the US, but on formal surrender of the green card via Form I-407 — but only if they held the green card in 8 of the last 15 years (the "long-term resident" rule). A 7-year green-card holder who voluntarily surrenders is NOT a long-term resident and NOT subject to expatriation tax.
Process: file Form 8854 (Initial and Annual Expatriation Statement) at the time of expatriation. Report the deemed sale on the final Form 1040 (or Form 1040-NR for the post-expatriation portion). Pay the tax. Future receipt of certain tax-deferred income may continue to be subject to US withholding — covered expatriates remain on the IRS radar even after formal expatriation.
Sources
Last factual review: 2026-05-08.
Related terms
FATCA
FATCA is a 2010 US law requiring foreign financial institutions to report accounts held by US persons to the IRS, and US persons themselves to disclose foreign financial assets above threshold amounts on Form 8938. Thresholds for individuals living abroad start at $200,000 (single) / $400,000 (joint) at year-end. FATCA penalties for non-disclosure are severe: $10,000 minimum per failure, doubling every 30 days up to $50,000.
FEIE (Foreign Earned Income Exclusion)
FEIE lets US citizens and resident aliens exclude up to $132,900 (2026) of foreign-earned income from US federal income tax — but not from Social Security/self-employment tax. To qualify, the taxpayer must meet either the Bona Fide Residence Test (full-year tax residence in a foreign country) or the Physical Presence Test (330 full days abroad in any 12-month period). Claimed on IRS Form 2555 attached to Form 1040.
Tax Residency
Tax residency determines which country has primary right to tax your worldwide income. Each country sets its own tests — typically based on physical presence (often 183+ days/year), domicile, primary economic interests, or family ties. Holding a residence permit does not automatically establish tax residency, and tax residency does not require a residence permit. Dual tax residency is resolved by tax-treaty tie-breaker rules.
Resident Alien
A Resident Alien is a non-US-citizen who meets either the Green Card Test or the Substantial Presence Test for US tax purposes. Resident aliens are taxed on worldwide income on the same terms as US citizens — including FEIE/FTC eligibility, FBAR/FATCA obligations, and standard Form 1040 filing. Distinct from immigration "resident alien" status (the green-card-holder term) — the IRS definition is purely fiscal.
Deeper guides
US Renunciation Fee Just Dropped to $450 — Here's What Americans Abroad Need to Know
The State Department is cutting the renunciation fee from $2,350 to $450 on April 13, 2026. But the exit tax on assets over $2M is the real cost. FEIE ($132,900) may make renunciation unnecessary. Full breakdown of who benefits, what you lose, and alternatives.
Renouncing US Citizenship in 2026: Fee Drops to $450, Exit Tax Rules & Full Guide
UPDATE: Renunciation fee drops 81% to $450 on April 13, 2026. Renunciations surged 102% in Q1 2025. Exit tax thresholds, the full process, what you lose, what you keep, and when FEIE ($132,900) makes renunciation unnecessary.