At first, I planned to live in Berlin a year, then head back to the US for graduate school. But a year became two, then three, then four. I stayed, fell in love, fell out of love, fell in love again, got married, started a family. I still remember taking my younger daughter to the US Embassy to get her first passport. Only six weeks old, she was dressed in a cow print onesie, complete with little plush horns on the hood. You can see my husband’s hand holding her up in the passport photo.
Although my husband and I have chosen to raise our two daughters in Germany, I’ve still taught them to be proud of their American heritage. We’ve read all the Little House on the Prairie books and have started in on the Ramona series. I’ve taught them all the 80s slang of my Bay Area youth which will make them a charming anachronism if they someday choose to live in the US. We still celebrate Thanksgiving every year, even though my German husband can’t understand how a holiday can mean stuffing yourself silly with rich food until you’re almost too full to get up from the table. “But you also have to say what you’re thankful for,” I tell him. Last year, one of my daughters said, “I’m thankful for America.” How can I tell her I’ve been thinking seriously about renouncing my citizenship?
The reason for this is one little word luckily not yet in her vocabulary: FATCA. FATCA is the evil little acronym for the Foreign Account Tax Compliance Act, a law from 2010 which they started enforcing last year. In a nutshell, FATCA strong-arms foreign banks into reporting details of any account over $50,000 held by an American citizen to the IRS. To get them to cooperate, the US government threatened to bar them from American financial markets if they did not comply. If banks are still not willing to register with the IRS, they will suffer hefty penalties. Although the idea behind FATCA may not have been a bad one – to catch Americans hiding taxable income in offshore accounts – the reality is a logistical nightmare for financial institutions and has literally ruined the lives of many American citizens living abroad. If you google FACTA horror stories, you’ll find examples: people whose bank accounts have been closed, who have lost their mortgages, who are being turned away for business loans, all because the banks don’t want to take the risk of working with US citizens.
But FACTA is only the straw the broke the camel’s already crippled back. The real problem is citizenship-based taxation. Citizenship-based taxation means that every US citizen living abroad is required by law to file a tax return regardless of how long they have lived outside the US (or if they have ever even lived there at all) even though they already pay taxes in their country of residence. Although some countries tax nonresidential citizens who, for example, are living in a tax haven, only two countries tax all nonresidential citizens: the United States and Eritrea. Eritrea taxes all foreign income of nonresidential citizens at a reduced flat rate of 2% to help fund its military regime. And the US? All US citizens living abroad are taxed the same as residents. This includes not only expats, but also dual citizens like my daughters and “accidental” Americans, who happened to have been born in the US because their parents were working there or for some other reason, but have never actually lived there.
For years, I had absolutely no idea I had to file a US tax return. In the past, when it came to filing laws for citizen-based taxation, the IRS was not exactly what I’d call a great communicator. But then, last summer, when the chatter about FATCA started getting louder, an expat friend of mine from Michigan told me she had heard we were required by law to file. We looked into it and both decided it was best to turn ourselves in and file the three years required for their streamline program rather than just wait for them to catch us. With a lot of nail-biting, hair pulling and, in my friend’s case, a few bouts of crying, we finally sent in our tax returns from 2010 to 2013, celebrating afterward with a bottle of whiskey. The good news? Germany has a tax treaty with the US which means any income below around $90,000 (the actual amount is adjusted yearly based on inflation) is exempt of taxes. Although I’m not exactly thrilled about the lowish income I make as a freelance writer and translator, at least it means I didn’t owe any back taxes to the US.
I will probably never have to pay any taxes to Uncle Sam. FATCA probably won’t ruin my life and I won’t be forced, like some, to stash my life savings under a mattress. But I do still have the headache of filing two mind-numbingly complicated tax returns a year, one here in Germany, where I will have to pay taxes, and the other in the US, where I won’t. I still have to think twice before I buy an apartment with my husband, open a joint banking account, make any investment for my retirement – things normal, middle-class people do all the time – because they might not be worth the hassle, the thousands (literally) I’d spend on accountant fees, the possible fines I might get if I made any mistakes in filing.
I’m also angry. Angry that FATCA and citizenship-based taxation have become a living nightmare for some and made life needlessly complicated and difficult for countless others. Angry that, unless something changes, my daughters will someday learn being an American abroad is a burden when I’ve tried so hard to teach them it’s a privilege. Our lives have become increasingly international, with borders between countries and businesses constantly blurring, and yet the US still chooses to enforce a tax law dating back to the Civil War, one that treats some of its own citizens like criminals, guilty until proven innocent. Is my anger really enough to make me turn in my little blue passport for a red one? Probably not. I just wish to god I didn’t even have to think about it.