Expat US tax explains dual-citizen tax rules: myths vs. reality

If there’s one group of people who tend to be genuinely confused about U.S. taxes, it’s dual citizens. And honestly, fair enough. When you grow up between two countries, or you left the U.S. before you could walk, you don’t naturally assume that you’ll need to pay US taxes. Most people don’t think about “citizenship-based taxation” while opening a bank account in Toronto or renewing a residency card in Paris.

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So, to cut through the fog a bit, let’s walk through the myths we hear almost daily and the quieter, less dramatic realities behind them.

Myth #1: “I don’t live in the U.S., so I don’t need to file taxes.”

Reality: The U.S. taxes based on citizenship, not location.

This is the one that catches everyone off guard. You can live in Vancouver or Geneva for 40 years, and the IRS still expects a U.S. return if you meet the filing thresholds.

It feels counterintuitive because frankly, it is. But it’s how the system works.

We regularly speak with people who left the U.S. as toddlers and haven’t been back since. They’re shocked to learn they’re still “U.S. taxpayers,” at least on paper.

Myth #2: “My other country taxes me, so I’m covered.”

Reality: Foreign taxes don’t replace filing, but they can eliminate double tax.

A U.S.-U.K. dual citizen earning under PAYE, for example, still files a U.S. return. However, because the U.K. tax rate is relatively high, the Foreign Tax Credit usually wipes out the U.S. bill.

So yes, you file, but you don’t necessarily pay twice. It’s a strange balance: mandatory paperwork paired with (often) no money owed.

Myth #3: “I only have local accounts, no need for FATCA or FBAR.”

Reality: Foreign accounts must be reported if they cross the thresholds.

Even small accounts add up. A dual citizen in Singapore might have four separate accounts with modest balances; together, they can easily cross the US$10,000 aggregate threshold for FBAR.

FATCA (Form 8938) sits higher at US$200,000+ for expats, but Gulf expats, high-earning Canadians, and Europeans with multiple investment vehicles hit it more often than they expect.

Myth #4: “My spouse isn’t American. Our joint accounts don’t count.”

Reality: They do because reporting is based on access, not citizenship.

The IRS looks at whether you can access the money, not who it technically belongs to.

A U.S.-German dual citizen in Berlin, for example, must report a joint savings account even if every euro in it came from the German spouse. It feels invasive, and many couples understandably dislike it. But reporting ≠ taxing. It doesn’t pull the non-U.S. spouse into the system.

Myth #5: “My foreign investments stay between me and my bank.”

Reality: Some foreign investments cause complex U.S. tax issues.

This is where things get messy. A U.S.-British dual citizen with an ISA is actually holding PFICs for U.S. purposes, which can trigger a surprisingly harsh tax regime.

The same applies to French PEAs, Italian mutual funds, and Hong Kong unit trusts, among others. Countries love their “tax-free” investment wrappers, but the IRS usually doesn’t.

Myth #6: “I’ve never filed. I’m in huge trouble.”

Reality: Many dual citizens qualify for a forgiveness program.

The IRS isn’t eager to punish people who genuinely didn’t know they had to file. Most dual citizens who’ve lived abroad long-term use the Streamlined Filing Compliance Program, a system specifically designed for people who were unaware of their obligations.

We’ve seen people who left the U.S. at age four catch up easily and move forward without penalties.

Myth #7: “Filing U.S. taxes might affect my rights in my other country.”

Reality: Filing U.S. taxes almost never affects foreign citizenship or benefits.

Your U.S. tax return won’t change your residency rights in Australia or your pension entitlement in Sweden. There are some odd treaty quirks involving pensions and social insurance, but for most dual citizens, the systems stay separate.

What Dual Citizens Should Do First

Most people start with a simple checklist:

• Figure out whether you should have been filing in previous years.
• Collect bank statements and account balances.
• Create a list of investments, particularly those labeled as “tax-free” locally.
• Note any pensions, employer retirement schemes, or business interests.
• Consider whether Streamlined Filing might apply.

Once these pieces are in place, the path becomes much clearer.

When It’s Worth Getting Help

Dual-citizen tax issues tend to get complicated when:

• foreign mutual funds or ISAs are involved,
• there are foreign companies or freelancing income,
• joint accounts with non-U.S. spouses hold large balances, or
• someone hasn’t filed in many years.

Expat US Tax works with dual citizens every day, and the situations range from “simple catch-up” to “my bank froze my account until I sent them a W-9.”

Final Thought

Being a dual citizen doesn’t mean doubling your tax burden. It mainly means understanding two systems that don’t always agree with each other. With the right guidance, the process becomes more administrative than scary and far less tangled than it feels at the start.

If you want help sorting through your own situation, you’re not alone. Expat US Tax was literally built for this.

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