Just how many American citizens are living outside the US?

From a tax point of view, life is getting harder for the millions of US citizens living abroad. But how many are there - and do even they know who they are?

01 Jul 2019

Janette Saxer

Janette Saxer

Portfolio Director

Schroders

When it comes to knowing how many Americans currently live outside of the US, and where they live, it seems no one has much of a clue. Even the American government is unsure.

The US State Department publishes on its website a sentence stating that “an estimated 9 million US citizens live overseas.” Four years ago the figure was put at 8.7 million.

But there are varying definitions of what constitutes an American citizen overseas. Surveys differ as to whether they include students, abroad for a year or even less; US military personnel; individuals who went abroad for work and ended up staying on, and even “accidental Americans.” An example of "accidental Americans" could be those whose citizenship came to them because their non-American parents happened to be in the US when they were born.

As a result many lawyers and financial advisers, who specialise in serving American expats, are sceptical of the 9 million figure.

Another figure frequently cited, although its origins are not clear, is that an estimated 6.5 million expat Americans are over the age of 18, and thus obliged to file a US tax return and potentially pay tax on their income if it’s above US$9,350 a year. (This is a requirement of Americans who live outside of the US because, unlike most other countries, the US operates a citizenship-based tax regime – see below for more.)

Mind the gap: what can explain the discrepancy between the number of US expats and the number of tax returns received?

One reason to question the 9 million figure is that only around 600,000 tax returns are received by the US tax authority, the Internal Revenue Service (IRS).

Again, only around 900,000 Foreign Bank Account Reports (FBARs) are submitted by US expats each year. FBARs need to be filed by Americans for any year during which they have “a financial interest in, or signature authority over” one or more “foreign” financial accounts where balances exceeded US$10,000 at any point, even if just for a day.

The above figures relate to 2017, and are cited by Democrats Abroad, the overseas arm of the political party.

Read more: What are my US tax deadlines?

Why is it so difficult for US citizens living in the UK to invest?

The large discrepancy between these filing figures and the 9 million estimate of total US expats is a mystery. But it bears out very starkly the opinion of most tax and legal experts who believe a huge number of US expats are failing to meet their tax reporting obligations – possibly because they are unaware of these requirements in the first place.

What other countries’ data can tell us

If the US’s own information on Americans overseas is questionable, there are of course records maintained by other countries of the number of US citizens resident within their borders.

Again this data is not necessarily reliable or up-to-date.

It is generally accepted that Mexico is home to the largest number of American expatriates. A recent Washington Post report on what it called a “little-noticed surge” of “Americans heading south” quoted official Mexican statistics saying that the US-born population of that country had reached 799,000 – “a roughly four-fold increase since 1990.”

Mexico is followed by Canada as the number two spot for US expats and, in Europe, Germany is believed to be home to the greatest number of American citizens.

In the UK, between 100,000 – 200,000 US citizens are believed to be resident. This large range arises because different sources of information suggest different numbers.

For instance, the latest numbers from the UK’s Office for National Statistics, relating to 2017-2018, put the figure at 138,000. A different measure of Americans resident in the UK is contained in the ONS’s census data, which doesn’t ask about nationality but records where those being counted were born. In 2011, the most recent year for which this information is available, just over 177,000 UK residents gave the U.S. as the place of their birth.

Real number “closer to 5.1 million”?

The main lobbying group for American expats, outside of the overseas arms of the Republican and Democratic parties, is American Citizens Abroad, based outside of Washington, DC.

Its executive director, Marylouise Serrato, told an IRS hearing in October 2018 that although it is “frequently said that there are around 9 million Americans living abroad, ACA believes this number is closer to 5.1 million.”

Why does the number matter?

Unlike other tax systems, America’s unpopular “citizenship-based” tax regime requires citizens to file reports to the US tax authorities irrespective of where they live. Recent tightening of these requirements – and there are stiff penalties associated with failure to meet them – has created problems for US expats.

This includes those “accidental Americans” who are considered to be US citizens due to certain facts of their birth but have spent most if not all their lives outside the States. Prior to the introduction of FATCA and certain other relatively recent laws, such “accidentals” would not have been aware that they were expected to file tax returns and potentially pay tax.

Better data on expats would enable better communication, and enable those who are implicated to seek advice if necessary.

Some American expats, worried about the potential consequences of failing to meet the US’s demands for tax returns and other information, are choosing to renounce their citizenship.

Call for more, better information about US expats

The lack of data on the numbers of Americans overseas could change in future, at least if Republican Representative George Holding, of North Carolina, has his way.

He is emerging as one of Washington’s most outspoken elected officials on the cause of expatriate Americans. In May, testifying during a committee hearing in Washington, Holding called on the IRS to find out exactly how many Americans are currently “living outside of the country, as well as how many are not filing or under-filing” their taxes each year.

Holding believes that if the US is to do a fair job of taxing its expatriates it must have an accurate sense of how many of these individuals there are and where they are. “If we don’t have that data, we don’t have an estimate of the amount of revenue lost due to non-compliance,” Holding said.

Most expert observers of the American expatriate scene agree that while reliable data relating to American expats may exist in some pockets – such as the UK – obtaining such information more widely is likely to take years, if not a decade or more.

Author

Janette Saxer

Janette Saxer

Portfolio Director

Schroders

Janette joined in 2017 as a Director for the Schroders Wealth Management specialising in international wealth and investment management for both US resident and internationally based US clients. Janette has over 30 years’ experience in advising and growing clients’ wealth, working in partnership with clients’ other professional advisors. Prior to joining Schroders, Janette worked at the Royal Bank of Canada Wealth Management International in London as a Relationship Manager for US centric clients and previous to that was a Director at Barclays Private Banking. Janette is a Chartered Fellow of the Chartered Institute of Securities and Investment, a Registered Investment Advisor with the Securities Exchange Commission (SEC) in the USA and also holds the Uniform Investment Advisor Law qualification with the Financial Industry Regulation Authority (FINRA).

 

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