Possible Doubling of Income Tax for US Income for non-US Citizens/Dual Citizens

[Mikawa Ossan]

For example, Trump this week threatened to double taxes on foreigners working in this country legally. The move received virtually no attention because it was slipped into a broader executive order on trade. Unless you're intimately familiar with the tax code, you might not have noticed his invocation of an obscure 1934 law that has never been used before, which says the president can double taxes on all citizens and companies from any country that the president decides has levied "discriminatory" taxes against Americans. The president can do this unilaterally — that is, without additional permission from Congress.
Given the context, Trump seems poised to exercise this authority as part of his trade wars (against Chinese nationals in the United States, for example). Some have speculated that he'll deploy it against people from the European Union and other countries that have agreed to a global minimum tax on multinational corporations. To be clear, this agreement was brokered by the United States — at least until Trump pulled out of it a few days ago. If Trump is reckless enough, his executive order will empower him to double taxes on every random British, Japanese or Canadian national (or, for that matter, Americans who have dual citizenship with such countries) working lawfully here.

https://www.washingtonpost.com/opinions/2025/01/24/trump-immigration-legal-executive-orders/

(j) The Secretary of the Treasury, in consultation with the Secretary of Commerce and the United States Trade Representative, shall investigate whether any foreign country subjects United States citizens or corporations to discriminatory or extraterritorial taxes pursuant to section 891 of title 26, United States Code.

ETA:

(b) sections 2(b), 2(e), 2(i), 2(j), and 4(e) shall be delivered to me in a unified report coordinated by the Secretary of the Treasury by April 1, 2025;

(The first quote from this Exec. Order was section 2(j).) /ETA

America First Trade Policy

January 20, 2025 MEMORANDUM FOR THE SECRETARY OF STATE THE SECRETARY OF THE TREASURY THE SECRETARY OF DEFENSE THE SECRETARY OF COMMERCE THE SECRETARY OF

www.whitehouse.gov

Whenever the President finds that, under the laws of any foreign country, citizens or corporations of the United States are being subjected to discriminatory or extraterritorial taxes, the President shall so proclaim and the rates of tax imposed by sections 1, 3, 11, 801, 831, 852, 871, and 881 shall, for the taxable year during which such proclamation is made and for each taxable year thereafter, be doubled in the case of each citizen and corporation of such foreign country; but the tax at such doubled rate shall be considered as imposed by such sections as the case may be.

26 U.S. Code § 891 - Doubling of rates of tax on citizens and corporations of certain foreign countries

www.law.cornell.edu

I imagine Trump is setting up the groundwork needed to invoke section 891 against whomever he decides. If you are a non-US citizen or a dual citizen with US income (or are married to one), this may be relevant to you. The only thing I can think of doing if your spouse (assuming you are a non-dual-US-citizen) is a citizen of a country that gets singled out is to use "Married Filing Separately" for your filing status. That might save some taxes.

 

[johnnyG]

I've always used married filing separately. The reason is that if filing jointly, my wife would then become subject to the same restrictions as a US citizen--certainly needing to file an FBAR, and I think also the same PFIC problem (any foreign mutual fund is a PFIC, and tho not illegal, the IRS taxes them punitively besides being a paperwork/filing challenge). Which would really limit her investing options here.

 

[Majestic]

This is going to be awful. It will be mired in unintended consequences and lawsuits and all sorts of horrible things. The tax code is already like a jenga game, and international tax treaties exist to make sure the jenga pile doesn't fall over on foreigners working and paying taxes on one country or the other. When you start swinging the hammer at the jenga pile, its going to collapse (obviously) and people are going to suffer.

 

[Mikawa Ossan]

For now, all we can do is wait until April and see what happens. I wonder how much media attention this will receive. The only reason I found out about it is because it was mentioned in the opinion piece I quoted above. This will be very bad. My wife is already wondering if it wouldn't just be better to quit work than pay such a high marginal tax rate.

 

[mdchachi]

For now, all we can do is wait until April and see what happens. I wonder how much media attention this will receive. The only reason I found out about it is because it was mentioned in the opinion piece I quoted above. This will be very bad. My wife is already wondering if it wouldn't just be better to quit work than pay such a high marginal tax rate.

Why, what's going on in April?

 

[Mikawa Ossan]

April 1 is the due date for the Secretary of the Treasury to submit the report to the president, at which point the president will make his determination which countries, if any, have subjected "United States citizens or corporations to discriminatory or extraterritorial taxes."

Given his aggressive stance on just about everything so far, I'm sure that the outcome is really a foregone conclusion. The only question is which countries will be singled out. As I understand it, and I could very well be wrong, citizens of the designated countries will have their tax rates doubled starting for income made this year, with an indefinite end date. In other words, it will continue ad infinitum until the president proclaims that said country(ies) have removed the 'discriminatory or extraterritorial taxes'.

 

[salyavin]

Hitting dual citizens as well means even if one had US citizenship it does not protect you. So people may feel pressure to ditch other citizenships. Mind you this could possibly be just for 4 years depending on what the next administration decides or who ends up on this list.

As long as Johnny's wife does not have a green card I do not believe she needs to file US taxes, right? Our plan is to surrender the green card when we move back.

 

[Mikawa Ossan]

Hitting dual citizens as well means even if one had US citizenship it does not protect you. So people may feel pressure to ditch other citizenships. Mind you this could possibly be just for 4 years depending on what the next administration decides or who ends up on this list.

As long as Johnny's wife does not have a green card I do not believe she needs to file US taxes, right? Our plan is to surrender the green card when we move back.

I think she would only have to file if the aggregate of her US-sourced income (if any) exceeds a certain threshold, since they file separately.

It looks like @johnnyG is set up well for this situation. I truly envy him for that.

 

[salyavin]

I wonder does social security count as US sourced income?

 

[johnnyG]

I wonder does social security count as US sourced income?

My small ~$350 is not taxed as it is paid by the US--it comes in full (in yen, about ¥55k these days) to my local bank. But a 1099 does come from the SSA, so it gets reported along with other things both here and for my US filing. I of course get taxed here, and end up paying $4-500 the the US, too. But then I list that on my return here as foreign tax paid, so kind of out of one pocket and into another.

 

[johnnyG]

As long as Johnny's wife does not have a green card I do not believe she needs to file US taxes, right?

Well, I think in the OP and my first reply I was in the POV of married filing jointly (vs separately or HoH). No, I'm completely sure, but I really think this would bring that spouse into the (nasty!) realm of the IRS/dept of treasury for the same compliance problems faced by foreign financial institutions dealing with US citizens. All banks/brokers in japan are very interested in knowing if their foreign customers are US persons, requiring a form with your SSN at least.** With brokers there are service limitations--a japanese can buy US ETFs and stocks, but americans cannot.

**And I think then your account(s) are 100% open and transparent to US authorities. I assume that they can see everything--no request/authorization needed, probably with a few mouse clicks.

Interactive Brokers recently set up a japan operation, and it's really the only choice for US expats wanting to deal in US securities. And similar trouble setting up accounts in the US--nearly impossible--since US outfits will not open new accounts for americans abroad. Some will allow previously existing accounts to continue being used, but many banks/brokers will close an account if they discover you're abroad (giving you 60 days or so to do so). They even watch your IP address when logging in, also the phone number/country you might call from. It can feel like a checkmate situation. The reason they do this is possible compliance problems with Treasury, which are expensive for banks/brokers. So the simple solution to avoid that expense is to not serve US persons abroad. (The famous godfather quote, "It's nothing personal, it's just business.")

I'm extremely fortunate to have a US broker the does allow pre-existing/older accounts--it was opened before all the dept of homeland security and FATCA stuff hit the fan. But I'd be SOL if this broker changed policy and asked me to leave.

And to circle back--no way I want to cause similar issues for my wife. So married filing separately it is.

 

[Majestic]

Some will allow previously existing accounts to continue being used, but many banks/brokers will close an account if they discover you're abroad (giving you 60 days or so to do so). They even watch your IP address when logging in, also the phone number/country you might call from.

Initially our Japanese bank took a blind eye to our relocation overseas, with the justification (a wink and a nod) that the move was plausibly only temporary, and that the forwarding address we left in Japan was valid. There wasn't an option of declaring yourself to be permanently leaving Japan while still maintaining the account. If you were leaving permanently, you were supposed to close out the account (for reasons mentioned above relating to compliance with US regulations). So we said we didn't know how long the move would be for, and we listed a relative's address as the forwarding address, and the staff at ******** Bank accepted that. We were able to continue accessing the account through mobile phone. However, internet banking by PC was disabled (presumably due to the IP blocking mentioned by @johnnyG ). But it was fine because we could still do what we needed to do via mobile banking.* Paying Japanese vendors, mostly.

Then, when we were in Japan on a trip recently, we moved a large chunk of money out of ******** Bank, which required us to declare ourselves to be permanent residents overseas. The Bank allowed us to keep the account, but it is a restricted account with no access either by PC or mobile phone, and we've now registered our US address with the bank.

We have no digital access, only cash cards that work (I think) only in Japan. It seems to be a half measure that allows the bank to remain in compliance with US regulations, without causing them reporting complications. I don't know the details or the legalities, all I know is that this option wasn't available to us in 2020, but became available to us in 2024.

So, this is the long-winded way of affirming what Johnny wrote above.

*We kept an active Japanese mobile phone, which allowed us to continue accessing the account through mobile banking.

 

[salyavin]

I guess on social security my wife can apparently qualify for some so if the rules go into affect and stay in affect is that considered US income even if taken in Japan? I suppose I can hope after this administration rules return.

 

[Mikawa Ossan]

This is not the same issue as the OP, but related. The video is Canada-based, but it could impact Japan just as easily. Japan is actually specifically mentioned at one point.