Paying Taxes as an Irish and U.S. Dual Citizen

The Irish Passport
March 28, 2024

Dual Citizenship and Taxation
Dual citizenship is a legal status that means an individual is a citizen of two countries. It grants all the rights, such as to live, work, and vote, afforded to the citizens of those countries. And it also may make the citizen subject and required to comply with its tax laws.

If you are a dual citizen of Ireland and the U.S., understanding how the tax systems of the two respective countries operate is important, in terms of increasing benefits and keeping tax obligations to a minimum.

The Irish and U.S. Tax Systems
Ireland operates a progressive tax system, and taxes are issued based on the residency status of the citizen. Whether or not you are liable for tax in Ireland will depends on a number of factors, but primarily if you live in Ireland and have residency there, you will pay tax. This means that if you are an Irish citizen, but do not live in Ireland, you will not be subject to income taxes.

Ireland’s income tax is known as Pay as You Earn (PAYE). The tax refers to earnings (from employment and self-employment), and most other income.

In addition to income tax, residents in Ireland are subject to Universal Social Charge (USC), which is a tax on income that is made before relief applied for any capital allowances, losses or contributions towards pension.

The U.S., in contrast, has a taxation model which is worldwide, and its citizens, including dual citizens, pay tax on their global income, and on earnings both in the U.S. and other countries.

With that said, the U.S. taxation system operates with several safeguards in place that prevent the double taxation of income, which will be discussed.

Taxation in Ireland
The calculation of tax will depend on how many days you are in Ireland throughout a tax year. The tax year runs from January 1 to December 31.

Your tax residency is established by the number of days you are in Ireland during a tax year. You are tax resident in Ireland if: 

  • You are in Ireland for 183 days or more during a tax year or,
  • If you are in Ireland for 280 days or more over 2 consecutive tax years, you will be deemed as resident for the second tax year.

Therefore, if you are in Ireland for 140 days in the first year, and 150 days in the second, you are considered a resident in that second year. Being in Ireland for a minimum of 31 days each year is a requirement. With this considered, if you travel on a regular basis between Ireland and another country, in this case the U.S., it will be the total number of days you have been in Ireland during a tax year that will determine whether you are deemed by Irish regulations to be an Irish tax resident.

Ordinary Residence
In Ireland, your residence status over a number of years is assessed when establishing your “ordinary residence”. Therefore, if you have been resident for the 3 tax years prior, you are considered an ordinary resident from the commencement of the fourth year. If you leave Ireland, your status as an ordinarily resident will continue and not cease unless you have been a non-resident for 3 uninterrupted tax years.

Married Couples or Civil Partners
In respect of married couples or civil partners, the residence status of each is reviewed separately. If you are resident, but your spouse is not, you are assessed as single for tax purposes. However, if you are resident and employed in Ireland, but your spouse or civil partner is not and without income, making you the sole source of earnings, you can potentially claim the married or civil partner’s tax credit and the increased tax rate band.

More information on this can be found on the revenue contact page.

Residence, Domicile and Taxation
Your residence and domicile status are considered in relation to Income Tax, Inheritance Tax, Deposit Interest Retention Tax, Capital Gains Tax, and Gift Tax. 

Domicile
The country that is your permanent home is referred to as your domicile. Your domicile therefore may be different to your residence or nationality.

Your domicile of origin is where you were born, but this can change to a domicile of choice, if you relocate to a different country with the purpose of residing there on a permanent basis.
You may also have to pay a domicile levy if you are Irish domiciled and your global income in the tax year is more than €1m, you own Irish property with a value more than €5m, and your Irish income tax for the year is less than €200,000.

The levy is paid annually on or before 31 October in the year proceeding the valuation date, which is done through self-assessment.

Filing taxes in Ireland
Filing an income tax return is does through the Revenue Online Service (ROS). You must first register, and use this system to complete Form 11. If you are not yet registered with ROS, you can do so by visiting Register for ROS.

If you are registered for Income Tax, PAYE or Capital Acquisition Tax, you can record and manage your tax filings by using the ‘Manage My Record’ card within the ROS, which you can access on the myAccount page. You can also utilize the Pay and File system to manage tasks around paying tax and filing tax returns.

In order to access this service, you will need your Personal Public Service Number (PPSN), which is a unique reference number that is needed for all governmental administrative tasks, PPSNs are issued by the Department of Social Protection (DSP).

If you are non-resident in Ireland, you can email the DSP’s Client Identity Services (CIS) at cis@welfare.ie, or call 0818 927 999 (or +353 71 9672616, if calling from outside of Ireland), and they will assist.

Double Taxation Agreement
Ireland and the U.S. have signed a Double Taxation Agreement (DTA), which covers Income Tax, Universal Social Charge, Corporation Tax, and Capital Gains Tax. These agreements are in place to safeguard against double taxation, and apply to those who work and pay tax abroad.

If you are not a resident in Ireland, and you pay Irish and foreign tax on your income, you may be eligible to apply for relief from your country of residence.

Just a note that revenue services in Ireland only issue refunds on the Irish tax you pay. For refunds of foreign tax paid, you must apply to the tax office in the country where you paid it. And credit for foreign tax against your Irish income cannot be claimed if the foreign tax has been refunded already.
If your status is a resident and domiciled in Ireland, you will be taxed on your global income. This includes the income that you earn abroad. If you have already paid tax on this income, you may be eligible to claim a credit. The credit is for foreign tax deducted as in accordance with the treaty.

Benefits to U.S. Dual Citizens
U.S. tax treaties benefit U.S. taxpayers who are earning income or doing business in other countries, and the following are some of the most relevant:

  1. Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion serves to lower U.S. dual citizen taxes. It reduces some or all of your income earned abroad on your tax return; therefore lowering (or removing) your U.S. tax liability. It enables eligible U.S. citizens living abroad to have a set amount of their foreign income excluded from U.S. taxes.

If you qualify, you can exclude up to $126,500 of income earned abroad. Your eligibility is determined if live and work outside the U.S. and meet the criteria set out in either the bona fide residence test, or the physical presence test.

  • Bona Fide Residence Test

The Bona Fide Residence Test makes it mandatory to demonstrate economic and social connections to your new home country, documents such as proof of payment of taxes, utility bills serve.

  • Physical Presence Test

You must submit evidence to the IRS to prove you have spent at least 330 days outside of the U.S.

2.     The Foreign Tax Credit

The Foreign Tax Credit enables U.S. taxpayers to offset taxes paid in other countries against the liability of their U.S. taxes. The foreign tax credit lowers your U.S. tax duties and gives dollar-for-dollar credit on taxes already paid to another qualifying country on items of foreign income.

More information is available in the United States double taxations treaties section of the Revenue page.

In the event you intend to live permanently in Ireland, you do have the option to renounce your U.S. citizenship which would then make you exempt from U.S. taxation. You would, however, potentially be required to pay “exit taxes” and “expatriate” taxes.

In all cases, it is always advised to consult with a lawyer or tax accountant to understand the best tax and legal options available to you.

If you would like more information about this topic, or about applying for Irish citizenship, you can  contact us directly, and one of our expert advisors will be in touch to answer your queries.

 

 

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