>> makes you pay tax even if you are tax resident of different country

It's not that someone is tax resident of different country.

The disgusting part of this IRS racket is that US forces people to pay taxes to US even if they no longer live there. Eritrea is the only another one like US in this aspect.

The US and Eritrea.

I knew this was a thing, but I had always assumed a US citizen living abroad only ended up paying tax to the IRS if the tax they paid to the foreign government was less than what they would have paid to the US, and only the difference is paid.

But it seems that’s not the case, and you get an exemption for “only” the first $108,700 of your earnings.

As with everything the IRS does, it seems complex and full of exemptions, but I have read that (badically) correctly? You could end you being double taxed if you earn more than that?

A friend of mine that is a Canada & US dual citizen got royally screwed by the IRS. Canada has tax free savings accounts (TFSA) that are essentially retirement accounts that are similar to Roth IRA in the US, except with a lot less restrictions. He had opened his TFSA account in Canada when he was 18 and was investing since then. Eventually he got a green card and became a US citizen. It was at that point he realized that the US doesn't consider the TFSA to be a retirement account and that it's fully taxable. This is an account he had prior to moving to the US / having anything to do with the US, and he had to pay taxes on it.

I can't remember if the amount was exempted under $108,700 but I don't think it was given how mad he was that he closed the account because the paper work wasn't work dealing with.

My dad's friend told me a horror story about his friend's mom who was born in the US while he parents were on vacation but she never lived there. The mother is currently retired and is collecting a pension, then she got a letter from the IRS saying that she owed back taxes because she's a US citizen and never filed.

>I can't remember if the amount was exempted under $108,700

Most unlikely, that's an earned income exemption. So basically salary or say invoices paid for consulting that year when the work was performed while physically on foreign soil (US taxes you 100% for any work done on the seas or in international air space)

Why person needs to go through the hassles and expenses to file tax return every year to the country where he/she doesn't not live in any longer?

What kind of state sponsored racket is this?

With the major caveat below, on the face of it, it doesn't seem much less arbitrary to tax by citizenship than by residence in certain cases. For instance, as someone that grew up in the US and went to public schools, I certainly used far more public resources there than in my current country of residence, and would also (as a citizen) have access to an indefinite further amount of resources such as consular representation, retirement benefits if retiring there, etc. It seems about as arbitrary to me to pay taxes in a country that I cannot unilaterally choose to continue living in, due to immigration obstacles.

However, given that the global consensus is to tax by residence, the US should absolutely change its policy to avoid the hassles due to this inconsistency.

It's possible to be a citizen of a country without having ever used any resources from it (it's also possible to have dual citizenship, which complicates things). Taxation isn't about retroactively collecting money for the resources you used during your childhood, it's about collecting money for the resources you're using today. Children, the unemployed, etc. are sponsored by the rest, they aren't taking a loan on their taxes.

The idea is that you receive the services and benefits of your US passport even when residing overseas.

Also keep in mind that you can write off any taxes paid to a foreign government so it's really just a tax on those who make lots of money in low-tax jurisdictions.

About those benefits of having a US passport, could you mention a few of them? Because I'm a US expat and wondering why I have to keep filing tax returns but receive no benefits whatsoever. A number of important examples:

Being a non-citizen in the country I live means I am at the end of the queue for vaccination, while the US State Dept says it won't arrange for vaccinations of US expats, but countries like France and China are doing it for their citizens.

I can't maintain a bank account in the US because without a US mailing address the banks simply refuse to provide me services. The US government could care less, has no requirement that banks provide services to US citizens overseas.

I'd consider the services provided by the US Department of State and the US Military to have some value for American expats.

The US is one of two countries that does it. California wants to levy a similar thing for people moving away from there

> The US and Eritrea.

And China, in theory and sometimes in practice.

https://www.bloomberg.com/news/articles/2020-07-10/china-sta...

It seems quite unusual to be double taxed according to what I could understand from the relevant laws. The first X amount of earned income is exempt as you noted. The amount above that, if a tax treaty is in place with the other country of taxation (i.e. your country of residence), is generally subject to the rule of paying the difference, although the details on this may vary by individual country and tax treaty.

Also Eritrea :) Jokes aside, there is a waiver if you are earning less than ~$150,000 as a single earner where you're not double taxed.

Well, that military won't pay itself...

Having a US passport entitles citizens to a lot of benefits globally, those benefits have to be paid for. It would seem odd that you can benefit from the US growing up, and once you make it, you can move to the Cayman Islands and not pay for the benefits you have received

Having a European passport entitles citizens to a lot of benefits globally too, but oddly enough I haven't paid taxes to any EU country since the day I moved out and nobody expects me to.

I'm not sure why the US thinks it is so special that it is entitled to tax people who happen to be born there even if they have nothing to do with the country any more. You aren't taking a loan on taxes during your childhood; that period is sponsored by everyone else. It goes both ways.

Americans are weirdly obsessed with the idea of rich expats not paying US taxes.

If you're talking about visa-free travels around the world than I have to break it to you: European passports are stronger than US. Just FYI.

Can you mention some of those benefits?