Solving the Rubik’s Cube of taxes, residence, and citizenship in the United States

A US citizen living abroad is subject to US income tax on their worldwide income and US transfer taxes on their worldwide assets. For US transfer tax purposes, they are eligible for a USD 13.99 million transfer tax exclusion in 2025 (USD 27.98 million for a married couple). Tax considerations in the country of residence may also apply, and there may be a treaty with the country of residence to minimise double taxation.

A non-US citizen living in the US must first determine whether they are a “resident” of the US for federal income tax purposes under objective criteria – they either are a “lawful permanent resident of the United States” (i.e. a green card holder) or are “substantially present” in the United States (as determined by a day-count test). The residence test for transfer tax purposes is a more subjective “domicile” test that looks at whether an individual is present in the US with no definite present intention of moving away. 

Consequently, a person can be a US resident for income tax purposes but not a US domiciliary for transfer tax purposes. This is common for executives on assignment to the US from abroad who intend to return to their home country.

A non-US citizen who isn’t domiciled in the US is subject to transfer taxation on certain assets located in the United States. Importantly, there is no lifetime USD 13.99 million gift tax exclusion, and only a USD 60,000 exclusion for estate tax.

A person subject to US transfer taxes whose spouse is not a US citizen faces additional complexity. While transfers to a US citizen spouse qualify for an unlimited marital deduction, which allows for the tax-deferred transfer of property to a spouse, there is no unlimited marital deduction for transfers to a non-US citizen spouse. Rather, for lifetime gifts to a non-US citizen spouse, there is only an annual gift exclusion amount (USD 190,000 in 2025). Transfers at death to a non-US citizen spouse only qualify for a marital deduction with specialised “qualified domestic trust” planning.

These tax rule differences can be confusing, and the tax treatment in specific circumstances varies depending on the particular facts, including the countries involved and any available treaty benefits. Coordinated planning with US and foreign country legal and tax advisors is recommended.

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Suzanne L. Shier is Of Counsel in Levenfeld Pearlstein’s Trusts & Estates Group. She advises high-net-worth individuals in wealth, tax, and philanthropic planning. Her clients include executives, entrepreneurs, corporate fiduciaries, family offices, and charities with domestic and international residence.