Will Meghan Markle’s and Prince Harry’s baby have to pay U.S. taxes?

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April 15, 2019, 8:46 PM GMT

By Alyssa Newcomb

Meghan Markle’s and Prince Harry’s baby will be born into privilege as a member of the British royal family, but he or she will also have the rights of an American citizen.

And with that comes the duty of filing an annual tax return with the Internal Revenue Service, an obligation Americans born abroad must meet, even if they’ve never lived in the United States.

“If you are an American citizen, you owe U.S. tax no matter what,” said Steve Dean, faculty director of the Graduate Tax Program at The New York University School of Law.

Under U.S. law, an American parent automatically passes on citizenship to a child born abroad, as long as the parent has lived in the U.S. at some point over the past five years. In the case of the royal baby, it’s likely he or she will be eligible for an American passport.

The United States is one of the only countries in the world that taxes nonresident citizens. That means that even the Duchess of Sussex had to file a tax return with the IRS this year, despite being a member of the British royal family and living thousands of miles away.

“The U.S. is exceptionally broad in its idea of citizenship taxation,” said Michelle Lyon Drumbl, a clinical professor of law and director at Washington & Lee University School of Law’s Tax Clinic.

An estimated 8.7 million Americans, excluding members of the military, live overseas in 160-plus countries, according to the Association of Americans Resident Overseas. Those Americans have the compliance burden of filing a tax return, but most of them will be exempt from paying extra taxes to the IRS, due to the foreign earned income tax exclusion. This allows people who earn regular-sized incomes to not have to pay additional taxes if they are not living in the U.S. They simply have to account for it.

“For most people it’s not so much of a big issue, but if you’re vastly wealthy, you’d have a lot to worry about filing obligations,” Dean said. While the royal baby theoretically wouldn’t have to file a tax return next year, any investment in his or her name could potentially be within the reach of the IRS.

And if the sting of being hit with a massive tax liability isn’t enough, Americans abroad are also expected to prepare their own tax bill. Most countries tell each citizen what they owe, but in the U.S., the onus is on the taxpayer to calculate his or her own bill and send the appropriate payment to the government.

Boris Johnson, the former mayor of London and the United Kingdom’s foreign secretary, caught the attention of the IRS in 2014 after he sold his house in London for a profit. Johnson was born in New York City in 1964 to British parents, but moved back to the U.K. as a young child.

Johnson ultimately paid the tax bill, which he called “absolutely outrageous” and renounced his U.S. citizenship. But in the land of the free, nothing comes for free. The price to renounce U.S. citizenship comes to $2,350, one of the highest in the world.

Visit the Source: https://www.nbcnews.com/business/taxes/will-meghan-markle-s-prince-harry-s-baby-have-pay-n994731?cid=public-rss_20190416

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