The HEART Act, sounds like a medical thing, right? Unfortunately not! It's the Heroes Earning Assistance and Relief Tax Act and if you're someone considering getting a green card or becoming a US Citizen, you should urgently read this first. This will have implications in your taxes, in your personal wealth, and ultimately your long term future, so it's important to include in all your equations.
Ok, so I've made the welcome a little scary, so take a deep breath and put a cup of tea on because I've tried to make this as simple possible but it's still a little sticky and technical (but well worth knowing).
What is the HEART Act?
Really quickly (because it doesn't really matter to you, I know), it stands for:
Heroes Earnings Assistance and Relief Tax Act (HEART)
And is basically an assessment of tax on absolutely everything you've got at the time you try and leave the US. It was basically introduced to stop the super wealthy from building lots of wealth and then running overseas to dodge taxes. It all sounds pretty simple and you're probably thinking “So Josh, who cares, I'm not some multi-billionaire, surely this isn't for me” but it applies to more people than you might realize.
Who does the HEART Act apply to?
It applies, in short, to people who have US Green Cards, or US Citizenship (keep reading though, because it's not all of those people).
If you are never ever planning to get a green card, or take up residency. Stop reading. Grab a beverage, and enjoy your afternoon with your feet up.
But if you are one of these people, the next thing to know is that this applies to “long-term residents” which are defined as:
a lawful permanent resident of the U.S. (a green card holder) in 8 of the 15 years ending with the expatriation.
There are some exceptions, including some relief for dual citizens or persons who relinquish citizenship before
age 18-1/2, but basically this means that if you've been a permanent resident for 8+ years.
The final test, is that you fit into any one of these three categories:
- Net Worth – If you're worth more than $USD2m. Every single dollar and cent in any country anywhere. This includes assets, investments, and any IRAs/Super as if you cashed it out right now (without penalty) etc.
- Tax Liability – If your average net annual income tax liability (code for saying, average tax bill every year – not your gross income) for the last 5 years more than $USD162,000.
- Compliance – (This one is important) If you can't show that you've been ABSOLUTELY compliant with taxes for the last 5 years, including, filing of the 8854 form properly and certifying it.
So if any of those is a tick (or will be in your future), then you need to keep reading. Remember, this might not be you right now, but in the coming years you will start accruing wealth and this could set all these things off.
You're now a “Covered Expatriate”.
If none of those are a tick then you're fine! Take a quick moment to read carefully through these again and then you too can go about your day and enjoy a tasty treat.
What does the HEART Act do?
The IRS takes every single thing you own and liquidates it (obviously not really, but on a spreadsheet). They look at everything as if you sold it all right now. Then they tax you on it.
Now, there are some nuances here about that and when it comes to realizing your true tax position I strongly, strongly recommend you speak to a professional.
I can recommend UpTrend, just because Jason is a nice guy who has helped me answer some tricky questions in the past for myself and for others.
What should you do about the HEART Act
So why am I telling you all this?
Well the DV lottery is exciting, and becoming a green card holder or a citizen is also exciting. It seems so easy to avoid having to renew your visa every few years and just become a green card holder, but there are some serious impacts.
Things to remember about the HEART Act
If you are a Citizen of the US or Green Card holder you need to file taxes every single year (whether you're in the US, or have earned in the US, or not).
If you are out of the US for more than a year on a green card (and you haven't filed for an extension) then your green card can be revoked, which would set this whole process in motion! You can also run into trouble if you are outside the country for a continuous 6-month period, which is permitted, but you may be scrutinized and asked what's going on. Your travel on a green card must be temporary as you are meant to be “permanently resident” in the US.
Being a green card holder or a US citizen means you're taxed like a US resident for as long as you hold that position. Whether you live in the US or not! So you should always consider the impact of doing so long term.
Most importantly though: Speak to an accountant, speak to an attorney, and get yourself across all of this properly.