What is a covered expatriate?
A person who relinquishes US citizenship or ends long-term-resident status is generally a covered expatriate if any of three tests applies: net worth of $2 million or more, average annual net income tax above the indexed threshold ($211,000 for 2026; $206,000 for 2025), or inability to certify five years of federal tax compliance on Form 8854. Statutory exceptions apply to some dual citizens and minors.
The three tests, precisely
- Net worth: $2 million or more on the expatriation date. This figure is set by statute and is not inflation-adjusted.
- Tax liability: average annual net income tax for the five prior years above the threshold: $211,000 for expatriations in 2026, $206,000 for 2025.
- Certification: you cannot certify, on Form 8854 under penalties of perjury, full compliance with US tax obligations for the five preceding years.
The certification test is independent of net worth and average tax liability. Unfiled returns can prevent the certification even when the monetary tests are not met. Whether filings can be corrected before Form 8854 and which procedure applies require a facts-based review.
Why covered status matters
Covered expatriates face the mark-to-market exit tax on unrealized gains above the exclusion ($910,000 for 2026; $890,000 for 2025), deemed distribution of certain tax-deferred accounts, and their future gifts or bequests to US persons can be taxed at 40% in the recipient's hands under section 2801.
Reference information, not legal or tax advice. Figures come from our verified fact base and are checked against superseded values on every site update.