As Texans contemplate a future where Texas stands as an independent nation, many are beginning to wonder what their financial responsibilities would look like—especially when it comes to taxes. One big question that often comes up is, “What if we don’t renounce our U.S. citizenship after Texit? What would that mean for our income taxes?” The answer is important because it could affect a large number of Texans who might want to retain dual citizenship or simply hold on to their U.S. status after independence.

In short, when Texas becomes independent and you choose to remain a U.S. citizen, you’ll still be on the hook for U.S. taxes—regardless of whether you live in an independent Texas. But the story doesn’t end there. There are nuances, and yes, negotiations with the federal government could play a significant role in shaping the final tax landscape. Let’s dive into what we know and how Texans could navigate the post-Texit world of taxation.

The U.S. Tax System Follows You Everywhere

The United States is one of the few countries in the world that taxes its citizens based on their global income, no matter where they live. If Texas becomes a separate nation and you retain your U.S. citizenship, you would still be required to file U.S. tax returns and report your worldwide income. Essentially, the IRS doesn’t care if you live in Texas, Mexico, or the moon—if you’re a U.S. citizen, you’re expected to pay U.S. taxes.

That said, there are tools in place that U.S. citizens living abroad can use to reduce their U.S. tax burden. Two of the most important tools are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Let’s break these down.

The Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion allows U.S. citizens living abroad to exclude a portion of their foreign-earned income from U.S. taxation. For 2024, the exclusion limit is $126,500 per person. This means that if you earn up to that amount in Texas after independence, you could exclude it from your U.S. tax liability—effectively reducing or eliminating the tax owed to the U.S. on that income.

However, this exclusion only applies to earned income, which includes wages, salaries, and self-employment income. If you have significant investments, passive income, or capital gains, those earnings would still be taxable by the U.S.

What About a Texas Income Tax?

One of the big advantages for Texans is that the state currently has no income tax, and that’s something unlikely to change, even if Texas becomes an independent nation. Texans have already enshrined a constitutional ban on income taxes, and the overwhelming sentiment against state income taxes has been a long-standing part of Texas’s identity.

After Texit, Texas would need to fund its newly independent government, but it’s highly doubtful this would come in the form of an income tax. Instead, Texas would likely continue to rely on property taxes, sales taxes, and business taxes to generate revenue. This means that Texans would avoid the hassle of paying a second income tax to Texas on top of their U.S. obligations. That’s a significant benefit compared to U.S. citizens living in countries like Canada or France, where dual tax systems often overlap.

The Foreign Tax Credit (FTC)

If Texas were to implement new forms of taxation (outside of an income tax), U.S. citizens could still benefit from the Foreign Tax Credit, which allows them to offset U.S. taxes with taxes paid to foreign governments. However, since Texas is unlikely to impose an income tax, this credit might not be as beneficial in our case.

The FTC is typically used by U.S. citizens living in countries that impose income taxes, allowing them to claim a dollar-for-dollar credit against their U.S. taxes. Without a Texas income tax, U.S. citizens in an independent Texas may rely more on the FEIE to reduce their U.S. tax burden.

Negotiating With the U.S.: Can the Exit Tax Be Avoided?

One major concern for Texans post-Texit is the possibility of an exit tax if they choose to renounce their U.S. citizenship. Under current U.S. law, individuals who renounce their citizenship and meet certain income or net worth thresholds (a net worth of $2 million or more, or an average tax liability of more than $190,000 over the past five years) could be hit with an exit tax. This tax essentially treats all of your assets as if they were sold the day you renounce, triggering a capital gains tax on unrealized gains.

But here’s the thing: Texit would create a unique set of circumstances, and the exit tax could become a major point of negotiation between the Republic of Texas and the United States. Given the significant economic ties between Texas and the U.S.—particularly in areas like energy and trade—Texas would have leverage to push for more favorable terms for its citizens.

One possible outcome is that Texas negotiates an exemption from the exit tax for its citizens or secures higher thresholds to shield more Texans from this financial burden. Such negotiations are not far-fetched. Countries around the world often negotiate double taxation treaties with the U.S. to avoid double taxation on their citizens, and the exit tax could be addressed in a similar way during Texit talks.

The State Tax Question

It’s also important to consider that even if Texas secedes, some Texans might still have state tax obligations from the U.S. depending on where they lived prior to Texit. Certain states, like California, have aggressive policies regarding former residents, trying to claim tax revenue from them even after they leave the state. Texans moving to independent Texas from other states could find themselves dealing with lingering state tax issues for a period of time.

The Balancing Act

Texit would undoubtedly open the door to new challenges and opportunities for Texans, particularly when it comes to taxes. If you choose to retain your U.S. citizenship, you’ll still be required to file U.S. tax returns and report your worldwide income—something that won’t change just because Texas becomes independent. The good news is that Texas’s constitutional ban on income taxes will likely remain intact, sparing you from the complexities of dual income tax systems. However, you’ll still need to navigate the U.S. tax system and possibly face an exit tax if you eventually choose to renounce your U.S. citizenship.

Much of this could depend on the outcome of negotiations between the U.S. and an independent Texas. The Republic of Texas could very well secure exemptions or favorable terms for its citizens, particularly when it comes to avoiding the exit tax. In any case, Texas’s commitment to low taxes, combined with its economic strength, means that Texans can face the post-Texit world with confidence, knowing that they’ll be in a strong position both financially and politically.

Texit won’t be easy, but Texans have never shied away from a challenge. And as we’ve shown before, we’re ready to stand on our own two feet.