If you renounce your US Citizenship you must face the “Exit tax”, It is probably one of the most misunderstood U.S. tax on individuals—the “Exit Tax” Americans have to pay when they give up their U.S. citizenship.

In the past, the U.S. Exit Tax was imposed on an American giving up his or her U.S. citizenship if the U.S. government decided in its infinite wisdom that he or she were renouncing citizenship for tax purposes. In that case, you could be required to continue to file and pay taxes on your income for up to another 10 years.

As giving some bureaucrat the power to determine a person’s reasons for relinquishing U.S. citizenship introduced a highly subjective variable into the process, the U.S. government eventually changed the rules to be more black and white. Under the new (and current) rules, every American must fill out and file a Form 8854 as part of the expatriation process. If you have a net worth of US$2 million or more or if you have had an average annual tax liability of US$157,000 or more (that’s the figure for 2014) for the five tax years prior to your expatriation date, then you have to complete the income and asset section of Form 8854. In other words, any American who wants to renounce citizenship must fill out Form 8854 up to line 6. Only if you meet one of the two criteria I reference must you continue beyond line 6.

Only those among the top 1% of American earners will meet the second threshold. More Americans would meet the net-worth threshold, and that’s where much of the Exit Tax confusion originates.

The easiest way to think this through is using examples.

Say you have a net worth of US$2.5 million that is all in stocks and the day you file for expatriation you have a gain on that portfolio of US$1 million. You’re going to get taxed by the IRS on that US$1 million gain.

If you have US$5 million in gold that you bought at an average price of US$1,300 per ounce and the price of gold the day you expatriate is US$1,200 per ounce, then you have no unrealized gain and won’t owe any Exit Tax.

These simplified single-issue examples are only for clarity. Few people have such straightforward financial situations. However, they make the point, which is this:

Essentially, the Exit Tax is a tax on unrealized gains or untaxed deferred income (pensions, IRAs). In other words, the government isn’t going to let you walk away without paying taxes on income or capital gains that you haven’t yet paid taxes on.

If it is determined that you owe a large amount of Exit Tax, you can elect to defer your tax payment. You would have to provide “adequate security” (as the form describes it), but you wouldn’t have to come up with a big chunk of cash from an unrealized gain to pay the tax bill right away. Of course, deferring that payment means an open conversation with the IRS until your bill is paid.

The change in the IRS’s approach to expatriation taxation means that everyone is presumed to be giving up citizenship for tax reasons. On the other hand, again, the Exit Tax that may then be imposed is not an additional tax but the requirement that you pay tax you would have owed had you not renounced. That may not make paying the tax any more palatable, but I hope it helps to clarify what’s going on.

As I explained, any American undertaking the expatriation process must complete Form 8854. However, if your net worth is below the US$2 million threshold and you don’t meet the past five years’ tax liability threshold either, you are off the hook for capital gains taxes even if you have unrealized capital gains. You could have an unrealized capital gain of US$1.9 million on your stock investments worth US$1.99 million and walk away from your U.S. citizenship tax free.

In other words, it can be worth bringing your net worth to less than US$2 million before expatriating. And anyone anticipating a big spike in their net worth (like Eduardo Saverin from Facebook) might want to renounce before his stock portfolio takes off.

The rest of us don’t really have much to worry about from the U.S. Exit Tax.