Tips for Green Card Holders and Immigrants Filing U.S. Tax Returns - Green Card

Many of our clients are Legal Permanent Resident/Green Card Holders who until recently were unaware of their US tax and reporting obligations and requirements, including what they must report and pay U.S. tax on when it involves:

January 1, 2022

Whether your employer has offered to sponsor your Green Card application, or you have recently married a US citizen, the receipt of a Green Card is often extremely desirable. But what exactly does that mean for you at tax time? Do Green Card holders pay taxes on foreign income? Read on to find out!

April 24, 2015

If you are a Green card holder, you must be a bit more cautious than US citizens when traveling overseas. Not only must you protect your citizenship status, but if you have foreign bank accounts that exceed the filing threshold, you’ll be responsible for filing FBAR, too. David McKeegan provides more details in this brief video!

If you’re a green card holder and you have questions about your tax obligations, know that green card holders are basically taxed the same as U.S. citizens. You might not have to file at all, but if you do have to file taxes, make sure you do it correctly and use the best possible method to maximize your return. Benzinga did the research for you and the article below will teach you how to file green card taxes.

Form 1040 is the tax return filed by most individuals. You might also have to file supporting schedules and forms to report specific types of income, deductions, or credits.

There’s also a Form 1040-SR that senior citizens can use if they wish. The differences are minor and it has a bigger type size.

One notable exception is the tax return for nonresident aliens. They file Form 1040-NR.

Can I Just Start Filing FBAR This Year Instead?

No, unless the current year is the first-year you had a Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.

The United States has entered into totalization agreements with around 25 different countries. This is important, especially if you are a U.S. person living overseas who is self-employed in a foreign country. That is because in accordance with the totalization agreement, you may have a Social Security payment responsibility in only one country, but not the other.

Is important to note that the totalization agreements are not identical, and vary even between neighboring countries. For example, the United States has entered into a totalization agreement with Australia, but has not entered into a totalization agreement with New Zealand.

Golding & Golding International Tax Resource: Understanding Totalization Agreements

An Overview of the U. Income Tax System

Federal Income Tax

Estimated taxes are automatically withheld from income that comes from a U.S. employer. The taxpayer then submits an annual income tax return that finalizes amount of tax due. The taxpayer may be entitled to a refund or may owe a balance.

State Income Tax

Residents also pay income tax to the state or states in which they reside or earn income. Most states levy an income tax. Seven states do not collect state income tax as of 2022: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Washington state taxes only the capital gains of high earners; New Hampshire taxes dividend and interest income only. Residents of all other states submit an annual state tax return.

Municipal Income Tax

Some municipalities have an income tax. This is generally handled through the state income tax form.

You must be a U.S. citizen or a lawful permanent resident (a green card holder), or meet the “substantial presence” test, to be considered a resident of the United States for tax purposes. Some holders of non-immigrant visas are considered residents for tax purposes as well. You must report and pay tax on your worldwide income if you fall into any of these categories.

Being a resident doesn’t mean you have to live in the U.S. full-time. You’re considered to be a tax resident of the U.S. beginning in the year in which you receive your green card.

Key Takeaways

Green card holders must pay federal taxes on their worldwide income, whether it is in the U.S. or in other countries.
The U.S. has tax treaties with some countries. You may not have to pay taxes to both governments in this case.
You might also have to pay tax to the state or states in which you reside or work during the year. All but seven U.S. states have some sort of income tax.
You must also pay Social Security and Medicare taxes, just like U.S. citizens.

Are Green Card Holders Subject to US Tax Rules

Do Green Card Holders File US Tax Returns: Some of the most complicated tax rules involve lawful permanent residents — otherwise referred to as Green Card Holders and the US tax implications of being a permanent resident. What makes tax law involving green card holders so complex, is that the even though green card holders are not US citizen of the United States — they are still considered a for tax purpose (aka a Legal Tax Resident). Technically, a Green Card Holder is a Citizen of a foreign country — but maintains the right to permanently resident in United States. And, once a foreign person becomes a Green Card Holder (absent a Form 8833 election if it is a treaty country), the permanent resident becomes subject to US tax on their worldwide income similar to a US citizen. That is the case whether or not they reside in United States. Let’s review the basics about how Green Card Holders are subject to US tax and have to file US tax returns.

We have written hundreds of articles on this subject already, including Case Studies, Examples, and FAQ. The FBAR is the Report of Foreign Bank and Financial Account Form. It is required to be filed by any individual who has more than $10,000 in annual aggregate total, in foreign accounts on any day of the year. Is not filed along with your tax return; it is filed separately, electronically with the Department of Treasury on that FinCEN website. It is due at the same time your tax return is due – including extensions.

If you are out of compliance for prior years, this is not the form to quietly disclose. In other words, if you are out of compliance, then you should speak with an experienced offshore disclosure attorney to prepare strategy for getting into compliance.

If you only just learned about this form and are about to file your first FBAR, but you were required to file in prior years, do not file the form until you have spoken with an attorney.

Golding & Golding International Tax Resource: ; FBAR Penalties; FBAR Penalty Mitigation; FBAR vs. 8938

Once you get a green card, you automatically become a US tax resident and you must declare your entire income to the US government.

You may have heard that the number of days you spend in the United States each year has some effect on whether or not you are a tax resident. But this is true only for people who have non-immigrant visas, discussed below. It is not true for green card holders. Even if you remain outside the US for an entire year, you’ll still need to report your entire worldwide income.

Any US citizen or any person holding a green card has the obligation to file US tax returns and to pay all US taxes. In the case of a green card holder, this remains so even if the green card has “expired” and the individual has not returned to the USA for many years. In certain cases, the failure to do the right things required under the tax laws can result in imposition of very harsh tax consequences under the so-called “expatriation” rules. Proper tax advice should always be sought.

Green card holders are taxed in the same manner as US citizens – that is, they are subject to US income tax on their worldwide income regardless of the source of that income or where the green card holder is living at the time it is earned. Aside from the tax dollars themselves, onerous tax filing obligations are required, including filing of so-called FBARs which can result in harsh imposition of penalties if not done properly or in a timely fashion. The cost for professional tax advice and for tax return preparation can be very high when international tax issues are involved, as is often the case with green card holders.

Any US citizen or any person holding a US Green Card has the obligation to file US tax returns and to pay all US taxes. In the case of a green card holder, this remains so even if the green card has “expired” and the individual has not returned to the USA for many years.

In certain cases, the failure to do the right things required under the tax laws can result in imposition of very harsh tax consequences under the so-called “Expatriation” rules. Proper tax advice should always be sought.

US Green card holders are taxed in the same manner as US citizens. That is, they are subject to US income tax on their worldwide income. Regardless of the source of that income. Or where the green card holder is living at the time it is earned.

Aside from the tax dollars themselves, onerous tax filing obligations are required. Including filing of so-called FBARs. They can result in harsh imposition of penalties if not done properly or in a timely fashion. The cost for professional tax advice and for tax return preparation can be very high when international tax issues are involved. As is often the case with green card holders.

Even if the individual is not complying with the terms of maintaining the US green card for purposes of the US immigration laws, continuing to hold the card still counts for US tax law purposes.

Under the US income tax rules pertaining to green card holders, a foreign individual is considered a “resident alien”. And is thus subject to worldwide income tax for any calendar year. If the individual is a lawful permanent resident at any time during that calendar year.

A lawful permanent resident is defined as an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws.

Many clients who come to see me are under the mistaken belief that simply because their green cards have “expired” they are no longer US tax subjects. This is incorrect. The tax law is very precise on this topic.

Foreign Tax Credits May be Available

If you earned income in a foreign country and you already paid tax in a foreign country on the income, you may be able to receive foreign tax credit by the IRS for foreign taxes already paid. With a foreign tax credit, the IRS credits you for some of the taxes you already paid overseas. It is not always a dollar-for-dollar credit, because it depends on what portion of your income was earned in the US versus abroad, along with whether or not you were in a high tax jurisdiction, but it is usually applicable at least in part and effective in reducing your U.S. tax liability.

Also, you can typically carry the credits forward into future years if you have excess credits that you cannot use in the current (and carry it back a few years as well)

Residents Pay Tax on Their Worldwide Incomes

Unlike many other countries, the United States taxes its citizens and residents on their worldwide income. But this only applies to those who are U.S. residents. You’d pay U.S. tax on only your U.S. income if you aren’t a resident.

Note

Examples of income that must be reported on your U.S. tax return include rental income, income from investments, and interest on savings in the country you lived in before coming to the U.S.

Paying U. Taxes

Americans pay their federal income taxes through automatic withholding from their paychecks or by paying estimated taxes quarterly on their own.

“Withholding” means that the person or business who’s paying you a wage subtracts an amount from each paycheck for federal taxes, Social Security, and Medicare. This is an estimate of what you will owe.

The withheld money is forwarded to the government on your behalf. You get the rest as your “take-home pay.”

Taxpayers can be penalized if they don’t make the required estimated payments by these dates.

Every person with income is required to file a tax return once per year to ensure that the correct amount of tax has been paid. The forms require the taxpayer to record all taxable income and tax payments that have been made.

Well in advance of tax day, every taxpayer should routinely receive annual forms from all of their sources of taxable income. Their employers will send a form indicating how much they have been paid and how much has been withheld. Banks send accountholders similar forms recording how much interest they have been paid, and brokerages send forms indicating taxable stock sales.

People with uncomplicated finances need to file only the main Form 1040. Other forms that may have to be attached include Form 1099-MISC, for additional income; Form 1099-INT, for those who receive interest payments; and Schedule D, for people who sold stock during the year. People who prefer to itemize their deductions use Schedule C to record their expenses.

Note

Having to file a tax return isn’t necessarily a bad thing. It’s the only way you can get your money refunded if you’ve overpaid through withholding or estimated tax payments. You may even qualify for tax credits that you can’t claim if you don’t file a return.

The IRS will issue you a refund if you’ve overpaid. You’ll be responsible for paying the remaining balance due if you’ve underpaid. If you get an awful surprise, you can request an installment agreement to pay what you owe.

Federal tax returns are usually due by April 15 each year. This date may be bumped up to the next business day if falls on a weekend or holiday.

Tax day for the 2022 tax year is April 18, 2023. Tax day for the 2023 tax year is April 15, 2024.

State income tax deadlines vary, but most states try to set them on or near the federal deadline date.

Social Security and Medicare Taxes

The U.S. has two social insurance programs: Social Security and Medicare. These are often referred to as “payroll taxes” or as Federal Insurance Contributions Act (FICA) tax.

You become eligible to receive benefits from Social Security when you reach retirement age or if you become disabled. Once you reach age 65 you may also be eligible for government-subsidized health insurance through the Medicare program.

How to Relinquish the Green Card

Even if the individual is not complying with the terms of maintaining the green card for purposes of the US immigration laws, continuing to hold the card still counts for US tax law purposes.

Under the US income tax rules pertaining to green card holders, a foreign individual is considered a “resident alien” (thus subject to worldwide income tax) for any calendar year if the individual is a lawful permanent resident at any time during that calendar year. A lawful permanent resident is defined as an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws.

Green Card Holder Treaty Position

If the person is a Lawful Permanent Resident/Green Card Holder and resides abroad, they may be able to make a treaty position that they should be treated as a foreign resident for that tax year. This may minimize any tax liability to the US government.

You May Not be Taxed on the Income

There’s a distinction regarding reporting the income on your US tax return and paying US taxes. All of your income you earn worldwide should be included on your taxes. With that said, you may be entitled to an exclusion or foreign tax credit(s) for taxes paid abroad. This can be the result of qualifying for the foreign earned income exclusion, or being able to take a treaty position.

For example, you may be receiving pension benefits from a government pension abroad, which may only be taxable in the foreign jurisdiction. That does not mean it is excluded from your tax return (you still include the income in your tax return), but you do not have to pay U.S. tax on it, because it is an exception/exclusion.

Depending on the type of exception or exclusion you are relying upon, you may have to file additional documentation with your taxes.

Golding & Golding International Tax Resource: U.S. Worldwide Taxation Rules

What taxes do green card holders pay?

If you hold a green card, the U.S. considers you a lawful, permanent tax resident. You’ll need to pay taxes on your worldwide taxable income, as well as estate taxes and gift taxes. This includes income from foreign financial assets.

About Our International Tax Law Firm

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Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

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We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
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We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

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Green Card Holders, U. Tax & Foreign Asset Reporting

Do Green Card Holders Pay Tax & Report Foreign Assets: A common misconception by U.S. taxpayers is that only U.S. citizens are subject to tax on their worldwide income. In fact, U.S. Citizens, Legal Permanent Residents (aka Green Card Holders) and foreign nationals who meet the substantial presence test are all subject to tax on their worldwide income. In addition, these taxpayers One of the more confusing parts of US tax law is understanding how the United States taxes individuals on their worldwide income, offshore accounts and foreign assets.

Tax on Worldwide Income

United States is one of the few countries in the world that taxes individuals on their .

Therefore, if you are a Green-Card Holder/Legal Permanent Resident then you will be taxed just as if you were a US citizen. As a result, whether or not you reside in the United States or outside of the states, you are required to file a tax return.

Moreover, whether or not the income you earn is sourced in the United States or outside of the states, does not mater — you are required to report all of this income under US Tax Return.

How You File Your Taxes with a Green Card

Step 1: Determine Your Tax Resident Status

Green card holders residing in the United States are considered resident aliens and are tax residents, therefore they need to file a tax return unless they are otherwise exempt (see list above). If you do might not meet the substantial presence test, are a dual-resident taxpayer in a country with a tax treaty, or could claim a closer connection to a foreign country, you may be able to file as a nonresident alien. Determining your tax resident status tells you which IRS forms you will need to file (such as a 1040 or 1040NR).

Step 2: Choose How To File

choose the best way to file taxes for you, whether you fill out paper forms using online tax preparation software or work with a CPA. Whether you file on your own or use a CPA is probably determined by how complicated your tax situation is. If you have an overseas holdings, foreign and domestic income, claim both resident and non-resident status for a calendar year or are a dual resident taxpayer, you may have to seek out a tax professional to file your taxes as some tax software does not support dual status filings. Be sure to pick the best tax software for your needs. A CPA can also advise you whether it would be to your advantage to claim resident or nonresident status in those situations where you could choose your status.

Step 3: File Before April 15 or June 15

Keep Up to Date on Tax Treaties

The U.S. has tax treaties with many countries. These treaties sometimes provide that certain types of income are taxed in one country or the other, but not by both. They might provide for a lower rate of tax or provide special rules for residency status.

You might find that a tax treaty provides rules for certain situations if you have income or assets in other countries. This is another good reason to check with a tax professional.

FATCA Form 8938

FATCA is the Foreign Account Tax Compliance Act. It is required in order to disclose certain specified foreign assets (which may also include accounts). It is similar to the FBAR, but different in many respects. First, it is filed along with your tax return as a form accompanying your 1040. Second, it does not have the same threshold requirements as the FBAR. Threshold requirements are much higher so that less people have to file the form. The threshold requirements vary based on marital status and residence. Third, unlike the FBAR, FATCA Form 8938 requires that you include the income that was generated from the specified foreign assets included on form 8938.

Golding & Golding International Tax Resource: Form 8938 FAQ; FATCA Reporting; FATCA Accidental American; FBAR vs. 8938

Offshore Amnesty Program Summary

The Offshore Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting, including Green Card Holders worldwide.

Some of the more common programs, include:

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How Do Green Card Taxes Work?

Green card holders are lawful permanent residents of the United States who have been given the privilege to reside permanently in the U.S. If you’re a green card holder, you’ve been issued a form I-551 (a green card) from U.S. Citizenship and Immigration Services. Green card holders must pay taxes on all income earned through wages, interest, dividends, income from property or royalties, compensation for services and any other income received, whether that income was earned in the United States or abroad. Like U.S. citizens, green card holders are treated as tax residents whether they live in the U.S. or elsewhere and must report income earned.

Screen-Shot-2019-03-13-at-1.56.58-PM — *Source: https://www.dol.wa.gov/driverslicense/cdlapproveddocs.html*

Tax liability for non-citizens (aliens) is based on a two-pronged test: the green card testsubstantial presence test. If you are a green card holder who resides the whole year in the United States, you pass both tests. This means you’re considered a tax resident and subject to filing a tax return. If you did not reside full-time in the U.S. for the tax filing year, you have to do some math to determine if you pass the substantial presence test. To pass, you must have been physically present in the United States for 31 days during the calendar year and 183 days during the three-year period that includes the current year and the two years immediately before that. This includes:

All the days you were present in the current year
1/3 of the days you were present in the first year before the current year
1/6 of the days you were present in the second year before the current year

This two-pronged test will most often come into play for green card holders for the first year that they are issued a green card, or if the green card holder spent much of the year outside of the United States. If you were present in the United States at any time during the year that you were a green card holder, you may elect to be treated as a resident alien and therefore considered a tax resident.

If you are a green card holder, were a U.S. resident during any part of the preceding calendar year prior to receiving your green card and resided in the U.S. at any time for this tax year, then you are a tax resident. If you pass both the green card test and the substantial presence test but you are only in the United States for fewer than 183 days, maintain a tax home (such as a business) in a foreign country, and have a permanent home or other closer connection in that foreign country, you may be considered a nonresident alien for tax purposes.

Otherwise, if you do not pass the substantial presence test, you may elect to be taxed as a nonresident alien. This may be the case for newly issued green card holders. In that case, you would calculate your residency date based on when you first moved to the United States after receiving your green card while living abroad. You would then file as a dual-status taxpayer and file as a resident alien for the time after you arrived in the U.S. and as a nonresident alien for the time before you arrived.

Non-resident aliens are subject to taxes if they engaged in trade or business in the United States during the calendar year, as long the U.S.-earned portion of their income is more than a personal exemption amount (standard deduction) of $12,000 to $24,000, in which case, a Form 1040NR is filed with the IRS. Capital gains and income earned outside the United States is not taxed for nonresident aliens so there may be some tax advantages to filing as a non-resident alien if you qualify, though you would likely be subject to taxation by a foreign country in which you earned income.

You have to file taxes if you are a green card holder and…

Pass the substantial presence test.
Are physically present in the United States at any time during the tax year and elect to be treated as a tax resident.
Resided in the United States the prior year and resided in the United States at any time during the tax year.
Do not pass the substantial presence test, and elect to be taxed as a resident alien.

You must also meet the income thresholds below:

Screen-Shot-2019-03-13-at-2.14.54-PM — *Source: https://www.irs.gov/pub/irs-pdf/p501.pdf*

For purposes of determining whether you must file a return, gross income includes any income that a green card holder can exclude as foreign earned income or as a foreign housing amount.

You won’t have to file taxes if you…

Are a tax resident and don’t meet the income threshold for your filing situation as listed in the table above, whether income was earned in the U.S. or abroad.
Are not a tax resident (such as a nonresident alien for tax purposes) and do not meet the income threshold for income earned in the United States.
Can be claimed as a dependent on anyone else’s tax return for the same year.
Are a dual-resident taxpayer and live and work abroad in a country with a tax treaty with the United States that has a tie-breaker rule wherein you would pay taxes in the foreign country and be treated as a non-resident alien for U.S. tax purposes only, and did not earn any income in the United States.

Foreign Account & Asset Reporting for Green Card Holders

In addition to having to report worldwide income, Green Card Holders also have to report their global assets on a broad range of different IRS international information reporting forms. Some of these forms include the (FinCEN Form 114), FATCA , Form and Form 8865

Foreign Account Reporting

If you have foreign bank accounts, investments, assets, or other money abroad, there is a high likelihood that you will meet the threshold requirement(s) to disclose this information to the IRS. There are many different forms that you may have to file depending on what type of assets or accounts you have, the value of the assets and accounts, and whether or not you acquired certain assets in the current year.

Letter of Intent to Abandon Resident Status

Under the US tax rules, resident status is considered to be abandoned when the individual’s application for abandonment is filed with the US Immigration authorities or a consular officer. (INS Form I–407 “Abandonment of Lawful Permanent Resident Status”). Or when a letter stating the alien’s intent to abandon his or her resident status, along with the green card enclosed, is filed with the US Immigration authorities or a consular officer.

Most people go to the nearest US consulate or embassy with the required documents and turn them over the US consular officer. A stamped copy of the I-407 is given to the individual by the consular officer. This copy must be retained as proof that the card was formally and properly abandoned. The Form can be accessed here.

I always recommend that the individual personally visit the US consulate or embassy to formally relinquish the green card. Since by doing so, he is present for every step of the process. He than can ensure that he receives proper proof of relinquishment. However if this is not possible, another method is available.

If filing a letter of intention to abandon US resident status, with the US green card enclosed is the method chosen. The letter must be sent by certified mail. With return receipt requested or a foreign country’s equivalent thereof. A copy of the letter and the green card, along with proof that the letter was mailed and received, should be retained.

Foreign Earned Income Exclusion

Over the last few years we have seen many inexperienced practitioners using the exclusion for clients in which it does not apply. In order to claim this exclusion, you have to meet either the Physical Presence Test or the Bona-Fide Residence Test. If you have not lived outside the country for at least 330 days in any 12 month period, you will not qualify for the Physical Presence Test. And, if you live the majority of the time in the United States, you will presumably not qualify for the Bona-Fide Residence Test.

Also, you cannot switch back and forth each year between the two separate tests, so it is to work with a practitioner who understands the application of the exclusion and when it qualifies.

The exclusion is a bit of a red flag so if you are on that cusp of believing you may qualify or not qualify, you should have your ducks in a row at the time of the tax return submission.

Golding & Golding International Tax Resource: Foreign Earned Income Basis; Foreign Tax Credit vs. Foreign Earned Income Exclusion;

Foreign Tax-exempt Income is Usually Taxable

Especially in Asian countries, it is very common for Passive Income (such as dividends, interest, capital gains or royalties) to be non-taxable in that country. For example, a foreign who earns all of their foreign passive income from an Asian Foreign Financial Institution is not (usually) taxed on the interest, dividends or capital gains (exceptions apply). But if that same person is actually a lawful permanent resident who resides overseas (not taking into consideration the Green Card 6-month residence requirement), then they are subject to US tax on that income — making matters worse, is that since they did not pay any tax abroad — they will not have any foreign tax credits to apply, to reduce their US tax liability.

How do you pay taxes without a green card?

If you’re not a U.S. citizen and you don’t have a green card, you’ll need an Individual Taxpayer Identification Number (ITIN) to pay taxes. This is separate from a Social Security number. You can get an ITIN even if you are undocumented.

Don’t Forget –

• Persons planning to relinquish their green cards should thoroughly understand the rules regarding “expatriation”. Holding a green card for an extended number of years can make relinquishing the card more complicated from a US tax perspective and, depending on the facts of the case, can result in imposition of so-called “Exit Tax” liability as well as other US tax consequences.

• Look carefully at the rules for tax filings that are required (for example, Form 8854 and the final income tax returns reflecting dual status tax years). These issues, as well as possible tax planning, should be discussed with a tax professional before the green card is abandoned.

• Abandoning one’s green card is irrevocable. Unless the individual holds a passport entitling him to benefits of the US 90-day visa waiver program, the individual will be required to apply for an immigrant visa in order to enter the US in the future.

How is Filing Taxes Abroad Different for Green Card Holders vs. US citizens?

Tax-wise, no distinction is generally made between US citizens and Green Card holders. Once you receive your Green Card, you are automatically considered a US tax resident from that day on. US tax residents are subject to tax on their worldwide income, regardless of where they are residing at the time. So, should you decide to return to your home country, you could not leave your US tax obligation at the border. However, like US citizens, you do have mechanisms such as the Foreign Earned Income Exclusion and Foreign Tax Credits that you can use to minimize your tax liability.

Many tax treaties view US citizens and Green Card holders in the same light; however, there is greater scope for Green Card holders to take advantage of these treaties than US citizens. Before taking treaty positions on your tax return, seek the advice of an immigration attorney. You don’t want to put yourself in a situation where your Green Card may be in jeopardy because of a position taken on your tax return.

Before You Leave the U.

You might have to request a “sailing permit” from the IRS before leaving the U.S. if you’re a green card holder, a resident alien, or a non-resident alien. You could be subject to an exit tax if you’re leaving the U.S. permanently and plan to give up your green card. This is a special tax just for the privilege of permanently leaving the U.S. tax system. It applies to U.S. citizens and to those who have been lawful permanent residents in at least eight of the past 15 years.

Decide whether you want to give up your green card and leave the U.S. well before your eight years are up, if possible. You can avoid the exit tax, which is essentially a tax on your net worth, if you give up your green card before you hit the eight-year mark. You’ll still have to fill out the exit tax paperwork. The tax itself doesn’t apply until you reach your eighth year of residence.

You’ll have to know the market value of all your assets on the date you became a U.S. resident. Take a full inventory of your assets and net worth as of that date. The information can become useful if you ultimately decide to give up your green card.

What You’ll Need to File Your Taxes

Just like U.S. citizens, green card holders must file taxes on all income you receive during the tax year. That means you will need to gather together all pertinent documents and information including:

W-2 from your employer
Form 1099 for wages earned as a contractor (one from each job with over $600 in earnings)
1099-DIV for stock dividend income
1099-B for sale of stock
W-2G for gambling winnings
1099-G for unemployment income
SSA-1099 for Social Security benefits received
Form 1098 for mortgage interest paid
Form 1098-E for student loan interest
Form 1098-T for tuition payments
Residency start and end dates in the United States
Records for your income, eligible business deductions and payments to employees or contract workers

Are Green Card Holders Subject to FBAR When Filing Taxes Abroad?

Absolutely. Because the they are considered a US tax resident, the requirement to file the FBAR, as well as other FATCA reporting, remains when it comes to taxes for Green Card holders living abroad.

Have Questions About Filing Taxes Abroad for Green Card Holders? Do Green Card holders pay taxes on foreign income?

Greenback accountants specialize in expat taxes and all the complicated variations thereof. If you want to get your specific questions answered, get started with us today

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.

Taxes on Worldwide Income

It does not matter whether the money was earned while you resided in United States or outside of United States, and it does not matter if the money has already been taxed by a foreign jurisdiction. Moreover, it does not matter if the income is tax exempt in the other jurisdiction. Rather, if you are a U.S. person then you have to report your worldwide Income.

*They may be a bilateral tax treaty in place with the U.S., and/or other specific IRS rules that may exclude, exempt, or limit the application of U.S. tax, but from a baseline perspective — it should be included on your tax return.

Income and Assets Abroad

You might have investments, property, or financial accounts in countries outside the U.S. Income must often be reported on your U.S. tax return as well If you make any income through those sources, including government pensions, interest, or investment gains.

You might also have to report the details of all your financial assets held outside the U.S. by filing a Statement of Foreign Financial Assets (IRS Form 8938) with your tax return. You must also file a Foreign Bank Account Report (FinCen Form 114), which is filed separately from your tax return.

These two forms ask for a lot of information. There’s no tax or fee associated with filing them. But there are stiff penalties for not filing them.

Tax-free or tax-deferred savings plans that you have in your home country might not be tax-free or tax-deferred here in the U.S. British individual savings accounts (ISAs) and Canadian tax-free savings accounts (TFSAs) are not tax-exempt here. Income generated inside these accounts is taxable in the U.S.

Note

Passive foreign investment companies are assets sitting in a pooled investment fund or unit trust. There are special rules for how this type of income is taxed. You’ll need good documentation to fill out the tax form properly. You might need the help of a professional.

Foreign Tax Credits

If you already pay tax in a foreign country on income you earn in a foreign country, you may receive a credit for that tax in the United States on the income. So for example, if you earned $50,000 of interest income in Portugal and paid 11% tax, then when you report that income under US tax return you will also include the taxes paid on a form 1116.

There is an equation that is used to ensure that none of the foreign tax is used to offset US tax on US income so it is not always a dollar per dollar credit – but it is a nice benefit, and often times comes close to a 75% – 100% tax credit.

Golding & Golding International Tax Resource: Foreign Tax Credit vs. Foreign Earned Income Exclusion; High-Tax Kick-Out

Can Green Card Holders Offset US and Foreign Taxes?

The good news is that, even when subject to tax in both jurisdictions, the Green Card holder can often claim foreign tax credits for income tax paid on either the US or foreign country return. Where there is a tax treaty in place, this will determine who has the “first right” to tax the income – meaning the other country will then claim a foreign tax credit on its return.

For example, our Green Card holder is living and working in Country X. All salary has been earned working in Country X, so Country X has the first right to tax the income. Because the Green Card holder also needs to report this income on a US income tax return, it is also reported on Form 1040. The Green Card holder is then able to claim a foreign tax credit for the tax paid to Country X on the tax return, thereby reducing/eliminating the US tax liability due.

Don’t Forget

• Persons planning to relinquish their green cards should thoroughly understand the rules regarding “expatriation”. Holding a green card for an extended number of years can make relinquishing the card more complicated from a US tax perspective. And, depending on the facts of the case, can result in imposition of so-called “Exit Tax” liability. As well as other US tax consequences.

• Look carefully at the rules for tax filings that are required. For example, Form 8854 and the final income tax returns reflecting dual status tax years. These issues, as well as possible tax planning, should be discussed with a tax professional before the green card is abandoned.

What Is the Substantial Presence Test?

The Internal Revenue Service (IRS) defines “substantial presence” as being physically present in the U.S. for at least 31 days out of the year and for at least 183 days during the last three years, including the current year.

The calculation for the 183 days during the last three years isn’t clear-cut. Each day in the current year counts as one day. But days in the previous year count as only one-third of a day. Days in the year before that count as only one-sixth of a day.

These rules don’t apply to government workers or to certain professionals or students. They’re waived if you commute into the U.S. as a resident of Mexico or Canada, or if you’re unable to leave the U.S. due to a medical condition that began and was diagnosed here.

Form I-407 or Letter of Intent to Abandon Resident Status

Under the US tax rules, resident status is considered to be abandoned when the individual’s application for abandonment (INS Form I–407 “Abandonment of Lawful Permanent Resident Status”) or a letter stating the alien’s intent to abandon his or her resident status, along with the green card enclosed, is filed with the US Immigration authorities or a consular officer. Most people go to the nearest US consulate or embassy with the required documents and turn them over the US consular officer. A stamped copy of the I-407 is given to the individual by the consular officer and must be retained as proof that the card was formally and properly abandoned.

It is always recommended that the individual personally visit the US consulate or embassy to formally relinquish the green card since by doing so, he is present for every step of the process and can ensure that he receives proper proof of relinquishment. If this is not possible, however, another method is available. If filing a letter of intention to abandon US resident status, with the green card enclosed is the method chosen, it must be sent by certified mail, return receipt requested (or a foreign country’s equivalent thereof). A copy of the letter and the green card, along with proof that the letter was mailed and received, should be retained.

Taxes Are Paid for Both US and Foreign Income?

If you are a Green Card holder working abroad, this will depend on your location. For those living and working within the US, you would generally find that you are only required to pay US tax. This is because most countries would only require you to pay tax if you were (a) living and working in the country; and/or (b) earned income from sources in the country (e.g., interest income, rental income).

On the other hand, if you are living and working outside of the US, you would generally end up filing both US and home country taxes.

Do You Reside Overseas?

If you reside overseas for a majority of the year, you may have the opportunity to exclude upwards of $102,000 of your income, along with a portion of your housing. The method for excluding income is with the Foreign Earned Income Exclusion. In order to qualify for the exclusion, you must meet one of two tests – either the Bona-Fide Residence test (BFR) or the Physical Presence Test (PPT).

It is important to note that you only have to meet one of these tests, but you can’t flip-flop each year — so once you pick a test/analysis, you are pretty much stuck with it for at least 60 months.

Also, the IRS has made it a habit of auditing individuals who claim the exclusion. This is because – as you can imagine – many people try to claim the exclusion when they do not otherwise qualify for it.

Nevertheless, it is a great legal way to avoid taxation on certain foreign income

Expired Green Card & US Tax

This is where it gets a bit more complicated. The green card is actually just a representation of the permanent resident status. Therefore, until the taxpayer formally relinquishes their green card (usually by filing a form ) they are still considered a US person for tax purposes — they just lose their travel rights to the US — which is usually the primary purpose for many foreign nationals to obtain permanent residence in United States in the first place — a double-whammy.

Foreign Investments, PFIC & Form 8621

If you have investments overseas such as a foreign mutual fund, or you are the owner of a foreign corporation that manages investments and you meet the requirements of it being a PFIC, then your tax return just became infinitely harder to prepare. Whether or not you will have to file a form 8621 will be determined by the value of the PFIC assets, whether you or your CPA ever made an election, etc. In addition, depending on whether you have ever made a previous election for the specific assets, and/or whether or not you have any distributions/ excess distributions will impact the preparation of the tax analysis.

The reason why this form 8621 is so important, is because if it is not filed when it is supposed to be filed — then your tax return is considered incomplete and the statute of limitations does not begin to run yet.

Golding & Golding International Tax Resource: , PFIC Excess Distribution Calculation

Foreign Trusts, Partnerships, or Businesses

Depending on whether or not you have sufficient interest, control, or ownership of a foreign business or trust may determine whether or not you have to file other tax forms such as Form 3520, 5471, or 8865.

These forms are considerably complicated, especially for somebody who is not in the business of preparing international tax returns. Moreover, ever since the Internal Revenue Service has made international tax enforcement a mainstay and priority, the penalties that the IRS may issue for individuals out of compliance have increased exponentially.

As a result, if you have any sort of interest or ownership (or control) over foreign business or trusts, it is important to determine what your filing requirements are before submitting your tax return to the IRS.

Golding & Golding International Tax Resource: , , ,

VIDEO TRANSCRIPT

Hi everybody. My name is David McKeegan. I’m with Greenback Expat Tax Services. Our question this week is, when a green card holder leaves the US temporarily, is the green card holder subject to FBAR reporting requirements? The short answer is yes. If you’re a green card holder and you have foreign bank accounts that have over $10,000 in them, you need to be reporting these accounts each year using the FBAR or Fincen Form 114, which is the formal name for the FBAR. This needs to be submitted electronically through the BSA filing system, and the deadline for that is June 30th each year. If a green card holder leaves the United States to move abroad for a period of time, the same rules apply. As long as you’re considered a US person, which is as long as you have that green card, you will need to continue filing the FBAR report each year. Same as any other US citizen living overseas.

I’m just going to make one quick note about green card holders going overseas. If you are a green card holder and you go overseas, you have to be very careful, because you could be viewed as having abandoned your green card. You definitely want to talk to somebody on the immigration side before you go overseas for any extended period of time. Especially if you plan on returning to the United States. You don’t want to risk having abandoned your green card and have to go through the whole process again of getting a new green card or anything like that. That’s all for this week. Thank you very much for listening. If you have any questions, please let us know.

Need to learn more?

Download our free US tax guide for foreigners living in the US to learn the ins and outs of US taxes!

Who doesn’t love a tax break? Use our handy calculator to learn what you can save using the FEIE.

Use our simple excel calculator to get an estimate of how the foreign earned income exclusion will save you money. It will make your day!

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Review the U. Income Tax Treaty

United States has entered into income tax treaties with more than 50 countries. While many of these treaties are nearly identical in content, they often will have nuances and differences — especially on issues involving retirement, pension and Social Security (usually Paragraphs 16-20 of the Treaty.)

While general proposition contained in many treaties is that the country of residence is usually the country that has the opportunity to tax individuals on issues such as retirement, these rules are not linear and there are exceptions, exclusions, and limitations depending upon the specific country, the specific treaty, and the specific type of income.

Golding & Golding International Tax Resource: We recommend searching our Tax Library for the specific country

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms the public about their credentials and experience.