Green Card Taxes: Everything You Need to Know
Green card holders are required to adhere to US tax laws. Failure to comply may result in termination of immigrant status and/or deportation.7 min read updated on February 01, 2023
What are Green Card Taxes?
Green card taxes are required for green card holders. US Citizens are not the only people required to pay taxes to the U.S. government. Permanent residents and green card holders are also required to pay taxes. If you work from a company that withholds income taxes from your check, then you should file a tax return.
Permanent residents and green card holders that have taxes withheld from their paychecks are considered “tax residents” by the Internal Revenue Service (IRS). In fact, anyone with a green card is considered a tax payer by the government. Tax residency also refers to investors and business owners. All workers are required to pay taxes, and business owners are considered self-employed.
Self-employment means there is no third party that automatically deducts income taxes from your check. You must deduct the income tax yourself. People that conduct business outside of the U.S. must report all of their global income to the United States. However, the IRS doesn’t always tax all of your global income.
Taxes are confusing, even for citizens. To help you file your taxes, seek the counsel of a lawyer or accountant. The IRS also provides resources on its website (irs.gov) such as IRS Publication 519 also knowns as the U.S. tax guide for aliens.
Tax residency is granted the day a green card is issued to its holder. From that day forward, green card holders are required to report all of their income (national and international) to the IRS. The only way a green card holder can be exempt from paying taxes is if they have entered into an income tax treaty with the United States.
Another group of people that can also be tax-exempt are non-immigrant visa holders. Typically, non-immigrant visa holders spend a certain amount of time in the U.S. each year. This time period is considered inadequate for tax residency. However, if they spend more than the specified time for tax exemption, the IRS may decide to grant them tax residency. The specified time is 31 days in the same year. If you spend a total of 183 days in the U.S. within a three-year period, you will also be considered a tax resident.
The government will look at your physical presence in the United States to determine your residency. If you spend time in Canada or Mexico during your trip, those days do not count. If you spend less than a day in the U.S., that day won’t count either. It has to be 24 consecutive hours during which you are physically present in the U.S.. The IRS will require you to complete a statement for tax exempt individuals (IRS FORM 8843).
Green card holders are required to report their income to the IRS even if they have been out of the country for longer than a year. They must complete the 1040 tax return form.
If you lose your permanent resident status, you are still required to pay taxes to the IRS. To stop taxation, you must notify the Department of Homeland Security about your immigration status. They can allow you to file the 8854 Tax form which relieves you from paying taxes.
However, this issue is complicated. There are instances where people have been required to pay taxes for a decade after losing permanent residency.
Nonimmigrant tax residents:
- File the 1040NR or 1040NR- EZ Forms
- Reserve all the rights every tax payer receives in the United States
- Can report credits deductions, tax payments, and more
Nonimmigrant tax residents file the 1040NR or 1040NR- EZ Forms. As a tax resident, you reserve all the rights every tax payer receives in the United States. You can report credits deductions, tax payments, and more.
The Tax deadline is April 15. As a green card holder, the IRS will grant you an automatic extension (June 15) if you happen to be outside of the United States during the original deadline. If you need more time beyond the extension to file taxes, you must complete the 4868 IRS form. This form gives you an extension until Oct. 15.
Green card holders are required to adhere to US tax laws. Failure to comply may result in termination of immigrant status and/or deportation. Non-immigrant visa holders are also required to adhere to US tax laws. Failure to comply can result in visa revocation and criminal punishment. It can also affect your application for permanent residency. The Immigration department can take your failure to comply into consideration and deny you residency.
Do Green Card Holders Pay U.S. Taxes?
As an immigrant, you are given the opportunity to maintain green card holder status while living overseas. However, you are required to pay taxes on your foreign income.
To maintain your green card as a foreign national, you must apply for a re-entry permit upon entrance to the United States.
In 2012, a statute was passed that requires green card holders to report information regarding foreign assets to the U.S. government. The Foreign Account Tax Compliance Act (FATCA) was a way to discourage investors from storing money made in the U.S. in offshore accounts to evade taxation.
Tax residents with foreign assets must:
- Complete the FATCA form 8938.
- Report all of their foreign assets to the department of Treasury by June 30 of the current tax year.
- All assets that exceed the value of USD 50,000 must be reported
- Tax residents face a fine of $50,000 implemented by the IRS for not reporting assets
Tax residents face a fine of $50,000 implemented by the IRS for not reporting assets.
The IRS can also issue a penalty of 40 percent on all undisclosed assets. That means you have to pay a 40 percent tax rate on all undisclosed assets.
During the citizenship application process, you will be asked if you have paid taxes. If the department discovers failure to pay, you will be forced to pay current and back taxes before you can proceed to citizenship. An immigration attorney can assist you if you have been forced to pay back taxes.
Remember, tax residents and non-tax residents are two separate groups. If you are confused about your designation of the criteria for tax residency, consult an immigration or tax attorney.
Green Card Holders
Many green card holders wonder if their foreign assets will affect their application. Admission of foreign assets is a requirement for all persons seeking citizenship in the United States. It is better to report your assets than hide them from the government. If the government discovers you have lied on your tax returns or that you have hidden income, they can revoke your green card and cancel your citizenship application.
Moreover, you cannot be a current green card holder and try to benefit from nonresident tax laws. That is in direct violation of the tax residency code.
Permanent residents of the United States are required to pay taxes even when they are overseas. You are also required to report the income you have collected overseas on your US income tax return.
The only way you can be exempt from filing a U.S. income tax return is if your green card has been revoked by the U.S. judicial system. You can surrender your green card, but that doesn’t mean you are tax exempt. The U.S. Citizenship and Immigration Service (USCIS) must send you documentation that states your green card has been revoked or abandoned. Even if your green card is expired, you must write to the USCIS to receive official documentation that shows green card revocation. Without official documentation, you will be required to pay taxes.
If you haven’t filed income tax for a couple of years, you must file income taxes for the current and previous years.
The IRS also monitors nonwage payments such as Social Security and pensions that are paid to non-resident aliens. Thirty percent of the payment is withheld and collected by the IRS. If the payment occurs outside of the U.S., the 305 tax is not required.
So, if the person being paid the nonwage settlement has a foreign address and tax is withheld, they must notify the payer and file a W-9 form. The form enables the resident to retrieve the taxed amount of funds.
Certain countries have maintained tax treaties with the U.S.. In these instances, it’s up to the “tie-breaker” rules within the treaty to determine hat country the resident pays taxes to. Officials will examine the resident’s home and interests to determine which country they can claim as their permanent residence.
You must file documentation to implement the rule. The applicant must file a U.S. nonresident alien tax income return in addition to the treaty based return position disclosure (form 8833).
Filing for a tax-treaty is a bit complicated. You will benefit from a tax lawyer with knowledge of international tax laws. Remember that you must apply to the government to ask permission to use the treaty.
Green card holders that decide to surrender their green cards during the taxable year will also terminate their tax resident status during that year. You must also provide proof that your permanent residency is in a foreign country and you plan on paying taxes in that country. Your tax residency termination date will be the last day you are physically in the United States or the day you surrender the green card.
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