Basic Tax Guide for Green Card Holders

If you have a Green Card, then you are legally considered a permanent resident of the United States even if you live in a different country. Because of this you are responsible for paying US income tax, no matter where you earned the income. As a green card holder, it is a requirement that you file a United States tax return unless you meet one of the following conditions.

  • You no longer have legal permanent resident status in the United States because your status has been revoked.
  • You don’t have to file a tax return because your total income is too low.
  • An income treaty affects your US resident status.

Green card holders have a lot of rules to follow for correctly paying taxes, but filing your tax return doesn’t have to be a complicated process. Our expert team of accountants can help you get your tax forms in correctly and on time. We can also help you plan, so you pay the minimum amount of taxes that the law allows.

Living Outside the Country with a Green Card

You may be liable to pay US taxes even if you have lived abroad for a long time. These obligations continue until your green card and US resident status are cancelled or revoked. Simply living oversees does not revoke your responsibility to follow US tax law.

If you decide to surrender your green card to avoid paying US taxes, you should know that you don’t automatically lose your US resident status when you give up your green card. You must receive notice from the US Citizenship and Immigration Services (UCIS) that your green card has be revoked or cancelled in order to have your United States citizenship cancelled. In order to be sure of your status you should verify it with the UCIS.

If you have a green card, be sure to file your returns every year regardless of where your residence is. If you don’t file a return for two years, and have income to report, you will be required to follow returns for the previous 5 years.

There is a difference in tax withholdings for non-wage income like pension and social security depending on whether a green card holder is living. Non US residents should not have a withholding of 30% on this type of income, while US residents do have the 30% withheld. If the tax was incorrectly withheld you should notify the company to stop the 30% being taken out and claim a refund of the tax that has been withheld.

Foreign taxes
If you are living outside the US and paying foreign taxes, you still have to pay US income taxes. So that you don’t end up with double taxation issues, you can claim you can claim a tax credit for foreign taxes paid when you file your US income tax return, or claim the US taxes paid when you file your returns in the foreign country where you are living.

Tax treaties make this process much simpler. If the place where you live has an income tax treaty with the US, the treaty may have a provision that will determine which country will be used as your country of residence for income tax reasons. Your permanent home or where you reside the majority of the time will determine what country you pay taxes to.

If you decide to apply the provision of the treaty, you will be deemed a resident of the country of your residence and will not be required to file Form 1040. Instead you need to file a Nonresident Alien Income Tax Return (Form 1040 NR) for the year you opted to apply the treaty and attach a copy of Form 8833.

Termination of status as a resident alien
In general, when you give up your green card within a taxable year, your tax status as a resident alien will end at the end of the calendar year. But if you can prove that your tax home is in a foreign country or you have closer ties to the foreign country than to the US, your US residency ends on the day you surrender the green card,

If you are a resident of the US because you have a green card and have met the substantial presence test during the taxable year, your date of residency termination will be the later of the date you surrendered your green card and the last day you were physically present in the US.

If you are a nonresident alien at the end of the year and a resident alien for part of the year, you should file Form 1049NR even if you have no US income and attach a copy of Form 1040 that shows your income for the time you were a resident alien.

Terminating residency with form 8854
If you want to terminate your US residency and have been a permanent resident of the US for at least 8 of the last 15 taxable years you will need to follow the following rules:

  • You must file form 8854 with the IRS and give notice to the Department of Homeland Security in order to have the termination of your residency take effect. You must do this even if your tax home is outside the US.
  • You must file tax returns in the US until you complete the following two requirements and receive notification that your residency has been terminated.

When you have a green card and are living in the US as a permanent resident, you follow the same tax laws as US citizens. If you have a green card and live outside the US, you must still file US tax returns, unless a tax treaty is in effect with your country of residence.

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