If you recently obtained a green card, you may not be familiar with how your taxes will be affected.
January 4, 2021
It may take years, or even decades to obtain a US green card. A green card allows someone who is not a US citizen to obtain permanent residence, the right to work, and a pathway to citizenship. While taxes might not be a part of the green card decision making process, whether you are thinking about obtaining one or already have a US green card, you’ll want to know your tax implications and filing responsibilities.
The Top US Green Card Tax Considerations
1. US Tax ResidencyWhen you have a US green card, all your income becomes taxable. It might already be taxable, depending on if you are considered a resident under US tax laws. This is because the US applies income tax based on whether a person is defined as a resident or a non-resident. It is possible there may be no change to your tax residency when obtaining a new green card if you have been deemed a tax resident under the ‘substantial presence test’ in the past.
Nonresident (some things are taxable)
As a non-resident, you are only taxed on your income directly related to a US income source. This means if the work is performed while physically in the US that the income related to that work is taxable in the US. In addition, income from investment properties located in the US and income from US businesses are other examples of taxable income as a U.S. non-resident.
An example of non-taxable income as a non-resident could be wages related to work done physically outside of the US and income on rental properties located outside the US.
Resident (everything is taxable)
US tax residents are taxed on all income (worldwide!). This is regardless of income type or where it is generated. Even income coming from outside the US becomes taxable as a resident. For instance, income from your country of origin or citizenship.
A few examples of taxable income are wages, rental property, business, interest, and dividends.
Residency Rules and the ‘Substantial Presence Test’
If you’re not a US citizen, or if you don’t have a US green card (more below), for tax purposes, your tax residency is determined using the ‘Substantial Presence Test’. Essentially, the test determines you ‘substantially present’ if you are located in the US for half the year or more (183+ days) for the tax year in question.
*Note that US days might not count towards the substantial presence test for some—to name a few exceptions: F or J visa holders.
As a green card holder, you are taxed on all your income types from any location. If you received your green card before you arrive in the US, you begin “resident” status starting with the first day you arrive in the country!
2. Financial Account Disclosures
As a US tax resident, you must frequently disclose any ‘non-US financial accounts’ to the IRS—known as Report Foreign Bank and Financial Accounts (FBAR).
FBAR is also referenced as FinCEN Form 114. The filing requires that any ‘non-US financial accounts’ such as non-US bank, checking, savings, brokerage, provident fund, superannuation, or any other financial account under your name be disclosed. ‘Under your name’ meaning any accounts owned by you, you and your spouse, or over which you have signature authority. For instance, you might have to disclose your child’s account or a corporate account if you have signature authority.
FBAR Filing Requirements
For any non-US financial accounts, the maximum value of each account reached during the year needs to be totaled. If the US dollar sum amount is $10,000 or more, then FinCEN Form 114 applies and needs to be filed for that year.
Each account needs to be disclosed in the filing, even if one of the accounts did not individually exceed the threshold, contained no money, or was recently closed—additional tax is not allotted for this disclosure. Income generated by the accounts need to be reported on your return. This is important as there is potential for serious penalties from the US Treasury Department if you have a filing requirement and do not file.
Global Mobility Tax’s team of experts has helped many of our clients understand the tax complexities of US green cards. We can help advise your unique tax situation, as well as ensure you meet IRS and Treasury Department filing requirements.
If you need assistance with tax compliance, contact your Glomo Tax Team at email@example.com.
By Kyle Miller (firstname.lastname@example.org)
Kyle Miller, EA, is a Tax Manager at Global Mobility Tax, LLP (GMT). Kyle has continuously worked for large high profile multi-national corporate clients during his international tax career. Prior to joining the team in 2014, he spent 4 years at a Big 4 accounting firm. Working and studying internationally was what led Kyle to a career supporting international clients and their globally mobile employees. Kyle is an Enrolled Agent with the IRS. He has a Bachelor of Arts from Stanford University and a Master of Business Administration from European University.
Global Mobility Tax, LLP is a CPA firm providing strategy, consulting, and individual tax services to organizations and their employees relocating globally. By teaming with a network of international tax providers, Global Mobility Tax clients benefit from a global service approach to managing tax and compliance requirements around the world.