American tax issues for green card Holders
1. Tax Obligation for green card holders
Even if you are not a U.S. citizen, you may be required to pay taxes in the United States. Whether or not you must file a U.S. tax return depends upon whether the U.S. government considers you a “tax resident.” A green card holder is considered to be a resident of the U.S. for U.S. income tax purposes and is therefore subject to U.S. taxes on worldwide income. If there is no income tax treaty between your country of residence and the U.S., you must pay taxes to both countries. You generally will get a tax credit against either your U.S. taxes or your foreign income taxes, depending on your particular circumstances, so you will not be subject to double taxation.
Failure to follow U.S. tax laws will hurt your ability to qualify for U.S. citizenship. It may also be considered a crime.
If the country where you are living has an income tax treaty with the U.S., the treaty may contain so-called “tie-breaker rules” to determine which country will be treated as the country of your residence for income tax purposes. Usually, the location of the individual’s permanent home or the center of the individual’s vital interests determines resident status. If you are a resident of the treaty country under the tie-breaker rule and you elect to apply the treaty, you will be considered to be a resident of the treaty country for U.S. income tax purposes and will not be required to file a Form 1040. To make this election, you must file a U.S. Nonresident Alien Income Tax Return (Form 1040NR) in the year of the election and attach a copy of Form 8833 (Treaty-Based Return Position Disclosure).
2. Prior year responsibilities
Your tax responsibilities as a green card holder do not change if you are absent from the U.S. for any period of time. If you have not filed a U.S. income tax return for one or more years you should try to get up to date, starting with the last few years. If any income tax is due for any of those years it is a more urgent matter and you should file returns as soon as you can. Please also see the FAQ General section, question 6.
3. Tax withheld in the U.S.
When an entity in the U.S. makes a non-wage payment (like social security or pension payments) to a nonresident alien, it is required to withhold 30% of the payment and forward it to the IRS. When an entity in the U.S. sends a payment to a green card holder who lives outside the U.S., it generally should not withhold the 30% tax. If this tax is withheld in error because you have a foreign address, you should notify the payer of the income with a Form W-9 to stop the withholding. You can also claim a refund of the tax withheld in error.
4. Surrendering your Green Card
If you have surrendered your green card to a U.S. official, this doesn’t necessarily mean that your status as a lawful permanent resident has changed. Many people are under the mistaken belief that simply because their green cards have “expired” they are no longer required to file tax returns. This is not right. Under the US tax rules, once resident status is acquired, it is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned. A “rescission” of resident status generally occurs when there is a final administrative or judicial order of exclusion or deportation. An administrative or judicial determination of “abandonment” of resident status may be initiated by the foreign person, the US Immigration authorities or a US consular officer.
Generally, if you surrender your green card during the taxable year, your tax status as a resident alien will terminate on the last day of that calendar year. However, if you can establish that, for the remainder of the calendar year, your tax home is in a foreign country or you maintain a closer connection to that foreign country than to the U.S., your residency termination date will be the date you surrender your green card. If you are a resident of the U.S. because you meet both the substantial presence test for the taxable year and have a green card during the taxable year, your residency termination date will be the later of the date you surrender your green card or the last day you are physically present in the U.S., provided you can establish one of the exceptions above.
If you are a long-term resident of the U.S., defined as an individual who is a U.S. lawful permanent resident in at least 8 of the prior 15 taxable years prior to the termination of permanent resident status, there are special rules to comply with. Your residency termination date will not occur until you file a completed Form 8854 with the IRS and notify the Department of Homeland Security of your termination of residency, notwithstanding that for the remainder of the taxable year your tax home is in a foreign country or you have a closer connection to a foreign country. Until you file Form 8854 with the IRS and notify the Department of Homeland Security of your termination of residency, your termination of your permanent resident status for immigration purposes will not relieve you of your obligation to file U.S. tax returns and report your worldwide income as a resident of the United States. For purposes of U.S. tax rules, the date of your termination of residency will be the later of the date you notify the Department of Homeland Security or the date Form 8854 is filed with the IRS in accordance with the instructions for the form.
You will be considered to have given notice of a termination of residency to the Secretary of Homeland Security as of the date that you complete Form I-407 (Abandonment of Lawful Permanent Resident Status) before a diplomatic or consular officer of the U.S. or at a Port of Entry of the United States before a U.S. immigration official.