The short answer is “yes.” Acquiring a green card makes you a lawful U.S. permanent resident, as such, you automatically assume all the tax responsibilities of a U.S. tax resident.
The federal government requires all tax-eligible U.S. citizens to declare their worldwide income sources to the Internal Revenue Service (IRS) every year. You must claim your source of income, regardless of where it was earned.
Since 2012, U.S. tax residents have also been required to report certain information regarding any financial assets they own in foreign jurisdictions.
Reporting Your Income
Green card holders are permanent U.S. residents. Therefore, they are required to declare the income they receive, both from their jobs within the United States, as well as any financial gains earned from investments or business activities in other countries.
If you are a green card holder but live in another country, you must declare any income you earn from a job in that country. As a side note, working abroad can subject your green card status to serious jeopardy.
Green Card Holders Living Abroad
Having a green card makes you a permanent U.S. resident. However, if you live in another country, the immigration authorities may consider you to have abandoned or given up your residency. To prevent this from happening, you need to take various steps, such as filing for a re-entry permit, to ensure your green card remains valid. A Sam Shihab & Associates attorney in Columbus, Ohio can help you with the process.
Declaring all your income sources does not mean that the federal government will automatically tax all of it. The U.S. has various treaties with different countries that regulate whether U.S. citizens must pay taxes on earned income in other countries.
For example, if you pay income tax in another country, there are high chances that you’ll get a tax credit against your U.S. taxes. Despite this, green card holders are still required to report all their worldwide earned income.
- Common question: Does the number of days you spend in the U.S. every year determine whether you are required to pay taxes?
- Answer: Yes, but only if you have a nonimmigrant (temporary) visa. However, if you are a green card holder, you must report all your earned worldwide income, even if you spend considerable time outside the country.
The law requires U.S. tax residents to return Form 1040 every year by April 15. You can find the form as well as the instructions for filling it on the IRS website.
Reporting on Assets
The Foreign Account Tax Compliance Act (FACTA) requires U.S. income tax residents to provide information about their foreign financial assets every year if they exceed $50,000. The reporting should be done by filing IRS Form 8938 together with Form 1040. If you live outside the U.S. or are filing a joint tax return, the threshold is higher.
The reporting obligation is required for assets held in the taxable years since March 18, 2010. The aim of FACTA is to prevent tax evasion by U.S. residents who shelter their assets and investments in offshore accounts.
Keep in mind that the FACTA obligation is different from the requirement of the U.S. Treasury Department regarding the disclosure of foreign bank accounts. The Treasury requires U.S. residents to report any foreign bank accounts they hold by June 30 every year as per IRS rules.
How to Pay Income Tax
Permanent U.S. residents can pay their federal income taxes through estimated taxes, withholding, or sometimes both.
Through the “withholding” method, your employer or business that is paying you subtracts the necessary federal taxes from your pay every period. The pay is then forwarded to the IRS on your behalf and you are given the balance of the payment.
There is no exact amount that the law requires to be withheld from your income. The amount that will be withheld may be more or less than the actual tax you may be required to pay.
If you are a self-employed green card holder or get other income that is not subjected to withholding (for example, rental income or investments), you must send the estimated tax payments to the IRS approximately every three months.
At the end of the year, you’ll have to tally up all your estimated tax payments and withholdings that you have made. The withholdings appear on the W-2 form, which your employer gives you at the end of the year. If your withholdings were more than what you are required to pay in taxes, the IRS will give you a refund. On the other hand, if the tally shows that you underpaid your taxes, you’ll have to pay any balances due.
U.S. tax residents, including green card holders, are required to file their taxes every year by April 15. However, the date can be moved a day or two if it falls on a holiday or weekend. You may file an extension but only under certain circumstances. Be sure to consult a tax specialist before you file or make any tax-related decisions.
Consequences of Non-Compliance with U.S. Tax Laws
Failing to comply with U.S. tax laws can lead to prosecution. Green card holders found guilty of a tax crime can be fined or imprisoned, depending on the extent of the crime. Apart from this, their green card can be revoked, their future ability to become a citizen by naturalization may be jeopardized, or they may be subject to deportation from the United States.
Under FACTA, U.S. residents who fail to report their foreign assets worth over $50,000 can be fined $10,000 or more. Continuous failure to comply with the reporting requirements of the Act after being notified by the IRS can lead to fines of up to $50,000. The IRS also has the power to impose a 40% penalty on any non-disclosed or understated assets.
Green card holders who fail to file U.S. taxes, or who claim nonresident tax treatment between their home country and the U.S., might be considered as intending to abandon their permanent resident status. As a result, they may lose their green card.
Even if you are not found to have abandoned your U.S. resident status or are not prosecuted for a crime, failing to pay taxes can block you from becoming a U.S. citizen. When applying for citizenship, you must indicate on Form N-400 whether you have filed your taxes. If you have not been paying taxes, you may have to pay back the due amounts and associated penalties before your U.S. citizen application can be reviewed.
It is critical to seek advice from a tax attorney, or an accountant, to find out how U.S. tax laws affect you. Moreover, if you have not been filing your taxes and plan to apply for U.S. citizenship, you may need the assistance of an experienced immigration attorney to help you resolve this matter prior to filing.
Contact Sam Shihab today to learn how we can help you.