America was built on immigration, and the promises of our Constitution were written as universal for all people. Even so, immigration into the U.S. has long been a political issue—and lately it has become even more contentious—so it’s important to know the facts.
To clear up any misconceptions, this article will explain the tax requirements for immigrants who have become Green Card holders, or permanent U.S. residents, and what they are expected to pay. We’ll also review special situations and tax obligations that can apply to these residents.
Do Green Card Holders Pay Taxes in America?
The short answer is yes, absolutely. Such residents have certain additional rules to follow, but are subject to essentially the same tax obligations as other permanent residents. Let’s look at the specifics.
What is a Green Card Holder?
Legal permanent residents are called green card residents because the official identification is traditionally green. It includes a photo of the resident, and can be used as a government-issued ID.
A Green Card holder has met the requirements of the Immigration and Nationality Act (INA), and has the rights, privileges, and benefits of permanent United States citizenship. As long as the holder of a Green Card complies with the law, he or she can stay, study and work in the U.S., just like any other citizen.
What Obligations do Green Card Holders have?
Green Card residents must comply with U.S. citizen requirements, such as Selective Service registration for males of between 18 and 25 years of age. Holders must also keep their Green Card on their persons at all times.
Green Card residents must file annual income tax returns with the IRS, as well as with their relevant state authority. As with all legal residents, Green Card residents must pay their local taxes and fees. There are no special tax exemptions or subsidies available to those who hold a Green Card.
Are there Limits to a Green Card?
Though it’s possible to vote in domestic elections with a Green Card, holders are only able to vote in state and local elections that don’t require U.S. citizenship. Their rights are subject to the laws holding jurisdiction over the holder’s residency, which can differ according to location. Residents with a Green Card cannot vote in federal elections, including the Presidential election.
Some benefits available to U.S. citizens may be limited for those with a Green Card. The rules for Social Security, Medicare, Medicaid, and other public benefits vary across different states and counties. To avoid confusion, it’s important to check with your local benefits office.
A Green Card also limits foreign travel. If a holder wishes to remain outside the U.S. for a year or longer, they must obtain a re-entry permit from the U.S. Citizenship and Immigration Service (USCIS) before leaving the country. These permits are normally valid for only two years from the date of issuance. Green Card residents exceeding these limits may be denied re-entry, despite being considered permanent residents for tax purposes.
Can a Green Card Resident Live Overseas?
International tax law for U.S. citizens is complicated, and it’s not any easier for those with a Green Card. Foreign taxpayers are particularly burdened.
Having a Green Card typically allows its holder to leave the country without penalty. However, the number of days a holder actually spends in the United States each year has no effect on their tax and filing obligations. Even if the holder lives abroad, those with a Green Card are treated as U.S. residents for tax purposes.
Tax rules for permanent U.S. residents, including those with a Green Card, are unique to the States. Uncle Sam wants a tally of your income worldwide, because it taxes its citizens and residents regardless of where they live or earn their income. This means that income must be reported no matter where it is earned, even for those possessing a Green Card.
Having a Green Card Can Be Expensive
It doesn’t stop there! The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires additional documentation for “specified foreign financial assets.” The thresholds for Green Card residents are more onerous than those for other permanent citizens living within the U.S.
Nor does it stop there. If you have a Green Card and own a financial account outside the U.S., it must be reported as a Foreign Bank Account Report (FBAR). This is filed separately from a tax return; and, though it isn’t directly taxed, the penalties for not filing may be quite severe. Possible penalties include:
• Fines of up to $10,000 per violation, if no reasonable cause can be proven.
• Willful failure of compliance can be charged the greater of $100,000 or half the unreported balance of the account. Such violations can also incur criminal penalties.
Foreign Pensions and Savings Plans
As a Green Card entails all the obligations placed on U.S. citizens, holders must also comply with the treatment of pension and savings plans wherever they are held in the world. Even if the foreign country in which a Green Card resident resides allows the deferral of taxes on contributions until retirement, U.S. laws allow its government to tax both earnings and the employer’s contributions to these foreign tax payers.
A Green Card doesn’t excuse the payment of taxes or compliance with tax reporting laws. Income tax compliance and disclosure laws apply to all permanent U.S. residents, including those with a Green Card.
In fact, there may be fewer benefits available for Green Card residents, higher reporting requirements, and a more difficult entry and re-entry process.
Compliance with immigration and international tax law can be complex, so it’s a good practice to consult with an attorney who specializes in this area. If you are a green card holder with tax questions, contact Brunoro Law office. We handle tax compliance and collections, and have expertise assisting the Latin American region.