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Let’s Talk Taxes – Tax Implications Of A Green Card

Asha Dixit
11/21/2012

LET’S TALK TAXES – Tax Implications of a Green Card
“The land flourished because it was fed from so many sources--because it was nourished by so many cultures and traditions and peoples.”
Lyndon B. Johnson, Remarks at the Signing of the Immigration Bill, Liberty Island, New York, October 3, 1965.

For tax purposes, a green card holder, even if living overseas, is considered a resident of the U.S. Residency status lasts until the U.S. government takes it away with the issue of a final administrative or judicial order of exclusion or deportation.  A green card holder is subject to the same tax rules as a U.S. citizen for filing income, estate, and gift tax returns and paying estimated taxes.

A green card holder who meets the tax filing threshold is required to file a tax return on her worldwide income regardless of the source of such income unless the individual’s residency status is affected by tax treaty.

A is 65 years old and retired.  In January 2012, he obtained his green card and moved to the U.S.  For 2012, A has pension, interest and dividend income of $20,000 from his home country, and no income from U.S. sources.  A must file a 2012 U.S. return showing the $20,000 of income and pay U.S. taxes, if any, even though he has no income from U.S. sources.

Another reporting requirement that green card holders are subject to and must comply with is the foreign bank account reporting (FBAR) which applies to all U.S. residents.  Green card holders with foreign bank accounts having aggregate bank balance in excess of $10,000 at any time during a calendar year must file this form.

X is a green card holder living in the U.S.  She has no assets in her name.  After her spouse passed away in 2012, the overseas bank transferred his account to X. The account has a balance of $15,000. Since the foreign bank had a balance over $10,000 in 2012, X has to file the form TD F 90-22.1.

For tax purposes, a green card holder is considered a U.S. resident even if she resides outside the U.S.   An exception to this rule is when the individual surrenders her green card though that might result in an exit tax.

C is a green card holder who was living in the U.S. from 2003 to 2011. On January 1, 2012, she moved overseas. Though C did not work during 2012, she earned $50,000 of interest and dividend income from her overseas investments.  Though C lived overseas for the entire year, she has to file a 2012 US tax return for the $50,000 foreign income.

Under U.S. immigration law, failure by a resident to file a tax return, when required to, may be construed as having abandoned status and may result in the loss of permanent residency.

Before obtaining a green card, individuals should carefully consider tax implications resulting from U.S. tax laws.  They should analyze assets in their portfolio through the lens of U.S. tax laws and assess the impact of FBAR reporting.  Those who have significant foreign assets must consider estate and gift tax as well.

Disclaimer: Every individual’s tax situation is different and tax situations change over time. This article is intended to give general information to enable the reader to discuss their situation with a tax adviser.  It is not intended to be tax or legal advice and should not be construed as such.

(Asha Dixit, CPA, MBA, MS is a partner with Shah, Dixit & Associates P.C. in Burlington, MA. For further information, contact Ms. Dixit at asha@shahdixit.com. )

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