If you’re a green card holder and you have questions about your tax obligations, know that green card holders are basically taxed the same as U.S. citizens. You might not have to file at all, but if you do have to file taxes, make sure you do it correctly and use the best possible method to maximize your return. Benzinga did the research for you and the article below will teach you how to file green card taxes.
How Do Green Card Taxes Work?
Green card holders are lawful permanent residents of the United States who have been given the privilege to reside permanently in the U.S. If you’re a green card holder, you’ve been issued a form I-551 (a green card) from U.S. Citizenship and Immigration Services. Green card holders must pay taxes on all income earned through wages, interest, dividends, income from property or royalties, compensation for services and any other income received, whether that income was earned in the United States or abroad. Like U.S. citizens, green card holders are treated as tax residents whether they live in the U.S. or elsewhere and must report income earned.
Tax liability for non-citizens (aliens) is based on a two-pronged test: the green card test and the substantial presence test. If you are a green card holder who resides the whole year in the United States, you pass both tests. This means you’re considered a tax resident and subject to filing a tax return. If you did not reside full-time in the U.S. for the tax filing year, you have to do some math to determine if you pass the substantial presence test. To pass, you must have been physically present in the United States for 31 days during the calendar year and 183 days during the three-year period that includes the current year and the two years immediately before that. This includes:
- All the days you were present in the current year
- 1/3 of the days you were present in the first year before the current year
- 1/6 of the days you were present in the second year before the current year
This two-pronged test will most often come into play for green card holders for the first year that they are issued a green card, or if the green card holder spent much of the year outside of the United States. If you were present in the United States at any time during the year that you were a green card holder, you may elect to be treated as a resident alien and therefore considered a tax resident.
If you are a green card holder, were a U.S. resident during any part of the preceding calendar year prior to receiving your green card and resided in the U.S. at any time for this tax year, then you are a tax resident. If you pass both the green card test and the substantial presence test but you are only in the United States for fewer than 183 days, maintain a tax home (such as a business) in a foreign country, and have a permanent home or other closer connection in that foreign country, you may be considered a nonresident alien for tax purposes.
Otherwise, if you do not pass the substantial presence test, you may elect to be taxed as a nonresident alien. This may be the case for newly issued green card holders. In that case, you would calculate your residency date based on when you first moved to the United States after receiving your green card while living abroad. You would then file as a dual-status taxpayer and file as a resident alien for the time after you arrived in the U.S. and as a nonresident alien for the time before you arrived.
Non-resident aliens are subject to taxes if they engaged in trade or business in the United States during the calendar year, as long the U.S.-earned portion of their income is more than a personal exemption amount (standard deduction) of $12,000 to $24,000, in which case, a Form 1040NR is filed with the IRS. Capital gains and income earned outside the United States is not taxed for nonresident aliens so there may be some tax advantages to filing as a non-resident alien if you qualify, though you would likely be subject to taxation by a foreign country in which you earned income.
You have to file taxes if you are a green card holder and...
- Pass the substantial presence test.
- Are physically present in the United States at any time during the tax year and elect to be treated as a tax resident.
- Resided in the United States the prior year and resided in the United States at any time during the tax year.
- Do not pass the substantial presence test, and elect to be taxed as a resident alien.
You must also meet the income thresholds below:
For purposes of determining whether you must file a return, gross income includes any income that a green card holder can exclude as foreign earned income or as a foreign housing amount.
You won’t have to file taxes if you…
- Are a tax resident and don’t meet the income threshold for your filing situation as listed in the table above, whether income was earned in the U.S. or abroad.
- Are not a tax resident (such as a nonresident alien for tax purposes) and do not meet the income threshold for income earned in the United States.
- Can be claimed as a dependent on anyone else’s tax return for the same year.
- Are a dual-resident taxpayer and live and work abroad in a country with a tax treaty with the United States that has a tie-breaker rule wherein you would pay taxes in the foreign country and be treated as a non-resident alien for U.S. tax purposes only, and did not earn any income in the United States.
What You’ll Need to File Your Taxes
Just like U.S. citizens, green card holders must file taxes on all income you receive during the tax year. That means you will need to gather together all pertinent documents and information including:
- W-2 from your employer
- Form 1099 for wages earned as a contractor (one from each job with over $600 in earnings)
- 1099-DIV for stock dividend income
- 1099-B for sale of stock
- W-2G for gambling winnings
- 1099-G for unemployment income
- SSA-1099 for Social Security benefits received
- Form 1098 for mortgage interest paid
- Form 1098-E for student loan interest
- Form 1098-T for tuition payments
- Residency start and end dates in the United States
- Records for your self-employed business income, eligible business deductions and payments to employees or contract workers
How You File Your Taxes with a Green Card
If you've determined that you have to file taxes, here are the steps you can follow to begin the process.
Step 1: Determine Your Tax Resident Status
Green card holders residing in the United States are considered resident aliens and are tax residents, therefore they need to file a tax return unless they are otherwise exempt (see list above). If you do might not meet the substantial presence test, are a dual-resident taxpayer in a country with a tax treaty, or could claim a closer connection to a foreign country, you may be able to file as a nonresident alien. Determining your tax resident status tells you which IRS forms you will need to file (such as a 1040 or 1040NR).
Step 2: Choose How To File
You can choose the best way to file taxes for you, whether you fill out paper forms using online tax preparation software or work with a CPA. Whether you file on your own or use a CPA is probably determined by how complicated your tax situation is. If you have an overseas holdings, foreign and domestic income, claim both resident and non-resident status for a calendar year or are a dual resident taxpayer, you may have to seek out a tax professional to file your taxes as some tax software does not support dual status filings. Be sure to pick the best tax software for your needs. A CPA can also advise you whether it would be to your advantage to claim resident or nonresident status in those situations where you could choose your status.
Step 3: File Before April 15 or June 15
Whichever way you choose to file, either on your own or with a tax professional, be sure you know your correct due date. Resident aliens must file their taxes by Tax Day, April 15, in the year following the tax year you file, just the same as U.S. citizens. Nonresident aliens may file returns early if you choose, but the latest you may file is June 15.
If you are a green card holder, it might be smooth sailing while you navigate your tax filing requirements and you may only be required to file a simple 1040 form by April 15. On the other hand, your tax residency status may be more complex and if you lived and worked outside of the United States for any substantial period of time. Or you may find that you are not subject to file a tax return at all and you meet an exemption. In any event, seek out the best method for filing your return. Consult an experienced tax professional or file with robust tax preparation software; both will give you the guidance you need based on your situation.
Does a green card holder have to pay taxes?
Yes, a green card holder has to pay taxes on the income you earn.
Do green card holders pay more taxes than citizens?
Green card holders are considered tax citizens and pay the same amount of taxes as any other citizen that is required to pay taxes.
Can you lose your green card for not paying taxes?
Your green card status will not be affected when you have outstanding taxes due. But it may affect your ability to travel abroad and your naturalization status.