While there are many advantages to being a US citizen, it is important to understand what it means from a tax perspective to become a legal, permanent resident of the US. Do the consequences of the Green Card outweigh the benefits?
Residency rules in the US
First and foremost, let’s look at the ways you can be considered a resident of the US.
You are a Lawful Permanent Resident of the US at any time during a calendar year if you have been given permission to reside permanently in the US as an immigrant. This is what is called a Green Card.
Residency via the Substantial Presence Test
This test is based on the amount of time you were physically present in the US. This can be confusing, but if you satisfy the following requirements, the US considers you a resident:
- At least 31 days during the current year and
- At least 183 days during the current and preceding 2 years. Note that when you are counting days present each year, you count:
- All the days you were present this current year
- Only 1/3 of the days last year
- Only 1/6 of the days present in the year prior to that
Benefits of obtaining a Green Card
As a resident of the US, you are given all rights and responsibilities as citizens. From due process and freedom of speech to freedom of religion and the right to bear arms, you are a citizen in most of the important ways.
You can apply for financial aid for education, work anywhere you want in the US, start your own business or corporation, and you can actually receive Social Security if you have worked in the US for at least 10 years. Traveling to and from the US becomes easier, and you can sponsor certain relatives for visas or Green Cards. Plus, after five years, you can apply for full US citizenship.
Downsides of your Green Card
There are a few reasons why obtaining a Green Card may not be the right choice for you.
When you are a legal resident of the US, you are required to report your worldwide income earned during the tax year on your US Federal Tax Return, not just your US-sourced income.
If you are a male between the ages of 18 and 25, you must register for the US Selective Service.
It is possible to lose your Green Card if:
- You are absent from the country for longer than a year without filing for a re-entry pass
- You commit a felony- even a minor one
- You fail to notify the USCIS about a change of address
- You help an illegal immigrant enter the country
- You engage in a false marriage
Point number 1 is important, as you cannot go outside the US for more than 180 days annually without documentation showing your intention to return and that you are not abandoning your Green Card status.
In addition, you must be careful and organized with all paperwork to ensure you maintain your Green Card. If you are ever asked to produce supporting documentation (i.e. you want to apply for full citizenship), you may need to provide copies of all tax returns and proof that you have maintained a permanent residence in the US. If your Green Card expires, you must renew it in a timely manner—within six months of expiration. Keep in mind that having a Green Card does not protect you from deportation.
Finally, even though Green Card holders can make financial contributions to US elections, they cannot vote or become elected officials.
As you can see, there are a few downsides to obtaining a Green Card so it’s important that you evaluate your personal situation and make sure this is the right decision for you. If you are not entirely sure about how long you want to stay in the US and are here on an H1b visa or something similar, it may make more sense for you to remain a resident alien until you decide that you want to apply for permanent residency. You’ll still pay taxes on your worldwide income, but it will give you some time to map out your long-term goals in the US. If you lose your Green Card by violating one of the above provisions, you will need to start the entire process over again to apply for a new one but it can be done. However, if you voluntarily give up your Green Card, you are essentially renouncing your US citizenship and it is difficult, if not impossible, to get it back.
Interested in learning more about the advantages and disadvantages of a Green Card?
Another article on our blog, “Best US Income Tax Tips for Foreigners in the US” has additional information you may find helpful!