Do Green Card Holders Pay Taxes on Foreign Income?

Do Green Card Holders Pay Taxes on Foreign Income?
Updated on April 25, 2024

Green Card holders are required to declare their global income to the IRS, aligning with the obligations of US citizens, irrespective of their living location. This includes income earned outside of the US. To avoid the burden of double taxation, they are entitled to use tools such as the Foreign Tax Credit and the Foreign Earned Income Exclusion. The duty to report and pay taxes on worldwide income does not cease even if the Green Card expires; it ends only when the Green Card is formally relinquished. Failure to meet these tax requirements can result in severe penalties and may impact immigration status, underscoring the importance of compliance for Green Card holders.

How is Filing Taxes Abroad Different for Green Card Holders vs. US Citizens?

Tax-wise, no distinction is generally made between US citizens and Green Card holders. Once you receive your Green Card, you are automatically considered a US tax resident from that day on. US tax residents are subject to tax on their worldwide income, regardless of where they are residing at the time. So, should you decide to return to your home country, you could not leave your US tax obligation at the border. However, like US citizens, you do have mechanisms such as the Foreign Earned Income Exclusion and Foreign Tax Credits that you can use to minimize your tax liability.

Many tax treaties view US citizens and Green Card holders in the same light; however, there is greater scope for Green Card holders to take advantage of these treaties than US citizens. Before taking treaty positions on your tax return, seek the advice of an immigration attorney. You don’t want to put yourself in a situation where your Green Card may be in jeopardy because of a position taken on your tax return.

Green Card Holder Working Abroad: Are Taxes Paid for Both US and Foreign Income?

Green Card holders are indeed required to report their worldwide income to the IRS, aligning their tax obligations with those of US citizens. This includes income earned both within and outside the United States, regardless of the holder’s current residence. The US, distinct in its approach to taxation based on citizenship and residency status rather than solely on residency, mandates that Green Card holders file a US tax return annually using IRS Form 1040.

To navigate the potential for double taxation, where both the US and a foreign country might tax the same income, Green Card holders can utilize the Foreign Tax Credit (FTC) and the Foreign Earned Income Exclusion (FEIE). The FTC allows them to offset taxes paid in another country against their US tax liability, while the FEIE enables them to exclude a portion of their foreign-earned income from US taxation.

Even if a Green Card expires, the obligation to comply with US tax laws does not automatically cease. The formal process of relinquishing the Green Card is required to terminate US tax resident status. It’s crucial for Green Card holders to stay compliant with these obligations, as failure to do so can lead to penalties and impact their immigration status, including the ability to become a permanent resident or a US citizen.

Can Green Card Holders Offset US and Foreign Taxes?

The good news is that, even when subject to tax in both jurisdictions, the Green Card holder can often claim foreign tax credits for income tax paid on either the US or foreign country return. Where there is a tax treaty in place, this will determine who has the “first right” to tax the income – meaning the other country will then claim a foreign tax credit on its return.

For example, our Green Card holder is living and working in Country X. All salary has been earned working in Country X, so Country X has the first right to tax the income. Because the Green Card holder also needs to report this income on a US income tax return, it is also reported on Form 1040. The Green Card holder is then able to claim a foreign tax credit for the tax paid to Country X on the tax return, thereby reducing/eliminating the US tax liability due.

Taxes for Green Card Holders Living Abroad: Are Green Card Holders Subject to FBAR When Filing Taxes Abroad?

Absolutely. Because the they are considered a US tax resident, the requirement to file the FBAR, as well as other FATCA reporting, remains when it comes to taxes for Green Card holders living abroad.

Have Questions About Filing Taxes Abroad for Green Card Holders? Do Green Card holders pay taxes on foreign income?

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