Whether your employer has offered to sponsor your Green Card application, or you have recently married a US citizen, the receipt of a Green Card is often extremely desirable. But what exactly does that mean for you at tax time? What happens to Green Card holders who are filing taxes abroad? Read on to find out more.
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.
Do Green Card Holders Pay Both US and Home Country When Filing Taxes Abroad?
This will depend on the location of the Green Card holder. For those living and working within the US, you would generally find that you are only required to pay US tax. This is because most countries would only require you to pay tax if you were (a) living and working in the country; and/or (b) earned income from sources in the country (e.g., interest income, rental income).
On the other hand, if you are living and working outside of the US, you would generally end up filing both US and home country taxes.
Can They Offset?
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.
Are Green Card Holders Subject to FBAR When Filing Taxes Abroad?
Absolutely. Because the Green Card holder is considered a US tax resident, the requirement to file the FBAR (as well as other FATCA reporting) remains.
Have Questions About Filing Taxes Abroad for Green Card Holders?
Greenback accountants specialize in expat taxes and all the complicated variations thereof. If you want to get your specific questions answered, contact us today!
