Green Card Holders Taxes: Your U.S. Obligations

An individual who obtains a green card is granted lawful permanent resident (LPR) status in the United States, which provides the right to live and work in the country indefinitely. For federal tax purposes, a green card holder is automatically classified as a U.S. resident alien, regardless of the number of days spent within the country.

This tax residency means the holder is subject to the same fundamental tax rules as a U.S. citizen. This includes the obligation to file an annual U.S. income tax return and pay taxes accordingly, a responsibility that remains in effect even if the LPR lives and works outside the United States.

U.S. Tax Obligations on Worldwide Income

A primary consequence of being a U.S. tax resident is the requirement to report worldwide income to the Internal Revenue Service (IRS). This rule applies from the first day an individual becomes a lawful permanent resident.

The scope of reportable worldwide income is broad and includes wages, salaries, and professional fees from employment in any country. It also covers self-employment income from operations outside the U.S. and unearned income, such as interest from foreign bank accounts, dividends from foreign corporations, and rental income from property located abroad.

Furthermore, gains from the sale of assets located anywhere in the world must be reported. For example, if a green card holder sells a property in their home country or shares of a foreign company, the resulting capital gain is subject to U.S. tax reporting. This comprehensive mandate ensures all income is accounted for under U.S. tax law.

Key Information and Forms for Filing

Green card holders file their federal taxes using Form 1040, the same return used by U.S. citizens. They must select a filing status, such as Single or Married Filing Jointly. The chosen status, along with total worldwide income, determines the applicable tax rates and standard deduction. For the 2024 tax year, the standard deduction for a single filer is $14,600 and for those married filing jointly, it is $29,200.

Green card holders with foreign financial interests may have separate reporting requirements. The Report of Foreign Bank and Financial Accounts (FBAR) must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) if the total value of all foreign financial accounts exceeds $10,000 at any point during the year. This is a separate obligation from the income tax return. To complete FinCEN Form 114, you must provide details for each account, including the financial institution’s name, branch address, account number, and the maximum account value in U.S. dollars. The FBAR deadline is April 15, with an automatic extension to October 15.

Another reporting requirement is governed by the Foreign Account Tax Compliance Act (FATCA), which mandates filing Form 8938, Statement of Specified Foreign Financial Assets. This form is filed as an attachment to the Form 1040 tax return. The filing thresholds for Form 8938 are higher than for the FBAR and depend on filing status and residency. For a single filer in the U.S., the threshold is met if assets exceed $50,000 on the year’s last day or $75,000 at any time.

For green card holders living abroad, the thresholds are substantially higher. A single filer abroad must file Form 8938 if their specified foreign assets exceed $200,000 on the last day of the year or $300,000 at any time. For those married filing jointly abroad, these thresholds are $400,000 and $600,000, respectively. Filing one form does not excuse the filer from the other if both thresholds are met.

Claiming Foreign Tax Credits and Utilizing Tax Treaties

Reporting worldwide income can lead to double taxation, where income is taxed by both a foreign country and the United States. To alleviate this, the Foreign Tax Credit (FTC) allows a dollar-for-dollar reduction of U.S. income tax for income taxes paid to a foreign government. This is a direct credit, which is more beneficial than a deduction that only reduces taxable income.

To claim the FTC, a green card holder files Form 1116, Foreign Tax Credit, along with their Form 1040. This form requires separating income into categories like general or passive income. The credit is limited to the amount of U.S. tax that would have been due on the foreign-source income, and excess credits can be carried back one year or forward for up to ten years.

An alternative may be found within tax treaties between the U.S. and over 60 other countries, which also help prevent double taxation. A green card holder who is also a tax resident of a treaty country can use “tie-breaker” rules to be treated as a nonresident of the U.S. for tax purposes, meaning they are only taxed on U.S.-source income. To claim a treaty benefit, the individual must file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701. This form is attached to a nonresident alien tax return, Form 1040-NR, explains the specific treaty article being invoked, and failure to disclose can result in a $1,000 penalty.

Special Tax Situations for Green Card Holders

First Year of Residency

The year an individual obtains a green card is often a “dual-status” tax year. The person is treated as a nonresident alien before receiving the green card and as a resident alien after. During the nonresident period, only U.S.-source income is taxed, while worldwide income is taxed for the resident period. Filing a dual-status return involves submitting a Form 1040 with “Dual-Status Return” written at the top, accompanied by a Form 1040-NR as a statement. Dual-status filers cannot use the standard deduction or file a joint return unless they make a special election to be treated as a U.S. resident for the entire year.

Abandoning a Green Card

Formally abandoning a green card has tax consequences, particularly for “long-term residents,” who are individuals with LPR status in at least eight of the last 15 tax years. A long-term resident may be subject to an “exit tax” if they are classified as a “covered expatriate.” An individual becomes a covered expatriate by meeting one of three tests: having a net worth of $2 million or more; having an average annual net income tax liability over the preceding five years that exceeds an inflation-adjusted amount ($201,000 for 2024); or failing to certify on Form 8854 that they have complied with all U.S. tax obligations for the past five years.

If a person is a covered expatriate, the exit tax is calculated as if they sold all worldwide property at its fair market value the day before they expatriated. The net unrealized gain is taxed, though there is a significant exclusion amount ($866,000 for 2024) that can be applied against this gain. The process requires filing Form I-407 to abandon the green card and a final tax return with Form 8854, Initial and Annual Expatriation Statement.

State and Local Tax Responsibilities

In addition to federal obligations, green card holders must consider state and local tax responsibilities, which are separate from the federal system. Each state has its own laws for determining tax residency, which are not based on federal immigration status. State tax residency is established based on factors such as domicile or the number of days a person is physically present in the state.

Domicile is a person’s permanent home, so an LPR living abroad may still be considered a state resident. A green card holder who lives and works in a state with an income tax must file a state tax return and report income according to that state’s specific rules. It is important to consult the tax authority for the state of residence to understand specific filing obligations and deadlines.