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Frequently asked questions about the US tax consequences of holding a US Green Card — and surrendering one

The US is the world’s largest economy by far. And currently, the economy of the US is outperforming nearly every major country. So for many around the world looking to get to the next level, they look at being in the US as essential to their growth.

 

But the US is a land of contrasts. While the opportunities in America are unparalleled, the problem is that our tax system is unparalleled too — and not in a good way. The truth is that the US tax system is an inefficient behemoth rife with landmines for the unsuspecting. It is our goal to reduce and eliminate the tax problems that face Permanent Residents, aka, Green Card holders, so that they can focus more of their energies on the benefits of being a Permanent Resident.

 

This article answers some basic and more complicated tax questions many US Green Card holders have.

 

What are the tax consequences of having a US Green Card?

 

Once you possess a Green Card, you are now taxed on your worldwide income just like any US citizen would be. Additionally, other reporting requirements may exist. For instance if you have overseas bank accounts in excess of $10,000 you likely have an FBAR or FinCEN Form 114 requirement or face up to a 50% of account value penalty. Additionally, there exists a litany of foreign reporting forms, Form 8938, Form 5471 for example that Green Card holders have an obligation to file at a rate much much higher than the public at large. Failure to file the forms starts a $10,000 per year and can get as high as $50,000 per year.


What is the income tax rate for US Green Card holders?

 

The income tax scheme for US Green Card holders is the same as it is for an US citizens. Taxation is exactly the same. There are no increased or decreased tax rates for Green Card holders. But as we show, their issues tend to be more complicated and the income tax tends to be more onerous because of the types of overseas and foreign investments Green Card possess.


Green Card holders do pay taxes on their worldwide income (an exception to this rule for Green Card holders, along with any other US person, outside the US is currently pending in Congress).

 

What are the tax filing requirements for US Green Card holders?

 

US Green Card holders have the same filing requirements as US citizens. Green Card holders overseas, like US citizens abroad, have an extended time to file taxes, usually June 15th that can be extended to October 15th, and then there is a permissive extension until December 15th.

 

What is a US Green Card holder responsible for when filing?

 

For all tax filings, taxpayers are ultimately responsible for everything they sign even if they can’t understand what they are signing.

 

This is of course an absurd standard. As many US Green Card holders do not speak English as their first language and the IRS only translates English forms to Spanish. No other languages supported, yet the recent trend has been an arrival of more Asian immigrants into the US and less Hispanic.  

 

Additionally, even if they could fully understand English, that is slight guarantee that they know what they are signing as the US tax code is so expansive it is unknowable any one person.


Are there any tax benefits to being a US Green Card holder?

 

Only if you think that being taxed as a US citizen is a benefit.

 

Can you deduct the cost of your obtaining your Green Card on your tax return?

 

Legal expenses are only deductible when they are related to the production of taxable income. While you could take the position that the green card was acquired to facilitate your ability to produce income in the United States, this is a tenuous argument. Some may advise against deducting the legal fees relating to the acquisition of your Green Card, but it is not an entirely unreasonable position.

 

What are the tax consequences of allowing a US Green Card to expire?

 

The Green Card is evidence of your Permanent Residence status, but it is not the thing that actually grants Permanent Residence status.  Just because your Green Card expired does not mean you are a not subject to US taxation. Yes, this is true even if you are overseas and not eligible for re-entry. It is possible for the IRS to  tax you even though the federal government won’t let you into the country.

 

Your obligation to file and pay U.S. taxes as a long term green card holder persists until there is a judicial or administrative order, or alternatively, until you file Form I-407. A lapsed green card does not terminate you U.S. tax obligations.

 

What are the tax consequences when surrendering a US Green Card?

 

Have you had a Green Card for 8 or fewer years of the last 15? If so, then great. You can surrender a Green Card without triggers any exit or departure tax. If however you have had permanent residence for more than 8 of the last 15 years, and your assets exceed $2 million you may want to engage with our tax firm to legally lower this exit tax.


What are the US death, estate, and inheritance taxes for Green Card holders?


The death, or estate tax for Green Card holders is the same as it is for US citizens. Currently the first $11.18 million of an estate (double that for married couples)  is not subject to any taxation. Strategies exist to lower an estate tax bill for those with estates over this amount. It is important to note that you should be aware of what state you are domiciled in as state estate and inheritance laws vary significantly.  

 

There is no federal inheritance tax for US persons. And inheritance tax is paid for by the the recipient of the gift. And inheritance tax is paid by the estate so that the proceeds a recipient received are not taxed again.


What is the death tax law for ex-Green Card holders who are not US persons but still have property in the US?


Once a US Green card has properly surrendered and filed a Form 8854, and they live outside the US, they are considered to be non-US persons for tax purposes. The US held property by non-US persons, (although they may be tax residents) is subject to an alternative estate tax scheme that has a much lower exemption than the estate tax US persons are subject to. There are strategies one can use to lower this tax exposure.

 

What are the gift tax rules for US Green Card holders?

 

If you gift an amount that's above the annual gift tax exclusion which is currently $15,000 per donee, you can also tap into the lifetime estate and gift tax exemption. The inflation-indexed lifetime exemption is $11.18 million per donor. Meaning a married couple can gift away about $22.36 million tax free. If you do go over the annual gift tax exclusion you will have a gift tax return do, but as long as you did not use up your entire gift tax exemption, you will not have a tax due.

 

For gifts to a non-US spouse over the exemption amount, a gift tax return needs to be filed although a gift tax would only be due if the lifetime exemption of $11.18 million (current for 2018) is exhausted. For gift purposes, a gift to a nonresident alien spouse and a gift to a Green Card holding spouse are the same and the applicable yearly threshold for 2017 was $149,000.

 

What is the departure, expatriation, or exit tax for US Green Card holders?

 

To calculate any exit tax due to the US person for surrendering a Green Card, an IRS Form 8854 is used. The general rule is for US Green Card holders who have been in the US for 8 of the last 15 years or more with assets less than around $2 million they should escape any taxation. For US Green Card holders who have been in the US for 8 years of the last 15 or more, anything above about $2 million will likely take some tax planning and structuring work to reduce the exit tax.


Another important trigger for taxation upon the termination of a Green Card is the certification test. If a taxpayer cannot certify under penalty of perjury that he has satisfied all of the U.S. tax filing requirements, he will be subject to the exit tax.


If I leave the country without surrendering my Green Card, without paying or filing the exit tax return, what can the IRS do to me?

 

Enforcing the US tax code against people who are not in the US and do not have property in the US or any reason to return to the US is incredibly difficult, but not impossible. Some countries have joint agreements to cooperate with the US.

 

Many people have gone this route, and truth be told, have gotten away with it. The problem is if another opportunity arises that makes US presence necessary. For instance, many ex-Green Card Holders will return to the US on a investor visa if their children go to school in the US or start a family within a US.  Leaving a loose end like an improper exit tax, or none at all, could very much complicate or completely frustrate a return to the US.


Doesn’t taxing US Green Card holders violate the US Constitution as it is the very definition of taxation without representation?

 

The US Constitution as originally written, prohibited an income tax. This was changed in 1913 with the 16th Amendment which authorized the US income tax was claimed to be ratified. The 16th Amendment radically changed the Constitution. Why? In order to make an income tax enforceable, constitutional protections in the Bill of Rights had to be ignored. Attempts to reconcile natural law or the tax protestor arguments that this country was founded upon will lead to nothing but frustration.

 

Yes, the US income tax authorized taxation without representation on Green Card holders. The counter arguments is having a Green Card is a privilege not a right, the attitude one can expect to hear is “If you don’t like these rules, don’t apply for a Green Card.”

 

We find such a myopic take it or leave it stance is disrespectful to the massive contributions Green Card holders give to this country.

 

What to do if you need more help

 

We enjoy helping US Green Card holders. Feel free to contact us. We represent Permanent Residents and other US taxpayers from around the globe. We offer a complimentary 15-minute consultation for those considering hiring us. And paid hour-long consultiations for those looking for answers to specific questions. The cost of an one hour consultation is $500. Additionally, we have Mandarin-speaking tax associates available to help you.  Contact us to let us know your preference.

 


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