Being a recipient of a Green Card is a milestone for anyone who is aiming to live in the United States for a long period of time. However, it is important to understand the differences of being a legal resident and a legal alien when it is time to file your tax returns. Read more to find out if Green Card holders have to pay taxes on your foreign income!
Filing Taxes: Green Card Holders vs. U.S. Citizens
The United States makes no distinction between US citizens and Green Card when it comes to taxes. The moment you become a Green Card holder you are automatically considered a US tax resident from that day on. With this recognition, this means that you are subject to tax on your worldwide income, regardless of where you live. This is important to keep in mind because if you decide you want to live in another country or return home, you still have a tax obligation to the United States. Although there are some ways you could reduce your tax liability. Like United States citizens you are able to potentially take advantage of programs like the Foreign Earned Income Exclusion and Foreign Tax Credits. It is also important to note that Green Card holders are 100% required to file the FBAR. This because they are considered as a US tax resident even when living abroad.
To avoid double taxation you will want to know more about your specific countries tax treaty with the United States. Several tax treaties hold U.S. Citizens and Green Card holders with the same regard. However it is very important to seek wise counsel on what tax position you take so as to not put your Green Card at risk.
Green Card Holder Working Abroad: Taxes are Paid for Both US and Foreign Income?
The United States is one of two countries in the world (the other being Eritrea) that employs a citizen based taxation system. This means that if you are a legal resident living in the United States that originally came from another country then you are most likely required to pay United States tax. Most countries will only require you to pay tax if you were living as well as working inside the country or earn income from sources from in the country.
Can Green Card Holders Offset US and Foreign Taxes?
The Green Card holder can claim foreign tax credits for income tax paid on either the US or foreign country returns. This determines, in the occasion where a tax treaty is in place, who has the first right to tax the income. The other country in this situation will claim a tax credit on their return.
This is helpful because a Green Card holder living in a foreign country can offset paying taxes to the United States by claiming a tax credit for the tax paid in the foreign country.
Need Help Understanding What To Do For Your Next Tax Return?
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