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Does having a green card in the U.S.A. mean I have to pay taxes?
Does having a green card in the U.S.A. mean I have to pay taxes?
A green card holder is someone who immigrated to the US and now has a permanent resident status. Green card holders in the US have a pretty unique tax situation. The U.S. government requires all US residents to pay tax once they meet the income threshold set by the IRS.
If you are a green card holder, you are not a US citizen. But you are a resident, so you need to pay federal income tax. You can do this with the help of Form 1040, which is the standard form that every resident uses to file their tax returns every year.
Every green card holder will be taxed on the income they make both inside and outside the US. But the IRS lets you claim certain tax credits only available to US residents, so you can lower your tax bill.
Key takeaways:
- Green card holders are US residents, and hence need to pay tax
- Being taxed as a U.S. resident means you can take advantage of the available tax breaks
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What's the difference between US citizens and residents?
If you’re researching tax law, you might have come across the term "resident alien" and might be asking yourself, “Are green card holders resident aliens?” The answer is yes. A resident alien is someone the IRS classifies as a legal permanent resident of the US. This makes them subject to the same tax laws as citizens.
Green card holders are resident aliens, but not all resident aliens are green card holders. Some immigrants are only considered residents for tax purposes, but they don’t actually live in the US. throughout the entire year. And if you happened to get your green card while you were still outside the U.S., you will be taxed from the day you actually arrive into the country.
How do I pay tax as a green card holder?
Tax filing as a green card holder is pretty similar to US citizens. The only caveat is that you will be paying tax on both income earned from inside and outside the US. This includes income from foreign investments, assets and pensions. You are also eligible to apply for a tax filing extension, just like other taxpayers.
You can avoid being taxed, or can be taxed at a lower rate on foreign income, if you are a dual resident of a country that is part of a tax treaty with the US. The same goes for if you happen to have “ongoing and indefinite” ties to that country, whether it is in terms of a job, family or a permanent residence. This qualifies you as a “bona fide resident,” and you can claim the Foreign Earned Income Exclusion tax credit, which allows you to keep any foreign income you earn tax-free.
So if you work full-time in the US, you’ll get a W-2 from your employer that you can use to file your tax return. But if you also work part-time at your Canadian friend’s web development company, you’ll have to report that income on your annual 1040, too.
To do this, you’ll need a Form 1099 from your friend, which will have the income you earned for the work you did for his company. This means you’ll also be treated as a self-employed individual and will have to pay self-employment tax. If you think you’ll owe the IRS more than $1,000 in tax in a year, you will have to pay quarterly taxes with Form 1040-ES. You can use a tax estimate calculator to find out how much you'll owe.
Can you lower taxes as a green card holder?
Like US citizens, green card holders are subject to the same rules about tax write-offs.A 1099 tax calculator can help you find deductions you can claim. So independent contractors, small business owners, freelancers and gig workers can also write off business expenses along with claiming tax credits. This is on top of the standard deduction available to every taxpayer.
If you have to pay self-employment tax, you can use an app like FlyFin, an A.I.-powered tax engine that finds every potential deduction when you link your expenses. You can also use expert CPAs, available 24/7 in the app, to prepare and file your tax returns for you.
My green card has expired, do I still pay taxes?
Even if your green card expires, you are still considered a US resident, and you should still file your tax return. If you don’t, it could affect your visa status and get you in trouble with the IRS. This could also affect your chances of becoming a permanent citizen.
The only way to get out of paying US taxes is if you plan to give up your green card. But even then you’ll have to notify the relevant authorities and pay an “exit tax” if you’ve lived in the country for eight out of the past fifteen years before you can fully leave the US tax system.
Overall, paying taxes as a green card holder is pretty similar to paying them as a U.S. citizen. The IRS still allows you to claim certain tax credits and apply for an extension. Self-employed individuals can also write off business expenses as deductibles to lower their tax bill. Navigating these tax rules can be challenging. You should always reach out to a tax professional for help if you need it.
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