Pursuant to U.S. tax residency policy as outlined by the Internal Revenue Service (IRS), Green Card holders are subjected to the same tax laws as U.S. citizens. They are required to report and file income in the same manner as U.S. citizens, including income earned worldwide. This article offers an analysis on tax obligations of Green Card holders for their worldwide income, covering income reporting forms, mandatory filing forms and available tax reliefs for foreign income.
Form 1040 Reporting Requirements for Green Card Holders
Green Card holders must file IRS Form 1040 each year, the standard U.S. individual tax return. There are two main variations of the IRS Form 1040 for residents, the standard Form 1040, and the Form 1040-SR, which is used for those 65 and older. The filing deadline is April 15, subject to extensions that can be amended through filing extension forms. Failure to file timely may result in civil penalties and, in severe cases, potential criminal liability.
FBAR Reporting Requirements for Green Card Holders
Another crucial element in terms of tax filing is a report of foreign bank and financial accounts – commonly known as the FBAR reporting. Enacted by the Bank Secretary Act, it aims to allow financial tracking by the U.S. Treasury Department in a more methodical and easier manner. FBAR reporting applies to all U.S. persons – including Green Card holders – who have a financial interest in, or signature authority over, foreign accounts with an aggregate value exceeding $10,000 at any time during the calendar year. The report is filed annually on Financial Crimes Enforcement Network (FinCEN) Form 114, which is due on April 15 for the preceding year. Taxpayers who do not file by April 15 receive an automatic extension until October 15.
FATCA Reporting Requirements for Green Card Holders
In addition to the FBAR, Form 8938—required under the Foreign Account Tax Compliance Act (FATCA) is another important reporting obligation for foreign financial assets. FATCA is used to report specified foreign financial assets that exceed certain monetary thresholds. They vary based on filing status and residency – for instance taxpayers living abroad are taxed in higher thresholds. While FATCA and FBAR share similarities, they are different in scope. FBAR focuses primarily on the account itself, while FATCA concentrates on the assets making up the account, such as mutual funds or other investment holdings. FATCA is filed through the IRS and attached to Form 1040, inheriting the same submission details.
The following table outlines the three reporting obligations from a comparative view:
Form | Scope of taxation | Threshold | Filing Authority |
Form 1040 | Annual income tax return | All income | IRS |
FBAR | Report foreign accounts | $10,000 | FinCEN |
FATCA | Report foreign assets | $50,000 – $600,000 | IRS |
Applicable Tax Reliefs
In addition to mandatory income tax filing requirements, certain tax relief provisions may be available for taxpayers. One mechanism is Form 2555, which is filed alongside Form 1040 by individuals earning foreign income while residing abroad. Form 2555 allows taxpayers who meet the criteria, to claim the Foreign Earned Income Exclusion, the Foreign Housing Exclusion, and the Foreign Housing Deduction – each of which serves to reduce U.S. tax liability. To qualify for these benefits, a Green Card holder living abroad – must satisfy specific criteria, including:
- Being a citizen or national of a country that maintains an income tax treaty with the United States; and
- Meeting either the bona fide residence test (residing in a foreign country for an uninterrupted full tax year) or the physical presence test (being present in a foreign country or countries for at least 330 full days within any 12-month period).
It is important to note, however, that the rulings are slightly modified for U.S. citizens, but are overall quite similar in nature.
Annual Compliance Checklist for Green Card Holders
In practice, Green Card holders are required to do an annual compliance review before filing. This includes collecting all global income documents, checking whether foreign accounts exceeded the $10,000 FBAR threshold, and calculating whether FATCA reporting applies based on asset values. Even dormant or low-activity foreign accounts must be reported if thresholds are met. Systematic review each year helps prevent penalties and/or reporting errors.
Navigating the legality of U.S. tax resident policy can be complex as many factors are considered when establishing the tax liability of a taxpayer. Green Card holders are generally subjected to the same tax obligations as citizens; however, few exceptions apply. Our team specializes in international taxation and can assist Green Card holders with IRS filings, FBAR, and FATCA compliance. To reach a member from the firm, click here.
Relevant Info & FAQs
How do I know whether I should file a Form 8938 (FATCA) over a Form 114 (FBAR)?
FBAR reporting is applicable when the aggregate value of a foreign financial account exceeds $10,000. Whereas FATCA reporting is employed when foreign assets exceed a certain minimum threshold, ranging between $50,000 and $600,000.
What are the FBAR penalties for not reporting foreign accounts?
Penalties can be $100,000 or 50% of the foreign accounts value at the time of the violation. Willful non-compliance can even result in criminal penalties on some occasions.
If I gave up my Green Card, do I still have U.S. tax obligations?
All ex-Green Card holders are required to pay income tax on all sources of income (foreign and domestic) during the time frame in which they still are considered resident aliens. However, once Green Card status is given up, income tax is only needed for income generated in the U.S.
