Foreign citizens with a “green card” are always puzzled by green card tax requirements. A green card grants US permanent residency status to its owners. However, the U.S. imposes American income taxes on the worldwide income of U.S. citizens and green card holders even if they live abroad. As a result, more and more American expatriates decide to relinquish their citizenship or surrender green card with the hope of escaping the complexity of US tax system. The penalties for a failure to file the FBAR and FATCA as well as the increasing cost of US expatriate tax preparation put an increasing pressure on green card holders.
This is the latest email from one of our clients, an American expatriate in Ireland. “My wife has had a green card for 8 years. She wants to surrender green card. What is the process? Also, my sister’s green card expired 2 years ago. Should she still file US expatriate tax returns?”
Let’s review the key issues that US permanent residents should consider.
Expat Tax Issues and Surrender Green Card
My green card expired. Should I file US expatriate tax returns?
Green card holders are considered lawful permanent residents who can reside in the USA. A permanent residence status is granted per the immigration rules. Moreover, the residence status is active until one of the following scenarios happened.
- The status has been rescinded per the final administrative or judicial order of deportation or exclusion.
- The permanent residence status has been abandoned administratively or judicially. The process of abandonment can be initiated by a green card holder, US consular officer or US immigration.
Foreign nationals are required to file US expatriate tax returns even if their green cards expired until they officially surrender green card.
Are green card holders subject to US expatriation rules?
Per the Heroes Earning Assistance and Relief Tax (HEART) Act, P.L. 110-245 enacted on June 17, 2008, foreign nationals who decide to surrender green card and who are considered “former long-term residents” may be subject to special expatriation rules if they meet one of the following tests:
- Net Income Tax Test
- Net Worth Test
- Certification test
Who is considered former long-term resident?
A “former long-term resident” is a foreign national who has held a green card for any portion of at least eight of the fifteen tax years.
Conclusion
Due to complexity of US immigration law and US tax system, foreign nationals who decide to surrender green card must consult an expat tax CPA.
The important thing to remember is that green card holders must timely file all required US tax forms to facilitate the process of giving up green card. International tax experts at Artio Partners will be happy to assist you.