While the U.S. green card is often seen as a gateway to opportunity and stability, it comes with serious financial and legal responsibilities many overlook—especially when it comes to taxes. Green card holders are subject to complex U.S. tax rules, even if they haven’t yet moved to the United States. In this article, we take a closer look at the disadvantages of green card status from a tax perspective.
Understanding the Tax Implications of a Green Card
Once you obtain a green card, you are considered a lawful permanent resident of the United States. This status carries many privileges, such as the ability to live and work in the U.S. indefinitely, access to certain benefits, and the opportunity to eventually apply for citizenship. But these benefits come with significant responsibilities.
One of the key disadvantages of holding a green card is that it triggers U.S. tax residency. Green card holders are required by the Internal Revenue Service to file income tax returns annually and report their worldwide income, regardless of where they live or earn money. This is true even if the individual has not yet relocated to the U.S. or spends little time there during the tax year.
The Burden of Worldwide Taxation
The obligation to report income from all sources globally can be particularly painful for green card holders who live abroad. These individuals must not only file income tax returns with the IRS but may also face the risk of double taxation—once in their home country and again in the U.S. While tax treaties can sometimes mitigate this issue, they do not eliminate filing obligations.
Green card holders must also report foreign assets, including bank accounts, investments, and certain types of property, if the value exceeds specific thresholds. This includes filing additional forms such as FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) declarations. Noncompliance can result in steep penalties.
Filing Tax Returns Without Living in the U.S.
A surprising number of green card holders seek help from our firm every year with the same concern: “I haven’t even moved to the U.S. yet, do I still need to file taxes?” The answer is yes. From the moment you receive your green card, even if you remain in your home country, you are considered a U.S. tax resident.
This puts lawful permanent residents in a tricky position. Some have never lived in the United States, yet are required to report income and file returns as if they did. Others may have relocated temporarily and returned to their country, only to realize their tax obligations did not end upon departure.
Legal and Financial Ramifications
Green card holders who fail to comply with U.S. tax law may face serious consequences. These include fines, interest on unpaid taxes, and potentially losing their lawful permanent resident status. Immigration authorities may consider tax noncompliance as evidence of abandonment of permanent residence. This can become an issue when attempting to re enter the U.S. or applying for citizenship.
Moreover, lawful permanent residents who spend an extended period outside the U.S. risk losing their green card status. Staying abroad for more than a year without a reentry permit can result in being denied entry by an immigration judge. Even shorter absences can raise questions about your intention to reside permanently in the U.S.
The Dilemma of Exit Tax
For green card holders considering renouncing their status, there is another financial hurdle to be aware of: the exit tax. This tax may apply if you are a long-term resident (having held a green card for eight of the past 15 years) and your net worth or average tax liability exceeds certain thresholds. The exit tax can be substantial and is designed to prevent wealthy individuals from avoiding U.S. taxation by giving up their green cards.
Who Should Think Twice Before Getting a Green Card?
- Foreign nationals who have no immediate plans to relocate to the U.S.
- Visa holders currently residing in the U.S. who are unsure about long-term settlement.
- Individuals with substantial foreign assets or worldwide income.
- Those with complex personal circumstances such as pending inheritance, ongoing business operations abroad, or obligations to family members in their home country.
For these individuals, becoming a permanent resident might not be the best move. A green card is a long-term commitment, both in terms of immigration law and tax compliance.
Risks Involving Criminal Records and Travel
Having a criminal record can also affect your status. Certain crimes, especially those involving moral turpitude, can lead to deportation or inadmissibility. Additionally, travel abroad for an extended period without proper documentation (like a reentry permit) can result in complications at the border, especially if immigration services believe you have abandoned your intent to reside permanently in the U.S.
Sponsoring Family Members and Other Benefits
While sponsoring family members is one of the main benefits of obtaining a green card, it too comes with responsibilities. You must demonstrate the financial means to support unmarried children, other family members, and certain relatives. If you obtained your green card through illegal means, such as fraudulent documentation, this can have long-term consequences for both you and any family members you sponsor.
Green Card vs. Citizenship
Some people see the green card as a stepping stone to citizenship. While it does offer a path to becoming a U.S. citizen, it is not mandatory. However, the tax obligations begin immediately, not after naturalization. In fact, a legal permanent resident has almost identical tax responsibilities as a citizen, but without some of the additional benefits like voting rights and full protection under U.S. law.
Making the Right Choice
Before pursuing or accepting a green card, consider speaking with an immigration attorney who understands both immigration law and tax implications. Every situation is unique, and what works for one person may not be suitable for another. Becoming a permanent resident is a serious decision that should align with your long-term goals.
At 1040 Abroad, we regularly assist clients who are grappling with the realities of holding a green card. Many are shocked to learn that they must continue to pay taxes and file with the IRS even while living in their home country. Some find themselves stuck in a cycle of annual filings despite having no intended purpose to reside in the U.S.
Final Thoughts
We encourage you to think carefully before applying for or maintaining green card status. The disadvantages of green card status may outweigh the benefits, especially if you do not plan to fully transition to life in the United States. Always consider professional advice and make an informed decision based on your goals, obligations, and the laws that will govern your future.
