How Lawful Permanent Residents File Taxes

Lawful permanent residents, or green card holders, are considered U.S. tax residents and are taxed in the same way as U.S. citizens on their worldwide income. This means that they must report their worldwide income and file annual income tax returns. However, in the year of transition between being a nonresident and a resident for tax purposes, an individual is considered a Dual-Status Taxpayer and must file two tax returns for the year.

Lawful permanent residents are considered US tax residents

To be considered a lawful permanent resident for tax purposes, an individual must have been a legal permanent resident of the United States at any time during the previous calendar year. This is known as the "Green Card Test". Alternatively, an individual can be considered a US tax resident if they meet the Substantial Presence Test. This test evaluates physical presence in the US over a three-year period. To pass this test, an individual must be physically present in the US for at least 31 days during the current year, and 183 days over the current year and the preceding two years.

In the year that an individual transitions between being a nonresident and a resident for tax purposes, they are considered a Dual-Status Taxpayer. This means that they must file two tax returns for the year—one for the portion of the year when they were considered a nonresident, and another for the portion of the year when they were considered a resident. In some cases, a taxpayer can elect to be treated as a full-year resident in the transition year to avoid filing two separate returns.

US tax residents, including lawful permanent residents, must also report certain foreign financial accounts to the Treasury Department. This includes bank accounts, brokerage accounts, and mutual funds. These individuals must file a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 144. They may also need to complete and attach Form 8938, Statement of Foreign Financial Assets, to their tax return.

Dual-status taxpayers file two tax returns

An immigrant who obtains a green card is considered a lawful permanent resident and is treated as a US tax resident for US income tax purposes.

Dual-status taxpayers are those who have been both residents and non-residents of the US during the same calendar year. Dual-status individuals determine their US residency status under both the Internal Revenue Code and tax treaties. They must file a dual-status return as described in Publication 519, US Tax Guide for Aliens.

If you are a dual-status taxpayer, you may be able to claim a dependent on your tax return. A qualifying dependent can be a qualifying child or a qualifying relative. You may be entitled to claim additional deductions and credits if you have a qualifying dependent. You can use Form 1040, US Individual Income Tax Return as the statement and write "Dual-Status Statement" across the top. Any statement must have your name, address, and taxpayer identification number on it.

If you are a non-resident alien but are married to a resident/US citizen, you may choose to file a joint return. In this case, you will be treated as a resident for taxation purposes. However, you will be unable to claim tax treaty benefits. On the other hand, if you are a dual-status individual married to a US citizen or resident, you may elect to file a joint income tax return with your spouse.

If you are a dual-status taxpayer, you must file no later than April 15 of the year following the close of your tax year if you receive wages subject to withholding and report your income on a calendar year basis. If you did not receive wages subject to withholding and you report your income on a calendar year basis, you must file no later than June 15 of the year following the close of your tax year.

Green card test

If you are a lawful permanent resident of the United States, you are considered a 'resident for tax purposes' and must file taxes. This is known as the "Green Card Test".

The Green Card Test states that you are a lawful permanent resident of the United States if you have been granted the right to reside permanently in the country as an immigrant under US immigration laws. Typically, this status is granted when the US Citizenship and Immigration Services (USCIS) issues you a Permanent Resident Card, also known as a "Green Card", Form I-551.

Your residency starting date, or the date from which your taxes are calculated, is usually the first day of the calendar year in which you are physically present in the United States as a lawful permanent resident. If you received your green card while abroad, your residency starting date is the first day of physical presence in the United States after receiving your green card.

It is important to note that you continue to be a permanent resident of the United States even if your green card has expired. This means that you still have the same tax filing obligations. To renew your green card, you can file Form I-90, Application to Replace Permanent Resident Card.

Additionally, if you are an F or J student, you are exempt from counting physical days of presence in the US towards the Substantial Presence Test for up to 5 years. For non-students, this exemption period is 2 years out of the past 6 years. In the transition year between being a non-resident and a resident for tax purposes, you are considered a Dual-Status Taxpayer and must file two tax returns: one for the non-resident period and another for the resident period.

Substantial presence test

An individual's residency status for tax purposes in the United States is determined by the Substantial Presence Test, which is a yearly calculation. This test is used to determine whether an individual is a resident or non-resident alien for US tax purposes.

The Substantial Presence Test is based on the number of days an individual is physically present in the US. To meet the criteria, an individual must be physically present in the US for at least 31 days in the current calendar year, and 183 days over the 3-year period that includes the current year and the two preceding years. The formula for this calculation is as follows:

• Count all the days you were physically present in the US in the current year.
• Count 1/3 of the days you were physically present in the US in the year before the current year.
• Count 1/6 of the days you were physically present in the US in the second year before the current year.
• Sum up the days from all three steps. If the total is at least 183, you meet the substantial presence test.

For example, let's consider the years 2021, 2022, and 2023. If an individual was physically present in the US for 120 days each year from 2021 to 2023, their total number of days for the substantial presence test would be 180 days (120 days in 2023 + 40 days in 2022 (1/3 of 120) + 20 days in 2021 (1/6 of 120)). Since the total is less than 183 days, they would not meet the substantial presence test for 2023.

It is important to note that certain individuals may be exempt from the substantial presence test, such as students on F-1 or J-1 visas, who are considered "Exempt Individuals" during their first five calendar years in the US. Additionally, days spent in the US due to a medical condition or as an exempt individual must be reported on Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition.

Reporting foreign financial accounts

An immigrant who obtains a green card is considered a lawful permanent resident and is treated as a US tax resident for income tax purposes. US tax residents are taxed in the same way as US citizens on their worldwide income. This means that lawful permanent residents must report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

Lawful permanent residents, as US tax residents, must report certain foreign financial accounts to the Treasury Department. This is done by filing a Foreign Bank and Financial Accounts (FBAR) report on FinCEN Form 114. The FBAR filing requirement applies to foreign financial accounts such as bank accounts, brokerage accounts, and mutual funds. In addition, US tax residents may also need to complete and attach Form 8938, Statement of Foreign Financial Assets, to their tax return. This form is used to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds.

It is important to note that an individual can be both a nonresident and a resident for US tax purposes during the same tax year, usually in the year they arrive or depart from the United States. In such cases, they need to file a dual-status income tax return. Additionally, individuals with income from US territories, such as Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or Puerto Rico, may have to file separate tax returns with the respective territory's tax department and the US Internal Revenue Service.

For further details on tax responsibilities for US tax residents with foreign income or assets, it is recommended to refer to the IRS's "Tax Guide for US Citizens and Resident Aliens Abroad" (Publication 54) and the instructions for Form 8938.

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