Are Green Card Holders Obligated to Pay U.S. Taxes on Foreign Income?
On Behalf of Coughlon Law Firm, PLLC. | May 21, 2024 | Immigration
Green cards offer a direct pathway to U.S. citizenship and all the opportunities that come with it. However, many green card holders are unaware of the tax implications of U.S. citizenship, particularly in regard to foreign income. For instance, green card holders are considered U.S. tax residents and are liable to severe financial penalties for any defaults. Below is a simplified breakdown of the tax obligations of green card holders for income earned outside the U.S.
Tax Residency Status
Any citizen or legal resident of the U.S. is liable to pay taxes to the Internal Revenue Service (IRS) for all their income. The tax obligation remains regardless of where the income is earned. Taxable income includes wages, salaries, pensions, investment income, rental income, and any other prescribed taxable income. Failure to meet your tax obligations can result in huge fines, imprisonment, and even the loss of your residency. What’s more, the tax obligations remain even when the green card expires. The only way out is to officially relinquish your green card or permanent residency.
Can You Avoid the Taxes?
Every green card holder and U.S. citizen has to report any income they earn to the IRS by the 15th of April every year. While there are no exceptions to the filing requirements, the law allows one to reduce their tax liability on foreign-earned income. For instance, for tax year 2024, you are allowed to exclude up to $126,500 of your annual income from federal income taxes. If you are legally married, you can exclude up to $253,000 if you are filing jointly.
To qualify for the Foreign Earned Income Exclusion benefit, you must be living and working in a foreign country and be a tax resident there. Further, you should spend at least 330 days out of 365 outside of the U.S.
Apart from the exclusion, you can also claim tax credits if you’ve already paid income taxes on your foreign income. This helps to avoid double taxation. You may also be able to exclude part of your foreign housing expenses if they exceed the limit set in law.
Seek Professional Help
Tax laws can be hard to understand and navigate without a legal background. To protect yourself, it is best to seek the advice of a tax attorney. Contact Coughlon Law in AZ to learn more about our services.
