Immigrants and Taxes (2018) – IRS Income Tax Rules for Immigrants
For immigrants who relocate to the United States and have to begin filing U.S. Taxes, it can be very overwhelming. The Internal Revenue Code (IRC) is confusing, convoluted, and ambiguous.
Moreover, if the filer also has foreign income, accounts, assets, or investments, the foreign reporting requirements become massive.
Even if a person is in the United States temporarily, if they meet the Substantial Presence Test, they will still have to file tax returns just as U.S. Citizens or Legal Permanent Residents do.
Immigration & Taxes
Common questions we receive are:
- Do I have to file U.S. taxes?
- Do I have to report foreign income?
- What if I do not file?
- Can I just give up my green card?
- How do I get into IRS compliance
Immigration Tax Law is Hard
Oftentimes, when a person has an immigration status such as Legal Permanent Residence (Green Card) or they are in the U.S. on a temporary visa (H-1B, E-2, E-3, or L1) they do not realize (understandably so) that they are subject to the same tax laws that U.S. Citizens are subject to.
3 Key Aspects of Immigration & Taxes
Here are three (3) important things today about immigration and taxes:
When a person is a U.S. Green-Card Holder or are in the United States on a temporary visa (and meet the Substantial Presence Test), they are required to file tax returns just as a US citizen. The most important take away from this point is that it also means a person is the subject to US taxation on their worldwide income.
Therefore, even if you reside in United States and generate income from foreign accounts outside of the United States that you have had before you came to the United States, you are still required to disclose any income that is being generated from these foreign accounts on your U.S. Tax Return.
it does not matter is not in the money is ever brought to the United States or not, and it does not matter if all of the money in the account was earned prior to coming to United States.
** You may be able to reduce or eliminate any tax liability by filing for a Foreign Tax Credit, or meeting the Foreign Earned Income Exclusion.
Disclosing Foreign Accounts
If you have bank accounts, business ownership, foreign trusts or other “foreign financial assets” in another country, then you may have one or several international reporting requirements. The most common form (that also wields the highest penalty) is the FBAR (aka FinCEN 114)
For the FBAR, if the combined value of the foreign bank accounts (not per account) exceeds $10,000 on any day of the year, then you are required to disclose all of your account information by filing an FBAR (FiInCEN 114 form).
The forms are filed electronically at the same time your tax returns are due (and are currently on automatic extension through October as long as you file tax returns time as well)
The failure to file this form (or Quietly Disclosing the foreign money) may result in very steep penalties so it is important to stay in compliance.
Expatriation (Relinquishing Your Green Card)
If you decide that you no longer want to maintain your green card status, it is important properly expatriate if you meet the baseline requirements of being a long-term resident. This typically means that you were a Legal Permanent Resident for at least 8 of the last 15 years.
Specifically, as provided by the IRS “You are an LTR if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your status as an LTR ends.”
Assuming you meet the definition of a long-term resident, then relinquishing or giving up your Green Card is not as simple as filing a form-407 and giving up your green card. Rather, you also have to complete a form 8854.
And, even if you are not necessarily a very-high earner to the degree that you have more than $2 in million assets or earn several hundred thousand dollars a year in income, if you cannot prove that you are you in full U.S. tax compliance for at least the last five (5) years, you are also considered a covered expatriate, and subject to those same rules as the high earner — which is a bad thing.
Are You Out of IRS Tax Compliance?
If you are out of IRS tax compliance, there are many penalties the IRS can issue, but there are also legal and oftentimes painless programs you can use to safely get back to compliance before it’s too late.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.