- 1 US Tax Rules of Work Visas vs Green Card
- 2 Green Card Holder & US Tax
- 3 Visa Holder who meets the Substantial Presence Test
- 4 Visa Holder who does not meet the Substantial Presence Test
- 5 International Tax Amnesty Program Summary
- 6 Can I Just Start Filing FBAR This Year Instead?
- 7 Golding & Golding: International Lawyers for Clients Worldwide
US Tax Rules of Work Visas vs Green Card
US Tax Rules of Work Visas vs Green Card: When it comes to US taxes, the rules can get very complicated for Taxpayers, depending on whether the Taxpayer is a Green Card Holder or Visa Holder. That is because while a Green Card Holder this is generally going to be taxed on their worldwide income — whether or not the income is sourced in the United States or abroad — the IRS rules for Visa Holders are different — and they are only taxed on their worldwide income in certain situations, in which the US residence requirements have been met. Let’s go through the basics of the US tax rules for three different categories:
- Green Card Holder (aka Legal/Lawful Permanent Resident)
- Visa Holder who meets the Substantial Presence Test
- Visa Holder who does not meet the Substantial Presence Test
Green Card Holder & US Tax
Green Card Holders are considered permanent residents of the United States. As a result, the US government requires Green Card Holders to pay tax the same way that US citizens pay tax. Thus, a Green Card Holder is required to pay tax on their worldwide income — and it does not matter if the income was generated in the United States or abroad. In other words, it is based on the visa/legal status of the Taxpayer (Green Card Holder) and not the location of where they reside. In addition, Green Card Holder are also required to report their global assets on various forms, such as the FBAR and Form 8938. Some Green Card Holders are able to make a treaty election on an IRS Form 8833 to be treated as a foreign resident for tax purposes.
Visa Holder who meets the Substantial Presence Test
When a Visa Holder meets the Substantial Presence Test, that means they have resided in the United States for a sufficient amount of time to require them to report their worldwide income similar to a Green Card Holder. For each year the Taxpayer resided in the United States for at least 31 days, they calculate the number of days that that resided in the United States — in conjunction with the two prior years at different ratios — to determine whether or not they meet the Substantial Presence Test in the current year. In any year that the Taxpayer meets the Substantial Presence Test they are treated as a US Person for tax purposes — unless they can show they have a closer connection to another country (s) — or qualify for a different exception or exclusion.
Visa Holder who does not meet the Substantial Presence Test
A Visa Holder who does not meet the Substantial Presence Test is not taxed on their worldwide income. Rather, they are taxed on their US sourced income. Depending on the type and source of income will determine whether or not the income is taxed as FDAP or ECI — Taxpayers can make certain elections to treat FDAP as ECI — such as US based rental income. This way, the Taxpayer is able to claim certain deductions which are not allowable under FDAP — the net income is taxed at the US progressive tax rate on their tax return.
International Tax Amnesty Program Summary
The Offshore Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting, including Green Card Holders and Visa Holders.
Some of the more common programs, include:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquency Procedures
- Reasonable Cause
Can I Just Start Filing FBAR This Year Instead?
No, unless the current year is the first-year you had a reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an Quiet Disclosure. The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
Golding & Golding: International Lawyers for Clients Worldwide
Golding & Golding International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.