Residency Has a Price
If you have resident alien status, you're subject to federal income tax in the same manner as a U.S. citizen is--that's one of the "lucky privileges" of being a permanent resident alien. Even if you don't have a green card, look forward to enjoying the same levels of taxation as anyone born in the United States, provided you meet the substantial presence test. If you do, you will be required to pay the same withholding and estimated taxes as a U.S. citizen. Your earnings will also be subject to Social Security taxes and the Medicare tax. Tax law is complex, and some experts suggest that you weigh the tax consequences of becoming a permanent resident against your desire to hold a green card. Of course, there are exceptions to the taxation rules. The year you become a permanent resident may be a dual status year for you, or your federal income tax treatment may be affected by one of the tax treaties the United States has with other countries.
Tip: For information on the calculations associated with the substantial presence test, see IRS Publication 519, U.S. Tax Guide for Aliens.
If You Have a Green Card, You're A Resident for Tax Purposes
Once you have a green card, you are automatically a U.S. resident for tax purposes. As a U.S. resident, you'll have to file a federal income tax return, and you may owe federal income tax. Be aware that if you fail to file a federal income tax return or fail to pay any federal income taxes that you owe, you may be jeopardizing your chance to become a naturalized citizen. Most aliens must file a statement or a tax return and pay any taxes due before leaving the United States. Once these obligations have been satisfied, the IRS will then issue a Certificate of Compliance (also called a departure or sailing permit). Paying your income tax is one way to indicate that you are not abandoning your status as a permanent resident alien.
If You Don't Have a Green Card, You May Still Be a Resident for Tax Purposes
You are considered a resident alien if (1) you have a green card or (2) you pass the substantial presence test. In order to be considered a resident alien under the substantial presence test, you must have been physically present in the United States on at least 31 days in the current year and you must have been physically present in the United States on at least 183 days during the three-year period consisting of the present year and the preceding two years (with days from the previous year counted as 1/3 day and days from the year prior to that counted as 1/6 days). However, even if an alien satisfies the substantial presence test, he or she will not be treated as a resident alien for U.S. tax purposes if he or she is present in the United States for less than 183 days during the current year and he or she has a tax home in a foreign country and a closer connection to that country than the United
Tip: Certain individuals, such as teachers, students, and diplomats, are considered exempt and can exclude days of presence. For more information, see IRS Publication 519, U.S. Tax Guide for Aliens.
It's possible that you can be both a resident alien and a nonresident alien during one tax year. This usually happens during the year you arrive into or depart from the United States. If you are a resident alien in the United States and are also a resident of another country, you may have to file tax returns in both countries, depending on the tax treaty the United States has with your native country.
As A Resident Alien, You Are Subject To All of the Federal Tax Rules Applicable To a U.S. Citizen
Your Employer Will Be Required To Withhold A Portion Of Your Wages
As a resident alien, a portion of your wages will be subject to federal income tax withholding.
You Pay Social Security and Medicare Taxes
If you are a resident for federal tax purposes, the federal government requires that you pay Social Security and Medicare taxes. Even if you don't think you'll be working in the United States long enough to qualify for the programs, your wages are subject to Social Security and payroll taxes in the same manner as the wages of your coworkers who are U.S. citizens.
You File Your Income Tax Return by April 15
The U.S. citizen living overseas gets a little longer to file his or her income tax return, but a resident alien must file his or her federal income tax return by the same deadline as everyone else: in most years, April 15. If you file later than that, you'll face a penalty.
You May Owe an Expatriation Tax If You Terminate Residency
Certain long-term green card holders who terminate their U.S. residency are subject to a one-time tax imposed on their assets at the time of expatriation--an expatriation or "exit" tax. The tax applies to those who (1) have a net worth of $2 million on the date residency is terminated, (2) have an average annual net income tax liability for the five years preceding the date of termination that exceeds $171,000 (in 2020), or (3) fail to certify that he or she has complied with all U.S. Federal tax obligations for the five years preceding termination. (However, exceptions may apply to individuals who are born with dual citizenship or who relinquish U.S. citizenship before the age of 18½.) The tax is calculated on the net unrealized gain in property on a "marked to market" basis, as if the property had been sold for its fair market value on the day before the expatriation or residency termination. Gain from the deemed sale is taken into account at that time without regard to other Internal Revenue Code (IRC) provisions. Any loss from the deemed sale generally is taken into account to the extent otherwise provided in the IRC, except that the wash sale rules of IRC Section 1091 do not apply.
A net gain over $737,000 (in 2020) is recognized. Any gains or losses subsequently realized are adjusted for gains and losses taken into account under the deemed sale rules, without regard to the exemption. Deferred compensation items, interest in nongrantor trusts, and specified tax deferred accounts are excepted from the mark-to-market tax but are subject to special rules. Also, a transfer tax is imposed on certain transfers to U.S. persons from certain long-term residents who terminate their U.S. residency, or from their estates. If you are subject to the expatriation rules, you must file IRS Form 8854.
Technical Note: The expatriation tax rules are different for individuals who expatriated before June 17, 2008.
What about Your Nonresident Spouse?
The rules are more complicated if one spouse is a resident alien and the other is a nonresident alien. If you are a resident alien but your spouse is a nonresident, your spouse can choose to be treated as a U.S. resident. However, this election could result in increased U.S. income tax liability. See IRS Publication 519, U.S. Tax Guide for Aliens for further information.
Getting a Taxpayer Identification Number (TIN)
Generally, you can get a Social Security number if you have been lawfully admitted to the United States for permanent residence or are otherwise authorized to be employed in the United States under federal immigration law. You can apply for a Social Security number by filing Form SS-5. If you are not eligible to obtain a Social Security number but you are required to have a TIN, you'll need to file Form W-7,
Application for IRS Individual Taxpayer Identification Number (ITIN) and submit original documents to substantiate the information on the application (such as birth certificates, passports, drivers' licenses, or immigration papers). You can usually apply in person, or if you'd like, by mail. You may need an ITIN if you need to file a tax return to report U.S. source income, to file an elective joint return with a U.S. citizen or resident spouse, or to allow a U.S. citizen or resident to claim you as a dependent in certain cases.
For more information, see IRS Publication 519, U.S. Tax Guide for Aliens.
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