U.S. Taxes based on Immigration Status

It’s tax season! It’s the perfect time to remind you about the importance of your tax compliance in the United States. Your compliance with U.S. tax requirements reflects positively on your character in your immigration application, especially in regards to a citizenship application. In fact, failure to pay required taxes will lead to the out right denial of your immigration or citizenship application. A charge of tax evasion has serious consequences which can lead to your deportation and permanent inadmissibility. So I want to lay out the tax rules for both green card holders, non-immigrants (temporary) and undocumented aliens.

Categories of Immigrants under Tax Law

Under immigration law you’ll hear about four immigration status categories. There are U.S. citizens, Permanent residents (green card holders), non-immigrants (temporary) and undocumented immigrants. However, under tax law there are three categories for tax purposes. There are U.S. citizens, Resident Aliens, and Non-resident Aliens. U.S. citizens and resident aliens are tax the same and are taxed on worldwide income, including foreign income. Green card holders fall under the Resident Alien category. Therefore if you are a permanent resident (green card holder), you must pay taxes on all income in the U.S. and in any other foreign country that produces income. This debunks that common misperception that green card holders don’t pay income produced outside of the country. There is also the misperception that other types of non-citizens don’t need to pay U.S. taxes. It’s a little more complicated than that. The General rule is, if you are a non-resident alien, you must pay taxes on U.S. source income only, unless an applicable treaty between the U.S. and your country exempts you from paying such taxes.

Also, there are certain visa holders and positions of employment that may also be exempt from paying taxes in the U.S. For example visa holders in the F, J, M, or Q visa categories, which are considered non-resident aliens. Other temporary immigrants and employment categories such as employees of international governments and organizations, business visitors, tourists, crew members may not be subject to U.S. taxes unless there is another circumstance which subjects the individual to tax laws. A non-resident alien (non-immigrant or undocumented alien) can become subject to tax laws if they fall under the substantial presence test.

Substantial Presence Test to determine whether Resident or Non-resident alien

Even if you are a non-resident alien (non-immigrant or undocumented immigrant), you may be classified as a resident alien for tax purposes in the United States. This means you’ll be taxed similar to U.S. citizens at a different rate and you’ll pay taxes on worldwide income. The substantial presence test applies in the case of a non-immigrant or undocumented alien who is in the United States. If you’ve been present in the United States for at least 31 days in the current year and at least 183 days in the current year and the previous two years, then you’ll likely be subject to U.S. taxation requirements. There is a particular formula used to calculate the days throughout the three years. Even then, you may be considered exempt if you can show that you have closer ties to your foreign country than the U.S., maintain tax compliance in the home country, and has been present in the United States less than 183 days in the current year.

Taxes as a Resident Alien vs. Non-resident Alien

Generally, the resident alien is subject to tax on both U.S. source income and foreign income. The non-resident alien is subject to tax only on U.S. source income, which includes services provided in the U.S. The difference between being classified as a resident alien or a non-resident alien can mean higher or lower tax rates, an exclusion of certain taxes, the scope of taxes to be paid and whether a treaty applies.

Be sure to have a tax attorney, like myself, do your immigration tax planning. The attorney can identify your category for tax purposes, determine your tax rate, and determine whether a treaty would reduce your taxes or exempt you all together. This ensures your tax compliance. If you are planning on applying for permanent residence or another legal status in the United States, it is important to avoid tax trouble at all cost. Being savvy and planning ahead or correcting any existing tax issues is a sure way to go.

NOTE: As always this is for informational purposes only and is not legal advice. Consult an attorney for advice regarding your particular circumstances.

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