76. Clue moments of Taxation for Green Card holders living abroad for more than 1 year

Updated: Aug 16




Since you are Green Card holder or in other words a “lawful permanent resident”, you face the same range of tax and disclosure obligations as U.S. citizens. It means you are required to pay taxes in the United States. U.S. government considers you a “tax resident.”

Tax residents must report their whole international income to the U.S. If you are staying outside the U.S. for one year, you will still need to report your entire worldwide income and file Form 1040 each year.


Failure to File

It is very important that lawful permanent resident (LPR) is required by law to file U.S. income U.S. tax returns do so while abroad, even if they are not employed by U.S. companies. This is so because failure to file returns may indicate abandonment. LPRs are normally required to file tax returns indicating worldwide income, not just U.S. income. Payment of back taxes later would be weak evidence of continued U.S. residence.


Filing as a Non-Resident It is also very important that LPRs identify themselves as U.S. residents on tax returns and not as non-residents. If an individual files U.S. tax returns identifying himself or herself as a non-resident, abandonment of LPR status may be found based on this “voluntary admission” of non-residency.


Foreign-Earned Income Exclusion Certain LPRs living abroad may qualify to exclude from taxable income up to $105,900 of foreign earnings (for 2019). The foreign-earned income exclusion (FEIE) is claimed by filing a U.S. income tax return including Form 2555, Foreign Earned Income.

To qualify, you must meet the following requirements:

a) Your “tax home” must be in a foreign country. Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home.

Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. (Generally, “indefinitely” means a tax home expected to last for more than 1 year). Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.

  1. You must have a foreign-earned income. And you must be one of the following:

  2. A citizen or national of a country with which the United States has an income tax treaty in effect and who is a “bona fide resident” of a foreign country or countries for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. For this purpose, “bona fide resident” means staying in a foreign country on a basis that is “indefinite” as opposed to “definite, temporary.”

Or;

  1. Physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

Claiming the FEIE may be a red flag for purposes of determining whether you have abandoned LPR status. In particular, filing under the “bona fide resident” prong may be particularly problematic because “bona fide residence” turns on factors including a lack of definite intention as to the length and nature of stay in a foreign country.

According to USCIS:

If the legal permanent resident declared himself or herself to be a bona fide resident of a foreign country on IRS Form 2555, that means the alien declared to the IRS that he or she went abroad for an indefinite or extended period. He or she intended to establish permanent quarters outside of the United States and he or she openly declared residence in a foreign country.

In contrast, filing under the “physical presence” test is not in itself problematic because it does not reflect the individual’s intent. Still, it confirms potentially negative facts, i.e., that you have been physically present abroad and have foreign-earned income.

In certain cases, an individual may choose to forego the “bona fide residence” FEIE and pay the tax in order to avoid a red flag indicating potential abandonment.

As a Green card holder, you must be aware of the rules to loss of status, including loss through abandonment. Be sure to have proper documentation to allow you to return to the U.S. and file U.S. tax returns each year to show an intention to maintain permanent resident status.

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