When an immigrant is approved for a green card, they become a lawful permanent resident of the United States. That designation requires following the same laws and regulations as US citizens, including the obligation the pay taxes.
In fact, most visa holders are required to pay taxes in the United States. There are a handful of exceptions for non-residents who spend the majority of the year outside the country, but it’s safe to say that most immigrants face the same tax obligation as US citizens.
What Income Is Taxable As A Green Card Holder?
Green card holders are subject to the same tax regulations as US citizens. That means all income sources are subject to taxes, including:
- Rental property
It’s a common misconception that you only have to pay taxes on employer-reported income (for example, when an employer provides you with a W-2 or 1099-MISC). The truth is, you’re required to pay taxes on all income, whether you get an actual paycheck or cash compensation.
Do Green Card Holders Need To Report Income From Other Countries?
Green card holders must report income from all sources, including income earned in other countries. However, that doesn’t mean you actually have to pay taxes on foreign income.
Just as there are tax deductions and exclusions for domestic income, the IRS allows exceptions for foreign income in certain circumstances. If you have foreign income, you should consult with a tax specialist to determine which exemptions you may qualify for.
Note that foreign income is often subject to taxes by foreign governments, too. In fact, you may wind up paying double taxes in the United States and in the country where you earned the income.
Do Immigrants Pay Social Security and Medicare Taxes?
Resident aliens in the United States are subject to the same taxation rules as US citizens, including Social Security and Medicare taxes. This requirement applies to income earned while working in the United States, for an American company or a foreign employer.
Generally speaking, nonresident aliens are also subject to Social Security and Medicare taxes for services performed in the United States. However, some exceptions apply. Certain subsets of the following non-immigrant visas are exempt from Social Security and Medicare taxes.
Note that not all individuals with these non-immigrant visas are exempt — only specific situations are considered exempt. To determine if you qualify for an exemption, consult the IRS guide to Aliens Employed in the United States, or speak with an immigration attorney.
The Substantial Presence Test
Ultimately, the question of whether or not your are subject to US taxes depends on your tax residency. If the IRS considers you a tax resident, you’re subject to taxes. If you’re a non-resident, you may be exempt.
For immigrants, the simplest test to determine residency is the green card test. Basically, if you have a green card, you are automatically considered a tax resident.
For non-green card holders, there’s the substantial presence test. This test determines an immigrant’s tax residency by evaluating the number of days they have spent in the United States in a given calendar year.
To pass the substantial presence test and to be considered a tax resident, you must have spent at least 31 days during the current year in the United States. Additionally, you must have spent at least 183 days in the United States over the past three years based on the following calculation:
- Count one day for each day in the United States this year
- Count ⅓ day for each day in the United States last year
- Count ⅙ day for each day in the United States the year before that
When considering how many days you’ve spent in the United States, the substantial presence test applies to all 50 states, the District of Columbia, the territorial waters of the United States, and submarine areas where the US has exclusive rights to explore and exploit natural resources under international law. This excludes US possessions, US territories, and US airspace.
There are some exceptions to time spent in the United States. When calculating the substantial presence test, do not count the following situations as days spent in the country:
- Days commuting to work in the United States from a residence in Canada or Mexico (assuming you regularly commute across the border)
- Days you are in the United States for less than 24 hours when you are in transit between two destinations outside the United States
- Days you are in the United States as a crew member of a foreign vessel
- Days you are unable to leave the United States due to a medical condition that develops while you’re in the country
- Days you are an exempt individual
The Closer Connection Exception
Some individuals who pass the substantial presence test may still qualify for non-resident tax status under the Closer Connection Exception. First, nonimmigrants who can establish a closer connection with two foreign countries (but not more than two) may be considered non-residents.
Second, foreign students may be considered non-residents for tax purposes when they meet the following criteria:
- The student does not intend to reside permanently in the United States
- The student has substantially complied with the immigration laws and requirements relating to their student nonimmigrant status
- The student has not taken any steps to change their nonimmigrant status toward becoming a permanent resident
- The student has a closer connection to a foreign country than to the United States
Are H-1B Visa Holders Required To Pay Taxes?
H-1B visa holders are considered tax residents as long as they pass the substantial presence test and do not qualify for a closer connection exception. Generally speaking, that means most H-1B visa holders will be tax residents.
As a tax resident of the United States, H-1B visa holders would be required to pay income taxes, Social Security taxes, and Medicare taxes. This applies even if the visa-holder works for a foreign employer with operations in the United States.
Call our Immigration team at (480) 626-2388 to discuss your case today.
Schedule Your Consultation
Fill out the form below to get your consultation and discuss your best legal options.