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Many of my clients who are undergoing the immigration or green card processes work for information technology or engineering firms in Columbus, Ohio ask wonder about the tax implications of their departure and work in the US once they receive permanent residence.
Tax laws in the US empower the Internal Revenue Service (IRS), to tax global incomes of those holding US Citizenship or the green card. All US Citizens and permanent residents are tax residents. They must report their entire worldwide income to IRS. However it does not necessarily mean the IRS will tax all the income. Treaties control whether or not the resident must pay US tax on income earned elsewhere. However, the majority is presently non-compliant, in the belief that they should only be taxed where they live.
India and US signed double taxation avoidance agreement which became effective from 1 January 1991, which provides agreed rates of tax for income arising in a country to a tax resident of another country. Hence the annual gross income, income from real estate rental or sale of stock requires filing requirement. The US tax laws exclude the first $80,000 of foreign earned income from US tax, but the individual still have to file a tax return. In addition to tax returns, there are information returns such as the Foreign Bank and Financial Account Report; this covers not only foreign Bank accounts but also all foreign financial type of accounts including investment and life insurance with cash value, etc. Disclosure is required if the aggregate balance of foreign accounts exceed $10,000 at any time during the year.
Normally many Indians, who become permanent residents in US, send money back home, which is invested in the stock market in India, where dividend and long-term capital gains are tax exempt. However, they are liable to pay tax in US for income generated in India. Article 13 of the Treaty states that each contracting state may tax capital gains in accordance with the provisions of its domestic law. That means they both have a right to tax the income. Article 25 of the Double Taxation Avoidance Agreement provides for tax credit being allowed by the country of residence in accordance with the Agreement in respect of the tax paid in the country of source.
Permanent residents even if remain outside US for entire year, still need to report the worldwide income and must file US tax return Form 1040 each year by April 15th. US Government is implementing strict tax laws and measures to trace unreported income through tighter tax laws and disclosure norms after detection of unreported accounts of US citizens and permanent residents in other countries. This is one of the reasons of concern for many green card holders from countries like India who are ignorant about the fact that they have to pay tax or disclose their income at home to IRS. Now, with computerization of accounts in all Banks and registration of land transactions by registration department of the Government, it had become very difficult to evade payment of tax as well as disclosure of assets for many individuals in India.
It is not unusual for green card holders to move out of US permanently or indefinitely. If those individuals who do not formally relinquish their green card, they generally continue to be treated as residents for tax purposes. However, these rules create conflict between Immigration Law and Tax Law. Therefore, any individual claiming benefits under treaty to be treated as a non-resident of US for tax purpose, may adversely impact his US immigration status, since USCIS does not need to know the aliens status until he tries to return to US, claiming to be a permanent resident.
Failure to follow tax laws will affect a permanent residents qualifications for US citizenship and also it may be considered as a criminal offense leading to punishment, revocation of green card and deportation.
If you have a question regarding the tax consequences of your immigration, consult with the lawyers at The Law Firm of Shihab & Associates, Co., LPA. Our attorneys are able to listen to the issues and carefully devise solutions that meet your objectives. Call our firm for an initial consultation today.