Tax Implications of Getting a Green Card

The Direct Answer

Receiving a green card is a major tax event. From the day you become a lawful permanent resident, you are required to pay US taxes on your income from every country in the world - not just your US income. You also become subject to FBAR, FATCA, and other disclosure rules. And if you later decide to give up your green card, you may face an exit tax.

Worldwide Taxation Starts on Day One

Before getting a green card, many immigrants were non-resident aliens paying US tax only on US-source income, or resident aliens under the substantial presence test. The green card makes you a permanent resident for tax purposes under a separate rule: the green card test.

From the date on your I-551 (or the date admitted as a permanent resident), you are taxed on:

• US employment income
• Foreign employment income (including salary from a Brazilian employer)
• Brazilian rental income
• Interest and dividends from Brazilian accounts
• Capital gains on Brazilian investments or property
• FGTS employer contributions (potentially)
• Any other income from any country

There is no minimum amount and no grace period.

The Dual-Status Year

The year you receive your green card is a dual-status year:

• The portion of the year before your green card approval: you may have been a non-resident alien or already a resident under the substantial presence test
• The portion of the year from your green card approval onward: you are a US resident

A dual-status return is more complex than a standard return. You file Form 1040 with a "Dual Status" notation and may need to attach Form 1040-NR for the non-resident portion. Income sourced outside the US during the non-resident period is generally not taxed in the US. Income during the resident period is fully taxable.

Making the First-Year Choice

In some cases, you can elect to be treated as a US resident for the entire year in which you become a green card holder, even if your card was approved late in the year. This can be beneficial if it allows you to file jointly with a US citizen or resident spouse. This election is made on your tax return and is irrevocable.

FBAR and FATCA Obligations

The green card triggers full disclosure obligations under both FBAR and FATCA:

FBAR (FinCEN 114):

• Required if aggregate foreign account balances exceeded $10,000 at any point
• Filed separately from your tax return, due April 15 with automatic extension to October 15
• Covers bank accounts, brokerage accounts, FGTS, and other foreign financial accounts
• Penalties for willful failure can reach $10,000 per violation (non-willful) or the greater of $100,000 or 50% of the account balance (willful)

Form 8938 (FATCA):

• Required if foreign financial assets exceed $50,000 at year-end or $75,000 at any point
• Filed with your tax return
• Covers accounts and certain other foreign financial assets

If you had Brazilian accounts before your green card and did not previously file FBAR, you may need to consider an amnesty or streamlined filing procedure for prior years.

Pre-Immigration Planning

The period before your green card is approved is the last opportunity for pre-immigration tax planning. Common strategies include:

• Selling appreciated assets before becoming a resident to reset the cost basis (gains before green card are not subject to US capital gains tax for a non-resident)
• Distributing from Brazilian pension accounts before residency begins
• Restructuring ownership of foreign corporations or investments to avoid PFIC or CFC issues

Once you receive the green card, these planning opportunities are significantly reduced.

Can You "Just Give It Back"?

A common misconception is that you can abandon your green card without consequences if you decide to leave the US. This is not the case:

• Voluntary abandonment requires filing Form I-407 with USCIS
• For tax purposes, you must also file Form 8854 (Initial and Annual Expatriation Statement) with the IRS
• If you held the green card for 8 or more of the last 15 years (long-term resident), the exit tax rules under Section 877A apply

Simply not renewing your green card, letting it expire, or returning to Brazil without formally abandoning does not eliminate your US tax obligations. The IRS may continue to consider you a US person.

The Exit Tax Explained

If you are a long-term resident (8 of 15 years) when you relinquish your green card, and you meet certain thresholds (net worth above $2 million or average annual net income tax above $190,000 over the prior 5 years, or failure to certify 5-year tax compliance), you are a covered expatriate subject to the exit tax.

The exit tax works as follows:

• All worldwide assets are deemed sold on the day before expatriation at fair market value
• Net gain above an exclusion amount (indexed annually) is taxed at capital gains rates
• Deferred compensation, retirement accounts, and certain trust interests receive special treatment
• You must file Form 8854 in the year of expatriation

This can be a very significant tax bill if you have appreciated Brazilian real estate, large investment accounts, or other assets.

Green Card Tax Timeline

Understand Your Full Obligation

The tax implications of a green card extend from the day you receive it through the day you give it up - and potentially beyond. Start the free 5-minute diagnostic to map out your specific situation, including which years need review and what disclosures you may have missed.