U.S. taxes for new arrivals: residency, worldwide income and foreign accounts

Tax residency is not immigration status

The IRS uses its own definition of "resident." A person on a temporary work visa can be a tax resident, and a green card holder who lives abroad can still be a tax resident. Your tax status decides which income the U.S. taxes, which forms you file, and whether you must report foreign accounts.

Am I a resident alien? The two residency tests

Green card test

You are a resident alien for any part of a calendar year in which you are a lawful permanent resident. This continues until your status is formally given up or administratively or judicially ended, even if you live outside the U.S. Simply letting your card expire does not end tax residency (see green card renewal).

Substantial presence test

You meet this test if you were physically present in the U.S. on at least:

• 31 days during the current year, and
• 183 days over the three-year period made up of the current year and the two years before it, counting all days in the current year, one-third of the days in the prior year, and one-sixth of the days in the year before that.

Some days do not count. "Exempt individuals" do not count days while in those roles, including most F, J, M and Q students for up to five calendar years, and J or Q teachers and trainees generally for two of the last six years. Days in transit, days you could not leave because of a medical condition that arose in the U.S., and certain commuter days from Canada or Mexico are also excluded. Exempt individuals often file Form 8843 to claim this.

Even if you meet the test, you may be treated as a nonresident if you were present fewer than 183 days in the current year and have a closer connection to a foreign country with a tax home there. A tax treaty tie-breaker rule may also apply.

Dual-status years

In the year you arrive or leave, you may be a nonresident for part of the year and a resident for the rest. This is a dual-status year. You generally report worldwide income for the resident part and only U.S.-source income for the nonresident part, with special limits: for example, you generally cannot use the standard deduction. Married couples may be able to elect to be treated as residents for the full year and file jointly, and some new arrivals can make a "first-year choice" to start residency early. These elections have trade-offs that a tax professional can weigh.

Do immigrants pay U.S. tax on foreign income?

Resident aliens report income from all sources worldwide: wages, foreign rental income, interest from home-country bank accounts, dividends, pensions and gains from selling property abroad. Two tools reduce double taxation:

• Foreign tax credit, which can offset U.S. tax with income tax paid to another country on the same income.
• Tax treaties, which may change how certain income is taxed. Treaty benefits often must be claimed on specific forms.

Nonresident aliens generally report only U.S.-source income and income connected with a U.S. trade or business, usually on Form 1040-NR.

Reporting foreign accounts: FBAR and FATCA

Residents must report foreign financial accounts and assets in addition to paying any tax. Our banking and credit guide covers setting up U.S. accounts. Reporting does not by itself create tax, but penalties for not filing can be severe.

Foreign mutual funds, pension plans and companies you own may bring additional forms. If you missed filings in past years, IRS relief programs may help; talk to a professional before filing anything late.

State and local taxes

Most states tax residents on their income, and a few have no broad personal income tax. Each state defines residency in its own way, often by where you live and how many days you spend there. Some cities and counties add local income tax. States also may not follow federal treaty rules. Check your state tax agency's website for its rules for part-year residents.

Payroll taxes: Social Security and Medicare

Most workers in the U.S. pay Social Security and Medicare taxes, often called FICA, through payroll withholding. Some nonresident aliens are exempt, including many F-1, J-1, M-1 and Q students and scholars while they are nonresidents, for work allowed by their status. If FICA was withheld by mistake, ask your employer for a refund first; if the employer cannot help, you can file a claim with the IRS. Your country may also have a totalization agreement with the U.S. that prevents double social security taxation and may let you combine work credits from both countries.

Filing basics

• Deadline: federal returns for the prior calendar year are generally due April 15. Nonresidents with no wages subject to withholding may have until June 15. Extensions give more time to file, not to pay.
• Forms: residents generally use Form 1040; nonresidents use Form 1040-NR. Dual-status filers attach a statement showing both periods.
• Identification: you need an SSN or ITIN for yourself and anyone listed on the return.
• Withholding: make sure your Form W-4 reflects your status. Nonresidents follow special withholding rules.
• Records: keep copies of returns and supporting documents for several years, and request IRS transcripts when an immigration form asks for them.

If you leave the U.S.

Departing does not automatically end your tax obligations. Green card holders remain tax residents until their status is formally given up, and long-term residents who give up a green card may face expatriation tax rules. Some nonresidents leaving the U.S. must obtain a tax clearance certificate, often called a sailing permit, before departure. Plan your exit with a tax professional.

Practical first steps

How taxes affect immigration

Filing accurate returns matters for future applications. USCIS often asks for tax transcripts for green cards and naturalization, and filing as a nonresident while holding a green card can raise questions about whether you abandoned residence. Ask an immigration attorney before taking a nonresident position as a permanent resident; you can email us to be connected with a participating attorney. For other first steps after arrival, see moving to the U.S.

What to ask a tax professional

• Am I a resident, nonresident or dual-status taxpayer this year?
• Should we make a joint-return or first-year election?
• Which treaty provisions apply to my income?
• Which foreign accounts, pensions or funds must I report?