The United States is one of the few (if not the only one) countries in the world which taxes its citizens and permanent residents on the basis of their worldwide income. As a result, U.S. permanent residents (and citizens) who decide to live and work outside of the U.S. on a temporary basis are normally required to declare and pay U.S. tax on their foreign income regardless of the source of such income. This is true whether or not the U.S. green card holder receives a Form W-2, 1099 or similar tax document. This article focuses on the tax filing of U.S. permanent residents and the immigration implications of their tax filings (or the lack thereof).
U.S. Permanent Residents Must File Tax Returns Even if Residing and Working Abroad
A U.S. citizen or, for the purpose of this article, permanent resident alien (green card holder) living or traveling outside the U.S., is generally required to file U.S. income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those taxpayers residing in the United States.
The permanent resident is required to file a U.S. tax return if their gross income from worldwide sources is at least the amount shown for their filing status in the Filing Requirements table in Chapter 1 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. For example, for 2014, single taxpayers who have worldwide income from all sources in excess of $10,150 must file a tax return with the IRS. Factors such as taxpayer’s income, filing status, and age generally determine whether a permanent resident (regardless of residence or source of income) must file a tax return. Please review Publication 54 mentioned above for more details.
Gross Income Must be Declared
Now that we know that a U.S. green card holder living temporarily abroad must declare their worldwide income, the question is, What kind of income is included?
IRS requires that all income received in the form of money, goods, property, and services that is not exempt from tax be included and declared. In determining whether a U.S. permanent resident must file a tax return, the taxpayer must consider as gross income any income that was excluded as foreign earned income or as a foreign housing amount. If the taxpayer is self-employed (in the U.S. or abroad), their gross income includes the amount on the Gross Income line of Schedule C (Form 1040), Profit or Loss from Business, or the Gross Receipts line of Schedule C-EZ (Form 1040), Net Profit from Business.
Foreign Bank and Financial Accounts Disclosure Required
Additionally, FinCEN Report 114, Report of Foreign Bank and Financial Accounts (“FBAR”) (formerly TD F 90-22.1), must be filed if a taxpayer has had a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country, the value of which exceeds $10,000. A report is not required if the assets are with a U.S. military banking facility operated by a U.S. financial institution or if the combined assets in the account(s) are $10,000 or less during the entire year.
Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction
As discussed herein, U.S. citizen and U.S. permanent residents living abroad are taxed on their worldwide income. However, they may qualify to exclude from income up to $99,200 of their foreign earnings. In addition, they can exclude or deduct certain foreign housing amounts.
There are certain eligibility requirements for these exclusions and deductions so a tax professional’s help may be required. We should caution, however, that from immigration standpoint, a U.S. permanent resident’s use of such exclusions may be an indication that the taxpayer is not maintaining their U.S. residence during the tax period in question – therefore, preventing or at least delaying a possible U.S. naturalization application.
Timing of Tax Return Filing
U.S. citizen or green card holders (and certainly military members) who are residing overseas are allowed an automatic 2-month extension to file their tax return and pay any amount due without requesting an extension. For a calendar year tax return, the automatic 2-month extension is June 15. If the taxpayer qualifies for this 2-month extension, penalties for paying any tax late are assessed from the 2-month extended due date of the payment (June 15 for calendar year taxpayers). However, even if the taxpayer is allowed an extension, the taxpayer will have to pay interest on any tax not paid by the regular due date of the tax return (April 15 for calendar year taxpayers).
U.S. Permanent Residents’ Tax Obligations and Immigration
The filing requirements outlined above, especially as they are applicable to U.S. permanent residents, have important (and often overlooked) implications with respect to immigration. Most frequently, the issues arise in the context of an application for a reentry permit or for naturalization application to become a U.S. citizen.
I-131 Reentry Permit Applications
Permanent residents who are spending an extended period of time abroad often apply for and obtain a reentry permit which allows them to spend an extended period of time abroad without losing their green card. The reentry permit application seeks to establish the permanent resident applicant’s compliance with the U.S. tax laws, and specifically to determine whether the permanent resident applicant has filed U.S. taxes as a non-resident OR if they have not filed U.S. taxes because they considered themselves as non-residents.
It is important to note that sometimes, as described in this article, U.S. permanent residents residing abroad and deriving foreign income may not have to file for a U.S. tax return (for example, as mentioned above, if the permanent resident is single and has less than $10,150 then they may not even have to file a tax return). However, if the permanent resident derives worldwide income requiring them to file a tax return, the U.S. government would expect that such tax return be filed as a U.S. permanent resident.
If a U.S. permanent resident has filed a U.S. tax return as a non-resident or if a tax return was not filed because the U.S. permanent resident considered themselves to be a non-resident for tax purposes, a reentry permit application may face significant scrutiny or even a denial. Our office will be happy to assist in evaluating reentry permit applications and any associated risks.
N-400 Naturalization Application to Become a U.S. Citizen
The issue of payment of taxes on foreign income makes often makes an appearance in U.S. citizenship applications, N-400. One of the relevant requirements for qualifying for U.S. citizenship is that the U.S. permanent resident applicant must have resided in the U.S. for the last five (three in certain cases of immediate relatives to U.S. citizens) years.
In certain situations, especially when the U.S. permanent resident applicant has spent considerable period of time outside of the U.S., tax returns for the last five years may have to be submitted with the N-400 citizenship application. If the immigration service sees foreign income exclusion on the tax return for one of the recent years they may conclude that claiming such exclusion was done because the permanent resident applicant has spent considerable period of time abroad and is claiming their tax home to be that of a different country. This, the U.S. immigration service may conclude, is an indication that the U.S. permanent resident applicant has not been maintaining U.S. residency for tax and, more importantly, for U.S. citizenship application purposes and deny the N-400 citizenship application.
To be clear, claiming foreign income exclusion does not automatically prevent a U.S. citizenship application from being approved; however, it increases the risk of scrutiny and/or denial. Our office will be happy to assist in evaluating U.S. citizenship applications and any associated risks.
The purpose of this article is to correct a possible misconception that U.S. permanent residents who work abroad do not have to pay U.S. taxes. This is not true. As discussed above, U.S. citizens and permanent residents must declare all worldwide income in their tax filings. Subject to certain limited exceptions, tax returns should still be filed by U.S. citizens and permanent residents living and working abroad.
Our office is ready and available to help U.S. permanent residents understand how their tax payment history may affect their U.S. reentry permit or U.S. citizenship applications. Our office has a special reentry permit division where we handle reentry permits on a daily basis for a variety of green card applicant situations and we will be delighted to discuss and, possibly, help throughout the application process. Please do not hesitate to contact us with any questions or comments, or if we can be of any assistance with this or related immigration-related issues. We invite you to subscribe to our free weekly immigration newsletter to receive timely updates on this and related topics.
Please note that this is not legal advice and please also note that our practice is limited to U.S. immigration law. We handle U.S. immigration matters (such as reentry permit, naturalization applications and many more) but we do not handle tax issues or questions. We suggest you contact a CPA or a tax attorney for any questions pertaining to U.S. tax laws.No comments
The U.S. Citizenship and Immigration Service (“USCIS”) just announced that they have released the revised FormN-400, Application for Naturalization. The main changes in the new N-400 form are the new questions required by anti-terrorism and child soldier prevention statutes, the (according to USCIS) clearer eligibility instructions and the addition of a dynamic 2D data barcode feature. These changes, however, more than double the size of the N-400 form — the old version was ten pages while the new and current version is 21 pages long.
Form N-400 Changes
Perhaps the most obvious change to the N-400 form is the addition of a 2D dynamic barcode at the bottom of each page. This technology has been used increasingly by USCIS in a number of their forms. The idea is that as a user enters information on the form electronically (in PDF), the 2D barcode at the bottom of the page changes to incorporate the information provided on the form. During the intake processing of the application, USCIS would then simply scan the barcode on each page and the form data would be entered automatically into the system (more, and somewhat technical, information on the 2D barcode process).
In addition, USCIS has added questions to conform with the Intelligence Reform and Terrorism Prevention Act (IRTPA) of 2004 and Child Soldier Prevention Act of 2008. The additional information is important for USCIS to make a better determination of an applicant’s eligibility for U.S. citizenship. The questions relate not only to concerns surrounding good moral character but also to issues relating to the security of the United States.
And perhaps the most important change is that the new form has revised and more comprehensive instructions on general eligibility requirements intended to help applicants understand the naturalization application process. The N-400 form was not easy before the revision, now with an extra eleven pages, great instructions are critical.
Versions and Validity of N-400 Form
The new Form N-400 is available for download and is recommended to be used for all future N-400 U.S. Citizenship filings. On Monday, May 5, 2014, USCIS will no longer accept older versions of Form N-400. USCIS will reject and return previous versions of Form N-400 submitted after May 5, 2014.
Our office handles many N-400 U.S. citizenship applications and we would be happy to assist green card holders who are eligible to become citizens. Please contact us for an evaluation of your citizenship eligibility and for a process timeline and fee estimate. Also, please visit us again or subscribe to our free weekly newsletter to ensure that you obtain this and related immigration-related news and announcements.No comments
USCIS has released a report on the number and characteristics of naturalization applications for 2011. The report focuses on the applicants who were 18 and over and who became U.S. citizens during 2011. According to the data, in 2011, the total number of persons naturalizing was 694,193. The leading countries of birth of new citizens were Mexico (94,783), India (45,985), the Philippines (42,520), the People’s Republic of China (32,864), and Colombia (22,693). The largest number of persons naturalizing lived in California (151,183), Florida (87,309), and New York (76,603).
Historical Trend in the Number of Naturalizations
The number of persons naturalizing in the United States increased to 694,193 in 2011 from 619,913 in 2010 following a decrease from 743,715 in 2009 and 1,046,539 in 2008. The record number of naturalizations in 2008 followed a surge in applications in 2007 in advance of an application fee increase and efforts to encourage eligible immigrants to naturalize. The annual number of applications for naturalization decreased from 2007 to 2008 and increased again after 2008 to 760,000 in 2011.
Region and Country of Birth of Naturalized Applicants
Thirty-six percent of persons naturalizing in 2011 were born in Asia, followed by 31 percent from North America, and 12 percent from Europe. Mexico was the leading country of birth of persons naturalizing in 2011 (14 percent). The next leading countries of origin of new citizens in 2011 were India (6.6 percent), the Philippines (6.1 percent), the People’s Republic of China (4.7 percent), and Colombia (3.3 percent). The 10 countries with the largest number of naturalizations accounted for 48 percent of all new citizens in 2011.
Leading States and Metropolitan Areas of Residence
Seventy-three percent of all persons naturalizing in 2011 resided in 10 states. California was home to the largest percentage of persons naturalizing (22 percent), followed by Florida (13 percent) and New York (11 percent). Fifty-one percent of all new citizens in 2011 lived in 10 metropolitan areas. The leading metropolitan areas of residence were New York-Northern New Jersey-Long Island, NY-NJ-PA (14 percent), Los Angeles-Long Beach-Santa Ana, CA (9 percent), and Miami-Fort Lauderdale- Pompano Beach, FL (8 percent).
Years in Immigrant Status
Persons naturalizing in 2011 spent a median of six years in legal permanent resident status before becoming citizens. Immigrants born in Africa spent the least time in legal immigrant status (5 years), followed by immigrants from Asia, Europe, and South America (6 years), Oceania (7 years), and North America (10 years). The median years spent in LPR status was unchanged overall in comparison to 2010, but increased by one year for persons born in Asia and South America (meaning that folks waited longer before they applied for citizenship).No comments
USCIS has released an interesting report from its field offices on the processing times and statistics of N-400, Application for Naturalization, filings for the fiscal years 2010 through 2012 (or, October 2011).
Number of N-400 Applications
The report breaks down, for each field office processing N-400 applications, the number of receipts, approvals, denials and pending cases for both military and non-military N-400 filings. The statistics are provided for fiscal years 2010, 2011 and YTD 2012.
Average N-400 Processing Times
The report also provides average processing (or cycle) times for N-400 applications, calculated on a service-wide basis. As of October 2011, the average service-wide processing time for N-400 application was 4.2 months for military N-400 case and 4.9 months for non-military N-400 case.
Please note that these average processing times are calculated on a service-wide basis, taking into account all field offices (including ones with very little load). A more reliable (and accurate) way to obtain specific field office processing times is to check the field office processing times for N-400 cases on USCIS website.No comments
Our practice handles a number of N-400, Application for Naturalization, cases for U.S. lawful permanent residents seeking to obtain U.S. citizenship. In addition to preparing and filing a complete Form N-400 application with USCIS and submitting to a biometrics appointment, the N-400 naturalization process includes a personal interview and a naturalization test.
While the information below should not be a substitute for the personal preparation by an immigration attorney for the naturalization interview and test, we are hoping to provide our clients and readers with an overview of the naturalization interview and test and to, hopefully, allay any anxieties an upcoming interview may cause.
The Naturalization Interview
During the naturalization interview, an N-400 applicant (who would be placed under oath) is asked to confirm the validity and correctness of key information submitted on the N-400 application. The N-400 applicant is also asked to produce originals or copies of relevant supporting documents expressly requested in the interview notice or generally required for the N-400 process. It is always a good idea to bring original documents of any copies submitted as part of the N-400 filing; in addition to bringing additional (and more updated) documents. A good overview of the case (and any issues) should identify any additional items that may need to be brought. It is difficult to over-prepare for an interview.
The Naturalization Test
In addition, the USCIS office would seek to test the applicant’s knowledge of civics and the applicant’s ability to speak, understand, read and write English.
Verbal English. The applicant’s ability to speak and understand English is normally tested in the course of the interview by the USCIS officer who often asks questions and seeks input from the applicant. It is often obvious, after a short conversation or after a few questions, whether an applicant has a sufficiently good command of the verbal English language.
Written English. For the written portion of the English language test, the applicant is normally given a reading and a writing test. The applicant must be able to read 1 out of 3 sentences correctly and must be able to write 1 out of 3 sentences correctly to pass the written English test.
Civics. Finally, the civics portion of the test, the applicant may be asked up to 10 questions from a list of 100 civics questions. Answering 6 out of 10 correctly is the passing rate.
Preparing for the Test, Retaking and Passing Rate
There are many websites providing study resources for the naturalization test. USCIS provides good resources and free study materials for the English and the civics portions of the test. USCIS also offers a number of free educational products and resources such as vocabulary flash cards, list of the 100 civics questions (in English and in other languages) and civics flash cards. There are also commercial test preparation books and software, in addition to many websites providing free or paid naturalization test preparation assistance.
Before the naturalization interview, we recommend N-400 applicants to try the Naturalization Self Test (offered for free by USCIS). While the format of this self-test is different than the format of the actual test (which may be verbal), the self-test helps an N-400 applicant assess his or her level of preparedness for the actual interview and test.
If an applicant does not pass the English and/or civics test, he or she is given another (but only one additional) appointment within 60 to 90 days to be retested on the section which was failed. If the component is failed again, the N-400 application may be denied. According to USCIS data, the passing rate as of June 2011 is 92 percent.
Video of the Interview Process
USCIS has also produced a video of the naturalization interview process. Please see the embedded video window below or watch on YouTube.
Although there are variances in the procedures followed by different USCIS centers, the video is a very good (and helpful, we think) representation of what an applicant should expect to happen during an N-400 naturalization interview. We recommend that every N-400 applicant watches the video in preparation of (or even before filing) the N-400 interview.
As mentioned above, these resources are very helpful to preparing for the N-400 interview and test but are not intended to replace a thorough N-400 review and preparation by an attorney. Our office is happy and ready to help N-400 naturalization applicants with their process of applying to become a U.S. citizen. Please do not hesitate to contact us if we can be of any help.No comments
Effective Monday, October 25, 2010, USCIS started issuing a redesigned U.S. naturalization certificate (Form N-550). The new certificate includes enhanced security features and, important for some, it is designed to be “a higher-quality certificate, which will now be easier to showcase in a standard 8 ½ by 11 inch frame.” See a sample.
The naturalization candidate’s digitized photo and signature are embedded in the security-enhanced certificate. Its background features a color-shifting ink pattern that is difficult to recreate. Additionally, USCIS will use a more secure printing process, making it more tamper-proof.
Production Begins October 25
The USCIS offices in Atlanta, Denver and Baltimore will begin to utilize the automated production process this week, including digitizing photos and signatures on all certificates. USCIS will deploy the automated production system agency-wide by the end of the calendar year when all new N-550 naturalization certificates will feature the new design.
Older-Design Naturalization Certificates Remain Valid
It is important to note that naturalization certificates issued and printed using the older design remain valid and unaffected. Only new naturalization applications (upon approval) and replacement applications would be issued with the new design.No comments
Our office continues to handle an increasing number of naturalization and citizenship applications so it is interesting to share with our clients and readers some recent numbers on the citizenship statistics for Fiscal Year 2009 (FY2009).
During FY2009, U.S. Citizenship and Immigration Service (USCIS) received 743,715 applications for naturalization (in comparison to the 1,046,539 during FY2008 and 660,477 in FY2007). Some of our readers would conclude that there is a sharp drop in the naturalization applications in FY2009 compared to the fiscal year prior; however, FY2008 was the year when USCIS instituted a substantial Form N-400 fee increase, which prompted a higher-than-normal filing numbers. FY2009 is actually substantially higher than FY2007 and FY2006 (660,477 and 702,589, respectively). Based on these statistics, it is important to show that the citizenship and naturalization applications are increasing.
Most of the applicants (74%) resided in 10 states: California, New York, Florida, Texas, New Jersey, Illinois, Virginia, Massachusetts, Washington and Maryland. The largest metropolitan area of residence was New York-New Jersey (15%), Los Angeles (11%), Miami (7.3%).
The top countries of origin of naturalization applicants were Mexico, India, Philippines, China and Vietnam.No comments
USCIS has released a 16-minute video on the naturalization process including the eligibility requirements, application process, preliminary steps, interview, English tests and U.S. history and government test (civics). The video also includes two simulated interviews.
This video should be very helpful to naturalization applicants to become familiar with the interview and test process and to get a better sense of what they should expect.No comments
As our office continues to handle an increasing number of citizenship application, we thought it would be interesting to share some naturalization statistics, grouped by decade, for the past four decades.
According to numbers provided by USCIS, the period between 2001 and 2010 noted a slowdown in the number foreign nationals becoming U.S. citizens. The number of naturalized Americans between 2001 and 2010 was 5.6 million, roughly the same as between 1991 and 2000. By comparison, 1991 to 2000 doubled in comparison to 1981 to 1990. Much of the slowdown during 2001 to 2010 period is attributed to increased scrutiny as a result of the September 11, 2001 attacks. As the U.S. immigration authorities adjust their policy, we expect the growth to continue, although not so quickly.
The naturalization statistics, broken down by decade, are as follows:
2001-2010: During this decade, the United States welcomed more than 5.6 million new citizens, including more than 744,000 people during fiscal year 2009 and more than 138,000 in the current fiscal year. Since September 2001, USCIS has assisted more than 55,000 members of the military to become naturalized U.S. citizens.
1991-2000: Approximately 5.6 million individuals became U.S. citizens during this period, doubling the number from the previous decade. The late 1990s also marked another shift in naturalization demographics, with those of Mexican decent yielding the most naturalized citizens, followed by Vietnamese and Filipinos.
1981-1990: Nearly 2.3 million people were naturalized during the 1980s, nearly half of whom came from Asia. Together, Canada and Mexico accounted for more than one quarter of the remaining new citizens.
1971-1980: The United States welcomed approximately 1.5 million new citizens during the 1970s. The Philippines, Cuba, and China were the leading countries of origin. This trend represented a shift from the 1960s, when the largest number of new citizens came from Europe. An estimated 66,000 members of the U.S. military were naturalized during this decade.
1908: The United States naturalized approximately 25,975 individuals.
1907: The United States naturalized approximately 7,941 individuals.
Our office handles many naturalization and citizenship applications every year. Please contact us if we can provide you with an initial case consultation or if we can help you with your immigration process.No comments