Navigate the complexities of establishing residency in the U.S. with the green card test, even before setting foot in the country.
The Green Card test, a crucial component of the U.S. immigration tax system, determines the start date of residency. Understanding this test is key to navigating the complexities of establishing residency in the U.S. You might have come across this sentence: 'An alien is treated as a United States resident if that individual is a lawful permanent resident of the United States at any time during the calendar year.'
While the above statement holds true once you set foot in the U.S., the first year of determination is a bit more intricate. This blog aims to shed light on two common scenarios. For the purpose of this blog, I'd like to assume you won't be able to meet the substantial presence test.
Let's consider case 1: If you obtained your green card in the current year but have yet to be physically present in the U.S. during the current year, your first day as a US resident starts on January 1st of the following year. This rule, based on 301.7701(b)-4(e)(3), has practical implications for your tax obligations and residency status.
Case2: If you obtained your green card in the current year, and you started your physical presence in the US in the current year, your residency starting date is the date when you start the physical presence in the U.S. The basis for this section is 301.7701(b)-(4)(a). It says, "The residency starting date for an alien who meets the lawful permanent resident test (green card test), described in paragraph (b)(1) of ยง301.7701(b)-1, is the first day during the calendar year in which the individual is physically present in the United States as a lawful permanent resident."
Under case 1, you do not have to worry about US tax obligations in the current year because your residency will only start on the first day of the following year.
Under case 2, your U.S. tax returns should be part-year returns, covering the period from the first date of your physical presence in the U.S. to the last day of the year. This is because your first day as a U.S. resident is the date when you start your physical presence. It's important to be aware of these tax obligations.
When planning your move to the U.S., it's important to remember that even if you obtain your green card, you are not a US resident until you physically arrive in the U.S. This is a reassuring reminder for those in need of pre-immigration planning. You have the flexibility to manage your assets, liquidate your company holdings, and receive passive income such as dividends.
Many accountants may want to treat you as a US resident because you obtained a green card for the entire year, even if you are still in a foreign country, because of the sentence in the first paragraph of my blog. However, there are specific rules for the first year of residency. I hope I was able to clarify this myth.