Green Cards

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About

Almost everyone knows what a Green Card (known officially as a "permanent resident card") is. It's an identity document which shows that a person has permanent residency in the United States. Green card holders are formally known as lawful permanent residents (LPRs) - they can't vote, but they are able to legally work for almost any employer in the US.

This page isn't for the obvious stuff, it's me documenting the brutal pitfalls of a Green Card which are not well know and very deceptive - such as the 8 year 20-40% hidden exit tax. Yeah, the U.S. is that evil. They make it get hard to get in, then they make it expensive to leave.

My Situation

I'm an Australian citizen who's been working in the US since Aug 2010 and on a Green Card since May 6, 2016 (~7 years ago). In Jan 2023 I was laid off from Google and decided I wanted to move back to Australia and am hoping to renounce my Green Card so that I don't have to pay tax in both countries anymore. Unfortunately if any part of a tax year counts as a full year... it probably puts me into the 8 year trap. I think they'll try to charge me exit trap because my net income in 2022 was >$178,000 and so I'm trying to find an immigration lawyer and international finance/tax experts to see what my best options are. What's scary as heck is that some sources say that exit tax can be anywhere to 20% to 40% of your net assets. I just moved out of my apartment in San Francisco (SF) at the end of June, and tried to sort this out before I left to Australia.


7-8 Year Exit Tax Trap

"What can come as a very unpleasant surprise is the Expatriation Tax (aka Exit Tax). The Exit Tax has the potential to apply to any ... Long-Term Legal Permanent Residents (i.e. anyone on a Green Card for any part of 8 of the last 15 years). This potentially catches any US citizen who has moved out of the US, has no intention of ever returning and belatedly realizes what a burden US citizenship is on a US expat and decides to renounce it." -- planfirstwealth.com (Exiting The USA: Exit & Transfer Taxes).

Exiting from the US and relinquish your green card you have to:

  • I-407 form - Voluntarily abandoning your status as a lawful permanent resident (LPR) of the United States.
    • Is 3 pages and easy to fill in then mail with your physical green card to Vermont. You probably don't want to do it from the US because you lose your green card > do it from Australia. 90 days later you get an email with a copy with red checkmarks > saying "you are no longer a green card holder".
    • Note: Immigration & tax/IRS department don't talk to each other..... Immigration = easy, but tax department will say "why haven't you filed". You need to have tax thing squared away before you do the I-407.
  • Form 8854 - Used to determine whether a US person will have to pay the exit tax when renouncing their citizenship or relinquishing their residency. (not everyone needs to complete this form but if you've been a resident for a while you probably do)


Uncle Sam is not a nice guy


Questions

These are some answered and outstanding questions I have about (1) immigration and (2) tax.


(Immigration) Easy Green Card Questions

  • If you relinquish your green card then come back to the US to work, it is just like starting over, or is there any penalty or advantage to being a former resident?
    • Clare: Yup, just starting over. You will have to disclose that you once had a green card (to check you didn't lose it to drug trafficking etc), but if you left legitimately it shouldn't hurt.
  • Do you keep your social security number (SSN) forever?
    • Jeff + Clare: Yup.
  • Can I delay and stay on the Green Card, how often do I need to come back?
    • Clare: Once out for a year (hard line) > your naturalization process resets. If you have a 6 months gaps you have to explain with evidence that you intend to return. So staying under 6 months is the safest.
    • Clare: There is also a way to give more time - a "reentry permit" that effectively says "I'm not spending enough time in the US for reentry but wanna preserve my green card and this often gives you 2 extra years at a time.
  • What is the suggested order of business?
    • Andrew David: (#1) Contact am International finance/tax expert. (#2) Get a low down number on tax debt to feed the next play. (#3) Determine the best amount of time to sit on this > you need the tax stuff all squared away before you do the immigration (I-407) form.
  • Can you reconfirm my calculations that you are now in year 8 of the Green Card?
    • ????


(Bank) Bank Account Questions:

  • Are you allowed to keep your money in US bank accounts, and just have them taxed back in your home country, or should you close all your accounts?
    • Jeff: Pretty sure can keep > just need to keep a fixed address (Matt).
    • Clare: Find someone who has international experience.
  • Should I do something with my retirement account?
    • Jeff: Might make sense to keep retirement account in US dollars, but not in 401k.
  • With my current US bank accounts and investments – at what point and how might I transfer the money to my Australian bank accounts? Should I leave these accounts open? After renouncing my Green Card I would like to property in Australia and may need that US money to do so.
  • With my superannuation account 401k held in US – do you keep it on there, or can I transfer the money to an Australian superannuation fund before or when you decide to renounce the Green Card?
    • ???
    • One of mum's friends worked in US for 18 years and then came back to live in Australia and complained he ‘lost’ money and his 401k – so you need specific advice on 401k. Certain websites say: “Typically, if your existing US firm find out that you have left the US, they will give you 60 days to find a new home for your investments before they simply close your account - and if that happens you may incur a 10% charge on the entire account along with Capital Gains Tax.”


(Tax) Tax Questions

  • How much might it cost me if I keep green card?
    • ???
    • Jeff: Would have to file international 1099 form > shouldn't get double taxed > end up paying the higher tax > *but* probably don't want to be California permanent resident.
  • How do I best estimate out how much exit tax I have to pay - how much of my money is taxed > just untaxed gains I hope?
    • ???
  • How will tax filing work after I leave the US?
    • Everyone: Will have to file tax in the US this year (2023) for sure.
    • ... for future years depends on when you renounce green card?
  • How might I best prepare my money ahead of moving?
    • Will want to roll money out of 401k ==> into retirement program ==> won't affect renouncing is everyday business (not suspicious).
  • I believe I'm all up-to-date and correct in your US tax returns over the last 5 years via H&R Block, but is there any way to check / get assurances?
    • ???


Extra Tax Questions Suggested by my Mum

  • As US tax year is a full calendar year – do I need to submit your 2023 tax return to IRS (from 1st January 2023 up to the point you fly out of US), or is this period included in the Exit Tax calculations and thus no need to submit it if you renounce Green Card before end of 2023?
    • ???
  • Reconfirm that you should not/cannot do the current 2023 tax year return (due April 2024) before you leave US, and/or before you make the decision to renounce Green Card?
    • ???
  • Can you assist with whatever process is needed?
    • ???
  • Should I use my own (H&R block) accountant who has assisted to date?
    • ???
  • Can this tax process be easily done from Australia if needed, as you have not decided on renouncing Green Card yet?
    • ???
  • What is my ‘tax liability’ for renouncing Green Card? And how is the exit tax calculated? Can you provide an estimate of the amount of your exit tax?
    • ???
  • What are tax implications of different scenarios:
    1. Renouncing Green Card now/soon (whilst unemployed in USA and not working in Aus either)?
      • ???
    2. Renouncing Green Card within next 6 months (after working in Aus for less than 6 mths)?
      • ???
    3. Renouncing Green Card in a year’s time (after working in Aus for less than one year)?
      • ???
    4. Renouncing Green Card more than one year away?
      • ???
    5. Keeping bank/investment accounts in US?
      • ???
    6. Transferring all US bank/invt monies to Aus accounts?
      • ???
    7. Keeping 401k superannuation in US?
      • ???
    8. Transferring all US 401k to Aus super (if allowable)?
      • ???
    9. Keeping Green Card, working in Australia for 6 months or a year (will be hard with double tax, proving ties to US, using US accounts etc) and later returning to US to live/work (it seems no problem with reapplying for Green Card but presumably with a job).
      • ???
  • I'm trying to find out the actual tax implications of keeping Green Card (but only a few years left on your current one, and if no longer in US will have to renounce it then anyway) to help you make decision on Green Card.
    • ???
    • When I return to Aus presumably I am a resident of Australia and not of US – I can’t see how I can be a ‘resident’ of both countries – and what are tax implications of that?


Links

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