Tax Implications of Relinquishing a Green Card
For Australian expats with a Green Card, it's important to understand the tax implications if you decide to relinquish a Green Card.
Here's a simplified breakdown:
Timing Matters
How long you’ve held a Green Card affects your tax situation. If you’ve held it for 8 years or more, you may have to pay an Exit Tax. Even holding it for as little as 6 years and 2 days could trigger this. Relinquishing your Green Card before reaching 8 years can help you avoid this Exit Tax.
Understanding the Exit Tax
There are two tests to determine if you're subject to the Exit Tax:
Are your worldwide net assets over $2 million USD?
Has your average Federal tax paid in the last 5 years exceeded a certain limit (e.g. $190,000 in 2023)?
If either applies, you may need to pay the Exit Tax when giving up your Green Card.
Compliance with US Taxes
Before you give up your Green Card, you must certify that you've complied with all US tax filings using Form 8854. Failing to do so can lead to legal issues or the Exit Tax. It’s smart to get help from a professional tax accountant who specializes in international tax.
What’s included in the Exit Tax
The Exit Tax covers all your worldwide assets, like stocks, retirement funds, real estate, and other investments. If you're subject to the Exit Tax, a tax accountant can help you calculate what you owe.
Concluding Thoughts
While a Green Card has tremendous benefits, it’s essential for Australian expats to plan carefully when giving it up to avoid tax complications. Getting advice from a professional tax accountant is key to a smooth transition.
Note: This is general information, not legal or tax advice. Consult a professional for personalized guidance.