Green Card is perhaps one of the most coveted pieces of plastic in the world. It allows its holder to live and work in the United States, the land of opportunity, with no restriction.
Most Green Card holders don’t immediately think about the next step, which is becoming a US citizen. Ironically, that’s what the Green Card is designed for. While the US Government cannot force anyone to naturalize, Green Card is an Immigrant Visa. If you apply for a Green Card, your explicit intention is to establish a home in the US permanently. Once you meet the requirements, you can swear allegiance to your new country and become a citizen.
Many long-term Green Card holders, for one reason or the other, do not naturalize. They stay in this immigration “limbo” for decades. Some simply do not wish to stay “forever”. Others do not wish to give up their existing citizenship if that’s a requirement in their home country.
Inevitably, after a while many of these long-term Green Card holders face the option of moving somewhere else, either back home or a new country. And they don’t really know what to do with this piece of plastic.
The benefit of keeping the Green Card
As this is a blog that helps reader make personal finance decision, I tend to put numbers around the benefit and cost of major decisions. However, for many, the benefit of the Green Card is one that is difficult to quantify against cost.
A lot of Green Card holders came from countries that are constantly at the threat of war, economic instability, or natural disaster. While they may not want to live in the US for the rest of their lives nor become a citizen, having the option to relocate to the US due to unforeseen circumstances at a moment’s notice is priceless.
This is why, in the rest of this post, I’m going to focus on the cost. If for you the benefit will always outweigh the cost, then the cost is not a decision factor. Though you may still want to know what the costs are and be prepared for it in advance.
The Cost of Keeping vs. Giving up Green Card
In my experience, there are three main types of Green Card holders that get little benefit of the Green Card but are hesitant to give it up. This is when consider the cost of keeping vs. giving up the Green Card when you don’t need it can be helpful to you.
- “I went through so much trouble to get it in the first place.”
This is the Sunk Cost Fallacy at work. Whatever time and money you spent on getting the Green Card is in the past, you should make the decision based on the cost and benefit in the future.
- “Most of my assets are still in the US. I’m afraid not having a Green Card will make it difficult to access them.”
This may or may not be true, depending on where you live. At the very least, even US citizens living overseas can sometime have difficulties access US-based financial accounts. Having a Green Card doesn’t make it easier for you.
- “My spouse and children are born US citizens. I don’t want to become a US citizen, but I don’t want to be a nonresident that may make family finances and taxes complex.”
Again, this may or may not be true depending on your other tax residency. Sometimes having family members with different tax residency create planning opportunities to reduce global tax burden and make tax filing easier.
In the next section, I’m going to lay out all the various costs of keeping vs. giving up Green Card so you can consider them based on your own situation. Be aware that some costs, while small in annual term, continues for the rest of your life. Others may seem daunting but may eventually bring larger benefit by reducing ongoing costs. Make sure you consider the short-term and long-term implications when you compare the costs.
(As always, consult a professional well-versed in these costs if you don’t feel confident.)
Cost of Keeping Green Card While Living Outside of the US
What are some of the costs associated keeping the Green Card when you don’t need it?
Travel Cost to the US
To make sure you comply with the condition of Green Card, you need to show that you do not intend to be absent from the US for over 12 months, or abandon your US residence. In practice, you may need to return to the US every 6-12 months so the border control doesn’t question your intention to live in the US.
Reentry Permit Cost
However, USCIS does recognize under certain circumstances, Green Card holders may need to stay overseas for more than 12 months due to other obligations, but do not intend to abandon their US residence. In such cases, you should apply for a Reentry Permit before taking the extended leave. It is only good for two years. Once it’s expired, you need to apply for a new one.
Green Card Renewal Cost
Green Card has an expiration date. While you can renew it if you continue to comply with the terms of the Green Card, keep it for decades still come with administrative cost.
Ongoing Income Tax Filing Cost
Green Card holders automatically satisfy the Green Card Test for US tax residency and are liable to US income tax on worldwide income. Even if you don’t owe additional US tax due to living in a higher tax jurisdiction or utilizing tax treaty, you still are required to file the US tax returns. The time and energy involved often make hiring a professional to file worth it, but this is an extra expense. In addition, all the penalty for failing to file and for withholding enough taxes applies.
(Don’t forget about State taxes, which have their own rules.)
Ongoing FBAR and FATCA Filing Cost
Living outside of the US means you’ll likely have non-US foreign accounts and assets to report to the US government. If you’ve failed to report them, there are further expenses to hire professionals to catch up, or risk penalties. Many end up finding out beyond just declaring assets, they now owe more US taxes due to the type of foreign accounts or foreign investments they have.
Additional Tax If You Live in Lower Tax Jurisdiction
If you leave the US for a lower tax jurisdiction, then keeping the Green Card negates that benefit. You are still required to pay at least the US tax rate on your income.
Additional Cost Navigating Non-US Financial Systems
Many financial institutions in foreign jurisdictions, due to US Government’s Foreign Account reporting regime, refuse to work with US tax residents, or give them a lot of hoops to jump through. Depending on where you live and how you bank, having a Green Card may make it more expensive to manage your non-US finances.
Cost of Giving up Green Card When you Leave the US
Giving up Green Card can come with costs, so don’t “accidentally” give up the benefit of the Green Card but keeping all the cost, such as having it taken at the border control or letting it sit expired for years. Make sure you intentionally surrender it.
Green Card holders’ US tax residency continues unless they follow the IRS rules to complete their final tax reporting, in addition to following USCIS’s instructions to surrender the Green Card. Unfortunately, those two agencies do not talk to each other.
Expatriate Tax (Exit Tax)
One of the biggest surprises for many long-term Green Card holders is learning that there is potentially an Expatriate Tax for giving up Green Card.
The good news is that many long-term Green Card holders, while must file expatriate statement (Form 8854) in the year they give up Green Card, will not actually owe any additional tax due to the net worth and income tax thresholds.
The bad news is that many people neglect to file Form 8854 when they give up Green Card (especially if it’s an accident), which then push them into the category called “Covered Expatriate”, the same category of filers who are high net worth or high income.
Covered Expatriates are subject to income tax on the net unrealized gain as if they sold their worldwide assets at their Fair Market Value the day prior to expatriation date. Fortunately, they do get a reduction on the net unrealized gain of $767,000 (2022) before tax is calculated. It means that you need to have substantial gain on your assets since you purchased them for Expatriate Tax to take effect. Nevertheless, many long-term residents may have assets growing for decades.
So, while it is a costly endeavor for Covered Expatriate to hire professionals to file the Form 8854 properly, it doesn’t always result in large extra tax owed.
If you are thinking about giving up Green Card, I encourage you to follow the flow chart below and decide whether you need to complete more detail calculations.
US Estate Tax on US asset
After you become a nonresident alien, you may still have US-situated assets, such as US real estate or US company stocks. While nonresidents for US income tax purpose may get some benefits, such as no capital gains tax on US stock sale, they do not get the same level of lifetime gift exemption like US residents. It means the US assets may be taxed at the highest 40% estate tax bracket. Untimely death, before you can move your US assets abroad, become a real risk.
Additional cost to manage US-based assets as nonresident
Foreign investors usually pay a higher cost than their local counterparts in managing their investment. You may have fewer options due to regulations or distance, which means you may pay a premium for the same level of access or service. This applies to real estate investment or financial account investment alike.
Who Should Do More Due Diligence
Eventually, every Green Card holder’s situation is different. Hire a professional to do these important cost benefit analyses if your situation is complex before deciding what to do with your Green Card. For example:
- You are married to US citizens or have US citizen heirs.
- You have or expect over $2 mil global net worth or over $1 mil in worldwide income.
- You are moving to a significantly higher or lower tax jurisdiction.
- You have significant US-situated assets such as US-based business, US real estate, or highly appreciated US company stocks.
Your future self will thank you.