Does Immigration Check Your Taxes?

Posted by in Taxes | Updated on August 26, 2022

Tax season can be the most stressful time of the year. It combines the difficulty of navigating complex laws with the challenge of understanding your finances. The process is even more complex when you are an immigrant because it is not always clear if you are expected to pay U.S. taxes if you are not a U.S. citizen. Are there taxes for H1B visa holders? Read on to find out does immigration check your taxes.

Resident vs. Resident Alien and Taxes

The key to understanding your tax obligations in the U.S. is understanding whether you are a tax resident of the U.S. If you are not a U.S. citizen, then you fall into one of the following two categories for tax purposes:

  1. Nonresident Alien
  2. Resident Alien

Generally, a resident alien is required to pay taxes as a U.S. citizen. This means they pay federal income tax to the Internal Revenue Service (IRS) on all of their income from anywhere in the world.

The best way to figure out whether you are a resident or nonresident alien according to the IRS is using the Green Card Test and the Substantial Presence Test. 

These tests check whether you are a lawful permanent resident (green card holder) or if you spend a lot of time physically in the U.S. If you pass either test you are a resident alien for tax purposes.

If you do not pass either of those tests and you are not a U.S. citizen then you are a nonresident alien.

Why Permanent Residents Need to Take Taxes Seriously

If you have a lawful permanent resident card (green card) then you are a resident alien for tax purposes. You are required to pay taxes like all U.S. citizens, and there are serious financial and legal penalties if you do not. Some important tax considerations for green card holders are discussed below.

Use the Correct Residency Status When Filing

The U.S. Immigration and Citizenship Services (USCIS) is not responsible for making sure you pay your taxes. However, many U.S. federal government agencies share information about people. 

Although filing your tax return as a nonresident alien could benefit you in terms of paying less tax, that decision could affect your immigration status.

If you are a permanent resident but you file your tax returns with the IRS as a nonresident alien, that could be taken by USCIS to mean that you intend to give up your permanent residence in the U.S.

That, in turn, could result in you being summoned to Immigration Court under removal proceedings to end your permanent residency in the U.S. 

If you don’t understand how your tax filing status could affect your immigration status, you should consult a specialized immigration attorney before you file your tax returns.

Your Tax History Can Impact Your Chances of Naturalization

One of the requirements for naturalized citizenship in the United States is good moral character. Paying your taxes is considered part of showing good moral character.

That means being up to date with your federal income tax obligations is important if you ever intend to apply for naturalized U.S. citizenship. If you have failed to file tax returns in the past, your best option is to contact the IRS to arrange a payment plan (known as an offer in compromise). It is also important to do this long before you apply for naturalization.

Then, when you go to your naturalization interview, you can present the letter from the IRS detailing the payment plan you have arranged. You should also bring receipts for all the payments made up to that point. In this way, you can prove good moral character even if you owe the IRS.

Expired Green Cards

If you fail to renew your Green Card, you are still legally a permanent resident of the United States. It just means that you have no proof that you are a permanent resident. 

Even with an expired green card, you are required to file federal income tax with the IRS. 

If you fall behind on your taxes, that won’t prevent you from renewing your Green Card, but it may negatively affect some of your immigration benefits in the future.

Abandoned Green Cards and Exit Taxes

Surrendering your green card sets off a process called exit tax. This is a once-off tax obligation that you must pay when you stop being a U.S. resident. 

 Not everyone who abandons their permanent residence will be required to pay an exit tax.  

It is a very good idea to consult a tax professional if you are considering abandoning your green card. They can help you understand if you will be required to pay an exit tax, and how best to manage it.

The Importance of Including Your Spouse When You File

If you or your spouse came to the U.S. under a K-1 (spousal) visa, then it is also important to make sure you correctly file your joint tax returns. This is because submitting joint tax returns is very strong evidence for the USCIS that your marriage is bona fide (genuine). 

The Importance of Taxes for Undocumented Immigrants

An undocumented immigrant is someone who entered the U.S. without inspection, or whose temporary visa expired while they were in the country. However even without lawful residence status, if you pass the Substantial Presence Test, you are a resident alien for tax purposes.

You can file a federal tax return with the IRS as an undocumented immigrant by applying for an ITIN (Individual Taxpayer Identification Number)

It is important to file your tax returns regularly because a history of correct tax returns will be very helpful if you ever need to apply for lawful permanent residence or naturalized citizenship in the U.S. 

Cancelation of Removal

In certain circumstances, you can get a green card through a process called cancellation of removal. This is something that can happen after you have been put into deportation proceedings. Cancellation of removal is available to anyone who is not a lawful permanent resident of the U.S., with any immigration status, whether they are a documented immigrant or not.

You could be eligible for cancellation of removal if you:

  • Have been in the U.S. (continuously, physically present) for 10 years or more
  • Have shown good moral character for the entire time you have been in the U.S.
  • Have not been convicted of certain crimes or violated certain laws
  • Establish that your removal from the U.S. would cause “exceptional and extremely unusual hardship” to your family in the U.S. (spouse, parent, or child who is a U.S. citizen or permanent resident).

Generally, cancellation of removal also results in you being awarded a green card. However, there is a limit on the number of green cards awarded every year, and the decision to grant cancellation of removal is up to the judge in the Immigration Court. Providing a lot of evidence of all of the conditions (including proof of regular tax payments) is a good start in terms of proving that you deserve to be granted a cancellation of removal.

How Immigrant Taxes Impact Immigration Reform

In the very long term, paying your taxes, even as an undocumented immigrant, could build a path to documentation in the future. 

There is a possibility that immigration reform in the U.S. may one day create a pathway for the millions of undocumented immigrants in the U.S. to gain lawful residence in the country. 

If this happens, it is likely that two of the major requirements that prospective applicants will have to meet are physical presence and good moral character. 

If you pay your taxes now and continue to do so for years into the future, this history of tax filings will go a long way towards proving both of those things about you.

How Tax Records Help You Sponsor Family Members

U.S. immigration law allows you to help a member of your family immigrate to the U.S. by acting as a sponsor on their immigration application. To do so, you must prove that you are financially capable of supporting your family member when they arrive in the U.S.

Your history of federal tax filing serves as your historical proof of income, so it is important to keep up to date with your taxes.

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Final Thoughts

If you are wondering does immigration check your taxes, the answer is – sometimes. Taxes for TN visa holders do exist. If you have a green card, do not file your taxes as if you were a nonresident. This could lead to the loss of your permanent resident status. Also do not evade your taxes or it could damage any application you make for naturalization. Paying taxes on time can also help you sponsor family members to immigrate to the U.S. As an undocumented immigrant, a history of tax filing may help you obtain lawful permanent residence in the future. If you are confused about your tax obligations as a non-U.S. citizen, you should consult a tax professional or immigration lawyer for help.