Key rules for green card foreign income tax in 2025
Understanding green card foreign income tax is essential for anyone navigating life outside the US with permanent residency. This guide outlines what income is taxed, which forms to file, and the key exclusions and credits you may be eligible for. Whether you're working overseas or retired abroad, the rules for green card taxes still apply.
This article is brought to you by Taxes for Expats (TFX) – the trusted team helping Americans abroad manage tax obligations, file correctly, and stay compliant with IRS rules. Whether you're earning foreign income or need help navigating permanent resident taxes for this tax year, we're here to guide you – learn more about our services or contact us.
Key takeaways – facts that matter
Below are the core facts for permanent resident taxes in 2025. Figures and forms reflect official guidance for the current tax year for a quick scan through.
- For green card taxes, resident aliens are taxed on worldwide income – same rules as citizens.
- Foreign Earned Income Exclusion is $130,000 for 2025; qualify via 330 full days in any 12-month period or via bona fide residence – claim on Form 2555.
- Use the Foreign Tax Credit (Form 1116) on foreign income you don’t exclude; you cannot take a credit on amounts excluded with FEIE.
- FBAR filing is required if foreign accounts exceed $10,000 at any time.
- FATCA/Form 8938 applies when specified foreign assets exceed $200,000/$300,000 (single abroad) or $400,000/$600,000 (MFJ abroad).
- Living abroad grants an automatic 2-month filing extension to June 15; request Form 4868 for time to Oct 15.
Green card status – your tax obligations
Green card holders, known legally as lawful permanent residents, are taxed under the same tax laws that apply to US citizens, which means worldwide income is always in play. Unlike many countries that rely strictly on residency-based taxation, the United States applies citizenship-based taxation to its citizens, while residents green card holders fall under residency rules until they formally end that status.
The federal tax rate schedule is identical for both groups – ranging from 10% up to 37% in 2025 – so their tax liability is calculated in exactly the same way. In short, holding a green card ties you into the US tax system globally, just as if you were a citizen, with no relief unless you qualify for exclusions, credits, or treaty provisions.
Reducing double tax for green card holders
There are four tools to keep green card foreign income tax under control when you’re living and working abroad: the foreign tax credit FTC, the foreign earned income exclusion FEIE, the foreign housing exclusion, and tax treaties. Below, we outline how each works in tax year 2025 – and when to combine them for the strongest defense against double taxation.
Foreign tax credit (FTC)
The FTC is a dollar-for-dollar credit for income taxes paid to a foreign country, generally claimed on Form 1116. For instance, if you owe $7,500 US tax on foreign-source salary but already paid $9,000 abroad – you can usually claim a $7,500 credit this year and carry the extra $1,500 forward. Credits are categorized by income type, and unused amounts can be carried back one year and forward ten years to smooth spikes.
To benefit from the program, make sure you meet these requirements:
- The foreign levy is an income or profits tax, legal and compulsory.
- You are the taxpayer on whom the foreign tax is imposed.
- The income is foreign-source and also taxed by the US.
- You file Form 1116, separating categories and countries as required.
- The credit is limited to US tax on that same income; excess may be carried back 1 year and forward 10 years.
Foreign earned income exclusion (FEIE)
FEIE lets qualifying taxpayers exclude up to $130,000 of foreign earned income in tax year 2025 by filing Form 2555; your report of foreign earned income exclusion FEIE is made on that form. It applies to wages or self-employment income for services performed abroad – not to dividends, interest, or capital gains. If you earn $170,000 abroad and qualify for FEIE, up to $130,000 is excluded, with the balance taxed by the US (you may use tax credits on the remainder).
Bona fide residence test
You establish that a foreign country is your home for an uninterrupted period that includes a full calendar year. Facts and circumstances matter – ties like housing, family, and intent are weighed.
Physical presence test
Spend at least 330 full days in foreign countries during any 12-month period; the days need not be consecutive. This test is mechanical and available to resident aliens regardless of treaty nationality.
Tax treaties and limitations
Treaties can help, but the “saving clause” often limits relief for US residents. If you claim treaty nonresident status under a tie-breaker, a special filing is required.
- When they help: targeted reductions on specific income (for example, withholding on dividends or pensions), or when a dual-resident uses a treaty tie-breaker and files Form 1040-NR with Form 8833 to be treated as a nonresident for US tax.
- When they don’t: the saving clause generally lets the US tax its citizens and residents as if no treaty existed, with narrow exceptions listed in each treaty – so treaties rarely erase green card holder worldwide tax.
Foreign housing exclusion (FHE)
FHE complements FEIE by excluding reasonable overseas housing costs when you qualify under FEIE and report the exclusion on Form 2555. Your base housing amount equals 16% of the FEIE, and allowable expenses are generally capped at 30% of the FEIE – which implies a $39,000 general cap for 2025, with higher city-specific limits in IRS guidance. In short, eligible costs above the base and within the local cap reduce taxable income, and employees exclude them while the self-employed deduct.
Reporting foreign accounts & assets
Green card holders with foreign bank accounts must file specific information reports in addition to their annual return. Certain filings also cover foreign financial assets held directly or through entities when values cross set thresholds.
This section maps the foreign bank and financial reporting you may need, highlights key triggers, and notes the penalties for not reporting foreign accounts.
FBAR – FinCEN Form 114: File if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year; due Apr 15 with an automatic extension to October 15; filed electronically via FinCEN.
FBAR penalties: Civil penalties can be up to $10,000 for non-willful violations; for willful violations, the maximum is the greater of $100,000 or 50% of the account balance at the time of the violation; criminal penalties (including fines and up to 5 years imprisonment) may apply.
FATCA – Form 8938: For taxpayers living abroad, file when specified assets exceed $200,000 at year-end or $300,000 at any time (single/MFS), or $400,000 at year-end or $600,000 at any time (MFJ). Penalties start at $10,000, rise to $50,000 for continued non-filing after IRS notice, and a 40% accuracy-related penalty can apply to understatements tied to undisclosed assets.
Staying current with these rules keeps your tax obligations clear, minimizes risk, and supports clean, confident compliance.
Expired green card and your tax exposure
An expired plastic card doesn’t switch off your US filing duties – only ending lawful permanent resident status does. For a quick read on the green card tax implications, use the table below.
| Event | Immigration status | US tax residency result | What you must file |
|---|---|---|---|
| Card simply expires | Still an LPR until status is formally ended | You remain a resident for tax purposes | Keep filing as a resident (1040) until status ends |
| Status formally ended (I-407 accepted, or USCIS/court termination; or valid treaty claim) | LPR status ended | US tax residency ends on the proper termination date | Final resident return, then 1040-NR if needed; additional steps may apply |
If you’re giving up status after being a “long-term resident” (LPR for at least 8 of the last 15 years), review exit-tax rules under section 877A. For 2025, a covered expatriate generally meets any of these: average annual net income tax over $206,000, net worth of $2,000,000, or failure to certify 5-year compliance on Form 8854.
The mark-to-market regime applies with a $890,000 exclusion in 2025, so model outcomes before you act; this is often the bigger permanent resident tax concern.
- Relinquish status – file Form I-407 with USCIS to abandon LPR status under the immigration rules of federal tax laws.
- Notify the IRS – file Form 8854 in the year residency ends to certify five years of compliance and determine whether the exit tax applies.
Use these steps above to keep your permanent resident tax obligations clean as you transition. And if your planning also touches green card foreign income tax, coordinate timing so elections and credits align with the year your residency actually ends.
Behind on filings? Here is how to reset your compliance
Falling behind is fixable, and the IRS gives you a clear path back. For non-willful mistakes, Streamlined Filing Compliance Procedures let you file the last 3 years of returns and 6 years of FBARs while minimizing penalties. Under the foreign track, there’s no miscellaneous offshore penalty, whereas the domestic track applies a 5% Title 26 penalty to the highest aggregate balance of covered foreign assets – key context for green card tax implications.
These programs exist to encourage voluntary cleanup, and the IRS consistently treats timely self-corrections more leniently than issues found first in an exam. If your footprint includes foreign accounts, PFICs, or business interests, get expert help to align permanent resident tax filings with the right certifications (Forms 14653/14654) and disclosures (Form 8938, FinCEN Form 114 at the $10,000 threshold).
OBBBA 2025 – how it touches green card foreign income tax
Congress enacted the One Big Beautiful Bill Act on July 4, 2025, as Public Law 119-21. It does not change how green card holders are taxed on worldwide income, but it adds a new cost to certain money transfers abroad.
- New excise tax – rate & start date: OBBBA creates a federal 1% excise tax on “remittance transfers,” starting with transfers made after December 31, 2025.
- Interaction with your return: OBBBA does not alter residency rules or the FEIE/FTC framework. Green card holders remain US resident taxpayers; FEIE for 2025 is $130,000 per qualifying person.
NOTE! OBBBA is a transaction tax on specific outbound payments – it doesn’t change the core rules behind green card foreign income tax or create new credits against income tax. Continue planning under existing FEIE/FTC rules and adjust remittance habits to minimize the new 1% where legally permitted.
Need aid from a tax expert who specializes in expats?
Living abroad with a green card comes with tax rules that can feel confusing and high-stakes. Between worldwide income, foreign accounts, and reporting forms, it’s easy to miss something that later becomes costly. Staying on top of these requirements takes more than filing – it takes knowing how the rules apply to your life abroad.
That’s where Taxes for Expats comes in – we’ll help you weigh your reporting duties, and keep you compliant without paying more than you owe.
FAQ
Worldwide income is reportable, with relief typically via the Foreign Earned Income Exclusion or the Foreign Tax Credit, depending on your facts.
You risk back taxes, interest, civil penalties (including FBAR penalties for unreported accounts), and potential audits, though streamlined relief may apply if your noncompliance was non-willful.
Unless a totalization agreement assigns social coverage to the foreign country or a specific exemption applies, you have to.
