Does Voluntarily Giving Up A Green Card Trigger The U.S. Exit Tax?

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The U.S. administration has taken its tough stance with some residents to the point of pressing for the surrender of green cards at points of entry. Handing over the card could come with serious tax consequences.

Voluntarily surrendering a United States green card, aka a U.S. Permanent Resident Card, has historically been a considered move that’s been taken after with tax planning. But President Donald Trump’s hard line on immigration and unprecedented federal enforcement at American borders has potentially created a new problem for green card holders who return to the U.S.: Some have reported being pressured on the spot to give up their cards at airports and other points of entry.

Among other considerations, does giving up a green card trigger the U.S. exit tax?

Rights, responsibilities and targeting

A green card grants legal authorization to permanently live and work in the U.S., otherwise known as “Lawful Permanent Resident” (LPR) status. An estimated 12.7 million people hold green cards. They can apply for U.S. citizenship after five years of LPR, three years if they marry a U.S. citizen.

Green card holders who travel outside the U.S. for long periods can apply for re-entry permits that allow them to re-enter the country after being abroad for up to two years. (Legal experts have said that being out of the country for only six months can now draw attention.) Green card holders who commit crimes, however, from speeding to a felony, can technically be barred from the U.S. or deported, though historically this has usually been enforced on only serious offenders. Green card holders also must make sure that all information on all forms when they travel is completely consistent.

The recent worry, according to news reports, is part of the new American administration’s “advanced vetting” (which helped lead to a recent pause in the Trump administration even processing green card applications). Some returning card holders who’ve been out of the U.S.  for an extended period say they’ve been pressured at entry points to give up their cards; Customs and Border Protection agents have reportedly sometimes immediately confronted card holders with government forms such as the “Record of Abandonment of Lawful Permanent Resident Status” to surrender their green card.

U.S. Customs and Border Protection has said that the agency presents forms only when card holder at a port of entry voluntarily expresses desire to surrender their card. Immigration advocates say this is strongarming to cull those Washington now sees, with little if any proof, as potentially dangerous citizens. (“LPR status may be revoked only by an immigration judge” and not by federal customs officials at a point of entry, the American Civil Liberties Union stresses. “Do not give up your green card voluntarily!”)

Either way, green card holders can face an abrupt demand to give up their status without forethought, let along financial planning. If they give in, what might the tax implications?

Exit tax

The U.S. expatriation tax, or exit tax, applies to American citizens who have renounced their citizenship and long-term residents who end their U.S. resident status. Voluntarily surrendering a green card qualifies.

Only “long-term permanent residents” who give up their green card might have to pay exit tax, meaning those who have held LPR status in at least part of eight out of the last 15 years. For those who expatriate now or in the near future, the tax applies if your average annual net income tax for the five years ending before the date of expatriation or termination of residency exceeds a specified amount (adjusted for inflation). These amounts are $171,000 for 2020, $172,000 for 2021, $178,000 for 2022, $190,000 for 2023, $201,000 for 2024 and $206,000 for 2025.

The tax might also apply if your net worth is $2 million or more on the date of expatriation or termination of residency or you fail to certify on Internal Revenue Service Form 8854 that you have complied with all U.S. federal tax obligations for the five years preceding.

The exit tax is a mark-to-market regime, which generally means that all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation. Tax-deferred retirement accounts, trusts and certain types of deferred income can add to the taxed amount.

This year, the first $890,000 is excluded (also an amount annually indexed for inflation); the remaining amount of assets incurs the U.S. capital gains tax (which is, typically, 15% to 20% but can be lower or higher).

As the new American administration is unlikely to ease its pressure on holders of green cards anytime soon, and the exit tax constitutes a major consideration or some traveling to and from the U.S. It’s wise right now for all who must carry cards to prove American identities investigate all tax implications before heading overseas.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world’s elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.