Green Card Holder Tax Filing Guide 2025: Worldwide Income, PFICs, and Exit Tax
Complete guide for US green card holders filing taxes in 2025. Covers the Green Card Test, worldwide income reporting, PFIC trap for Indian mutual funds, FBAR/FATCA/foreign trust reporting, DTAA and Foreign Tax Credit, exit tax for long-term residents, estate tax exposure, and the Foreign Earned Income Exclusion.
Green card holders are resident aliens under the Green Card Test (IRC §7701(b)(1)(A)(i)). No day count required. Living abroad = still resident alien. Ends only by formal abandonment (Form I-407) or judicial revocation. Even living in India with rare US visits = must file reporting worldwide income.
Every source of income worldwide reportable on Form 1040: US salary (W-2), Indian salary (self-report), NRE/NRO interest (Schedule B), Indian rental (Schedule E), Indian property gains (Schedule D), Indian mutual funds (Form 8621 PFIC), EPF/PPF interest, Indian dividends, gifts from India >$100K (Form 3520). NRE interest is US-taxable though India-exempt. NRO interest: claim FTC for TDS.
All Indian MFs classified as PFICs (IRC §§1291-1298). Cannot report on Schedule D.
| Method | Tax Impact |
|---|---|
| Default (§1291) | 37% + interest charge — can exceed 50% effective |
| QEF Election | Better but Indian MFs rarely provide required data |
| Mark-to-Market | Most practical — ordinary income, no interest charge |
Example: $60K→$102K. Default: ~$20K+ tax. MTM: ~$10-12K. US fund: ~$6.3K. File Form 8621 per fund.
FBAR: >$10K foreign accounts aggregate. Virtually automatic for GC holders.
FATCA: Single $50K/$75K (US), $200K/$300K (abroad). MFJ $100K/$150K (US), $400K/$600K (abroad).
Foreign Trust (3520/3520-A): EPF/PPF/NPS. $10K penalty per form/year.
Other: Form 5471 (10%+ Indian company, $10K), Form 8621 (PFICs), Form 3520 (gifts >$100K, 35% penalty).
Saving clause preserves US right to tax worldwide income. DTAA helps via Foreign Tax Credit (Form 1116).
When Indian rates exceed US rates, FTC fully offsets US tax. Excess carries forward 10 years.
Separate categories: General (salary, business) and Passive (interest, dividends, rental, gains). Carryback 1 year, carryforward 10 years.
FEIE (Form 2555): Exclude up to $130K (2025) if tax home in India. Physical Presence (330 days outside US) or Bona Fide Residence test.
Immigration risk: >1 year outside US without re-entry permit → possible GC abandonment. But IRS still treats as resident until Form I-407 filed. Dangerous gap: lose immigration status, retain tax obligations.
Estate: ~$14M exemption (2025), 40% top rate, worldwide assets included. May sunset to ~$7M after 2025.
Gift: $19K annual exclusion per recipient. Non-citizen spouse limited to $190K/year. Lifetime exemption shared with estate.
All Indian assets included: property, accounts, MFs, EPF/PPF, gold, jewelry.
MFJ with spouse in India: needs SSN/ITIN. Spouse treated as resident alien — worldwide income reported. Evaluate if joint benefit ($31,500 deduction) outweighs including spouse's Indian income.
Credits: Child Tax Credit ($2K, needs SSN), Other Dependents ($500, ITIN ok), Child Care, Education (AOTC/LLC), EITC.
W-2, Indian Form 16, NRE/NRO certificates, Indian MF statements (per fund for 8621), rental records, EPF/PPF/NPS statements, India bank statements (FBAR), TDS certificates (FTC), US 1099s, prior return, SSN/ITIN, Form 8854 if abandoning.
Deadlines: March 15 (Form 3520-A), April 15 (1040, FBAR, 3520, 8621, 8938, state), October 15 (extensions).
File taxes if living in India? Yes — worldwide income on Form 1040.
Indian MFs taxed differently? Yes — PFICs. Default 37%+interest. Use Mark-to-Market. Form 8621 per fund.
Treaty reduce US tax? Not directly (saving clause). FTC prevents double taxation.
Exit tax? Covered expatriates (8+ years, meet any threshold). Deemed sale above $886K exclusion.
FBAR? Yes — virtually automatic with Indian assets.
EPF/PPF? Possibly foreign trusts. Forms 3520/3520-A, $10K penalty each.
FEIE? Yes if tax home abroad. Up to $130K excluded.
GC risk if staying in India? >1 year → possible abandonment. IRS still treats as resident until I-407.
Estate tax on Indian property? Yes if US-domiciled. $14M exemption, may drop to ~$7M.