Tax Considerations for Immigration

The U.S. income tax system is based upon the concepts of “tax residency” and “source income.” Closely related to the concept of residency and source income is “Jurisdiction.” In order to impose an income tax, the United States must have Jurisdiction over the individual. Residency is one method for establishing jurisdiction. The source concept can also be used for establishing jurisdiction over a non-resident alien who receives income from U.S. sources or income effectively connected with a trade or business in the U.S.

Both U.S. citizens and permanent legal residents are considered to be U.S. residents for federal income tax purposes. In addition, a non-resident may be considered a U.S. resident for U.S. income tax purposes if the individual is physically present in the United State for the requisite number of days. The significance of residency for U.S. tax purposes is that tax residency provides as basis for jurisdiction. The United States is one of the few countries in the world that taxes an individual considered to be a U.S. tax resident on his or her worldwide income. Thus,an individualwho secures permanent legal status or citizenship in the U.S. will be subject to income tax on income earned within the United States, and will also be subject to U.S. income tax on any foreign income received from sources outside of the United States, including wages, self-employment income, income from a Controlled Foreign Corporation or a Passive Foreign Investment Company, interest, dividends, rental income and gains or losses from the sale of stocks and bonds.