It’s no secret — taxes are more complex in the United States than in almost any other country; even natural-born American citizens struggle to fully understand how taxes work. For many non-U.S.-citizens who live and work in the United States, staying on top of taxes can be a steep and unexpected challenge — but doing so is essential to help keep immigrants on the path to U.S. citizenship. 

Whether you are a lawful permanent resident or an undocumented immigrant, understanding your tax filing obligations is crucial to avoid financial scrutiny from the Internal Revenue Service (IRS) — the United States’ taxation agency. If you have questions about filing taxes, be sure to contact a tax professional at Liberty Tax. 

What is “Alien” status, and how does it affect taxes? 

As far as the IRS is concerned, there are two types of aliens: resident aliens and non-resident aliens. To determine which category you fall into, the IRS uses two tests — the green card test and the substantial presence test. Immigrants who meet the requirements for either one are considered resident aliens. The IRS classifies immigrants who do not meet the requirements for either test as non-resident aliens. 

The IRS subjects resident aliens to the same tax rules as regular U.S. citizens; resident aliens must report all earned income on annual tax returns, regardless of where this income was earned. 

Non-resident aliens must also pay income taxes, but only on income explicitly earned within U.S. borders. 

How do I file taxes properly as an immigrant? 

Because it’s possible to lose your status as a lawful permanent resident based on how you file, it’s crucial to file correctly. Here’s how: 

Choose the Right Residency Status 

While filing as a non-resident alien may sometimes result in a lower tax bill, doing so may impact your immigration status and may even cause the U.S. government to designate you as having abandoned your permanent residence status, jeopardizing the naturalization process. 

Keep a Good Filing History 

For any immigrant seeking to naturalize as a U.S. citizen, staying on top of each annual tax filing is crucial. In fact, as part of the application for naturalization, applicants are asked questions specifically regarding their tax filing history. Any indication that you have avoided your tax obligations in any way may be met with a denial of your application.  

Applicants who have previously failed to file or pay taxes may still be approved if they are currently enrolled in a payment plan with the IRS. 

Do undocumented immigrants have to pay taxes? 

By definition, undocumented immigrants are people who have entered the United States without following immigration customs, have overstayed a visa, or are otherwise in the country illegally. And yes, undocumented immigrants must pay taxes. Although undocumented immigrants typically earn their wages in cash, it is still possible to pay income taxes by obtaining an Individual Taxpayer Identification Number (ITIN) from the IRS. ITINs allow undocumented immigrants to file taxes without a Social Security Number (SSN). 

It may be easier for undocumented immigrants to avoid paying their taxes, but it is not recommended; many undocumented immigrants seek to become naturalized citizens later on, and avoiding their taxes in the past will lead to their naturalization applications being denied. 

Ready to file?

Liberty Tax has 2,500+ retail branches and 12,000+ tax professionals across the United States. We offer FREE tax consultations, in-office and online tax prep, loans, and a variety of other services. Plus, many of our offices across the country have bilingual tax preparers. 

Book an appointment with a local office today to apply for an ITIN, get support for your small business and more. We know that taxes can be stressful, but we will help you overcome your TAXiety and get your largest possible refund* or your money back.