H-1B to green card to citizenship: how your US stock tax changes at each stage

Indian tech workers in the US typically move through three immigration stages over a 10–15 year period: H-1B, green card, and often US citizenship. Each stage has a different relationship with the US tax system, and your US stock portfolio — RSUs, index funds, ETFs — is affected at each transition.

This guide maps exactly what changes at each stage and what to plan for.

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Stage 1: H-1B visa — the US tax residency question

Are H-1B holders US tax residents?

It depends on timing. H-1B holders are subject to the substantial presence test:

• 31 days in the US in the current year, AND
• 183 days total counting: 100% of current year days + 1/3 of prior year days + 1/6 of the year before that

For someone who arrived in January on H-1B, they likely pass the test in Year 1. Someone who arrived in late October may not pass until Year 2.

Before passing substantial presence: You are a non-resident alien (NRA). The US does not tax NRAs on:

• Capital gains on US stocks (except for US real property)
• Dividends: 30% flat withholding (reduced to 25% under US-India DTAA with W-8BEN)

After passing substantial presence: You are a US tax resident. The US taxes you on worldwide income at the same rates as US citizens.

Dual-status year

In the year you first pass the substantial presence test, you have a dual-status year — NRA for the part of the year before you passed the test, US resident for the rest. Dual-status returns are complex. Most H-1B holders with meaningful investment income should work with a cross-border CPA for their first US tax year.

US tax resident H-1B: stock tax rates

Once you are a US tax resident on H-1B, your stock tax treatment is:

Holding period	Tax rate
Short-term (≤12 months)	Ordinary income rate (up to 37%)
Long-term (>12 months)	0% (up to $47,025 taxable income), 15% (most incomes), 20% (above $518,900 for single)
NIIT on investment income	Additional 3.8% if MAGI > $200,000 (single)

For most H-1B holders at mid-to-senior levels in tech — earning $150K–$400K — long-term capital gains rate is 15% federal plus state tax (0% in Texas/Florida, ~9.3% in California, ~10.9% in New York).

RSU taxation on H-1B

RSUs vest as ordinary income (W-2 income). On your H-1B, RSU vests are:

• Included on your W-2 as compensation income (Box 1)
• Subject to payroll taxes (Social Security at 6.2% up to wage base; Medicare at 1.45% + 0.9% above $200K)
• Withheld at 22% supplemental rate (or 37% above $1M cumulative supplemental income)
• Subject to state income tax

After vest, if you hold the shares:

• Gains above vest-day FMV are capital gains
• >12-month holding from vest → long-term capital gains (15% federal for most)

This is covered in detail in the RSU tax guide for Indian employees in US tech.

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Stage 2: Green card — what actually changes

Tax rate: essentially nothing changes

Green card holders pay the exact same federal income and capital gains rates as H-1B holders who are US tax residents. There is no "green card tax bracket" or special rate.

The transition from H-1B to green card does not, by itself, change your stock tax rates or RSU treatment.

What does change: permanent worldwide taxation

On H-1B (as a US tax resident passing substantial presence), you are taxed on worldwide income for the years you are in the US. If you leave the US mid-year and spend more than half the year abroad, you may be able to argue you ceased US tax residency.

As a green card holder: you are a US tax resident every year the card is active, regardless of where you physically live. Even if you move back to India for 2 years to care for family, as long as your green card is valid and not abandoned, you owe US taxes on worldwide income for those years.

This matters for Indians who:

• Hold Indian investments generating income (NRE interest, NRO FD interest, PPF accruals)
• Have rental income in India
• Receive dividends on Indian stocks

All of it is US taxable once you are a green card holder, even if you are physically outside the US.

The big change: Section 877A exit tax

The most important green card tax issue for long-term holders.

If you eventually surrender your green card (for any reason — return to India, move to a third country, no longer want it), and you have held it for 8 or more years in the 15-year period ending on the surrender date, you are a long-term permanent resident for exit tax purposes.

If you are also a "covered expatriate" — net worth over $2 million OR average annual net US tax liability over $201,000 in the 5 years before expatriation (2026 figure, indexed for inflation) — then IRC Section 877A applies:

The mark-to-market exit tax: The IRS treats you as having sold all your worldwide assets at fair market value on the day before you expatriate. You owe capital gains tax on all unrealized gains above an annual exclusion ($866,000 in 2026, indexed for inflation).

Example: You surrender your green card after 10 years. Your worldwide assets at the time:

• US brokerage: $800,000 (cost basis: $300,000 → unrealized gain: $500,000)
• Indian property: ₹2Cr (≈$238,000, cost basis ₹40L → unrealized gain ≈$190,000)
• Indian investments: $50,000 (gain $20,000)

Total unrealized gain: $710,000 Less exclusion: $866,000

Since your total gain ($710,000) is below the exclusion ($866,000), no exit tax in this example. But for a senior engineer who joined a US tech company in 2018 with large RSU grants:

• US brokerage could be $3M–$5M with $2M+ in unrealized gains
• Exit tax at 15–20% long-term rate on $2M+ above the exclusion = $200K–$400K in exit tax

Action: If you are approaching 8 years on your green card and may surrender it, do the math before the 8-year mark and consider the timing.

Green card abandonment vs. formal surrender

If you simply stop using your green card and move away without formally surrendering it (filing Form I-407), the IRS may still treat you as a long-term resident subject to Section 877A — "inadvertent abandonment" can still trigger the exit tax analysis. Get legal advice before abandoning a long-term green card.

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Stage 3: US citizenship — the permanent commitment

Tax rates: same as green card

No change to federal income or capital gains rates. Citizens pay the same rates as green card holders and other US tax residents.

What changes: lifetime worldwide taxation

A US citizen is taxed on worldwide income regardless of where they live, forever (until they renounce). A US citizen living in India pays both Indian taxes (as an Indian resident) and US taxes on worldwide income — including Indian salary, Indian dividends, and Indian capital gains.

Foreign tax credits (Form 1116) reduce double taxation, but they do not eliminate it in all cases, and the compliance burden (US tax return annually, FBAR annually, Form 8938) never goes away.

For Indian nationals who become US citizens and later move back to India, the tax situation is complex:

• India taxes you as a resident on worldwide income
• The US taxes you on worldwide income as a citizen
• The India-US DTAA reduces double taxation but does not eliminate all cross-border filing obligations

Estate tax: the major improvement at citizenship

US citizens have a federal estate tax exemption of $13.61 million in 2026 (adjusted for inflation annually). Non-US persons (green card holders who are not citizens, H-1B holders) have only $60,000 exemption on US-situs assets.

For Indians who accumulate substantial US stock portfolios — through RSUs, ongoing investing, or both — US citizenship eliminates the estate tax risk entirely up to the large exemption. This is one of the genuine financial benefits of US citizenship for high-earners.

Immigration status	US estate tax exemption (2026)
H-1B (non-resident alien)	$60,000 on US-situs assets
Green card (non-citizen)	$60,000 on US-situs assets
US citizen	$13,610,000 (worldwide assets)

Renunciation: the citizen exit tax

If you later renounce US citizenship, Section 877A applies with the same mechanics as the green card exit tax. Covered expatriates (net worth > $2M or average annual US tax > $201,000) pay the mark-to-market exit tax on all unrealized worldwide gains above the $866,000 exclusion.

Renouncing US citizenship also carries a $2,350 State Department fee (2026 rate) and requires 5 years of certified tax compliance.

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The tax timeline for a typical Indian tech worker

Year	Stage	Key tax events
Year 1 (H-1B arrives)	H-1B / NRA → US resident	Dual-status year; determine substantial presence date; first FBAR/Schedule B
Years 2–7	H-1B US resident	RSU vests as W-2 income; long-term gains at 15%; FBAR/FATCA annually; NRE interest US taxable
Year 6–8 (green card)	Green card US resident	Same rates; worldwide taxation even if abroad; 8-year clock to exit tax starts
Years 8–15	Long-term green card	Exit tax risk grows with portfolio; consider timing of potential surrender
Year 10–15 (citizenship)	US citizen	Estate tax exemption jumps from $60K to $13.61M; worldwide taxation permanent
If returning to India	Repatriation planning	Exit tax analysis; RNOR (if given up green card/citizenship and returned); final US return

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Comparing the three stages: US stock tax summary

Tax item	H-1B (US resident)	Green card	US citizen
LTCG rate	0/15/20%	Same	Same
STCG rate	Ordinary income	Same	Same
RSU at vest	W-2 ordinary income	Same	Same
Worldwide income taxable	Yes (while in US)	Yes (even if abroad)	Yes (forever, worldwide)
Estate tax exemption (US stocks)	$60,000	$60,000	$13,610,000
Exit tax on surrender/renounce	N/A (can leave freely)	Yes (after 8 years, if covered)	Yes (if covered expatriate)
FBAR/FATCA	Yes	Yes	Yes (even if living abroad)
NRE interest: US taxable	Yes	Yes	Yes

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Planning across stages

Before getting green card

• Take stock of your Indian investments — mutual funds that are PFICs should ideally be cleaned up before or shortly after US tax residency begins
• Understand NRE/NRO interest reporting obligations
• Build the habit of FBAR filing (even on H-1B)

Before surrendering green card (if applicable)

• Model your exit tax exposure before the 8-year mark
• Consider strategic sales to realize gains before exit tax applies (paying current LTCG rates vs. exit tax rates)
• Get formal legal advice — the covered expatriate determination has specific rules

Before becoming a citizen

• Estate tax planning benefits significantly improve — but the exit tax risk from eventual renunciation must also be understood
• Model your long-term India return plans: a US citizen returning to India carries lifetime US filing obligations

If returning to India (at any stage)

• H-1B surrender: no exit tax, RNOR window applies on return
• Green card surrender: exit tax analysis required if 8+ years held
• Citizenship renunciation: exit tax analysis + State Department process

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Related reading

• RSU tax for Indian employees at US tech companies
• PFIC rules for H-1B Indians: why your Indian mutual funds are a US tax trap
• FBAR and FATCA: which Indian accounts H-1B holders must disclose
• NRE and NRO accounts on H-1B: the complete guide
• 401(k) and IRA when you return to India