Expat Tax Advice for US Non Residents Living in the US

This article was first published on December 5, 2012. It was updated on June 18, 2014, with information relevant to the 2013 and 2014 tax years.

Expat Tax Advice for US Non Residents Moving to the US

US non residents moving to the US should seek expat tax advice in order to best understand their tax obligations while living inside the United States. These individuals may be required to file taxes in their home country and will certainly be required to file taxes with the IRS on any income earned as a result of labors performed inside the United States. It is important to understand the deadlines, filing requirements, and forms of taxation US non residents will face while living and working in the US.

US Income Tax Rates for US Non Residents

The tax rates from the Internal Revenue Service (IRS) are progressive and capped at 39.5%. The IRS has different sets of progressive rates depending on an individual’s filing status (married or single).

There is a standard deduction of $6,100 for those filing single returns.

For those filing single returns, the 2013 tax rates are as follows:

Income above $400,000 is taxed at a rate of 39.5%

For those who are married and filing jointly, the 2013 tax rates are as follows:.

Income above $450,000 is taxed at a rate of 39.5%.

Other income, such as capital gains, is taxed at a flat rate of 15%.

US Residency

Residency in the United States is based on meeting the following requirements:

  • All US citizens and permanent residents (Green Card holders) are tax residents
  • Substantial Presence Test – meeting both of the following requirements
    • Physically present in the US for 31 days in the current year, and
    • Physically present in the US for 183 days over a three-year period that comprises the current year and two preceding years. The formula is as follows:
      • All days in the current year + 1/3 days in the first preceding year + 1/6 of the days in the second preceding year.

As a result of this weighting, it is possible to spend 121 days in the US each year and not become a tax resident.

  • Green Card Test – you are taxed as a US citizen from the date you receive permanent resident status.
  • If you prefer to be treated as a tax resident, you may do a “First Year Election” even if you do not meet any other requirements.

All others working in the US will be taxed as US non residents.

Is Foreign Income Taxed Within the United States?

In a word, yes.  If you are a citizen, Green Card holder, or tax resident in the US, worldwide investment income, including interest and capital gains, is taxable by the US (excluding US municipal bond interest).

For non residents of the US, you will be taxed at 30% for dividends.  You may be eligible for reduced rates depending on your country’s tax treaty.

United States Tax Due Date

The United States has a tax calendar that runs from the 1st of January through the 31st of December.  Taxes are to be filed and paid to the IRS by the 15th of April.  The IRS does offer extensions to the 15th of October if you file for an extension and are approved.

Another piece of expat tax advice for US non residents is to remember your FBAR, or Report of Foreign Bank and Financial Accounts. As a US tax resident, you will be required to report any bank accounts you have overseas, including those in your home country, if their value (when added together) is higher than USD $10,000.  This report, called the FBAR, must be filed with the U.S. Department of the Treasury by the 30th of June.

Social Security in the United States for US Non Residents

The United States does require that US non residents earning money in the United States pay into US Social Security.  That said, the US does have Totalization Agreements with many countries that determine which country social Insurance payments are made.  These Totalization Agreements are usually based on residency, the company for which you are working, and how long you will be in the United States. If your home country taxes you on worldwide income and there is no agreement in place between the US and that country, you may be faced with double taxation.

US Tax Treaties

The US has tax treaties with various countries for the purposes of protecting both US and non-US citizens from double taxation.  These treaties are very helpful for expats in determining to which country taxes should be paid. If you do not understand the tax treaty between the US and your home country, we suggest you seek expat tax advice.

Other Taxes in the United States

Taxes will be withheld at the source in most cases, but US non residents will still be required to file a return with the IRS if they have earned amounts over the current thresholds.

US non residents can expect to owe taxes if they have income that did not have taxes withheld at the source, such as capital gains.  The US does have capital gains, inheritance, and gift taxes that US non residents will be subject to as well.  The IRS counts these gains as sourced from your place of residency; if you are a dual or non resident, you will need to determine from where the gains were sourced.  This is easy for real estate gains; it can be more difficult when there is no identified location. You can also deduct any losses from capital gains from your income on your US tax return.  These can often be carried forward or backwards and thus may allow you to save considerable amounts on your US taxes.

There is no VAT (value added tax) in the United States, but you will face sales taxes that vary on both state and county levels.

US non residents may also be required to file a state return if the state in which you are living has an income tax regime.  Some states, such as Florida and Texas, do not have an income tax regime and therefore do not require state income tax returns.  Other states, such as Pennsylvania and California, will require that you file tax returns and pay income taxes on any income earned inside the state. Each state also has its own set of rules determining residency and to what extent income is taxed.  You should seek expat tax advice if you are unsure of your state tax obligations.

Saving on US Expat Taxes

You are going to face US taxation if you are working inside the US, but the extent to which you are taxed is going to depend on your residency status and where your income, be it from employment or capital gains, was earned or sourced from.

More Information For US Non Residents

We have put together a blog post that details how to file US taxes as a US non resident. If you need expat tax advice on your US federal tax return, US state taxes, or other US taxes, please contact us.

Do you know 10 most common mistakes expats make?

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