Many people expatriate to the US because they are seeking a different culture and many benefits that the country offers, including better pay. Since they are living and working in the US, they will be subject to US income tax and must file their taxes with the IRS. The intricacies of filing taxes depend on many different factors for non-residents, which we’ll explain in this article.
Do I Need to File?
In general, if you earn money in the US, you will need to file and pay US income tax. You must file US taxes if:
- You’re a non-resident alien engaged in trade or business in the US. You must file even if one or more of the following apply:
- Your income wasn’t from a trade or business within the US
- You have no income that is US-sourced
- Your income is exempt from income tax
- You’re a non-resident alien not engaged in any business, but you have US sourced income (perhaps investment income) that doesn’t have taxes withheld at the source
- You’re a trustee for a non-resident alien estate or trust
So, in summary, you must file US income tax and pay monies owed to the IRS if you’re:
- In the US under a dual-residency status
- Engaged in any business conducted within the US
- Have US-sourced income that isn’t taxed at the source
What to Know About Residency Status
When it comes to determining what to report on your US taxes, your residency status plays an important role. If you’re considered a US resident by the IRS, you must pay taxes on your worldwide income. This can certainly cause a hefty tax burden, so you should understand the ins and outs of how your residency status is determined.
You’re considered a US resident if:
- You’re a Green Card holder (permanent resident)
- You pass the Substantial Presence Test
- You’re physically present in the US for 30 days in the current year, and
- You were physically present in the US for more than 183 days of the current and previous two years. This is calculated by:
- 91/3 days in US in the previous year + 1/6 days in the US two years previous + all days in the current tax year)
- You may also choose to do a “First Year Election” and have your income treated as a resident for tax purposes
Other individuals who have been living in the US will be taxed as non-residents, only on US sourced income.
How Does Taxation Work in the US?
Not familiar with the IRS reporting requirements or how the US tax system works? Here are a few basics to know.
Since you’re a non-resident, you’ll file Form 1040NR or Form 1040NR-EZ by Tax Day, which is April 15th. You may also be able to file an extension, with Form 4868 – but it’s important to note that US income tax owed will still be due by April 15th and will accrue interest if not paid by this date.
Depending on the types of income you’re reporting, you’ll be required to attached different “schedules” to your taxes. These incomes types could include investment income, like bank account interest, or rental property income.
As mentioned above, if you’re considered a US resident, you’ll be taxed on worldwide income. So, if you have income coming from your home country, you’ll be taxed on all income earned, no matter where it originated. If you’re a resident, you may take tax exemptions for yourself, your non-resident spouse and any dependents you have inside the US. If you’re filing as a non-resident, however, you may only take one exemption. The personal exemption amount for 2016 is $4,050.
If this is your first time filing a US tax return, you may be overwhelmed with the complexity of US taxation. It’s important to stay organized and maintain accurate records so you’ll have the documentation you need when tax-filing time comes around. If this is your first time filing, it’s certainly a good idea to work with a tax professional to ensure your tax return is completed correctly.
Have Questions About Your US Income Tax?
Greenback can help! Our dedicated team of CPAs and IRS Enrolled Agents has a wealth of expat tax knowledge and are happy to assist you – so contact us today!