It’s that time of the year when you have to dredge up your last year earnings. That’s right — it’s tax season. Though this year’s tax filing season has been postponed until July 15, the date is now fast-approaching. For those of you who have recently moved to the US, and even for those who have had experience doing so in the past, we understand how overwhelming this process can be. Here are some #RayoProTips to make your life easier — tips to keep in mind when filing your taxes as an expat in the US. Read on to know how you can complete your tax filing timely with ease.
Register with the IRS — First things first, you are required to have an SSN (Social Security Number) for yourself, your spouse and all dependent family members, and register with the IRS (Internal Revenue System). Your SSN is needed for filing taxes, but just in case you don’t have it, don’t worry. You can still file taxes by applying for an ITIN (Individual Taxpayer Identification Number). All you have to do is use Form W-7 along with your IRS ITIN application. Additionally, if you’re an employer, you should also have an EIN (Employer Identification Number).
File the correct forms — Before knowing which forms to file, you need to know which immigrant category you belong to. Immigrants in the US are classified into 2 categories: Resident Aliens and Non-Resident Aliens. Briefly put, a resident alien is a non-citizen, who can be legally considered a resident of the country. A resident alien must either have a Green Card or must have passed a Substantial Presence Test, a criterion used by the US Internal Revenue Service (IRS) to determine whether an individual who is not a citizen or lawful permanent resident in the recent past, qualifies as a “resident for tax purposes.” A non-citizen who has not passed or is exempt from the Green Card or Substantial Presence Test, is known as a non-resident alien.
Once you’ve determined your immigrant category, all immigrant employees must familiarize themselves with the W-4 Form. This is an important document that allows your employer to determine how much federal income tax to withhold from your monthly or annual paycheck. The IRS also has an online tax withholding calculator to help ensure you have the right amount withheld.
The process is distinctly different for resident aliens and non-resident aliens. If you’re a resident, you can simply use the same forms as an American citizen (Form 1040), if not, you can file Form 1040-NR. These forms determine the total taxable income and deduction/refund for the taxpayers.
Report your foreign assets — The US taxation system requires the residents to declare all their income and investments (US and worldwide) similar to US citizens. If you fall under the resident alien category, you must file the Foreign Bank Account Reporting (FBAR), acknowledging your authority over a financial account outside the United States. You will be required to file taxes only if your foreign accounts exceed $10,000 at any time during the calendar year you’re filing taxes for. According to the IRS, you must file Form 8938 if the aggregate value of your specified foreign financial assets is more than the reporting thresholds. Check if you need to file Form 8938 here.
Learn about tax deductions — You may be eligible for certain tax exemptions under the US taxation system. The W-4 Form (mentioned above), in addition to determining your taxable income, helps you claim tax credits or itemized deductions. Other expenses, like care of a child or an elderly person, can also be used to generate tax credits. You can check your eligibility for such allowances, right here.
Keep a track of state and local taxes — The United States has a layered tax system. There are separate federal, state and local governments, and taxes may be imposed at each of these levels. The federal government follows a progressive tax system, while most of the states have either a flat or progressive tax system. The federal and state taxes have different rules, just like state income taxes can vary from one state to another (#RayoProTip for state taxes: If you are working in one state, and living in another, you will need to file taxes in both states). Read up carefully on these to get a clear picture of which rules and taxes apply to you.
We know that with all its intricacies, the US tax system can be a confusing concept for most natural-born Americans, and even more so for an expat new to the United States. We hope our tips will help make tax filing simple for you this season! Be sure to check in with your CPA for the specifics if you have any doubts about how to proceed. Happy filing!