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Tax Guide for Saudi Arabian Expats in the U.S.

Tax Guide for Saudi Arabian Expats in the U.S.
Ines Zemelman, EA
28 December 2021

The tax system in the United States is complicated and continuously evolving. Most Americans struggle to grasp their tax duties, and foreign immigrants living in the United States are even more perplexed.

If you are a Saudi expat living in the United States, you may have some questions about paying taxes and completing your federal income tax return in the United States. While tax regulations are continuously changing, many components of your income tax obligations in the United States stay constant. Let's examine some of the most critical aspects of your tax liability when living in the United States.

How many days in the U.S. to be a U.S. resident for tax purposes?

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

·  31 days during the current year, and

·  183 days during the 3-year period that includes the current year and the two years immediately before that, counting:

a. All the days you were present in the current year, and

b. 1/3 of the days you were present in the first year before the current year, and

c. 1/6 of the days you were present in the second year before the current year.

Do non-US citizens pay taxes?

Nonresident aliens who work or do business in the United States must submit an annual U.S. income tax return. This is true for all Nonresident Aliens studying in the United States on a F Visa, a J Visa, a M Visa, or a Q Visa.

Not all Nonresident Aliens will meet the residence requirements for filing a U.S. income tax return. You are a U.S. Resident if you:

A. Have been issued a Green Card; or

B. Meet the Substantial Presence Test guidelines, which state you have been in the U.S. for at least 31 days of the current year. You have spent 183 days in the United States out of the preceding 2-year period.

The fiscal year in the United States is identical to the calendar year; the fiscal year begins on January 1 and ends on December 31. Your annual income tax return in the United States is due on April 15. You must file your return and pay any unpaid tax liability by this date. If you pay your taxes late, you will be penalized with fines and interest. You can either online file your U.S. income tax return or mail your paper return (Form 1040-NR) to the Internal Revenue Service.

Do you need a tax I.D. number to file U.S. non resident tax?

Before you may submit a U.S. non resident tax or any type of income tax return, you must have a government-issued Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). You must prepare Form W-7, attach it to your Form 1040-NR, and mail it to the W-7 Center. Additionally, you must provide any required documents with your response. Remember that your documents must be authentic or validated by the proper authorities.

Do you have to file a U.S. income tax return even if you don't have any tax liability?

You may believe that you are not required to file a U.S. income tax return because of your meager earnings or because you have not lived and worked long enough to establish resident status. You may be right, but filing a tax return may also be in your best interest. This is because employers in the United States frequently withhold taxes. Even if you are not obligated to file, you may be handing the U.S. government money by failing to file a U.S. income tax return as a Nonresident.

Another compelling reason for Nonresidents to file is to ensure compliance with the requirements of their U.S. visa, which require you to adhere to all applicable U.S. laws. If you intend to update the conditions of your visa or seek permanent residency, you must adhere to USCIS tax return and immigration regulations.

Immigrant or nonimmigrant status: Which should you choose?

The second factor determining the scope of U.S. tax obligations is the length of stay in the U.S. The Substantial Presence Test is a criterion that the IRS uses to determine whether the Saudi Arabian qualifies as either an immigrant or nonimmigrant for tax purposes.

Even a nonimmigrant visa holder will become a U.S. resident for tax purposes if they meet the Substantial Presence Test. Consequently, they will have the same U.S. tax filing obligations that immigrant visa holders.

An exception is given to Saudi Arabian students, researchers, employees of the Saudi Arabian government, and diplomats in the US. They are treated as nonimmigrants even if they met the Substantial Presence Test. So are members of their immediate family (spouse and children).

Does the U.S. and Saudi Arabia have a tax treaty?

The U.S. has active tax treaties with a large number of countries. However, the U.S. and Saudi Arabia do not have a tax treaty. Due to the low level of Saudi taxes, most expats will not be concerned about the lack of a treaty. However, an issue may occur if an individual is subject to company taxes in both the United States and Saudi Arabia.

Tax treaties were established to avoid double taxation on income that is taxable in both countries. If you are a researcher, student, teacher, or trainee in the United States on a temporary visa, you may qualify for rules that avoid double taxes on your income. However, if you are considered a resident of the United States, you are not eligible for tax benefits under a tax treaty.

Are you required to pay Social Security and Medicare taxes?

It is determined by your visa category and status of residency. You will not be required to pay Medicare and Social Security (FICA) taxes if you are a Non-U.S. Resident on an F-1 Visa, a J-1 Visa, an M-1 Visa, or a Q-1 Visa. If you are deemed a permanent resident of the United States or are on an F-2 or M-2 visa, you may be obliged to contribute to the United States' Medicare and Social Security programs. These are not absolute regulations; there are exceptions, such as a student employed by the school where you take classes. In this instance, you are not required to pay FICA taxes.

Additionally, you may be compelled to contribute to your home country's social security system. If this is the case, you may be able to obtain relief from the United States through a Totalization Agreement between your home country and the U.S.

The tax system in the United States can be complicated, so it's best to arm yourself with knowledge. If you are a Saudi Arabian expat living and working in America, Taxes for Expats is here to help you learn more about your rights as an international taxpayer. Immigration from Saudi to the USA is already a tough and complex task and the last thing you need is trouble with your taxes. Whether you are a Saudi national or an American, we have all of the information that will make filing taxes easy - from how much income taxes you owe, what deductions are available to take, or even whether or not paying estimated taxes on time could save you money!

Visit our site today for useful tips and tools that will put you one step ahead when preparing your U.S. Tax Return come April 15th next year! Have any questions? Don't hesitate to get in touch!

Ines Zemelman, EA
Founder of TFX