5 Top Tax Tips for Foreigners Working in the U.S.
The United States tax system is complex and constantly changing. Most U.S. Citizens have difficulty understanding their tax obligations, and foreign residents living in the United States are left even more confused.
If you are a foreign resident living in the United States, you may have a few questions about paying taxes and filing your U.S. income tax return: Do I need to pay an immigrant tax? Which taxes do I need to pay? Will non-payment affect my immigration status?
While tax laws are constantly evolving, there are some aspects of your U.S. income tax obligations that remain consistent. Let's take a look at some of the most important considerations about your tax liability while you are living in the United States.
1. If you are living and working in the United States as a Nonresident Alien, you are required to file a U.S. income tax return.
Nonresident Aliens living in the United States and working or conducting business are required to file an annual U.S. income tax return. This applies to all Nonresident Aliens living in the United States as a student through an F Visa, a J Visa, an M Visa, or a Q Visa.
Not all Nonresident Aliens will meet the residency guidelines which require an individual to file a U.S. income tax return. You are only considered a US 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 US for at least 31 days of the current year, and you have spent 183 days in the United States out of the preceding 2-year period.
The United States tax year is consistent with the calendar year; the taxable year begins on January 1 and ends on December 31. Your U.S. income tax return is due on April 15 each year. You must file your return by this date and pay any outstanding tax liability that you have. If you are late paying your taxes, penalties and interest will be assessed. You have the option of either filing your U.S. income tax return electronically or mailing your paper return (Form 1040-NR) to the Internal Revenue Service.
2. You need a tax ID number before you can file a U.S. income tax return.
You are required to have a government-issued Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) before you can file a U.S. income tax return. You must fill out Form W-7, attach it to your Form 1040-NR, and send your completed forms to the W-7 Center. You must also include all required documentation with your correspondence.
Remember that your documentation must either be original copies or certified copies issued to you by the appropriate agency. If you are the spouse of an active member of the U.S. Armed Forces, notarized copies will suffice.
3. You are advised to file a U.S. income tax return even if you don’t have any tax liability.
You may be under the impression that – because of your low earnings or since you haven’t lived in the U.S. long enough to have acquired residency status – you are not required to file a U.S. income tax return. You may be correct, but it also may be in your best interest to file a tax return, anyway.
This is because U.S. Employers typically withhold taxes. Even though you aren’t required to file, you may be leaving money in the hands of the U.S. government by not filing a U.S. income tax return as a Nonresident.
Another good reason for Nonresidents to file is that you need to comply with the terms of your U.S. visa, which mandates that you remain compliant with all U.S. laws. If you want to update the terms of your visa or you wish to apply for permanent residency, you will be required to comply with USCIS tax return requirements and immigration rules.
4. If you are not considered a U.S. Resident, you may be able to save money by taking advantage of tax treaties.
The United States has active tax treaties with a long list of countries. Tax treaties were created to prevent double taxation on income which is generally taxable in two countries. If you are a researcher, student, teacher, or trainee in the United States on a temporary visa, you are eligible to take advantage of provisions designed to prevent double taxation on your income. However, if you are considered a U.S. Resident, you are not eligible for tax reduction based on a tax treaty.
If you feel you may be eligible to take advantage of a tax treaty between the United States and your home country, check IRS Publication 901 to see if there is an active tax treaty that could help you save money on your U.S. income tax return. If you need help understanding the terms of a tax treaty, consult the advice of a seasoned U.S. expat tax professional.
5. You may be required to pay Social Security and Medicare taxes.
However, it depends on your visa category and residency status. 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, you will not be required to pay Medicare and Social Security (FICA) taxes. If you are considered a U.S. Resident or you are on an F-2 Visa or an M-2 Visa, you may be required to pay into the U.S. Medicare and Social Security systems. These are not steadfast rules; there are exceptions, such as a case in which you are a student working at the school at which you attend classes. In this case, you are exempt when it comes to FICA taxes.
You may also be required to make contributions to the Social Security program of your home country. If this is the case, you may be able to find relief through a Totalization Agreement between your home country and the United States. Check the list of Totalization Agreements to see if there is an active agreement between the United States and your home country.
Frequently Asked Questions
This section answers a few common immigration and tax questions that were not covered above.
Do legal immigrants have to pay taxes?
If you live and are engaged in a trade or business in the United States, you are subject to U.S. income tax. However, your tax status depends on your residency status.
If you are considered a Nonresident Alien, you only need to report your U.S.-sourced income. However, if you have obtained a Green Card or meet the Substantial Presence Test, you are treated as a U.S. tax resident for income tax purposes. That means you subject to U.S. income tax on your worldwide income.
Do foreigners pay taxes on businesses?
Anyone engaged in a business in the United States, regardless of residency status, must comply with U.S. employment tax responsibilities, including but not limited to:
- Income taxes
- Estimated taxes
- Self-employment taxes
- Federal income tax withholding
- Federal unemployment tax (FUTA)
- Social security and Medicare taxes
- Excise taxes
Do refugees pay income taxes?
Refugees and aliens who have been granted asylum are considered residents for tax purposes and therefore must pay income tax and other taxes.