Overview
The U.S. Tax system is exceedingly complex. You will most likely be guided by your HR department in matters such as US taxation and directed towards a reputable tax preparer who is experienced in filing taxes for foreign nationals. This tax preparer will then help you fill out and file your return.
However, in spite of this, it is always beneficial to have knowledge about the intricacies of the U.S tax system so that you know how your income is taxed in the United States.
When you begin working in the U.S., you will be required to provide your Social Security number along with a W-4 Form that will indicate to the company how much tax to withhold from your paycheck each pay period. Before January 31st, you will receive a W-2 form that states how much income you made and how much tax was withheld. You are responsible for filing a tax return before April 15th. If it is your first year, you can order a tax form online at http://www.irs.gov/formspubs/index.html. In the following years, these forms will automatically be mailed to you.
For taxation purposes, an individual who is not a U.S. citizen is classified as an ‘alien’. Aliens are further classified as ‘resident’ aliens and non-resident aliens. The term resident alien is given to those foreign nationals who have permanent resident status in the USA. These resident aliens are taxed on their worldwide incomes just like U.S. citizens. Non-resident aliens are, however, taxed only on their income from sources that are located in the U.S. as well as incomes connected with the conduct of a trade or business in the US.
Apart from your residential status, your filing status is also important for the tax authorities. This status is important for the standard deductions that you qualify for as well as itemized deductions, exemptions and tax credit. This status also determines the tax rate under which you qualify.
The main filing statuses are:
- Single
- Married filing jointly
- Married filing separately
- Head of Household
Broadly speaking US taxes are calculated as follows:
- Gross Income – Adjustments from Gross Income = Adjusted Gross Income
According to the US tax authorities Gross Income is the total of all income from whatever source it is derived. Losses are also generally included in the gross income category, but the amount of losses that are allowed to be taken into account may be limited.
- Adjusted Gross Income – Standardized and Itemized deductions + Exemptions = Taxable Income
Standardized deductions are determined by your filing status. Itemized deductions include items like medical and dental expenses, mortgage interest, state and local income taxes, property taxes etc while exemptions are usually determined by your dependents.
- Base Taxes calculated on your Taxable Income less Tax Credits equals your Net Tax liability.
Tax credits refer to items like foreign tax credits. Foreign tax credits help to prevent double taxation of the same income by the U.S. and a foreign country.
Federal Tax Rates
Federal tax rates in the United States range from 10% to 35% depending on your income bracket and filing status. A chart showing current tax rates and amounts according to incomes can be found at (http://www.taxfoundation.org/publications/show/151.html).
Scope
Everybody who earns an income that is greater than $950 and has unearned income that is more than $300 has to file a return and is subject to tax in the United States.
Payment Calendar
Traditionally, taxpayers are responsible for filing federal tax returns by April 15th. If you are unable to make that date, you need to file for an extension and this request also has to be filed by 15th April 2010. It is always highly recommended to check the IRS website for changes at http://www.efile.com/tax-day-deadlines/. If the date falls on a weekend day, there may be a change in the due date, also if the day for file extension deadlines (which is in October) falls on a weekend day. In 2011, for example, the date for filing taxes and extension requests is April 18th.
Tax Treaties
The United States has tax treaties with various foreign countries. Under these tax treaties, residents of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. This list of tax treaties can be found at (https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z). These tax treaties help to avoid double taxation though if the treaty doesn’t cover a certain kind of income or if your country is not covered by a tax treaty you are expected to pay taxes as required.
