Navigating the US tax system can be a daunting task especially if you are not a citizen of the United States. Whether you are a resident in the US or an expat working in the US, it is important to know how the tax system works. Failure to understand the specific tax codes can lead to problems such as paying more in taxes and running into issues with the IRS.
Understanding Between A Resident and A Non-Resident Alien.
As an alien living in the United States, it is your responsibility to pay your taxes as long as you earn income while in the country. As defined by the IRS, there are two types of aliens, and these include the non-resident alien and resident alien. The former is classified as a foreign national who did not pass the green card test or other substantial US presence test while the latter is a foreign national that has already been awarded a green card. No matter if you are a resident or a non-resident alien, you still have to pay your taxes.
How Are They Taxed?
While both resident and non-resident aliens are taxed, they are taxed differently. Resident aliens are taxed on all of their earned incomes just like US citizens. This means that their income (whether generated domestically or abroad) is subjected to US taxation laws thus it must be reported on their tax return. Their income is also subjected to graduated tax rates that are likewise applicable to US citizens.
On the other hand, non-resident aliens are subjected to taxation only in specific circumstances. The income of the resident alien that is subjected to US income tax is divided into two categories: (1) income that is related to a business or trade in the US and (2) income that is not connected with any trade or business in the US. The latter is assessed at 30-percent.
Filing Status for Both Non-Resident and Resident Aliens
The amount of tax that you need to pay to the federal government largely depends on your filing status. The filing status also helps determine whether you can take deductions and credits. The rules for determining your filing status is different for both non-resident and resident aliens.
Resident aliens can utilize the same filing status that US citizens use. Non-resident aliens use another form, Form 1040NR, and can claim either a single non-resident alien or a married non-resident alien as their filing status.
There are so many things that you need to understand about the US tax system and just because you are a resident of another country does not mean that you are excused from learning it. To understand taxation of foreign nationals in the United States, make sure that you seek the right help.
Here at MKS&H, we specialize in individual taxation such as tax preparation and filing. We do more than add numbers and we add value to the services that we provide to our clients.