Expatriate tax ebook - United States - Inbound
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Facts and figures
Pre arrival procedures
Employment visas
Tax year
Tax returns and compliance
Income tax rates
Sample income tax calculation
Pre arrival procedures
Generally, for an alien who becomes a resident during a tax year, tax residency begins:
- Green card holder – on the first day in the year in which the alien is present in the US as a lawful permanent resident.
- Substantial presence test – on the first day of presence in the US during that year. However, a de minimis exception allows up to ten days to be disregarded in determining the residency starting date. For example, assume a foreign national arrives in the US March 1, 2011 and remains in the US for the remainder of the year. Prior to this date, this person had a trip to the US from February 1, 2011 – February 7, 2011 February. Because this person did not exceed 10 days on their February trip, March 1, 2011 would be the person’s residency start date as opposed to February 1, 2011.
(See further discussion under basis of taxation – residence section)
Employment visas
An immigration attorney should be contacted well in advance of arrival in US.
Tax year
The tax year runs from 1 January to 31 December.
Tax returns and compliance
Filing status and tax return forms
- Full year nonresident – for any year in which an alien is nonresident for the entire year, all income which is subject to US tax must be reported and the tax thereon computed on form 1040NR.
- Full year resident – for any year in which an alien is resident for the entire year, all income must be reported and the tax computed on Form 1040.
- Dual status – it is possible for a foreign national to be both a nonresident and a resident in the initial year and final year of the US assignment. This situation creates a "dual-status" taxpayer. US tax laws applicable to resident and nonresident aliens must be considered. Generally, a “dual status” taxpayer is subject to US tax on worldwide income for the period of residency and only US-source income for the period of nonresidency. In addition, there are elections that can be made that could significantly increase or decrease the US tax liability.
Due dates and extensions
Full-year resident and arrival year dual status returns
US citizens and resident aliens are required to file income tax returns by 15 April following the end of the tax year (31 December). For taxpayers who have a tax home outside the US on 15 April, the due date for filing and payment of any balances of tax due is automatically extended to 15 June.
This extension will apply to an alien for a year in which he was a resident alien until 31 December, but who subsequently left and established a tax home and abode abroad prior to the 15 April filing deadline. Taxpayers must also obtain an additional automatic filing extension to 15 October by filing Form 4868.
Both of these filing extensions do not extend the deadline for paying tax, only for filing the tax return. Tax still must be paid throughout the year through withholding and estimated tax payments. You may be subject to interest and penalties for any additional tax that is due with the return if it is not paid by the 15 April deadline.
Full-year nonresident and departure year dual status returns
Nonresident aliens are also required to file tax by 15 April. The ‘taxpayer abroad’ extension described above is not available to nonresident alien tax return filers, but they may obtain for an automatic extension to file to 15 October by filing Form 4868.
Income tax rates
There are four categories of tax status that may apply to a taxpayer in the US: single, married filing jointly/surviving spouse, married filing separately, and head of household.
If either spouse is a nonresident of the US at any time during the tax year, married individuals generally will not be able to file jointly and will have to use the married filing separately status, which generally offers less favorable tax brackets. However, it may be possible to make a special election to use the married filing jointly tax status, which usually provides a more favorable tax result depending upon the situation.
|
Federal income tax rates – 2011 (single) | ||
|---|---|---|
| Taxable income($) | Tax | |
| 0 – 8,025 | 10% of taxable income | |
| 8,026 – 32,550 | $850 plus 15% of the excess over $8,500 | |
| 32,551 – 78,850 | $4,750 plus 25% of the excess over $34,500 | |
| 78,851 – 164,550 | $17,025 Plus 28% of the excess over $83,600 | |
| 164,551 – 357,700 | $42,449 plus 33% of the excess over $174,400 | |
| Over 357,700 | $110,016.50 plus 35% of the excess over $379,150 | |
|
Federal income tax rates – 2011 (married filing jointly) | ||
|---|---|---|
| Taxable income($) | Tax | |
| 0 – 17,000 | 10% of taxable income | |
| 17,001 – 69,000 | $1,700 plus 15% of the excess over $17,000 | |
| 69,001 – 139,350 | $9,500 plus 25% of the excess over $69,000 | |
| 139,351 – 212,300 | $27,088 Plus 28% of the excess over $139,350 | |
| 212,301 – 379,150 | $47,513 plus 33% of the excess over $212,300 | |
| Over 379,150 | $102,573 plus 35% of the excess over $379,150 | |
|
Federal income tax rates – 2011 (married filing seperately) | ||
|---|---|---|
| Taxable income($) | Tax | |
| 0 – 8,500 | 10% of taxable income | |
| 8,501 – 34,500 | $1,215 plus 15% of the excess over $12,150 | |
| 34,501 – 69,675 | $6,330 plus 25% of the excess over $46,250 | |
| 69,676 – 106,150 | $24,617 plus 28% of the excess over $119,400 | |
| 106,151 –189,575 | $45,323 plus 33% of the excess over $193,350 | |
| Over 189,575 | $106,636 plus 35% of the excess over $379,150 | |
|
Federal income tax rates – 2011 (head of household) | ||
|---|---|---|
| Taxable income($) | Tax | |
| 0 – 12,150 | 10% of taxable income | |
| 12,151 – 46,250 | $1,215 plus 15% of the excess over $12,150 | |
| 46,251 – 119,400 | $6,330 plus 25% of the excess over $46,250 | |
| 119,401 – 193,350 | $24,617 plus 28% of the excess over $119,400 | |
| 193,351 – 379,150 | $45,323 plus 33% of the excess over $193,350 | |
| Over 379,150 | $106,636 plus 35% of the excess over $379,150 | |
Sample income tax calculation
Federal income tax calculation (for US residents only)
Assume a married individual with two children under 17 years old, and all family members are considered tax residents of the US for the entire tax year.
| $ | |
|---|---|
|
Base salary |
100,000 20,000 10,000 800 8,000 |
| Total income Personal exemptions Standard deduction Capital gain |
138,800 (14,000) (10,900) (8,000) |
| Taxable income | 104,400 |
| Federal tax Federal tax on long-term capital gain ($8,000 x 15%) |
19,363 1,200 20,363 |
|
Federal tax |
20,363 23,508 |
|
Total federal tax |
23,508 (550) 22,958 |
|
Social tax calculation |
|
|
OASDI (4.2% for 2011 capped at $108,600) |
4,486 1,885 6,371 |
State income taxes are calculated separately from federal income taxes. The method for calculating the tax liability varies by state.
Information about United States - Inbound:
Last updated 8 June 2011
This information has been provided by Grant Thornton LLP and is for informational purposes only. Grant Thornton LLP is the U.S. member firm of Grant Thornton International. Grant Thornton International Ltd is one of the world's leading organizations of independently owned and managed accounting and consulting firms.
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Contact us
For further information on expatriate tax services in the United States contact Linette Barclay or visit the US International Expatriate Services webpage.