Guide To Filing Taxes For Non-US Citizens Living In The US And US Citizens Living Abroad

Different countries have their own tax authorities and rules. While some nations only charge taxes on income earned by people in the country, the worldwide income of citizens may be subject to taxes in others.

The tax forms to be filled and the status of filing may differ for citizens and resident aliens of a country, this is why it is essential to get information about taxes on resident aliens. Moreover, when living abroad, one needs to understand cross-border taxes and how to minimize their tax bill. The tax regulations in the country they live in will also impact their taxes.

Non-US-citizens Living In The US

Whether you’re a software developer from Asia working in the states or married to a US citizen and have moved from your country to live with your spouse, to avoid getting into trouble with the authorities you must correctly follow IRS rules for non-citizens and file your taxes on time.

You must first understand the category of non-citizen that you lie in:

1. Resident Alien

2. Nonresident Alien

The IRS conducts two tests to verify whether someone is a resident or a nonresident alien.

1. Green Card: Having a green card means that you have been allowed by the US Citizenship And Immigration services to legally live in the US.

2. Substantial Presence Test: This test is dependent upon whether you have spent enough time in the US, to be considered a resident alien. If you have been in the US for 183 days in the last three financial years and 31 days in the current financial year, then you can be called a resident alien. Your presence is only counted if you were present in the states for the entire day.

If you either pass the green card or substantial presence test, you will qualify as a resident alien.

Taxes For A US Resident Alien

A resident alien in the US is expected to follow the same tax guidelines as the citizens. Your worldwide income is taxable and must be filed. If you have a business in your native country or some part of the world, then you need to disclose the income on your US tax return. They are subject to the same tax rates and schedules as the citizens.

To pay their taxes, Resident aliens have to fill the IRS Form 1040, 1040A, 1040EZ. They can claim an exemption if a citizen, resident alien, or a nonresident alien who has lived in the US, Mexico, or Canada, is dependent on their income. They can claim the same deductions and credit that a citizen can claim from their taxable income. In case they do not have high itemized deductions, they can go for a standard deduction.

Taxes For A US Nonresident Alien

A nonresident alien is not subject to paying taxes on their worldwide income. They are expected to pay taxes only on the income that they have earned in the US if it hasn’t already been deducted at the source. IRS has no authority or will to tax nonresident aliens on the income that they earn in their country or other countries.

To file their taxes, nonresident aliens have to fille the IRS Form 1040NR, 1040NR-EZ, or 8843. They are subject to the same deductions and credit as resident aliens and US citizens.

US Citizens Living Abroad

If you have been stationed in a foreign country by your company or are willing to live and working abroad, as a US citizen you are bound by the IRS to file a return in the US for your worldwide income.

When you provide your services in a foreign country, it is counted as your income earned in that country. It does not matter whether the income was provided by an employer in a foreign country or an employer in the US.

Even if you are a resident alien and work in another country, you will be subject to disclosing your worldwide income. This rule also applies to government employees that have been transferred to a foreign country for work.

  • It is a misunderstanding that by filing a US tax return on your worldwide income along with paying taxes in a foreign country, you will be paying double taxes. However, this double filing is only done to ensure that the government is aware of the gross income of its citizens. Many taxpayers are unaware that if they are paying taxes in some foreign country, they can receive a foreign tax credit. This tax credit can be deducted from the tax bill of the taxpayer in their US tax return filing.
  • When filing taxes in two countries, you must ensure that you are disclosing the same income and expenses in both returns. If the information does not match when they are checked, you could face trouble with tax authorities.
  • The amount filed must be converted into US dollars, as per the ongoing exchange rate of the two currencies. You can use the yearly average of the exchange rate to ensure accuracy.
  • If your balance in foreign bank accounts exceeds $10000, then you need to report it while filing taxes. You must file an FBAR or Foreign Bank And Financial Accounts for the same.
  • Taxpayers filing taxes for the income that they earn abroad receive tax relief in the form of deductions like foreign housing exclusion, foreign earned income exclusion, individual retirement accounts, etc.
  • Foreign housing exclusion offers relief to taxpayers on the amount they pay for the rent of the house that the taxpayer lives in, in a foreign country. However, one must qualify to be present in the country for 330 days in the financial tax year.
  • Individual Retirement Account or IRA deductions are changed every year and amount to around $5000 to $6000. The IRA limit decided without deducting the foreign housing exclusion.

Citizens or resident aliens living abroad receive a 2-month extension on their filing date. Considering the last day to pay taxes in the US is 15th April, citizens living abroad can file their taxes by 15th June. However, you may be charged a penalty over delayed filing. You can also request an added extension in case the compliance rules in the country you work in are extremely different. For this extra extension, you must file IRS Form 4868 or send an Application For Extension.

Do you have unpaid back taxes? do you need professional help getting tax relief? Get help today and setup your free tax consultation.

Citizens or resident aliens living abroad receive a 2-month extension on their filing date. Considering the last day to pay taxes in the US is 15th April, citizens living abroad can file their taxes by 15th June. However, you may be charged a penalty over delayed filing. You can also request an added extension in case the compliance rules in the country you work in are extremely different. For this extra extension, you must file IRS Form 4868 or send an Application For Extension.

If a US citizen does not pay taxes to the IRS and has substantial back taxes in their record, then the IRS has the authority to ask the State Department to refuse to issue a passport to the individual. Moreover, they can also revoke your current passport in such a scenario. Shrugging off the IRS merely because you are not working in the country has many repercussions. It is advised that citizens living abroad, ensure that they file their taxes on time to avoid any trouble with US tax authorities.

If you are a resident or nonresident alien in the US or are a US citizen living in a foreign country, it is best to acquaint yourself with compliance rules set by the IRS. If you do not have the required knowledge of taxes to file your US tax return and need help with filing, then you can either use tax software, hire a tax prepare, or take help from the IRS website assistant.

Using tax software or hiring a professional will ease the process of managing taxes on foreign assets, financial incentives earned in a foreign country, and the income received and expenses incurred there.

When using tax software, the appropriate tax form for your filing status will automatically be selected by the software. A tax preparer or an accountant that specializes in cross-border taxes could also help you in the task. The compliance rules IRS are different from the rules imposed by tax authorities in other countries. It can be challenging to comply with both and avoid delayed filing and errors.

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