Expatriate tax ebook - United States - Inbound

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, in determining the first day of presence under the substantial presence test, an alien may be present in the US for up to 10 prior days during the year without triggering the residency start date.

(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 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 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.

The 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. It is also possible to obtain additional extension of time to file to 15 October (Form 4868).

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, although Form 4868 can extend the due date to 15 October (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 utilise the married filing jointly tax rates and will be required to use the married filing separately tax rates, which tend to be less favourable. However, it may be possible to make a special election to utilise the married filing jointly tax rates, which may or may not prove to be more favorable depending upon the situation.

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 Bonus Cost-of-living allowance Interest income Long term capital gain	100,000 20,000 10,000 800 8,000
Total income Personal exemptions Standard deduction	138,800 (14,000) (10,900)
Taxable income	113,900
Federal tax Federal tax on long-term capital gain (15%)	19,363 1,200 20,363
Federal tax Alternative minimum tax	20,363 23,508
Total federal tax Child tax credit (after phase-out) Total federal tax after credits	23,508 (550) 22,958
Social tax calculation Base salary Bonus Cost-of-living allowance Total compensation	100,000 20,000 10,000 130,000
OASDI (capped) Medicare (1.45%) Total social tax	6,324 1,885 8,209

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:

introduction

facts and figures

basis of taxation

what taxes?

tax planning opportunities

Last updated 25 June 2008

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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