Expatriate tax ebook - United States - Inbound

What taxes?

Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes

Capital gains tax
Capital gains from the sale of investment assets held for less than 12 months are taxed at the tax payer’s regular tax rates. Long term capital gains (sale of investment assets) held for more than 12 months are generally taxed at 15 percent. Some exceptions apply.

If certain requirements are met, the gains on the sale of a personal residence may be excluded up to US $250,000 (US $500,000 if you file married filing jointly).

Inheritance, estate & gift taxes
Residency rules for estate and gift taxes differ from the rules for income taxes. Estate and gift taxes apply to foreign nationals who are domiciled in the US, or have certain types of property in the US. Obtaining a green card is evidence of domicile, but the substantial presence test does not apply to these transfer taxes. Nonresidents are only subject to tax on US situs assets as defined by law, regulation and administrative interpretation.

Investment income
Investment income (interest, dividends, rents, royalties, etc.) received by a resident of the US is subject to tax at graduated rates regardless of source, with the exception of qualifying dividend income, which is generally taxed at 15 percent.

Local taxes - State and local taxes
Most states in the US, and many cities and towns, levy a separate income tax on individuals. The method that each state uses in determining tax liabilities varies, as do tax rates, extension procedures, residency rules and the availability of foreign tax credits.

Real estate tax
Real estate taxes are generally assessed at the local level and are paid on property not connected with a trade or business or on property held for the production of rents or royalties may be deductible to arrive at taxable income by tax residents.

Social security taxes
As a general rule, social security tax (FICA) is charged on all compensation received for services performed within the US, regardless of citizenship or residence of the employee or employer, the number of days worked, or the amount of wages earned. Nonresident aliens, however, may be exempt from FICA tax based on the type of visa they hold.

Social security taxes are assessed to individuals at a rate of 7.65 percent, which consists of a 6.2 percent component for old age, survivors, and disability insurance (OASDI) and 1.45 percent for Medicare. The 6.2 percent is capped at $6,324 in 2008. The 1.45 percent Medicare component is uncapped. Employers are also required to make a matching contribution of social security taxes on behalf of employees at the same rates noted above and thresholds.

A foreign national employed in the US may be subject to the social security laws of both the US and their home country. Totalisation agreements are designed to alleviate this double taxation by allowing the foreign national to be covered under only under their home social security system.

The specific totalisation agreement should be reviewed to determine which country’s social security system claims coverage.

Stock options
The taxation of an individual on stock option income depends on what kind of option has been granted (e.g. incentive stock options or nonqualified options). A stock option is the right granted to an employee in consideration for the performance of services, to purchase shares in a corporate employer or related company. The option agreement usually specifies the purchase price and time period during which the option may be exercised.
The tax treatment of stock options is a complicated area and specialist advice should be sought.

Wealth tax
There is no wealth tax in the U.S.

Other specific taxes
There are no other specific taxes in the US.

Information about United States - Inbound:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities

Last updated 25 June 2008