A Tax Guide for U.S. Immigrants

Written By Douglas Matus

Immigrants face many challenges: from language barriers to local customs, climate and currency, life in a foreign country requires significant adaptation. A particular source of confusion, the U.S. tax system, necessitates a steep learning curve.

If you are a recent immigrant to the United States or are filing your taxes here for the very first time, a few key points can make the process much easier.

Everyone Files Taxes

If you earn income in the United States or are considered a resident for tax purposes, chances are you must file a return with the IRS. Many immigrants have no experience filing returns since many governments simply withhold all taxes from income. Because of this, immigrants should first get clear on tax-season basics. Nicole Erwin, a licensed tax professional for the Tax Defense Network, offers a succinct explanation:

“First and foremost, tax season goes from January to April of each year. During this time, most Americans will report what they earned last year and how much they already paid in taxes. Then they will either pay the government more (if taxes paid were too little) or receive money back (if they paid too much).”

Residential Status

Residents of the United States must not only pay taxes on what they earn here, but on foreign-based income as well. This can make a substantial difference on how much a person owes, so it’s very important to determine your residential status before you file. For the purposes of taxes, Green Card holders count as residents.

“One of the most common mistakes is not understanding that immigration status does not equate to tax status,” says Crystal Stranger, president of 1st Tax. “If someone is a Green Card holder, they must file tax returns starting from the date they first set foot on U.S. soil after obtaining the Green Card.”

Substantial Presence

Additionally, anyone who has spent time on U.S. soil for three consecutive years may need to file returns as a resident, even if they have neither citizenship nor a Green Card. To determine your tax-status in this regard, you will need to conduct the “substantial presence test.”

To do this, write down the total number of days you spent in the U.S. during the current tax year. Next, write down the number of days from the previous tax year and divide that number by three. Finally, take the year before that, write down the total number of days spent in the U.S., and divide it by six. If the total of your three numbers is at least 183, and you also spent at least 30 days of the current tax year in the U.S., you count as a resident for tax purposes.

W-4s and other Forms

If you work in the United States, your employer should ask you to fill out a W-4. The most important tax form, the W-4 determines how much gets withheld from your pay based on various factors.

“Your employer should help you in preparing your W4,” says Nicole Erwin. “This form tells your employer how much or how little tax you wish to be taken out from your wages.”

You can elect to pay more toward your taxes, or less, but keep in mind that the amount you owe when you file will remain unchanged.

Two more forms, the FBAR and IRS Form 8938, have particular relevance for immigrant taxpayers. If you count as a resident for tax purposes, you may need to submit one of these to report foreign financial accounts and assets.

“The FBAR must be filed if you had $10,000+ in foreign accounts at any point during the year,” says Michael Eckstein, a tax accountant for EcksteinTaxServices.com. “Form 8938 must be filed if you had $50,000+ in foreign accounts at the end of the year, or $75,000+ at any point.”

If any or all of this sounds confusing, don’t worry; many lifelong U.S. residents struggle with tax season and turn to professionals for assistance. Handling your taxes can get complicated, especially if you’re an immigrant. If you need help, find a licensed tax professional with experience helping foreign-born taxpayers. 

Written on March 15, 2016

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