Let us assume that you have an acquaintance, a friend or relative who moved to the United States from a foreign country. Here is a high-level look at eight tax considerations your friend or relative needs to know:
1. Tax residency. A foreign individual’s income tax obligation in the U.S. hinges on their tax residency status—whether they are a resident alien or non-resident alien. Resident aliens are taxed on their worldwide income, whereas non-resident aliens report only U.S. source income.
2. U.S. resident alien. There are three primary ways to become a U.S. resident alien:
1. being a lawful permanent resident (e.g., green card holder),
2. meeting the substantial presence test (a formula based on days spent in the U.S.), or
3. making a first-year election.
3. Non-resident aliens are generally taxed only on U.S. source income and are subject to different rates based on the nature of that income.
4. Reporting and filing. Resident aliens use Form 1040, similar to U.S. citizens. Non-resident aliens utilize Form 1040-NR. State tax rules apply uniformly for both, though rules vary by state.
5. Taxpayer identification. The U.S. requires every taxpayer, including foreigners, to have a Taxpayer Identification Number, either through an Individual Taxpayer Identification Number (ITIN) or a Social Security Number (SSN).
6. Social Security and Medicare taxes. Totalization agreements exist to eliminate dual taxation on Social Security and Medicare. For certain countries, such as Greece, credits from both the U.S. and the native country can be combined for benefit eligibility.
7. Foreign financial accounts reporting. Those with foreign financial assets might have reporting duties beyond mere income tax returns, including the FBAR and IRS Form 8938.
8. Tax treaties. The U.S. has multiple tax treaties to prevent double taxation. The treaty with Greece, for instance, offers a tax credit system to avoid taxing the same income twice.
You can see that your acquaintance, friend’s or relative’s move to the United States triggers many tax possibilities. If your acquaintance, friend or relative would like to discuss her situation or needs a consultation with an international tax specialist, please call us at our direct line: 954-362-5199.
Hiring a tax resolution expert is the best action a taxpayer could take in a tax matter before the IRS or a state tax authority.
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