General Reporting Information
The first day you are in the U.S. holding your Green Card or having met the number of days test, you are considered a resident alien for income tax purposes. From that day forward, all income from salary or wages or other compensation for personal services, interest, dividends, income from rental properties, royalties and any other income is reportable to the U.S. It does not matter whether the income was earned in the U.S. or another country. You are taxed the same as if you are a U.S. citizen on your world-wide income.
In your first tax year (the U.S. uses a calendar year, January 1 to December 31, for individuals), you may be taxed on income from within the U.S. before you were present in the U.S. and on world-wide income after you are present in the U.S. In some cases, you can elect to be taxed in the U.S. on your world-wide income for the whole year. This often happens when a married person moves to the U.S. For example, you might have salary from a foreign employer for the first part of the year and a U.S. employer for rest of the year. The foreign salary would not be included on your U.S. return, unless you make the election described above. If you had income from a U.S. partnership it would be included on your return for the whole year since it is from within the U.S. You can use the married person tax tables by electing to report all income for the whole year for both spouses on one tax return. Otherwise, you must use the
____________________________
Robert Keasal is a Member at the Seattle office of Peterson Sullivan and may be contacted at [email protected]. Company Website: www.pscpa.com. Mr. Keasal’s practice emphasizes international tax, partnership tax and estate planning.
married, but filing separate tax tables, or if not married, you use the single (unmarried) tax tables. Marriage is determined based on local law where the marriage occurred and your status on December 31 of each year.
Gross income from a trade or business or from rental properties may be reduced by deductions that are ordinary and necessary to produce that income. The gross income and deductions are totaled on a schedule and the net amount is included in your Total Income. You report a trade or business that is not incorporated or a partnership on Schedule C of Form 1040. Rental properties are reported on Schedule E of Form 1040.
Your Total Income may be further adjusted by certain deductions. These include deductions for a Health Savings Account if you have your own high deductible health plan; moving expenses to start a new job in the U.S. as long as you are employed for 39 weeks in a 12 month period following the move or self-employed for 78 weeks in a 24 month period; one-half of your self-employment tax; deductible contributions to an Individual Retirement Account or a pension account for your self-employment income; the amount of medical insurance you pay if you are self-employed; the amount you pay as a penalty for the early withdrawal of savings; alimony to a former spouse which may be limited by treaty; student loan interest; tuition and fees for attending college by you, your spouse or one of your children; and a special Domestic Production Activities Deduction for certain business activities. Your Adjusted Gross Income is your Total Income less these deductions. This amount is used to limit certain other deductions in your Taxable Income calculation.
A Resident Alien is also entitled to the same deductions as a U.S. citizen. They may take a Standard Deduction or Itemized Deductions. The Standard Deduction for 2014 is $12,400 for married filing a joint return and $6,200 for married separate and single return filers. Itemized Deductions, claimed on Schedule A of Form 1040, consist of medical expenses over 10% of Adjusted Gross Income, real estate taxes and certain personal property taxes, home mortgage interest, donations to U.S. charities, and expenses to earn income. The expenses to earn income might include job related expenses, investment fees, and tax preparation fees. All of these so-called “miscellaneous itemized deductions” have to exceed 2% of Adjusted Gross Income before they are included in the total of itemized deductions. Total Itemized Deductions may be reduced through a phase-out calculation. This occurs when Adjusted Gross Income exceeds $305,050 for married filing jointly, $152,525 married but filing separately, and $254,200 for single filers in 2014.
If you have family members living with you that you support, you may be able to claim a personal exemption deduction for each person living with you. The personal exemption amount for 2014 is $3,950 for you and all individuals that are dependent on you for their support. They must meet tests concerning their relationship to you and income limitations. Generally, you can claim a dependency deduction for your spouse and children that reside with you in the U.S. Even if your spouse does not live with you in the U.S. and you use the married but filing separate tax table, you can claim a deduction for them as long as your spouse has have no U.S. source income. The total deduction amounts for personal exemptions do phase-out in 2014 when Adjusted Gross Income is between $305,050 and $427,550 for married filing jointly and $254,200 and $376,700 for single filers.
In order to claim a dependency deduction for your spouse or others living with you, they must obtain a Social Security Number or Individual Tax Identification Number (ITIN). The ITIN is obtained by filing a Form W-7 along with certain other identification documents with your first income tax return.
Several tax credits are also available. There are credits for child and dependent care while you and your spouse work, a credit for the elderly and disabled, a credit for children under the age of 17 living in the U.S., education credits for you or your college age children, a foreign tax credit for taxes you pay to a foreign country for income earned there, an earned income credit for low income individuals, and an adoption credit. There will be income tax withheld from your salary or wages and this is also a credit to apply against your tax obligation.
Depending on levels of income and whether you have dependents, you will report your income on one of the following forms in increasing levels of income and complexity-Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents, Form 1040-A, U.S. Individual Income Tax Return or Form 1040, U.S. Individual Income Tax Return. All amounts must be reported in U.S. currency. After you determine which form you qualify to use, you must then determine where it is required to be filed. There are many addresses the Internal Revenue Service (IRS) uses depending on the tax form used and whether a payment is being sent with it. For all individuals, the due date for filing your income tax form is April 15 following the end of the calendar tax year. Certain individuals outside the U.S. may get an automatic extension to June 15, but the IRS does charge interest on any tax due under this extension. You can also apply for an automatic extension of six-months to October 15 by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, on or before April 15 (June 15 if you qualify for the June 15 extension), but you must pay all of the tax you estimate to be due at that time (April 15); otherwise you will be subject to interest and possible penalties if you under estimate the tax due.
In your first tax year (the U.S. uses a calendar year, January 1 to December 31, for individuals), you may be taxed on income from within the U.S. before you were present in the U.S. and on world-wide income after you are present in the U.S. In some cases, you can elect to be taxed in the U.S. on your world-wide income for the whole year. This often happens when a married person moves to the U.S. For example, you might have salary from a foreign employer for the first part of the year and a U.S. employer for rest of the year. The foreign salary would not be included on your U.S. return, unless you make the election described above. If you had income from a U.S. partnership it would be included on your return for the whole year since it is from within the U.S. You can use the married person tax tables by electing to report all income for the whole year for both spouses on one tax return. Otherwise, you must use the
____________________________
Robert Keasal is a Member at the Seattle office of Peterson Sullivan and may be contacted at [email protected]. Company Website: www.pscpa.com. Mr. Keasal’s practice emphasizes international tax, partnership tax and estate planning.
married, but filing separate tax tables, or if not married, you use the single (unmarried) tax tables. Marriage is determined based on local law where the marriage occurred and your status on December 31 of each year.
Gross income from a trade or business or from rental properties may be reduced by deductions that are ordinary and necessary to produce that income. The gross income and deductions are totaled on a schedule and the net amount is included in your Total Income. You report a trade or business that is not incorporated or a partnership on Schedule C of Form 1040. Rental properties are reported on Schedule E of Form 1040.
Your Total Income may be further adjusted by certain deductions. These include deductions for a Health Savings Account if you have your own high deductible health plan; moving expenses to start a new job in the U.S. as long as you are employed for 39 weeks in a 12 month period following the move or self-employed for 78 weeks in a 24 month period; one-half of your self-employment tax; deductible contributions to an Individual Retirement Account or a pension account for your self-employment income; the amount of medical insurance you pay if you are self-employed; the amount you pay as a penalty for the early withdrawal of savings; alimony to a former spouse which may be limited by treaty; student loan interest; tuition and fees for attending college by you, your spouse or one of your children; and a special Domestic Production Activities Deduction for certain business activities. Your Adjusted Gross Income is your Total Income less these deductions. This amount is used to limit certain other deductions in your Taxable Income calculation.
A Resident Alien is also entitled to the same deductions as a U.S. citizen. They may take a Standard Deduction or Itemized Deductions. The Standard Deduction for 2014 is $12,400 for married filing a joint return and $6,200 for married separate and single return filers. Itemized Deductions, claimed on Schedule A of Form 1040, consist of medical expenses over 10% of Adjusted Gross Income, real estate taxes and certain personal property taxes, home mortgage interest, donations to U.S. charities, and expenses to earn income. The expenses to earn income might include job related expenses, investment fees, and tax preparation fees. All of these so-called “miscellaneous itemized deductions” have to exceed 2% of Adjusted Gross Income before they are included in the total of itemized deductions. Total Itemized Deductions may be reduced through a phase-out calculation. This occurs when Adjusted Gross Income exceeds $305,050 for married filing jointly, $152,525 married but filing separately, and $254,200 for single filers in 2014.
If you have family members living with you that you support, you may be able to claim a personal exemption deduction for each person living with you. The personal exemption amount for 2014 is $3,950 for you and all individuals that are dependent on you for their support. They must meet tests concerning their relationship to you and income limitations. Generally, you can claim a dependency deduction for your spouse and children that reside with you in the U.S. Even if your spouse does not live with you in the U.S. and you use the married but filing separate tax table, you can claim a deduction for them as long as your spouse has have no U.S. source income. The total deduction amounts for personal exemptions do phase-out in 2014 when Adjusted Gross Income is between $305,050 and $427,550 for married filing jointly and $254,200 and $376,700 for single filers.
In order to claim a dependency deduction for your spouse or others living with you, they must obtain a Social Security Number or Individual Tax Identification Number (ITIN). The ITIN is obtained by filing a Form W-7 along with certain other identification documents with your first income tax return.
Several tax credits are also available. There are credits for child and dependent care while you and your spouse work, a credit for the elderly and disabled, a credit for children under the age of 17 living in the U.S., education credits for you or your college age children, a foreign tax credit for taxes you pay to a foreign country for income earned there, an earned income credit for low income individuals, and an adoption credit. There will be income tax withheld from your salary or wages and this is also a credit to apply against your tax obligation.
Depending on levels of income and whether you have dependents, you will report your income on one of the following forms in increasing levels of income and complexity-Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents, Form 1040-A, U.S. Individual Income Tax Return or Form 1040, U.S. Individual Income Tax Return. All amounts must be reported in U.S. currency. After you determine which form you qualify to use, you must then determine where it is required to be filed. There are many addresses the Internal Revenue Service (IRS) uses depending on the tax form used and whether a payment is being sent with it. For all individuals, the due date for filing your income tax form is April 15 following the end of the calendar tax year. Certain individuals outside the U.S. may get an automatic extension to June 15, but the IRS does charge interest on any tax due under this extension. You can also apply for an automatic extension of six-months to October 15 by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, on or before April 15 (June 15 if you qualify for the June 15 extension), but you must pay all of the tax you estimate to be due at that time (April 15); otherwise you will be subject to interest and possible penalties if you under estimate the tax due.