If you’re a foreign expat living and working in the US, you’ll comply with the taxation regulations set by the IRS as applicable to resident and non-resident aliens. For starters, you might want to check with an expat tax consultant for foreign nationals and determine your status. This step is critical so you can figure out whether or not you owe taxes to the US government. You’ll also have to work out if taxes are to be paid on the income you earn from American or worldwide sources. Regulations are undoubtedly complex, but you might be able to take advantage of several exclusions depending on different criteria. Here’s a brief guide you might find helpful.
Contents
Residency Status Determines Sources of Income and Applicable Taxes
Taxation for Residents
Resident foreign expats are not US citizens, but they have a Green Card that permits them to live and work in the country. Further, if you’ve lived in the country for 183 days in the last three years, including the current year, you’re officially a resident. Accordingly, you’re expected to pay taxes on your entire income from worldwide sources. If your Green Card application is being processed, you’ll continue filing tax returns in your home country and the US as a non-resident expat. Once the application is accepted, you’ll file dual returns as a US resident.
Taxation for Non-Residents
If you’re a non-resident who does not meet the above two criteria, you are only liable to pay taxes on your income from US sources. This rule applies whether or not you live in the country. Non-resident expats can be tourists or casual visitors owning properties and businesses in other parts of the world. For instance, a French citizen running two companies in the US and France must pay taxes only on the income earned in the US.
Your tax consultant will advise you to maintain detailed records and documents of your income, so the IRS can determine which income is taxable. You’ll complete and file Form 1040 NR and report your income. Even if they’re not liable to pay taxes to the US government, non-residents must complete and file Form 1040C before their departure. This form gives you information about the income you must report and the applicable taxes.
Exemptions for Resident Status
Even if you live in the US for more than 183 days and qualify as a permanent resident, you need not pay taxes under certain exemptions. For instance:
- Expats traveling in and out of Mexico or Canada for work need not count their commuting days.
- Expats who own a principal home or place of business in another country
- Professional athletes, students, trainees, teachers, personnel working in a foreign embassy, and their immediate family members
- Tourists or visitors stranded in the US and unable to travel because of a medical emergency
- Citizens of a country with which the US has a treaty are thus excluded from the resident status.
If you’re planning to live and work in the US, it is advisable to work out your resident status and comply with the rules.
