Tax Concerns Among Non-US Workers in the United States
Non-US workers living in the United States may face the following issues during tax filing.
US Residency Issues
For tax purposes, you have to be considered a US citizen. As a non-US worker, how do you know if the number of days you spent in the US qualifies you as a resident?
The substantial presence test determines US residency. To pass this test, you have to be physically present in the United States on at least any of the following:
– 31 days during the current year
– 183 days during a 3-year period including the current year and the two previous years
The 183 days includes all the days you are present in the current year, 1/3 of the days you were present one year before the present year, and 1/6 of the days you were present two years before the present year.
If you have moved to another country in the middle of the year, let’s say in July, you do not have to include your non-US income in your tax declarations. That is if you pass the early residency termination date. The residency termination date is the last day that you were physically present in the United States. You can avail of the early residency termination date if your tax home for the remainder of the year would be in the foreign country.
When a non-US citizen comes to the country in February 2017 and works until the end of August 2017, there are two options for tax filing.
During that year, you have passed the substantial presence test. You may file a resident tax for the entire year because December 31 of the calendar year is the default end of a tax residency. Or you may file a dual-status alien return after your U.S. residency ended last August.
What if you are an independent contractor and you only stay in the U.S. for only one week in a year? Do you have to pay tax in the U.S. on the income you received? As long as you stay less than 183 days in the U.S. during an entire year, you have a tax exemption. You will need to file a non-resident tax return where you report your income (Form 1099-MISC) and for claiming income exemption.
In short, once you do not live in the U.S and you do not have income from any U.S. sources, you may stop filing US tax return
Income and Accounts Declaration Issues
Any non-US worker who meets the Substantial Presence Test will need to file tax requirements as a U.S. citizen. In line with this, you will have to declare your worldwide income which includes foreign earned and unearned income.
Passing the Substantial Present Test will also oblige you to declare your non-US financial accounts.
Remember that the foreign country where you had an extra unearned income like dividends or rental may still require you to pay tax. To avoid double taxation, you may claim Foreign Tax Credit for the tax you paid in another country. The Tax Treaty is another way to avoid double taxation. Countries with a Tax Treaty with the United States accept Form 6166 or the Certification of U.S. Tax Residency and this would be your ticket for a tax exemption.
If you work outside of the United States but your U.S. company requires you to spend one week in the U.S., your income is fully taxable. Once reported on W-2, your income will have no exemption or reduction in the U.S. tax due from that income. When that income becomes taxable in your resident country, you may claim a foreign tax credit to avoid double taxation.
Taxpayers who receive a pension will still pay tax as if it was earned income. This is because US pension usually comes from earned income that was not previously taxed. Although you will not get any exemption or tax reduction from former work in the U.S., your pension distributions will be exempt from tax in the state where you worked.
Once you receive these pension distributions, you are not required to file a U.S. tax return. Only, if the pension is the only income you have and U.S. banks make backup withholding. But it is better to file because bank withholding will be greater than your tax due. If you want to claim a refund, you have to file a non-resident Tax Return (Form 1040NR).
If you own a home in the US and decides to sell it, you must file a federal and state tax return. When you sell a property, you will deduct from the sales proceeds any losses, if there are any.
But if you rented the place, you must submit an annual non-resident tax return (1040NR) reporting the gain or loss of your rental activity. The annual non-resident state return is required except when your property is on a tax-free state like Texas. Even if you had a loss, you have to make an annual reporting. One importance of annual reporting is for the losses to be recovered. No reporting is necessary when the property is idle.
Married Filing Issues
If your wife is a non-U.S. citizen and stays outside the country while you work here, the best choice is Married Filing Separately. On your tax return, do not declare your spouse income.
If you choose Married Filing Jointly, this will help lessen your tax rate. You may have this option when your spouse has no or little income. Your wife will no longer file a U.S. tax return once you stop being a foreign citizen.
eBay Sales Proceeds Issues
When you sell goods to US customers, you will be subject to tax if you are a “dependent agent” in the US. A dependent agent is one who does something important for the development of a business in the US. If eBay is not your dependent agent, that means you are not in a trade or business in the US. Your income from selling eBay products will not be taxable.