New to the US – Here’s what you need to know about filing your taxes as an NRI in the USIf you are a US resident or a US citizen i.e. an NRI, PIO or OCI you must have to pay taxes to the US Government on the global income which you have earned. A person would be defined as a US resident only if he is able to meet either of the below-mentioned tests.
Green Card Test
If during any period of a particular calendar year, according to the laws of immigration you were a permanent resident of the United States and this status has not been abandoned by the law then you would be considered to have passed the Green Card Test.
Substantial Presence Test
The Substantial Presence Test states that you should have been present in the United States physically for a period of at least 31 days during a particular year and 183 days during the three year period which would include the current tax year and the 2 years immediately before the current year. If you have a green card, then you would be considered to be a US resident for the purpose of tax irrespective of the place where you are living. In case, you are a Visa holder then there are more complicated rules associated with the Universal Taxing Jurisdiction.If a taxpayer is having income or receiving a salary from India, then that has to be reported by filing Form 1040. Also, the taxpayer would fill up form1116 if he is claiming the tax credit. By the Double Tax Avoidance Agreements (DTAA) NRIs would be eligible to receive credits for the tax that has been paid in India. This would help in providing protection from paying taxes in both nations. FBAR InformationThe FBAR Form can be considered as a reporting form for those US citizens who hold $10,000 or even more in a foreign financial account. Moreover, it is necessary for you to include the instruments like mutual funds, life insurance plans, accounts where you are considered as the signatory authority only. FATCA Reporting – Form 8938Certain taxpayers from the US who are holding some specific foreign financial assets with an aggregate value that exceeds $50,000 must report information about the assets on the Form 8938. This form must be attached to the annual income tax return of the taxpayers. Those US taxpayers who are residing abroad or who file a joint tax return can have the privilege of a higher asset threshold.Foreign Tax CreditsForeign Tax Credit is a non-refundable tax credit for the income tax which has been paid to the foreign Government due to the foreign income tax withholdings. This credit is mainly available for a taxpayer if he has either worked in a foreign nation or has some income from investments into foreign sources. There are some qualifying factors which would help in understanding if a taxpayer would be eligible to obtain a tax credit or not. Foreign Earned Income ExclusionThere is a concept of Foreign Earned Income Exclusion by which those citizens who are working outside can avail the advantage of the reduction in their taxable income. Taxpayers can also get the benefit of excluding their house expenses; however, this can be availed with the limit. There are certain rules as to who would qualify for this tax exclusion.ConclusionSo, now with these important facts related to the taxation associated with the NRIs, it would be easier to have a clear understanding of the tax norms for the NRIs.
Does every NRI in the US need to file their Income Tax?Everyone in the US is not required to file their Income Tax return every year. In case, your total income for a year does not exceed a particular threshold then you would need to file a federal tax return. The amount of income which you would be able to earn before you are needed to file a tax return would be based on the type of income, the age of the NRI and the filing status of the NRI.Gross Income ThresholdsMost taxpayers are eligible to claim the Standard Deduction. As an NRI, the Standard Deduction amount for which you would be eligible for is mainly determined by your age and your filing status. The Government usually decides this amount before the tax filing season arrives and this amount would increase for inflation each year.By the help of Standard Deduction and other deductions, your income can be reduced to determine your taxable income. In general, if your income is less than your Standard Deduction then you do not need to file a federal tax return.You would not need to file a federal income tax return if the below-mentioned criteria are true.
If you are below the age of 65 years
If you are filing your tax returns with the Single status
If you do not have any other special conditions which would require you to file the tax returns such as income obtained from self-employment
If your income is less than $12,400 i.e. the Standard Deduction in the year 2020 for a taxpayer.
What would happen if you are only receiving Social Security Benefits?In general, cases, if your only source of income is the Social Security Benefits then you would not have to file a tax return. However, Social Security Benefits have another aspect i.e. if you are married and are filing your tax return separately from that of your spouse then some of your Social Security Benefits must have to be included in your taxable income to know if it is greater than the Standard Deduction you are claiming.Taxability of Social Security BenefitsIn order to find out if the Social Security Benefits which are receiving are taxable or not, the below-mentioned steps can be implemented.
You can add one-half of your Social Security Income to all other types of income which you are receiving including the income which is tax-exempt.
After that, the amount obtained can be compared to the base amount for determination of your filing status.
In case, the total will be more than the base amount then some of your Social Security benefits would be taxable.
When a dependent would need to file a federal tax return?NRI taxpayers who are claimed as dependents on the tax returns of another person have different filing requirements with the IRS. The income of a dependent can be “unearned” when it would be derived from certain sources such as dividends or interest. If the unearned income of a dependent is more than $1,100 in 2020 then tax return must be filed by the dependent.Filing a Tax return to claim a tax refundThere might be instances when there would be the need to file a tax return for an NRI such as taxes would have been withheld from a paycheck and a tax refund is due. If too much amount has been withheld from your paycheck, then the only method by which you would be able to obtain your tax refund is by filing their tax return.
For instance, if you are an NRI who is a taxpayer with a single filing status and earns $2500 during a particular year and $300 is being withheld from your paycheck then you can obtain a refund of $300 as your income is less than Standard Deduction.
If you have a refund due then the IRS would not automatically issue the refund. You would have to file a tax return so as to obtain your refund which is due.
ConclusionHence, if you are an NRI in the US then there are various criteria which are applicable for determining your tax liability. You must be well aware of these criteria and file your tax returns accordingly.
Planning for your taxes is very important and proper planning would help you in avoiding any further interest payment to the IRS due to missing tax deadlines.
With the annual fresh start which comes along with the New Year is approaching very rapidly, this is one of the best opportunities for the NRIs in the US to make certain resolutions. These resolutions can be related to finances and taxes as well. Tax Resolutions for a year can also be helpful in planning for the achievement of financial goals during a particular year.
If you are an NRI in the US, then it’s time for you to make your New Year Tax Resolution. Let us check out the major points which must be considered while making your New Year Tax Resolution for the year 2021.
Gathering your tax-related documents
Since you are a taxpayer in the country, you must gather the below-mentioned documents immediately before the tax season arrives.
Income from the employment – Form W-2 meant for you and your spouse.
Income from Investment – Various forms such as 1099 and K-1s.
Income obtained from the State and other local Income Tax refunds – Form 1099-G.
Alimony received is taxable – For those divorce cases which have been finalized before 1st January 2019.
Income obtained from home businesses – Home expenses, Office expenses, Home size, Office size.
Income obtained from the business – profit or loss statement.
Benefits from Social Security – Form SSA-1099.
IRA –Form 1099-R.
Income obtained from the sale of the property – Original cost and the cost of improvement, Canceled Debt Information(Form 1099-C).
Income or expense from rental income.
Miscellaneous income – This includes scholarships, jury duty, Medical Savings Account, winnings from gambling, etc.
Income Adjustments.
You must be aware of these adjustments as they can help in the reduction of your taxable income. You must make these adjustments thus increasing your tax refund.
Interest on Student loan
Contributions made to the IRA
Energy Credits
Health insurance payments made by self-employed people
Expenses of educator
Contributions made to Medical Savings Account
The alimony paid which is tax-deductible
SEP, SIMPLE, and other pension plans purchased by self-employed people
Itemized Tax Deductions and Credit.
There are some tax credits or deductions which would be helpful in reducing the tax burden. If you have made a good tax plan then you must track this throughout the entire year.
If you are availing of the below-mentioned tax credits and deductions then you must have the related documents as well.
Education cost – Form 1098-T and other documents to support education expenses
The charity has done –The cash amount donated and the value of the donated property, expenses made out of your pocket
Costs related to adoption – The Social Security Number of the child, legal, medical costs, and costs related to transportation
Childcare cost – The name of the provider, address, the tax id, and the amount that has been paid
Casualty and losses due to theft – Reimbursement of insurance, the amount of damage occurred
Home Interest paid – Form 1098
Dental expenses
Recovery Rebate Credit.
You can be able to claim the Recovery Rebate Credit if the below-mentioned criteria are met.
You have not received Economic Impact Payment for this year
If Economic Impact Payment was less than $1200 if you are filing your tax returns as Single individuals or $2400 if you are filing your tax returns jointly and are married.
EITC/ACTC Refund Availability.
Before mid-February, the IRS will not issue any refunds if you are claiming the Earned Income Tax credit or Additional Child Tax Credit. The IRS has instructed the employer to hold the entire refund amount if a portion is not being associated with the EITC or ACTC. Most of the people would receive their EITC or ACTC related funds by the first week of March if there are no further issues related to the tax return.
Conclusion.
So, as an NR in the US, you must be aware of these factors and make New Year resolutions that would be helpful in obtaining the tax returns conveniently.
The Paycheck Protection Program is a type of loan which has been created for helping businesses in the maintenance of their workforces during these adverse pandemic times. All types of loans taken by the business would be forgiven by the US Small Business Association (SBA) if the major criteria of retention of employees are met and the funds are being utilized for those business expenses which are eligible.
The Paycheck Protection Program (PPP) was a program of $350 billion whose major intent is to provide the small businesses in America with cash flow assistance of 8 weeks through 100% federal loans. In late April 2020, the Paycheck Protection Program was expanded by an addition of $310 billion into the funding of this program. The deadline for applying for the Paycheck Protection Program has expired since 8th August 2020 but there can be an extension if there is another relief bill that is signed into law.
Major highlights of the Paycheck Protection Program.
The Paycheck Protection Program loans would have an interest rate of 1%.
The benefits of the Paycheck Protection Program can be availed by all the small businesses of America.
No personal guarantees or collateral are needed for those businesses which are availing of this program.
The Paycheck Protection Program loan has a maturity rate of 2 years and an interest rate of around 1%.
No fees would be charged from the small businesses either by the Government or by the lenders who are availing of this loan.
What is the working procedure of the Paycheck Protection Program?
Small businesses that have around 500 employees or even fewer employees, other independent contractors, sole proprietors, or those NRIs who are self-employed are eligible for availing the benefits of the Paycheck Protection Program.
Sole proprietors would need to submit Schedule C from their tax returns filed which would provide details of the net profit that has been obtained from the proprietorship.
Those NRIs who are independent contractors must submit Form 1099-MISC along with the Schedule C.
The NRIs who are self-employed need to submit their payroll tax filings which have been reported to the IRS.
The Paycheck Protection Program loan would be completely forgiven if the fund from the loan would be utilized for interest on mortgages, payroll costs, utilities, and rent as well. There is no necessity for making the loan payment until the forgiveness application of the NRI has been processed or 10 months after the covered period of the loan ends.
How much money can be borrowed by the Paycheck Protection Program loan?
In case of being a small business, you would be eligible to receive a loan which would be up to 2.5 times the average monthly payroll costs for the previous year.
In the case of the NRI being self-employed or a sole proprietor, the loan amount that can be obtained is mainly calculated based on the payroll cost of the proprietor incurred in the last year. The full amount is up to $100,000 which can be the maximum limit that can be claimed by the small businesses.
What is the loan period for the PPP loan?
The loan period is for 8 weeks from the date of loan origination. This is the actual date on which the NRI borrower would receive the loan amount in actual. The interest payments on the Paycheck Protection Program loan will be deferred by around six months. This loan is due in two years and no penalty is charged for pre-paying the charges. However, the loan period has been extended to around 24 weeks.
How can your Paycheck Protection Program loan be forgiven?
By loan forgiveness, the loan can be turned into a non-taxable grant. The entire loan or a part of the loan which would be received by small businesses under the Paycheck Protection Program can be forgiven if the owner would keep all the full-time employees on their payroll or if you are re-hiring your employees again within 24 weeks of receipt of the loan.
For the loan amount to be forgiven a minimum of 60% of your loan should be utilized in funding the business payroll and the employee benefit costs as well. Only 40% of the amount that has been forgiven could be used for the non-payroll expenses like the payments of mortgage interest, payments of rents, utilities, etc. Forgiveness will not occur until the end of the 24-week employment period occurs after the loan amount has been received. Businesses must ensure that they must keep proper records and have proper bookkeeping as proof of the business expenses that have been incurred during the loan tenure.
Conclusion
So, the Paycheck Protection Program would be of great help for those who have incurred losses in business due to the pandemic and these coronavirus relief plans are evolving at a constant pace.
Tax scams can lead to huge loss of money as well as personal information. The tax scammers usually make use of mails or telephones for creating scams that can involve individuals and businesses also. Tax scam alert for NRIs is a common occurrence in the US now. NRIs should always keep in mind that the IRS would not contact the taxpayers by mails, text messages, or through social media channels. IRS impersonators can also intimidate the common people by preparing fabricated bills for tax.
Tax scammers remain active throughout the year and the IRS urges the NRI taxpayers to be very careful about phishing emails and scams. The IRS would usually initiate contact with the taxpayers with the help of regular mail which can be delivered by the United States Postal Service. There would be special circumstances when the IRS would contact an individual or a business such as an overdue tax bill for the security of a delinquent tax return. Taxpayers would usually receive communication from the IRS in the form of notices or letters.
The IRS does not.
NRI taxpayers must keep in mind that the IRS would not do the following activities:-
The IRS would never make calls to make NRI taxpayers for making immediate tax payments using a specific payment method which can be a prepaid debit card or a gift card. As a general rule, the IRS would mail the bills due to the taxpayers who have taxes due.
The IRS would not demand the NRI taxpayers for payment of taxes without even raising any question on the tax amount which is due.
NRI taxpayers must always keep in mind that the IRS would never threaten them about bringing in the police, immigration, or other law enforcement officers for not being able to pay the taxes on time. Moreover, NRI taxpayers should also remember that the IRS would not be able to revoke their driving license or immigration status. Any type of threat like this is a very common tax scam for Americans and they must be aware of these occurrences.
What the IRS does?
The IRS would resort to the below-mentioned methods to obtain the tax payments if any due for the NRI taxpayers.
Collection.
The employees of IRS might come to your home or your workplace without any prior announcement for the collection of the tax due. However, the IRS employees will not make a demand for immediate payment of the taxes to any source other than the U.S. Treasury. The IRS would also assign private debt collectors for some of the taxpayers. The Private Collection Agencies would never ask the NRI taxpayers for payment through a gift card or a prepaid debit card.
Conduct audits.
The IRS can conduct audits and would also call NRI taxpayers for setting up appointments. The IRS can also call the taxpayers to discuss items related to the taxes. However, this would happen only when the IRS has attempted to provide notification to the taxpayers through mails. After the mailing, the IRS auditor would call the taxpayers for setting up discussion calls.
Criminal investigations.
Criminal investigations can be carried out by the IRS for tax purposes and this can lead to investigators visiting the taxpayer’s house or business. But, these investigators are agents for law enforcement and would not be asking for any payment from the taxpayers.
Whom to contact?
If an NRI taxpayer suspects a tax scam or feels that he is being harassed by some impersonator, then he must take the below-mentioned actions.
The taxpayer can contact the Treasury Inspector General for Tax Administration to report about the tax scam.
The NRI taxpayers can report the tax scams to the Federal Trade Commission. The taxpayer can use the FTC Complaint Assistant on the FTC.gov website.
Any email which claims to be from the IRS or claims to contain IRS related components can be reported to the Electronic Federal Tax Payment System.
Conclusion.
So, with the number of tax scams and frauds increasing very speedily taxpayers must remain alert and inform about anything suspicious to the IRS.
Due to the pandemic COVID-19, millions of Americans are facing a very tough time maybe physically or financially. The rate of unemployment has been increasing at a very rapid rate with many Americans filing the claims for unemployment benefits. Moreover, the rate of unemployment has increased by 14% in the country due to a loss in work or due to many people being furloughed.
By the CARES Act, the US Government ensured that proper help was provided to those NRIs who have been impacted by the coronavirus. By the CARES Act, unemployment benefits and unemployment increase of $600 in a week was granted. However, if you are a furloughed NRI due to the COVID-19 and are obtaining unemployment benefits then it is quite obvious for you to think about the taxation rules for the unemployment benefit.
What are the taxation rules for Unemployment Income?
Unemployment benefit is considered taxable and it must be considered as a part of your income for the tax year. There are some states which would consider the unemployment income as taxable income.
When you are receiving unemployment income, you would be receiving Form 1099-G which would show the unemployment benefit that you have received.
Tips for those who are receiving Unemployment Benefit
Some major tips for those NRIs who are receiving Unemployment Income are mentioned below.
Adjustment of withholdings
If an NRI is employed, he must take his unemployment benefit into account while filling the W-4 withholding certificate for his employer. This is necessary if there have been no taxes withheld from the unemployment income of an NRI.
Take out federal taxes
Unemployment income is taxable; an NRI must take out federal income from his unemployment income so that there are no problems while filing taxes. NRI taxpayers can withhold up to 10% from their unemployment income by filing Form W-4V Voluntary Withholding Request and providing it to the agency which would be paying the benefits. In case, the NRI does not choose voluntary withholding or does not withhold enough then he can even do estimated tax payments.
The self-employed must consider unemployment while paying estimated taxes
In case, the NRI is a freelancer, a contractor, etc. then the NRI must consider that the unemployment income would be added up to the self-employment net income and would be taxable. If the self-employed NRI plans to pay his estimated quarterly tax, then he can also consider his unemployment income if he does not have federal taxes withheld from his unemployment.
Utilize the newfound credits and deductions that are available
Some of the tax credits and deductions are based on the income of the NRI for which he might not have been eligible before because of higher income. However, the NRI is eligible for this now because of being furloughed. The best examples to explain this are the Earned Income Tax Credit and the Saver’s Credit. According to the IRS data, 20% of people do not remember these two credits. The Earned Income Tax Credit is calculated on the basis of income and is a big credit; in case the NRI has had a low income in the year 2020 due to the loss of wages then the NRI would be eligible for EITC. By this EITC, he would get a credit of worth over $6000 if the family has 3 kids.
By the Saver’s credit, contributions would be made towards retirement. In case, the NRI has paid towards his retirement plan in 2020 and is now under the income threshold by which he would qualify for Saver’s credit then he would obtain a credit whose worth would be up to $1000 in case of being single or $2000 if married and filing tax returns jointly.
The Child and Dependent Care Credit is another tax credit which an NRI might get to see if he had paid someone to take care of his child while he was working or even was job hunting, This percentage of child care credit would be from 20% to 35% of his expenses up to $3,000 if he has a single child and up to $6,000 if he has two or more children based on his income. In case the NRI is having a lower income he might claim 35% of his expenses i.e. $1,050 for a single child and $2,100 for more than two children.
Conclusion
So, these are some of the tax tips which would help furloughed NRIs to understand their tax implications without many complications.
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