The Top #5 Tax saving tips from your new job as an NRI in the US
If you are an NRI working in the US, you will need to pay taxes in US and you will be considered as a Resident alien with respect to tax purposes in US. You will be liable to pay taxes in US if you are a green card holder or you were present in US for a total period of 183 days i.e. you can count on the actual number of days you were present in US in the current year i.e. it should be at least 31 days , one-third of the number of days you have been in US in the first year preceding the present year and one-sixth of the number of days you were present in US in the second year preceding the present year. This is known as the Substantial Presence Test (SPT) used by the IRS to find out your liability to pay tax in US. Tax saving tips from your new job as an NRI in the US
Types of taxes to be paid by an NRI in US
Let us have a look at the types of taxes NRIs need to pay in the US.
- Social Security Tax
Social Security Tax is to be paid by every individual who is working in the US. Half of the amount will be contributed by your employer in US and the other half is given by yourself. 6.2% of your gross salary would be deducted as your contribution to Social Security Tax.
- Federal Income Tax
Since you are a non-resident in US you will have to pay tax on all income earned in the US without any deductions that the US citizens can avail. However, if you are availing the deductions which the US citizens are enjoying you will have to pay tax on the income earned outside the US as well.
- State Income Tax
You will have to pay State Income Tax based on the state of the US in which you are working
- Medicare Tax
This tax is paid by you for the health care services which will be availed by you after your retirement and is irrespective of the fact if you would be in the country then to avail them or not. You and your employer will have to contribute 1.45% of your gross salary for this purpose.
- Global Income Tax
Any dividend obtained by you on shares and mutual funds in India are to be taxed in the US. Moreover, this rule of taxation is also applicable to any agricultural income and capital gains obtained in India. A foreign tax credit in your US tax return can be claimed by you, in case of tax payment done for the above-mentioned income sources. Form 8938 (Statement of Specified Foreign Financial Assets) and
Form 8621(Passive Foreign Investment Company) can be filed along with the US Tax return for this purpose.
Tax Saving Tips for NRI in new jobs in the US
Some of the tax-saving tips for NRI working in new jobs in US are mentioned below.
- Form W-2 must be present with you
This form is a major document required while filing your US tax returns. You can obtain this form from your employer and it will contain details related to your annual payroll. You should collect your Form W-2 from each employer for whom you have worked in a particular year.
- Spousal exemption to be claimed and declaration of dependents
An important tax-saving method is by claiming a spousal exemption. For this, you will have to file Form W-7 and apply for an ITIN i.e. Income Tax Identification Number.
While filing for US tax returns, you can declare your dependents even if they are residing in India. However, there are certain laws by which they will have to qualify as your dependents.
- Declaration of all financial interest
You will have to submit Form TD 90-22.1 in case of having financial accounts outside US with a value of the accounts exceeding $10,000 on a yearly basis.
- Medical deductions should be claimed
You can claim your medical deductions by filing Form 1040; Schedule A in case of your medical expenses exceeding 7.5% of your Adjusted Gross Income.
- Make investments or take mortgage loans
You can make investments into retirement schemes, stocks or fixed deposits to save taxes. Also, you can save taxes by taking mortgage loans or by making donations.
Since you are an NRI and new at your job, your income in the US would be reduced up to a large extent due to the payment of taxes. However, these tax-saving tips will help you in reducing your tax liabilities up to some extent.