Top #5 Life-Changing effects and their tax implications for NRIs in the US
Tax implications,Life is a storehouse of changes; every person experiences certain life-changing events that can bring a transition in the entire course of the life of a person. These life-changing events can also bring a great transition in the taxation methodologies of an individual. Tax implications moreover, life-changing events and changes in the rules of taxation are the two major factors that will always cause either an increase or decrease in your taxes.
You can face this type of situation in your life when you have numerous changes happening together in a year. These changes will affect the payable taxes and you need to adjust to these changes.
When you are an NRI in the USA, you will have a number of taxes to be paid such as Medical Care Tax, Federal Income Tax, Social Security Tax, Global Income Tax, etc. These numerous taxes will reduce your take-home salary considerably and on top of this, when you have life-changing events and their implications to be addressed you will really have a tough time in handling these issues.
Let us have a look at the top 5 most crucial life-changing events and the impact they can have on the tax of an NRI in the USA.
Tying the knot
Mostly, all married NRI couples receive tax benefits in the US as they would file the taxes jointly now. This results in lower tax rates and more tax benefits. But, sometimes if both the spouses are earning too high and are filing their taxes jointly then there might be a scenario of penalty. This might occur due to the reason that by filing joint tax returns, the couple is paying much more taxes than they should have paid as singles. But, there have been various tax reforms that have lowered the tax rates for these couples.
Welcoming a little bundle of joy in your life
This is, in fact, a real life-changing event and would be a crucial phase in life. Your little bundle will not only bring happiness into your life but also will help you in reducing your tax liabilities. The Child Tax Credit helps NRIs in the US in reducing their liable taxes. By this, if your child is below the age of 17 years then you can get a tax credit of $2000 known as Child Tax credit. Moreover, other additional credits are associated with this i.e. Child and Dependent Care Credit and the Earned Income Tax Credit. All of this would be helpful in saving a substantial amount of money.
Getting separated legally or getting divorced is a tough phase of life and has certain implications related to your taxes as well. According to the new tax laws in the US, the spouses who will be receiving the alimony do not have to pay tax on the received alimony. However, the spouse who will be making the payment cannot claim this as a tax deduction. Precisely, alimony paid is not a tax-deductible component for the payer and also is not included in the income of the spouse receiving it.
This will be the law implication for those married couples who got legally separated after 2018 or before 2019 and then later certain modifications were made into the deductions associated with alimony.
Death of a partner
There is nothing more painful than losing your partner or spouse, but the laws of paying taxes related to this are even more hurtful. You will need to file for an estate tax return depending on the size of your estate and the assets in your estate. Moreover, new tax law states that you will need to pay estate tax only when the value of your estate is above $11,400,000.
Buying or selling a house
There are many additional deductions that you can claim if you are buying a new home or selling a home. When buying a new house, you will be able to claim deductions like paid points, interest on the mortgage, other real estate taxes, etc. However, while selling a house you will not be liable to pay taxes above $500,000 on the gains in case of filing tax returns jointly along with your spouse.
Hence, these life-changing events not only bring a change in your mental state but also affect the state of your tax liabilities. After these events, either you tend to pay more taxes or pay fewer taxes in some respect depending on the taxation laws.