How Taxes Work for New Immigrants in the USA

Determining Your Tax Residency Status:

The IRS classifies non-U.S. citizens for tax purposes as either Resident Aliens or Nonresident Aliens. This distinction determines *what* income is taxed and *how* you file.

• Resident Alien: You are generally considered a Resident Alien for tax purposes if you meet either of these tests for the calendar year (Jan 1 - Dec 31):
  • Green Card Test: You are a Lawful Permanent Resident (hold a Green Card) at any time during the year.
  • Substantial Presence Test (SPT): You were physically present in the U.S. for a sufficient number of days. This test is met if you were present in the U.S. for at least:
    • 31 days during the current year, AND
    • 183 days during the 3-year period including the current year and the 2 preceding years, counting:
      • All days present in the current year.
      • 1/3 of the days present in the first preceding year.
      • 1/6 of the days present in the second preceding year.
    Exceptions: Days present as an "exempt individual" (e.g., students on F/J/M/Q visas, teachers/trainees on J/Q visas, within certain time limits) generally do *not* count towards the SPT. Check IRS Publication 519, U.S. Tax Guide for Aliens, for details on exempt individuals and closer connection exceptions.
  Taxation: Resident Aliens are generally taxed on their worldwide income (income from both U.S. and foreign sources), similar to U.S. citizens. They file Form 1040.
• Nonresident Alien: If you do not meet either the Green Card Test or the Substantial Presence Test, you are generally a Nonresident Alien for tax purposes.
  Taxation: Nonresident Aliens are generally taxed only on their income from U.S. sources and certain income connected with a U.S. trade or business. They file Form 1040-NR.
• Dual-Status Alien: It's possible to be both a nonresident and resident alien in the same tax year, typically the year you arrive in or depart from the U.S. Special rules apply for filing in these situations.

Types of U.S. Taxes You Might Encounter:

• Federal Income Tax: Levied by the Internal Revenue Service (IRS) on taxable income (wages, salaries, self-employment income, interest, dividends, capital gains, etc.). The U.S. uses a progressive tax system with increasing tax rates for higher income brackets.
• State Income Tax: Most states (but not all – e.g., Texas, Florida, Nevada, Washington, Alaska, South Dakota, Wyoming have no state income tax; New Hampshire & Tennessee tax only interest/dividends) also impose an income tax with their own rates and rules.
• Local Income Tax: Some cities, counties, or municipalities may levy additional income taxes (e.g., NYC, Philadelphia).
• FICA Taxes (Payroll Taxes): These fund Social Security and Medicare programs.
  • Employees: Typically, 7.65% of your gross wages are withheld (6.2% for Social Security up to an annual limit - $168,600 for 2024, projected $176,100 for 2025; plus 1.45% for Medicare with no limit). Your employer pays a matching 7.65%. High earners pay an additional 0.9% Medicare tax.
  • Self-Employed Individuals: Pay both the employee and employer portions (totaling 15.3% on net self-employment earnings up to the SS limit, plus 2.9% for Medicare on all net earnings, plus the additional 0.9% Medicare tax if applicable). Part of self-employment tax is deductible for income tax purposes.
  • Nonresident Alien Exemption: FICA taxes generally apply to Resident Aliens just like U.S. citizens. However, Nonresident Aliens on certain visas (primarily F-1, J-1, M-1, Q-1/Q-2 students and scholars within specific time limits and performing allowed services) are often exempt from FICA taxes. Check IRS Publication 519 and consult your employer/payroll department.
• Sales Tax: Levied by states and localities on the purchase of goods and some services. Rates vary widely by state and locality (there is no federal sales tax).
• Property Tax: Levied by local governments (county, city, school district) based on the assessed value of real estate you own. Rates vary significantly.
• Capital Gains Tax: Tax on profits from selling assets like stocks or real estate. Rates depend on how long you held the asset (short-term vs. long-term) and your income level.
• Gift & Estate Tax: Federal taxes on large gifts made during life or assets transferred upon death. High exemption amounts mean most people are not subject to these, but rules differ for non-residents regarding U.S. assets.

Tax Identification Numbers:

You need a valid Taxpayer Identification Number (TIN) to file U.S. taxes.

• Social Security Number (SSN): Required if you are authorized to work in the U.S. This is the primary TIN used for employment and tax filing. See How to Get an SSN.
• Individual Taxpayer Identification Number (ITIN): Issued by the IRS to individuals who have U.S. tax reporting or filing requirements but are not eligible for an SSN (e.g., certain nonresident aliens earning U.S. income, dependents of resident/nonresident aliens who don't qualify for an SSN). An ITIN is for tax purposes ONLY and does not grant work authorization. Apply using Form W-7, Application for IRS Individual Taxpayer Identification Number, typically submitted with your tax return.

Filing Your U.S. Tax Return:

• Tax Year: The U.S. tax year is the calendar year, January 1 to December 31.
• Filing Deadline: Typically April 15th of the following year. If April 15th falls on a weekend or holiday, the deadline shifts to the next business day. (For 2024 taxes filed in 2025, the deadline is April 15, 2025).
  • Automatic Extension for Those Abroad: U.S. citizens and Resident Aliens living and working outside the U.S. on Tax Day get an automatic 2-month extension to file (until June 15th - June 16th in 2025). However, this is an extension to *file*, not to *pay*. Taxes owed are still due by April 15th.
  • Further Extensions: You can request an automatic 6-month extension to file (until October 15th) by submitting Form 4868 by the original April 15th deadline (or June 15th deadline if abroad). Again, this extends the filing deadline only, not the payment deadline.
• Which Form to File?
  • Resident Aliens: File Form 1040, U.S. Individual Income Tax Return (same form as U.S. citizens). Report worldwide income. Can generally claim standard deduction or itemize deductions, and claim various tax credits.
  • Nonresident Aliens: File Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Report only U.S.-source income. Generally cannot claim the standard deduction (must itemize limited deductions) and eligibility for tax credits is restricted.
  • Dual-Status Aliens: Follow special instructions, often involving filing both a 1040-NR for the nonresident part of the year and a 1040 for the resident part. Consult IRS Pub 519 or a tax professional.
• Withholding & Estimated Taxes:
  • Form W-4: If employed, you'll complete Form W-4, Employee's Withholding Certificate, so your employer can withhold the correct amount of federal income tax from your paychecks. Update it if your circumstances change.
  • Form W-9/W-8BEN: You'll provide Form W-9 (with SSN/ITIN) to banks/payers if you are a resident alien, or Form W-8BEN if you are a nonresident alien, for tax withholding purposes on interest/dividend income.
  • Estimated Taxes: If you have significant income not subject to withholding (e.g., self-employment, investment income), you may need to make quarterly estimated tax payments using Form 1040-ES (for residents) or 1040-ES (NR) (for nonresidents).
• Deductions & Credits: The U.S. tax system allows various deductions (which reduce taxable income) and credits (which directly reduce tax liability). Eligibility rules differ significantly between Resident Aliens (more eligible) and Nonresident Aliens (fewer eligible).
• Tax Treaties: The U.S. has income tax treaties with many foreign countries (see IRS list) to prevent double taxation and tax evasion. If you are a resident of a treaty country, specific treaty provisions might reduce or exempt U.S. tax on certain types of income (e.g., student earnings, pensions). You usually need to claim treaty benefits on your tax return (e.g., using Form 8833).
• Foreign Financial Account Reporting (FBAR & FATCA): U.S. residents (citizens, LPRs, those meeting SPT) with financial interests in or signature authority over foreign financial accounts exceeding certain thresholds must report them annually to the Treasury Department (FinCEN Form 114 - FBAR) and potentially on Form 8938 with their tax return (FATCA). Significant penalties apply for non-compliance.

Getting Tax Help:

• IRS Website (irs.gov): The official source for forms, instructions, publications (especially Pub 519, U.S. Tax Guide for Aliens and Pub 515, Withholding of Tax on Nonresident Aliens), and online tools.
• Tax Software: Programs like TurboTax, H&R Block, TaxAct, etc., can guide you through filing. Ensure you use a version that supports your specific filing status (1040 or 1040-NR). Some specialize in nonresident filings (e.g., Sprintax).
• Tax Professionals (CPA or EA): For complex situations (dual-status, significant foreign income, business ownership, treaty benefits), hiring a Certified Public Accountant (CPA) or an Enrolled Agent (EA) specializing in international/expat taxation is highly recommended. They can provide personalized advice and ensure compliance.
• VITA/TCE Programs: The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs offer free basic tax preparation help to qualified individuals (based on income, age, disability, or limited English). Some VITA sites specialize in international student/scholar returns. Find sites via the IRS website.