Nonresident Tax Obligations: What You Need to Know

Tax obligations can be complex, especially for individuals who are not residents of the United States. Nonresident aliens, in particular, often have questions about their tax obligations and whether they are subject to certain federal taxes. In this article, we will answer some common questions regarding non-resident tax liabilities.

Do nonresidents pay federal income tax?

Non-residents who earn income from US sources are generally subject to federal income tax. The Internal Revenue Service (IRS) defines non-residents as individuals who do not meet the common test, which determines whether a person has lived in the United States for a period of time. However, the taxation of non-residents may vary depending on the type and source of their income.

Are nonresident aliens subject to federal income tax?

Yes, nonresident aliens are subject to federal tax on income earned in U.K. locations. This includes salaries, wages, tips, and other compensation received for services rendered in the United States, as well as other investment income, such as interest, dividends, and royalties rental of US real estate.

Are nonresident aliens exempt from federal withholding?

In most cases, nonresident aliens are subject to federal withholding on their U.S. source income. Employers are required to withhold federal income tax from wages paid to nonresident aliens, just as they do for U.S. citizens and resident aliens. However, there are certain exclusions and exceptions that may apply depending on tax treaties between the United States and the individual’s home country.

Do nonresidents pay Social Security tax?

Nonresidents, including nonresident aliens, are generally exempt from paying Social Security taxes, also known as FICA taxes. FICA stands for Federal Insurance Contributions Act and includes taxes for both Social Security and Medicare. However, there are exceptions for certain employment situations, such as when a non-resident alien is considered a resident for tax purposes or when they work for a foreign government.

Do nonresidents pay Medicare tax?

Similar to the Social Security tax, nonresidents are generally exempt from paying Medicare tax. This tax funds the Medicare program, which provides healthcare benefits to individuals aged 65 and older. However, there are exceptions for specific employment situations, such as when a nonresident alien is considered a resident for tax purposes or when they work for a foreign government.

Are nonresident aliens exempt from FICA taxes?

Nonresident aliens are generally exempt from FICA taxes, which include both Social Security and Medicare taxes. However, as mentioned above, there are exceptions to this rule. Nonresident aliens who meet certain conditions, such as being considered residents for tax purposes or working for a foreign government, may be subject to FICA taxes.

Do nonresident aliens pay payroll taxes?

Nonresident aliens who are not considered residents for tax purposes are generally exempt from paying payroll taxes. Payroll taxes, which include federal income tax withholding, Social Security tax, and Medicare tax, are generally withheld by employers from employees’ wages. However, nonresident aliens may still be subject to federal income tax withholding, depending on their specific circumstances. Finally, expatriate tax obligations can be complex, but it is important for individuals to understand their responsibilities when deriving income from US sources. Nonresident aliens are generally subject to federal income tax on their U.S. income, but exemptions and exemptions may apply to certain taxes such as Social Security, Medicare, FICA, and withholding. Consulting a tax professional or referring to IRS guidance can provide additional clarity on specific circumstances and obligations.

File US tax returns when living abroad

Moving to another country for any reason can be a difficult time for anyone. There are several documents, forms, legal needs, agreements and sometimes certain ones are forgotten about or even not known to the person who is moving to another country. Often the tough one to understand is the US expat tax which is a process by which the US internal revenue system can continue to tax US citizens or green card holders despite them living in another country for life or up to 10 years following their loss or renunciation of citizenship.

What are the expat tax filing obligations?

No matter whether an expat has earned an income abroad or not, they must always be filing US tax returns even if they don’t owe any taxes. But there are certain thresholds but to which an expat is needed to file an IRS form 1040 no matter what. They may be needed to submit an FBAR, FinCEN form 114 (foreign bank account report) if the aggregate balance of all their bank accounts is more than $10,000 including any pensions, investments and any accounts with signature authority. The FATCA IRS form 8938 (the foreign account tax compliance act) may be required to be submitted if certain financial assets exceed filing thresholds.

How can you reduce expat tax return?

For filing Federal tax for non resident,  The FEIE IRS form 2555 (the foreign earned income exclusion) let’s you exclude a certain amount of their income from US expat taxation which means that amount can be subtracted from their earned income like pensions, dividends, interest, US sourced income and capital gains on those expats are liable for full US tax. Apart from this, another exclusion that can be used is foreign tax credit. You can subtract the tax on your income that was already taxed by a foreign country by using the IRS form 1116. You can claim a foreign tax credit on the income that is being taxed by the US, thus it excludes the amount that has already been removed by the FEIE. You can also claim the foreign housing exclusion on your income from rent to further reduce your tax amount.

When do you have to file tax as an expat?

If you are living abroad, then you will have the same tax deadline as a US citizen at home but you will get an automated 2 months extension to file but any taxes owed are still due by the original deadline. If you decide to return to the US, you may still be eligible for certain US expat tax deductions and exclusions for the tax year but with no extension. The total amount must be in the US dollars when US tax filing is based on the yearly average currency exchange rates.

Quick Guide to US Expat Tax Return Filing Requirements

Taxation has always remained an Achilles hill for most taxpayers, especially when taxation has to be done for us expat taxes. It often goes unnoticed that even the Americans living outside has taxation in the form of federal tax for non residents, in this case, they must always file an annual tax liability which generally includes their incomes from all over the world. Don’t get worried too much about filing us expat tax return, generally and usually the US has a range of standard exemptions and deductions that ultimately results in almost zero tax liability.

USA Expat Taxes is an American expat tax services company that handholds you in the entire process and provides services in an end to end manner. Most commonly the expat taxes becomes complex, it is not by design, but by the sheer nature and quantum of laws and regulations, including the double taxation avoidance agreements that the US has with many countries gives it the complex nature. Before we go into the factors as to why to chose US Expat taxes we would just like to mention a few pointers which must be kept by everyone in mind before filing the expat taxes –

• Expats must file tax returns in the US even if their source of income is outside of the US. Income can include profits, Interests, Income, Rent, Dividends etc.
• Foreign earned income is excluded but the exclusion is not automatic.
• Certain time restrictions are mentioned in regulations for qualification as an expat.
• Presence of specified residency tests.
• Analysis of the Double taxation avoidance agreements which the US might have signed and ratified with the country you are residing in. 

Apart from the above-mentioned pointers, many other factors must be considered before filing the expat returns. We understand and comprehend that handling the minor details and regulations might be tricky for you and to explore each clause with your busy routine might be tedious. And why at all should you even think of doing this all alone when USA Expat taxes is here! Our years of experience in helping our customers from a range of countries, our domain experts tax professionals and our customer-centric approach is what makes us stand apart from our peers. Few of other reasons why you should trust us –

• Low transparent pricing structure our transparent pricing starts at just $249! That too comes with the highest standards of privacy and security which we understand how important it is to you.

• Reliability
  • Our years of experience in servicing our expat community all over the world because we earnestly appreciate your contribution. Our years of dedicated services provide a sense of reliability.
• Professional
  • We do not believe in generalist tax consultants. We have a specialist group of CPAs and EAs who are expat tax specialists with years of experience in the relevant field and domain expertise.

Always feel free to reach out to us to discuss any of your concerns, we are available all round the clock and just a click away from you.

5 Most Commonly Asked US Expat Questions

If you are new to filing U.S. taxes from abroad, then you must read the most commonly asked expat questions listed below:

I Am A Non-Resident Of The US. Will I Be Taxed Differently Than A US Resident?

Yes. You are only required to report income from US sources rather than worldwide income. Additionally, this income would be categorized into passive income (income resulting from cash flow received on a regular basis like rents, dividends, capital gains and earned income like salary, wages, etc.