Taxes are paid by the people legally living in the state to generate revenue to the state. The generated revenue is for the government to satisfy the needs and wants of their people.
Taxes payable to the United States of America by working overseas:
The United States has different taxation laws when compared to the other countries in the world. They have strict taxation laws to generate maximum revenues for the state. Once a person is born in the US and is legally a citizen in the US, he is liable to pay taxes for the rest of his life. Yes, this is true. Even if an individual is generating income overseas, if he is a legal US citizen, he is labile to pay tax to the USA.
However, most of the people working abroad do not pay taxes. The reason for this is that there is a limit on income earned by an individual. On that limit, a person is not liable to pay taxes to the US. For example, the US has set the income limit at $100,000 annually. If a person earns $90,000, he is not liable to pay taxes to the US. But if he earns more than $100,000 annually, he is liable to pay a certain amount of income tax to the USA.
There is a percent set for income tax. The amount of income tax increase as the income earned by an individual increase. As long as one earns below the income limit set by the government, he is safe from paying taxes. The taxes are only liable if the US citizen is legal in the foreign country and is paying the due taxes in the foreign country as well.
Foreigners paying taxes in the US:
The Internal Revenue Service in the USA stated that all nonresident aliens in America who receive any form of payment from travel or business reimbursements, honorarium, scholarships, and wages have to pay taxes to the government. Some people are exempted to pay taxes. But they are extraordinary cases and permission to exempt them is provided by the Internal Revenue Service or the tax treaty in the USA.
The tax laws for nonresident aliens in the USA are different in many ways than that of residents. The tax laws for foreigners are complex. They are mainly charged taxes for the income they generate within the USA. The USA first identifies those who are considered foreign residents.
Foreign residents in America are those people who are working in America but are born residents of another country. They are of two main types:
- The Residents of a country apart from America: These are the people who have left their countries and come to live in America to avail themselves its earning opportunities.
- A company that is organized under the laws of a foreign country: It when a company abroad setups its branch or outlet in the USA. People that come to set up the company are included in this category.
There are income tax treaties that the government of the USA provides to some of its foreign nationals.
Tax treaties provided by the USA to foreign nations:
The known benefit of the tax treaties that the USA gives to its foreign nationals is that it enables the foreign nationals to pay tax at a relatively lower rate. Additionally, some of the US nationals may also be exempted to pay taxes. It is only if they earn a certain amount of income limit in the USA that is set by the government.
The tax rates and the exemption from paying taxes also depend upon the countries and the other specified terms and conditions. They are known as tax treaties as when the US citizens go to these other countries. They also receive lower tax rates or exemption from pay taxes as an exchange. Many of the income tax treaties contain what is known as a saving clause that prevents a US foreigner from misusing the tax treaties to save themselves from paying income tax levied on them.
In cases where an individual earns a certain amount of income that is not covered by the tax treaty or if there is no treaty between the country and the USA, then the particular individual is required to pay taxes in the same way as provided by the instruction the applicable US tax return. The tax treaties also depend on which state a person is living in. Some states provide tax treaties whereas others do not.
One should consider paying a visit to the tax authorities that can help one out regarding the tax problems. They will tell if one can apply for the tax treaties based on the policies between their respective countries and also depending upon the income they earn in the USA every year. If one cannot claim a treaty, they have to pay tax to the Internal Revenue Service.
The tax treaties are defined as a bilateral agreement between two countries r on in this case the United States of America and the government of a foreign country. The main objective of such treaties is to prevent the double taxation on foreigners living in their respective countries and to generate income tax to the respective countries.
There different tax treaties formed with different countries. Each tax treaty has its terms and conditions that are formed upon consultation between the USA and a foreign government. It benefits both the side. When a foreign individual in the USA applies for a tax exemption based on tax treaties between both governments, a small payment is taken as a withholding amount. Sometimes, the US becomes generous enough to exempt that payment as well.
However, there is one additional requirement that a foreigner in the USA must have before applying for tax exemption based on the tax treaty. The foreign individual must have a United States Tax identification card to apply. If he does not have it then he must make the tax identification card to apply for tax exemption.
The identification number for taxes and the social security number:
The United States Income Regulation Service has now made a mandatory law for all foreigners living in the US. The law states that the foreign nonresident alien must have a social security number (SSN) or an Individual Taxpayer Identification Number (ITIN) if they desire to avail the benefits of tax treaties between the respective governments. Without both these, the foreigners cannot even apply for it. First, they had made only the tax identification number but now the option of the social security number is also available.
The Social security and taxes on Medicare:
Social Security and Medicare, also known as FICA taxes are applicable on the salaries and wage payments that are provided to the nonresident foreign aliens in the US by the US national employers. The taxes are for the services that a foreign provides in the country in exchange for his salary or wage payment. a foreign individual may be exempted from the FICA tax if he fulfills the qualities required for the exemption process.
The qualities that are required to apply for the exemption of FICA taxes are as follows:
- The individual must be a nonresident alien who has come to the US
- The individual has to become under the F, J, M, or Q status of immigration according to the United States of America immigration laws.
- The last requirement is that the individual is to be the one who is carrying out the services for which he has the Visa. If he has a visa to carry out a specific service but he is not providing the specified service, he is considered as no eligible to apply for the exemption procedure.
Additionally, the exemption is also heavily dependent upon the calendar year that may also be half a year or, in some cases, a partial year.
. For passing this test, it is required that the foreigner nonresident alien is present in the state for at least 31 days during the same year. In addition to that, for the foreign individual; he must stay in the states for one eighty-three days during 3 years.
It also includes the current year in addition to the two years immediately before the same year. In it are all the days during which the foreigner was present in the country during the same year, 1/3 of the days that the foreign individual stayed in the United States of America, and lastly the 1/6 amount of days that the foreign individual was present in America in the second year before the actual current year.
What are the steps that nonresident aliens have to follow for signing income tax returns to the Internal Revenue Services?
There are several septs and options that the foreigner in America follows for filing an income tax return to the Internal Revenue Services. If a person is a foreign citizen and is living in the United States of America, then he is required to annually file for an annual income tax return to the Internal Revenue Services or the IRS.
Such an individual like a resident alien and, he has to declare his worldwide incomes in addition to his bank accounts that are not in the United States of America.
The steps to sign for an income tax return to the IRS are as follows:
If a couple decides that they want to file a joint return then both the spouses have to sign for the return. If due to any medical reason or if the spouse is far away and cannot sign for the tax return, the other partner can sign on her behalf by writing her name properly in its specified place. It is followed by the word by and the signature of the partner that is signing for the income tax return.
The signature by the husband or the wife is followed by the word husband or wife depending on who is signing for the tax return. One must make sure that he signs in the proper area provided and, a small mistake would lead them to repeat the entire process. However such mistakes are rare as the IRS official are present at all times to help those that require their aid.
Following this, a statement that states the form number of the return that one is filling is attached. The statements also include other important information such as the tax year and the main reason why the spouse is unable to come and sign the document for the income tax returns. Furthermore, it provides details and clear evidence that the spouse has permitted the partner to sing on her behalf.
In cases when a foreigner is a guardian of a spouse that is mentally unstable or has mental issues, then the other partner can sign on behalf of the spouse with the term guardian along with the signature. Apart from the above-mentioned reasons, if there is another reason due to which the spouse was not able to sign for the income return to the Internal Revenue Services, the other partner can only sign it if he has the valid power of attorney.
One can obtain the valid power of attorney by providing further documents that the Internal Revenue Service’s officials may ask for when a foreigner living in America comes to file for an income tax return. The foreigner has permission to use Form 2848. Form 2848 includes the Power of Attorney and Declaration of Representatives (PDF) when the spouse cannot sign for the income tax returns due to any other reasons.
In addition to that, if a foreign individual is filing for the annual income tax return on behalf of a minor child who is unable to sign the return form, then the guardian can sign on behalf of the minor child in the area specified on the document. The document is signed with the word by next to the signature of the child. Then the one who is signing the file has to write his relationship with the minor child such as the parent or guardian of the minor child. The procedure is also the same when a person is signing the income tax return for a child who is unable to physically come for the signing of the papers.
The imposition of fines and penalties for failure to sign tax returns:
There are likely large fines imposed on a foreign individual. It is when they fail to comply with the rules and regulations of the IRS. One has to be discreet regarding income tax returns. One cause of this is when a person fails to file an appropriate tax return or intentionally provides false or misleading information to the IRS. It also occurs when a person tries to file an income return after the due date or does not bother to file it at all.
A person must have a valid reason. He must provide details because of which he was unable to file for the tax return on time. The IRS requires evidence to prove the statements. If the IRS feels that the statement provided by the defendant or the evidence that he gives to the officials is not convincing enough. Then the defendants are punished by imposition of large fines and penalties.
Apart from imposing financial fines on foreign individuals, there are also chances of criminal charges applied to the defendants. It is a rare sight and depends upon the seriousness of the fault committed by the nonresident foreign individual.
To conclude, it is not wrong when one says that the taxation laws in the United States of America are strict for the foreigners residing and working in the country. They must act smart and take every step with guidance to avoid any troubles. The tax treaties are beneficial for the foreigners as it makes life much cheaper. It is better to provide all the documents on time just to stay on the safe side away from trouble.