Immigrants who have recently entered the U.S. qualify as international taxpayers, for whom certain rules apply under federal law. The following are some of the procedures, responsibilities, and rights that immigrants should know about when they become residents in the U.S.
How Residency Status Affects Taxes
If a person is neither a U.S. citizen nor a U.S. national, taxation will depend on the individual’s residency status. Generally, U.S. tax residents must pay taxes in much the same way as a U.S. citizen would on their international income. Nonresidents, on the other hand, will be taxed based on special rules in accordance with the Internal Revenue Code (IRC).
If an individual possesses a green card, the law will treat him or her as a lawful permanent resident and U.S. tax resident when it comes to paying U.S. income tax. Typically upon obtaining a green card, individuals’ residency begins on the first day of the calendar year when they’re in the U.S. as lawful permanent residents. Individuals who obtain green cards abroad will have a residency period that begins on the first day they arrive in the U.S.
How Taxes Work for U.S. Tax Residents
For immigrants in America who are U.S. citizens or U.S. tax residents, the same basic rules apply regarding filing estate, income, and gift tax returns and paying taxes. Regardless of where the individual lives, international income will apply to U.S. income tax.
However, the rules will differ slightly in some territories. Individuals who’ve earned income from the Commonwealth of the Northern Mariana Islands (CNMI), the U.S. Virgin Islands, Guam, Puerto Rico, or American Samoa will likely need to file tax returns with these territories’ departments. In some cases, individuals can file two annual tax returns, including one with the U.S. Internal Revenue Service (IRS) and the tax department within these specific foreign territories.
Other Requirements Under Federal Law
Any U.S. citizens or U.S. tax residents must report worldwide income earned, which includes income earned via foreign banks, securities accounts, and foreign trusts. In addition to a tax return, individuals will need to complete a Schedule B form and attach it to their returns. This form includes specific questions about income from foreign sources, requiring people to report the specific country in which their accounts are located.
Most individuals residing in the U.S. will be required to report foreign financial accounts, which include brokerage accounts, mutual funds, and bank accounts. Specifically, they will have to report these accounts through a Report of Foreign Bank and Financial Accounts (FBAR) found on FinCEN Form 114 to the U.S. Treasury Department.
Some individuals may also need to include Form 8938 on their tax returns, which is a Statement of Foreign Financial Assets. This will be required if individuals earn or maintain financial assets if they go beyond specific thresholds in place.
For additional information about taxpayer rights, individuals can also refer to the IRS’s Taxpayer Bill of Rights.
Understanding the requirements in place around taxation for new immigrants can help them avoid tax debt and other potential issues.