Some Interesting Facts about Immigration and Taxes
Not all taxpayers are American citizens. The federal government classifies aliens for taxation purposes in two ways, as immigrants and as nonimmigrants. A noncitizen obligation to pay taxes depends on immigrant status and on length of time as a resident, immigrant or not. Permanent residents, green card holders, are taxable as immigrants. Visa holders without immigrant status have no taxpayer obligations but still may file income tax returns for refunds of taxes employers withhold from their earnings. Resident aliens must report to the Internal Revenue Service (IRS) and pay taxes on all income earned within or outside the United States (USA or US). Not all income from outside the USA reported to the IRS may be taxed, however. International treaties on taxation regulate that determination.
Immigration and Taxes: Green Card Holders
When resident aliens acquire green cards, the government classifies them automatically as US taxpayers. A recurrent rumor has it that the number of days spent within the US determines taxpayer classification, but that rumor is true only for non immigrant visa and not green card holders. Green card holders who do not set foot in the USA all year still must report all annual income by filing an IRS Form 1040 by April 15th. Those who do not may lessen their chances of becoming US citizens. Those who intentionally fail or refuse to file tax returns may be prosecuted for crimes for which, if convicted, they could lose their green cards and face deportation. Green card holders must report income from employment within the USA and from investments or business activities overseas. Those who reside in other countries must report income received there. To keep their US green cards while residing abroad, they should make sure US immigration authorities won’t conclude that they have abandoned their USA residency. An application for a reentry permit should suffice for this purpose. Taxable US residents who hold foreign financial assets of more than $50,000 in value must file IRS Form 8938 as well as Form 1040. The minimal value is higher on joint tax returns or for taxpayers who live outside the USA.
Immigration and Taxes: Nonimmigrant Visa Holderss
Unlike green card holders, aliens holding nonimmigrant visas may have no obligation to report income and pay taxes to the US Government. They acquire taxpayer status only after at least 183 days of residence in the USA. As an example, a nonimmigrant visa holder after 200 days in the USA must report all income to the IRS. Continuous presence with the USA for six months or more seems to raise a presumption of intent to immigrate and establish permanent residence. Another immigration law provision can classify as taxable residents nonimmigrant visa holders present in the USA for fewer than 183 days of the current year. If present for a total of at least 183 days during the last three years, they become taxable residents unless they spend fewer than 30 days within the USA during the current year. Under this provision, every day of the current year counts as a whole day, every day in the previous year counts as a third of a day, and every day in the year before the previous year counts as a sixth of a day. If the three-year total number of days as weighted amounts to more than 183, the visa holder must report all income to the IRS. This provision may not apply, however, to some government employees, professionals, and students. If neither of these provisions applies to classify an alien as a taxable resident with a tax home in another county, it may be possible to avoid any obligation to pay US taxes. If the IRS finds that there is no tax home in any foreign country, however, it may suspect an attempt to conceal income and still require the alien to pay taxes. Unlike green card holders, nonimmigrant visa holders have no obligation to pay taxes on income derived outside the USA.
Immigration and Taxes: Other Alien Tax Liabilities and Exemptions
In general aliens in the USA as employees are liable for US Social Security and Medicare taxes; however, certain classifications of alien employees are exempt. Resident aliens generally have the same liability for Social Security/Medicare Taxes as US Citizens. Nonresident aliens are liable for Social Security/ Medicare Taxes on income for services within the USA with exceptions for their nonimmigrant status. The following classes of nonimmigrant aliens may be exempt:
J-Visa and Q-Visa Holders. Nonresident alien scholars, teachers, researchers, physicians, and other nonstudent aliens temporarily present in the USA as nonimmigrants may be exempt from taxation on income for their services within the USA allowed by United States Citizenship and Immigration Services if such services carry out the purposes of their visas.
Foreign Professional Family Members. Spouses and dependents of alien scholars, teachers, or researchers in the USA temporarily on J-2 visas are not exempt from Social Security and Medicare taxes but are fully liable on earnings in the USA because such aliens are not present for the primary purpose of training, teaching, or research. For J-2 visa holders who do work exempt from Social Security and Medicare taxes, however, the exemption still applies.
Self-Employment Tax. Nonresident aliens are not liable for the self-employment tax, but those who establish US residence become liable under the same conditions as do US citizens. In certain rare cases, nonresident aliens may choose to pay self-employment taxes under the terms of a Totalization Agreement.
Totalization Agreements. The USA has entered into such agreements with several nations to prevent double taxation of income. These agreements must be considered in any determination of alien liability for US Social Security/Medicare tax.