Income Taxin the U.S.

Welcome to our series, Income Tax in the U.S. If you're new to the U.S., understanding the tax system can feel overwhelming. Let's break it down step by step. The first step is to find out if you are a U.S. tax resident. Your tax residency is determined by the Substantial Presence Test, or SPT, unless exempt due to certain visas, like F-1 or J-1. The SPT considers the number of days you were in the U.S. over the last three years using this formula. Days this year, plus one-third of last year, plus one-sixth of two years ago. It's a bit complicated, so here's an example. Let's say you spent 120 days in the U.S. this year, 90 last year, and 60 the year before. Using the SPT calculation, that totals 160 days. Since this is below the 183-day threshold, you are not a resident alien. The green card test is straightforward. If USCIS issued you a green card, you are a lawful permanent resident. So, what's the difference between resident aliens and non-resident aliens? Resident aliens pay taxes on worldwide income. Non-resident aliens pay taxes only on U.S. source income. Resident aliens use Form 1040 for all income. Non-resident aliens use Form 1040-NR for U.S. source income. Dual status filers may use both. You can file online or by mail. Keep records of income and deductions year-round to simplify filing. Understanding residency is the first step. In the next video, we'll cover state, local, and payroll taxes.

Welcome to the second video in our series on income tax in the U.S. Today, we'll cover the different types of U.S. income tax, including state and local taxes, Social Security, and Medicare taxes. Let's begin with state and local taxes. In the United States, income taxes vary depending on where you live and work. States and cities may have entirely different tax rates from one another. Some states, like Florida and Texas, have no state income tax at all, while others, like California, can range from 1% to 13.3%, depending on your income level. And New York's state income tax rates range from 4% to 10.9%, but New York City has additional local taxes. Let's do the math to compare the after-tax income in each of these locations. If you make $100,000, then your after-tax income would be roughly $69,000 in Los Angeles, $66,000 in New York, or $75,000 in Miami and Austin. However, your exact tax liabilities would depend on your personal circumstances. You may think it's an easy choice to move to an area with no state income tax, but income tax is not the only factor when it comes to cost of living. In addition, it can be typical for salaries to be dynamic from one location to the other in order to meet the costs of taxes or local expenses. Regardless of state taxes, everyone pays federal income tax. Federal taxes are typically higher than state or local taxes and can range from 10% to 37%, depending on your income. For example, in 2024, single filers paid 10% on income up to $11,600 and 37% on income above $609,351. Federal tax rates are based on income brackets. These rates increase as your income rises. This means that if your income were to increase, only the additional income could be taxed at a different rate. Now, let's talk about Social Security and Medicare, also called FICA taxes. Employees pay 6.2% for Social Security and 1.45% for Medicare, matched by employers. If you're self-employed, you'll pay both portions, 12.4% for Social Security and 2.9% for Medicare. Social Security contributions have an annual cap that changes regularly, but Medicare contributions are uncapped. U.S. taxes are moderate compared to countries like Denmark or Sweden, which have higher top tax rates and smaller income brackets. The U.S. tax system is unique, however, because it taxes worldwide income for residents and citizens, which is less common globally. In addition, state and local taxes add complexity, making your total tax burden vary based on where you live. Thanks for watching. In the next video, we'll explore how tax treaties can help reduce your tax burden.

Welcome to our third video on income tax in the U.S. Today, we'll discuss tax treaties and how they can reduce your tax burden. Tax treaties are agreements between the U.S. and other countries to prevent double taxation and provide tax benefits. For example, the U.S.-France tax treaty might reduce French withholding on dividends or exclude certain income from U.S. taxation. Common benefits include reduced withholding taxes on dividends, tax exemption for specific income, and rules for determining residency. Treaties can also exempt pensions or scholarships from U.S. taxes for a limited time, depending on the treaty. To claim treaty benefits, complete IRS Form 8833 and attach it to your tax return. Some benefits may not require this form, like student exemptions. Remember, Form 8833 only covers U.S. requirements. Check for additional steps required by the other country in the treaty. Consult a tax advisor familiar with your country's treaty to ensure compliance with both countries' rules. Thanks for watching! Next, we'll explore foreign account reporting and estate and gift taxes.

Welcome to the fourth video of our Income Tax in the U.S. series. Today, we're covering foreign accounts and estate taxes. If you have foreign accounts, you must comply with U.S. reporting requirements. File FinCEN Form 114, or FBAR, if the total value of your foreign accounts exceeds $10,000 at any time during the year. For example, if you have $6,000 in one account and $5,000 in another, you would need to file because the total is over $10,000. The $10,000 threshold is in U.S. dollars. Convert other currencies using the exchange rate on the day the threshold is reached. Estate taxes are another consideration. U.S. citizens have a $12.92 million exemption, but non-domiciled foreign nationals only have $60,000 for U.S. assets. Estate planning is crucial to avoid tax rates of up to 40%. A trust or legal structure can help protect your assets. Consult a tax professional before making legal or financial decisions. Thank you for joining us in our series, Income Tax in the U.S. Visit our website for more resources.

Welcome to our fifth video on income tax in the U.S. Today, we'll cover estate and gift taxes. Estate and gift taxes are important for expats and non-residents with U.S. assets. For 2024, U.S. citizens have an estate tax exemption of $13.61 million. Non-domiciled foreign nationals only have $60,000 for U.S.-situs assets. If you plan to leave assets to heirs, taxes can go up to 40%. Proper estate planning is essential. Setting up a trust or legal structure may help protect assets from high taxes. Gift taxes also apply. For 2024, you can give up to $17,000 per recipient without paying gift tax. Be aware of reporting requirements for gifts made during your lifetime. Consult a tax professional before making financial decisions. Laws can be complex and vary by situation. Thanks for watching! Check out other videos in our series and visit our website for more resources.