All posts tagged IRS

  • My state residency differs to my federal residency. How is this possible?

    We’re here to clear your residency confusion!

    All Foreign Nationals living, working or studying in the US are responsible for their personal compliance with the United States Federal and State tax laws and regulations.

    But what are these laws and regulations?

    Well, for starters, every foreign national living in the US is required to submit an annual income tax return. But the type of tax return you will need to file depends largely on where you live and work.

    In the US, Federal income tax is collected by the Internal Revenue Service (IRS). Most States (42 States plus the District of Columbia to be exact!) also have additional State income tax which is collected separately by the various state authorities. People that live in one of these 42 States may be required to submit a State return in addition to the Federal return.

    To file correct tax returns, it is important for a foreign national to recognize how the IRS and the different State tax offices determine tax residency.

    File your US tax returns with Sprintax

    Federal residency

    The IRS tax code provides two separate tax reporting requirements – one for US citizens and resident aliens and another one for non-resident aliens.

    Before a non-citizen of the US prepares and submits a tax return to the IRS, they must determine their correct residency status.

    But how can you do this?

    Well, the IRS has two tests for determining residency status: the ‘green card’ test and the ‘substantial presence’ test (SPT).

    Substantial presence test

    The substantial presence test (SPT) identifies foreign individuals who spend substantial periods of time within the United States as resident aliens.

    You will be considered a ‘resident for tax purposes‘ if you meet the SPT for the previous calendar year. To meet this test, you must be physically present in the United States for at least:

    • 31 days during the current year, and
    • 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
      • All the days you were present in the current year, and
      • 1/3 of the days you were present in the first year before the current year, and
      • 1/6 of the days you were present in the second year before the current year.

    Students on F-1 and J-1 status are typically considered non-resident aliens for Federal tax purposes for the first 5 years in student status.

    On their 6th year they can begin counting days of presence for the SPT. If they pass the test – their status changes from non-resident to resident for tax purposes.

    Scholars, interns and trainees, teachers, researchers and research-scholars on J-1 status are considered non-resident aliens for Federal tax purposes for their first 2 years in the US.

    However, on their 3rd year, they can also begin counting days for the SPT. And if they pass the test – their status changes from non-resident to residents for tax purposes.

     Other non-immigrant statuses are also dependent on the substantial presence test.

    Green card

    A green card is simply an informal term for a United States Permanent Resident Card. But how can you get one? In reality, the green card test is actually pretty straight forward.

    A non-resident alien can become a US resident for tax purposes at any time if they have been given the privilege, according to immigration laws, of residing permanently as an immigrant. This status usually exists when the Bureau of Citizenship and Immigration Services issue an Alien Registration Receipt Card (Form I-551), or green card, to an individual.

    Should you qualify for a green card, you will automatically become a US tax resident, starting from the year you first qualified.

    State residency

    It’s important to note that, State and Federal residency are not the same thing.

    Each State follows an entirely different set of rules and regulations when determining state residency status.

    So even if you are a non-resident for federal tax purposes you may be a resident for state tax purposes.

    Because the rules and regulations vary by state, determining state residency is more complicated than it seems.

    Each state has a complex and differing definition of what constitutes a resident. Most states will look at a list of residency ‘factors’ that have been long established like domicile (permanent residency), or the day counting rule. Owning a home, family location, and financial interests are other factors which help some of the states determine residency.

    In other words – a person may be considered a resident of the state in which he or she currently lives because of the state residency factors, but still be considered a non-resident for federal tax purposes because they didn’t pass the SPT or the green card test.

    Sprintax can help you determine your residency status

    To make things even more complicated, some States have a third residency status (in addition to ‘resident’ and ‘non-resident’) which is called ‘part-year resident’.

    And, for people who live or study in one state and work in another, things can quickly become tricky as they might need to file more than one State tax return and they will need to determine their State residency for both States!

    Preparing your tax return

    Sill confused? Don’t worry! Sprintax will figure out both your Federal and State residency statuses so that you don’t have to. We will also prepare your Federal and State tax returns, regardless of your State residency status!

    Sounds great! Get me started!

  • Dangers of not filing a tax return

    If you have worked or studied in USA, do you know that you are obliged for tax filing?

    Maybe you don’t because you are no longer living there or just forgot to file due to your busy lifestyle. Whatever the case may be, not filing your taxes has very serious consequences.

    If you are non resident and still live in USA, continuing avoiding your responsibility can result in automatic wage seizure by the courts, asset seizures like your car and may even lead to arrest and jail time for tax evasion. And if you do not pay the taxes you owe by the tax deadline, even if you got an extension of time to file, you will incur different penalties. If you have unpaid taxes, you will owe the IRS interest in addition to any penalties. Interest rates are determined quarterly, and interest is generally compounded daily until full payment is made.

    Another case is when you are non-residents who is no longer living in USA with an unpaid federal tax liability, whom the IRS has been unable to contact. So, maybe you are unaware of your tax debt until you come through U.S. Customs and you got detained by Immigration and Customs Enforcement (ICE). ICE agents will start asking you different questions i.e. “Do you have any assets in the United States?” ,”What is the purpose and duration of your trip?”, “Where are you going to stay? “etc. Then the ICE agents will alert an IRS coordinator and transmit this information through a referral program. Typically, an investigation request is sent to an IRS agent in the region in which the taxpayer is traveling to.

    So, if you have an unpaid tax liability, you will become a subject to Notice of Federal Tax Lien. IRS may file it on your real or personal property. A properly filed federal tax lien publicly alerts creditors that the IRS has a priority claim against your real or personal property. A federal tax lien is filed in the office designated by the state where any real property owned by you is located and is a public record. For personal property, the federal tax lien ordinarily is filed in the county in which the taxpayer resides or in any other office designated by state law.

     So, next time when you think about not filing, just take into account the fact that it is even more dangerous than not paying your taxes and have lots of negative consequences.

  • International students and scholars – file your tax return before the April 15th deadline!

    International students and scholars – file your tax return before the April 15th deadline
  • US Tax Season Finally Open

    US Tax Season Finally Open

    The US tax season is finally open

    Continue reading “US Tax Season Finally Open” »