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Employment Taxation for Expats in the United States Of America

Submitted: October 2013


The rules on residence are complex in the USA. Generally you will be treated as a permanent resident if you hold a valid US green card. You will generally also be considered resident once you have stayed the USA for 183 days in one calendar year. You may also be considered resident if you are physically present in the USA for 31 days in any given year, but this will only apply if you have spent a certain amount of time in the USA in the previous two years.

However if you are working in the USA for an employer based in another country that has a tax treaty with the USA based on the OECD Model Treaty, and your income is considered to be ‘dependent services income’ it is generally possible to work for up to 12 months without incurring a US tax liability.

A permanent resident of the USA is taxed on their worldwide income. You should also be aware that once you have acquired a green card or US citizenship you will continue to be liable for US tax on your worldwide income even if you are living and working outside the USA. The USA is one of only two countries in the world which applies the same rule; the other is a small African dictatorship. Once you are in this position the only way you can cease to be liable for US tax is to renounce your green card status or US citizenship. You should also be aware that if you choose to renounce your status you may be charged an expatriation tax before being allowed to do so.

Tax rates and allowances

The tax year runs from 1 January to 31 December. Your employer will deduct tax from your wages or salary on a monthly basis. You will need a Tax Identification Number (TIN). Usually this is your social security number and this is applied for using Form SS-5, there is information and an application form regarding this here. If you are not eligible to obtain a social security number you must use Form W-7 to apply for an Individual Taxpayer Identification Number (ITIN). There is information about ITINs here, and the form and FAQs are available here.

The rate at which you will be taxed depends on which one of the following status groupings you belong to:
          • single taxpayers
          • married taxpayers filing a joint return and surviving spouses
          • married taxpayers filing a separate return, and
          • heads of households.

The tax rates for single taxpayers are as follows:

Annual taxable income (US$)Rate
0  to     8,92510%
8,926  to   36,25015%
36,251  to   87,85025%
87,851  to 183,00028%
183,251  to 398,35033%<
398,351  to 400,00035%<
Above  400,00039.6%

Taxable income above is income after allowable deductions and personal exemptions. The tax burdens for the other status groupings are a little more generous.   

If you are classified as non-resident, but are earning income in the USA connected with a US trade or business, you will be subject to tax at the rates mentioned above. However you will not be able to file a return as a head of a household, and generally you will not be able to file a joint return with your spouse.

You should also be aware that you can earn up to US$3,900 in any calendar year without having to pay any tax; as long as you are not in the country for more than 90 days during the year, and the work is done for a non-resident individual, a foreign company with no business operations in the USA or the foreign office of a US company.

If you become a resident during a year you will only be liable for tax on your worldwide earnings for the portion of the year in which you were resident.

Generally you are required to submit an annual income tax return on or before the 15 April of the following year. Returns should be sent to your local Inland Revenue Service Centre. Any additional tax due should be paid by the same date. Penalties for late filing and payment are particularly high in the USA.

Whether you are employed or self-employed you are generally required to make quarterly payments of tax in advance, starting on or around 15 April, to ensure that the total quarterly amount of tax paid (including tax already deducted by your employer from your wages) is similar to 25% of that paid in the previous year.



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