FAQ'S

You will find answers to many questions about taxes below. Please do not hesitate to contact us if you have more questions.
What is the IRS?

The Internal Revenue Services (IRS) is the government agency responsible for U.S. federal taxes.

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a law that requires all financial institutions and banks outside the U.S. to report the financials accounts of their U.S. persons directly to the IRS.

Who qualifies as a U.S. person?

For U.S. tax purposes a U.S. person is a citizen of, or a resident in the United States. U.S. persons are required to report their worldwide income to the IRS regardless of where they live. The U.S. grants citizenship to all those born on U.S. territory. Therefore, anybody born in the U.S. will have a filing obligation regardless of the period of time spent in the U.S.

A “green card” holder is also a U.S. person, and is for most purposes the same as a U.S. citizen.

Who needs to file a U.S. tax return?

Regardless of whether or not you reside or work in United States, in general all U.S. citizens and green card holders are required to file a yearly tax return with the Internal Revenue Service “IRS”.

 

There are several income exceptions to this and the minimum income requirements for 2016 are as follows for Most Taxpayers:

 

  Age

  Filing status

  Minimum Gross income (USD)

  Under 65

  Single

  10,350

  65 or older

  Single

  11,900

  Under 65 Married

  filing jointly (both spouses)

  20,700

  65 or older Married

  filing jointly (one spouse)

  21,950

  65 or older Married

  filing jointly (both spouses)

  23,200

  Any age Married

  filing separately

  4,050

  Under 65

  Head of Household

  13,350

  65 or older

  Head of Household

  14,900

  Under 65

  Qualifying widow(er) with dependent child

  16,650

  65 or older

  Qualifying widow(er) with dependent child

  17,900

 

Certain non-U.S. persons also need to file tax returns. Those persons are called resident aliens. There are clear rules for who need to file or not.

Why is it significant if you or your family members are considered resident aliens for U.S. income tax purposes?

Whether you or your family members are considered resident aliens (non-U.S. citizens) for U.S. income tax purposes is significant because if you are, you will be taxed on your worldwide income and will be obliged to comply with substantial reporting.

If you are not considered a resident alien but only a non-resident alien, then what taxes are you subject to?

Subject to certain exceptions, you will only be subject to U.S. income tax on U.S. source income.

How do you determine if you or your family members are considered resident aliens for income tax purposes?

The answer to this question depends upon (a) your immigration status; (b) the number of days in which you are physically present in the U.S.; and (c) your connections to another country.

Green card holders are automatically residents of the U.S. and therefore required to file U.S. income tax returns.

How many days can you be physically present in the U.S. before you are required to file a U.S. income tax return ?

If you are physically present in the U.S. for 183 days or more in any calendar year, you are generally considered a resident.

There is a test called the “substantial presence test which is applied to both the current year and the two preceding years. The application of this test to your factual situation will determine whether you are deemed resident for U.S. income tax purposes.

What is the “substantial presence test”?

The “substantial presence test” is applied on a calendar year basis, and an individual meets the substantial presence test with respect to a current calendar year if:

  1. he/she is physically present in the U.S. on at least 31 days during the current calendar year; and
  2. the sum of the number of days on which the individual is considered to be present in the U.S. in the current calendar year and the 2 preceding calendar years, when multiplied by an “applicable multiplier,” equals or exceeds 183 days.
  3. The applicable multiplier for the current year is 1; for the first preceding year, 1/3; and for the second preceding year, 1/6.

Any fractional days resulting from the above calculations will not be rounded to the nearest whole number.

How does this test work in practice?

To illustrate the application of the formula, if a person was physically present in the United States for: (i) 120 days in 2013, (ii) 120 days in 2014, and (iii) 125 days in 2015, He/She will meet the substantial presence test for 2016, as he/she will have spent a total of 185 days over that period according to the formula.

This total is calculated as follows:

  • For the year 2015, in which the person was physically present in the U.S. for 125 days, the formula is as follows: 125 x 1 = 125 days.
  • For the first preceding year, namely for 2014, in which the person was physically present in the U.S. for 120 days, the formula is as follows: 120 x 1/3 = 40 days
  • For the second preceding year, namely for 2013, in which the person was physically present in the U.S. for 120 days, the formula is as follows: 120 x 1/6 = 20 days.

The application of the formula leads to the conclusion that this person has spent a total of 185 days, which exceeds the 183-day limit permitted in any calendar year, such that the person will be considered a U.S. tax resident.

What happens if you could show that you were in the U.S. on fewer than 183 days in the current calendar year and you could show that you had a closer connection to another country (such as your home country) than to the U.S.?

Even if the application of the above formula might lead to a different conclusion, in such a scenario, you would not be considered to be U.S. tax resident if, for the current year— (1) you were present in the U.S. on fewer than 183 days, (2) you maintained a tax home in a foreign country, and (3) you had a closer connection to that foreign country than to the U.S.  This exception to the substantial presence test is known as the “closer connection exception”.  You need to file Form 8840 with the U.S. Internal Revenue Service (IRS) to claim this exception.  You are not eligible for this exception for the current year if, at any time during such year, you had an application for adjustment of status pending or took other steps to apply for lawful permanent resident status (e.g., you applied for the green card).

What rules apply to you if you are a.) a foreign student or teacher, b.) if you work for an international organization or a foreign government, or c.) you had a medical condition that arose while in the U.S. and were unable to leave the U.S. due to the medical condition?

Generally, your days of physical presence in the U.S. as an exempt individual, or due to a medical condition that arose in the U.S. preventing you to leave the US., are not counted as days of physical presence in the U.S. for purposes of making the calculations under the substantial presence test.

Is there any other exception from being considered a resident for U.S. income tax purposes because you hold the green card or meet the substantial presence test?

You might still be able to claim that you are a non-resident alien for U.S. income tax purposes by filing a treaty-based return position.

To qualify, you generally need to be a tax resident of a foreign country that has an income tax treaty with the U.S. and be treated as a tax resident of such country under the treaty’s “tie-breaker” rules.  You need to file Form 8833 with the IRS to notify the IRS that you are claiming to be a non-resident pursuant to a treaty.  If you hold the green card and file a treaty-based return, you might jeopardize your permanent resident status for U.S. immigration purposes and might be considered to have terminated such status for U.S. income tax purposes (with any resulting tax consequences).

When are U.S. tax returns due?

U.S. persons and resident aliens living in the U.S. – Due April 17, 2018

U.S. persons living outside of the U.S. – Due June 15, 2018

What if I need more time to file my tax return?

When taxpayers have both Non-U.S. and U.S. assets, sometimes it’s more difficult to collect your documents in time to file your return by the initial due date of April 15.  If this is the case, extensions called Form 4868 can be filed as follows:

Original due date: 15 April 2018

Extension can be filed until 15 October 2018

Original due date: 15 June 2018

Extension can be filed until 15 October 2018

Extension filed: 15 October 2018

Final extension can be filed until 17 December 2018 for taxpayers living outside of the United States only.

What is an FBAR and who needs to file?

FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR) is a form filed separately from your U.S. federal income tax return, due on 15 April of each year.  However, FinCEN will grant those People seeking to file who do not meet the April 15 deadline with an automatic extension to October 15. Unlike your annual tax return, you cannot file an extension for this form. The purpose of the FBAR is to report all your non-U.S. bank or financial accounts that were open in a calendar year. An account is considered reportable on the FBAR if you held the account individually, jointly, or had signature authority over the account.  There are separate parts of the FBAR, each indicating which of these categories describes your relationship to the account.

The form requires amongst other things that the U.S. person list the maximum value of each account during the year. If the aggregate value of all your accounts equals less than USD 10,000 in a calendar year, you are not required to file this form.  If the aggregate value of all your accounts exceeds USD 10,000, then you must file this form.

What is Form 8938 and who needs to file?

Form 8938 is similar to an FBAR, but is actually filed as part of the U.S. federal tax return.  While anyone with over USD 10,000 aggregate in their bank account must file an FBAR, the account balances that require this form to be filed are much higher. This form is only necessary when the value of the asset exceeds the following:

 

Filing Status

Residence

In the United States

Outside the United States

Separately

USD 50,000 on the last day of the taxable year, or

USD 75,000 at any time during the taxable year

USD 200,000 on the last day of the taxable year, or

USD 300,000 at any time during the taxable year

Jointly

USD 100,000 on the last day of the taxable year, or

USD 150,000 at any time during the taxable year

USD 400,000 on the last day of the taxable year, or

USD 600,000 at any time during the taxable year