For an Indian, an H1-B visa is a passport to their great American dream! You gain money, respect, and an international experience on your résumé. You do, however, earn in dollars and pay taxes in dollars.
If you’re unfamiliar with the H1-B holder tax filing process, we’ve put together a step-by-step guide to help you get it right.
An H1B visa is granted to Indians (as a nonimmigrant classification) who work in specialized fields such as medicine, science, mathematics, accounting, and information technology (IT) firms or spaces in the United States.
Furthermore, your American employer who sponsors you covers your three-year stay in the United States under this visa. This means they pay for your visa fees and fill out the form on your behalf.
Substantial Presence Test (SPT)
Passing the SPT is essential for becoming a tax resident in the United States. You must have spent at least 183 days in the United States over the previous three years to pass this test. Under the SPT, even the days for each year are subdivided further.
You should have spent 31 days in the United States during the year in which you do your H1-B visa holder tax return. Then it’s 1/3 of days for the previous year and 1/6 of days for the earlier two years. So the total number of days in the three years should be at least 183.
6 Types of Taxes you Pay During H1-B Holder Tax Filing
According to the US tax code, when you qualify for the SPT for H1B holder tax filing, around 25% to 35% of your income will be taxed. Therefore, you will pay the same taxes as any other US tax resident, but you may not receive the same benefits.
However, the following taxes you will pay during the H1-B holder tax filing:
1) Social Security
Contributing to social security is similar to putting money down for a rainy day fund that will pay off in your golden years. In addition, it will assist you in obtaining a pension when you retire. As a rule, you must contribute 6.2% of your gross salary to this account. In addition, your company will make a matching contribution to the social security fund.
2) Medicare
This tax, like your pension, covers medical expenditures after you retire. Medicare costs 1.45 % of your gross wage, and your employer contributes an equal amount.
Whether or not you stay in the United States after retirement has no bearing on your Medicare and Social Security taxes payment.
3) Federal income tax
As an H1-B visa holder, you will pay a federal income tax of 25% to 28% on your taxable income. It is determined by your annual income and your filing status (married or single).
Furthermore, you will be taxed the same as a US resident if you file as a non-resident foreigner, but you may not be eligible for the same tax incentives.
However, if you choose to file as a resident, you will receive some tax benefits. As a result, assess the benefits and drawbacks before proceeding with H1B holder tax filing.
4) State income tax
The state of residence in the United States has a significant influence in determining whether or not you are tax liable. In California, for example, state taxes range from 6.5 % to 10% of one’s gross income.
While Alaska, Florida, Nevada, Wyoming, Washington, and South Dakota do not have a separate income tax for non-residents. In addition, you will be taxed on the interest and dividends you earn in the United States in states like Tennessee and New Hampshire.
5) Local taxes
Indian H1B visa holders must pay local taxes of 4% of their gross income. This tax depends on where you stay in the United States. Some towns and cities incur local income taxes.
Please note, though, that in most cases, your local taxes will be covered in your paycheck by your employer as long as you’ve updated the address in your W4 form. However, if you accidentally put the wrong address in the W4 form, you may pay the wrong local taxes.
6) Obamacare
Under Obamacare, your US company will cover the cost of your healthcare. For now, this is a compulsory tax you, as an Indian H1-B visa holder, will be paying; however, this might change.
H1-B holder tax filing: Documents required
It’s critical to get your papers before initiating the H1B holder tax filing procedure. Keep the following documents ready:
1) Social security number
2) W-2 tax form
3) A photo identification card
4) Other sources of investment income
5) Form 1040 NR if you have dependents
6) Receipts that can be used to claim tax deductions
7) If you or your spouse relocated due to your marriage, fill out Form 8852.
8) If you changed your name after marriage, you’ll need to fill out Form SS-5.
9) Complete Form W 4 to report a change in income after marriage.
It’s time to look for ways to save money on taxes when you go for H1B holder tax filing. Following is the list of deductions and tax credits to help you save dollars.
1) Tax deductions: When you choose to pay taxes as a resident of the United States, you can deduct expenses such as your mortgage, health care, and dental care. Please submit the necessary receipts to claim them.
2) Investments: If you’ve made stock market, fixed deposit, or retirement plan investments, you’ll be able to claim tax deductions.
3) Medical deduction: File Form 1040 with Schedule A to claim the medical deduction. If your medical costs were more than 7.5 percent of your adjusted gross income, you may be eligible for this benefit.
4) Charitable donations: Giving to social causes and charities can help you save money on taxes.
5) Moving expenditures: You can claim a tax deduction on your moving expenses if you relocate from India to the United States or any other state in the United States.
6) Dependents: You can claim your family as dependents and deduct your taxable income except for your spouse. They will, however, be obligated to file taxes, either jointly or separately, with you.
7) Medicare on OPT: If you are on OPT (optical training test) and have an H1B visa, you can claim the Medicare amount withheld by your employer.
The H1B holder tax filing is not as complicated as you think. If you follow the above steps, it’s possible to file your taxes on time and be in the good books of the IRS (Internal Revenue Service).In case you are an Indian who is new to H1B visa holder tax filing, you can connect with AOTAX for guidance. Our team of tax planners and advisors will help you pay your taxes on time and save some serious dollars in the process. Thanks to the 25-years of being in your service, we know our work!
The IRS began to accept tax returns on January 24 and has already sanctioned nearly 38 million refunds as of March. An average of almost $3401 has been refunded through March 4.
If you are a resident of the US and are hustling with your tax returns, you have come to the right place. Although the process is challenging and some may find it complicated, eFiling for individuals is a more straightforward, faster, and safer means to file tax returns.
Individuals can use eFiling for both federal and state taxes. The federal and state government has separate software that allows individuals to file their taxes electronically and send them to the government.
Continue reading to learn more about eFiling, why should you consider it over in-person filing, its benefits and how we, at AOTAX can help you.
Reasons to Use eFiling for Tax Returns this Season
Taxes can be filed in many ways: some fill out Form 1040 or Form 1040-SR by hand and mail it. However, many find it convenient to hire a tax preparer to file the returns, which may be expensive.
The most straightforward way to file taxes is through eFiling using filing software. Here are some perks of eFiling for individuals:
Ease of use and flexibility
When filing taxes manually, one has to fill them out in person and mail it to the government or walk into the tax return office during 9-5 working hours to get it done.
With eFiling, individuals can file tax returns at home at any time. This is more convenient and flexible for many who do not have the liberty to take time off to go to the office or send the forms over mail.
Saving time and money
Efiling tax returns directly send your data to the server systems of the IRS immediately. This eliminates the need for sending mail to the IRS, which can take days.
This also eliminates any transmission errors or unprecedented delays, or lags. As a result, eFiling is easier for both taxpayers and tax agencies as it is easier and faster.
Accurate filling
Efiling eliminates errors with record matching, transmission errors, or other manual errors from mailing tax return forms or filing them in person.
This is essential to get maximum returns of taxes.
With eFiling, individuals can upload all the necessary documents and the data and run mathematical accuracy tests to assess if figures are aligned.
Using eFiling software can especially come in handy. The software can help assess typos, check mix-ups, and ensure that the IRS accepts the predicted refund amount and is processed on time.
Reduced data manipulation
Many risks of filing tax returns manually come with data manipulation and window dressing. With eFiling, it becomes impossible to manipulate data. In addition, linking or tracing back the taxpayer also becomes more accessible with eFiling.
One of the reasons e-filing is more safe, according to the IRS, is that your information is never in a hard copy version unless you print it off. Because there is no physical copy, there is less possibility that someone will look at your information when you are not present.
According to Mark Steber, the chief tax information officer at Jackson Hewitt, this also eliminates the risks of tax refund theft and identity theft caused by manual filing.
Authentic and accountable
Efiling has made taxpayers and tax agencies more accountable and authentic. However, the paper filing comes with high ambiguity, leaving taxpayers and tax agencies to treat tax returns with lethargy and negligence.
Efiling comes with frequent and periodic notifications that allow people to know if their tax returns are approved or denied, giving more certainty to the process.
This helps individuals do what is necessary in case of a denied request.
Quicker refunds
A tax expert and certified public accountant said that 9 out 0f 10 tax returns were issued by the IRS within 21 days when filed electronically. In addition, Mark Steber said that eFiling is the fastest and safest way for taxpayers to have their refund directly deposited into their bank account.
With eFiling, most refunds are issued within 21 days either directly to the bank account mentioned in the forms or as a paper check which can take longer.
However, filing tax returns in person can take weeks or even months to reflect in your bank account and can take up to two months to receive a paper check.
Tax experts recommend using eFiling for individuals to file taxes and consider filing them earlier to get faster returns.
Efiling for Individuals with AOTAX
AOTAX has helped many Indians in the USA file their tax returns using eFiling. AOTAX helps its users by filing individual taxes and getting tax drafts within 24 hours of filing. We also help Indian professionals working in the US with eFiling services with high accuracy and success rate.
If this is the first time you’re filing tax returns or if you find it complicated to file them, we can help you create a tax draft, making it more straightforward, fast, and cost-effective to file your taxes. Reach out to us to easily file your taxes electronically with AOTAX.
Commonly referred to as the mother of all tax forms, 1040 is the primary IRS tax form utilized by any United States resident for filing personal federal income tax returns. In this piece, we will explain the 1040 form and how to fill it out for individuals.
What is a 1040 form?
Officially known as the “U.S. Individual Income Tax Return,” form 1040 is the standard federal tax income form for the people in the United States to file their taxes with the IRS. The 1040 form serves not only to report one’s income but to claim tax deductions/credits and to calculate tax bills or tax refunds for the financial year.
The 1040 form comprises two pages which contain 23 lines (without attachments.) The first page is where one can record personal identification information. The second page contains spaces for you to report income and calculate applicable deductions, credits, figures, and payments made from withheld wages towards the tax liability.
How to Fill Out a 1040 Form?
There are two ways of doing this; you can use tax software like TurboTax, TaxACT, or TaxSlayer, in which case, you can input your information sequentially and print out a complete 1040 form from your computer. The other way is to fill out the form by hand, in which case you can download it from the IRS website.
If you’re looking to learn how to fill out the 1040 form, well, here is a short walkthrough to help you understand the form.
Personal Identification: The first part of the form gathers information about your identity, which tax-filing status you are going for, and the number of tax dependents you have (if applicable.)
Calculate Your Income Taxes: In this section, you may have to sum up all of your income made during the financial year and tally it against any deductions (if applicable.) Undertake this step only if you are confident about your tax bracket; else, seek help from a tax advisor like AOTAX to figure out the details.
Evaluate Your Tax Liability: At the bottom of the form, you will need to fill up the exact amount of income tax you owe the IRS. This stage is where you should deduct any tax credits or prepaid withholdings from your paycheck.
Notify of Any Tax Rebates to the IRS: If you are eligible for a tax rebate using credits or if you have overpaid your taxes, you can fill up your bank details to get a tax refund on your payment.
Pro-tip: If you are an eligible individual who hasn’t received the stimulus check (also known as the Economic Impact Payment), you can get a rebate on your taxes by filling up line 30 on the form 1040. Also, the EIP is not taxable.
What Do You Need to Fill Out the Form 1040?
Okay, here is a list of personal details you should have before filling out the form 1040.
Social security number for yourself and your dependents (If any).
Date of birth for yourself and your dependents (If any).
Your bank account number and routing number (for tax rebates.)
Check out the most effective ways to overcome the problems of filing as a sole proprietor here.
Form 1040 Schedules, What Are They?
There are various schedules for the form 1040 for individuals from varied financial backgrounds. If your financials meet any requirements mentioned below, you may have to add these schedules to your form 1040.
Schedule-1: For individuals with additional income or adjustments to income
Add this schedule if you have any of the following sources or adjustments to your income.
Business income (you also need to file Schedule C).
Farm income.
Rental income (you also need to file Schedule E).
Deductible health insurance expenses.
Alimony income or payments.
Educator expenses.
Student loan interest.
Unemployment income.
Deductible retirement contributions.
Deductible moving expenses.
The health savings account deduction.
Schedule-2: Added taxes
You are required to add this schedule if you incur any of the following.
Household employment taxes.
Alternative minimum tax.
Self-employment tax.
Net investment income tax.
Repayment of the first-time homebuyer credit.
Individuals with excess premium tax credit repayments.
Additional Medicare tax.
Additional taxes on retirement plans, IRAs, or other tax-favored accounts.
Schedule-3: Additional payments and credits
Most business owners and other individuals with unique financial backgrounds would need to add this to their form 1040.
General business credit.
Credit for child and dependent care expenses.
Foreign tax credit.
Education credits.
Retirement savings contributions credit (Also known as the saver’s credit.)
Here Are Some Other Types of Form 1040s You Should Know
While the standard 1040 form is suitable for most individuals, it’s a good idea to learn a few other forms that can come in handy.
Form 1040-V
Form 1040-V is for those who wish to pay the IRS through the mail rather than electronically. It is also commonly known as the payment voucher.
Form 1040-X
The 1040-X is known as the amendment tax return; this form is helpful if you have missed out on reporting any additional income or made a mistake with your first filing.
Form 1040-SR
Designed for people above 60, the 1040-SR is functionally the same while being different aesthetically to help seniors process it comfortably.
Form 1040-ES
The 1040-ES form is best suited for freelance and contract workers who calculate estimated quarterly taxes. It also is helpful for individuals who earn dividends and interest which are not subjected to traditional withholding.
Form 1040-NR
The 1040-NR is suitable for non-residential aliens who engage in business/invest in the US.
With that, we hope that you now have a better idea of the types of 1040s and how to fill out the 1040 form for the IRS. You can relinquish all these complicated steps with just a few clicks to AOTAX! Visit us today by clicking here and get your free tax draft in just 24 hours. While you are here, learn more about the 12 tax credits and deductions you could be eligible for here.
Tax filing season is arguably the most nerve-wracking time: battling documents, figures, and important dates is an all-consuming task. In addition, filing your taxes demands a constant awareness of your finances, tax strategy, and IRS regulations.
A change in one could significantly impact the rest, and this is undoubtedly true for changes that the Internal Revenue Service (IRS) often implements through tax season.
Changes in laws, policies and tax forms can throw your preparation off track. Unfortunately, we’ve seen multiple instances of the same over the last few years due to Covid-19 and the bills passed to alleviate its effects.
However beneficial or necessary, these changes leave taxpayers like you scratching their heads while trying to make sense of these amendments and additions.
No one likes to be caught off-guard, and certainly even less so by the IRS. So we’ve compiled a list of changes you can expect to see on this year’s forms, so you can be prepared to optimize your tax bills.
So, What’s New This Year in Personal Income Tax Return?
Taxpayers can expect to see various changes on their tax forms for the last financial year, especially regarding deductions and credits. Keep reading to know more.
Form 1040 and its schedules
This year’s Form 1040 is far from compact, with Schedules 1,2, and 3 all having expanded to take up close to two pages each. This elongation is due to additions to income and extra taxes, each getting their sections instead of being grouped into one confusing bundle. Additionally, there are many changes related to credits and deductions that we’ll discuss below in more detail.
Lines 19 and 28 on Page 2 of Form 1040 were adjusted to account for changes made to the credit and consider that it was fully refundable for 2021.
Earlier, the credit was only partially refundable (up to $1,400 per child) and was only applicable for children 16 years and younger (now, parents can claim the credit for 17-year-olds).
Earned income tax credits
The Earned Income Tax Credit was upgraded due to changes in the American Rescue Plan Act. Most importantly, the Credit now allows more childless taxpayers to claim the credit.
The age limit has also been increased to allow people aged 19 to 65 to claim the credit on their 2021 tax returns. Line 27 of Form 1040 has been modified and expanded to accommodate these changes.
Recovery rebate credits
In 2020, the Recovery Rebate Credit on Form 1040 was meant for people who didn’t receive their first and/or second check or those who received an incorrect amount.
For 2021 however, it must be noted that the credit is only for those who did not receive their third check or for those who didn’t receive the entire amount. Therefore, taxpayers must lower their credit claims to account for this.
Savers credits
The Savers Credit aims to encourage lower and middle-income taxpayers to save for their retirements. The credit was allowed for 10%, 20%, or 50% of the first $2000 saved, depending on income and filing status. However, for the 2021 tax return, taxpayers can claim a 50% credit if their AGI is $19,750 or less. Form 1040 considers this.
Deductions
Standard deductions
Due to adjustments for inflation, the deductions that taxpayers can claim are much higher and are reflected on your tax forms. The increments to the 2020 amounts are as follows:
$300 extra for married couples filing jointly
$1,350 per spouse for couples over the age of 65
$150 extra for single filers, $200 for those over 65
$150 for head-of-household filers
Charitable deductions
Earlier, deductions claimed for any charitable donations would affect taxpayers’ AGIs. This is no longer the case, and the space allowing you to check the $300 charitable contribution option has been moved elsewhere in the form.
Additionally, married couples can now individually claim deductions instead of being counted as one entity. That means that married couples can claim up to $600 in deductions for donations.
Tax brackets
The tax brackets from 2020 remain the same, but the income ranges that fall into them change. This determines the amount of tax you pay, so check where you fall wisely.
You can then appropriately complete line 15 on Form 1040 pertaining to taxable income.
Taxes for the self-employed
The tax breaks that self-employed taxpayers can take have been tweaked and include:
Deductions of up to 100% for business meals (to be claimed on Line 24b, Schedule C).
Long-term care insurance premiums do not have to be itemized and can be deducted on Line 17, Schedule 1.
Unemployment benefits
An unemployment compensation benefit worth $10,200 was in effect from 2020 but no longer. Therefore, any compensation earned in 2021 will be fully taxed in the upcoming tax return season. The same must be mentioned on Line 7, Schedule 1 of Form 1040.
Student loan discharges
Students with undergraduate and graduate student loans no longer worry about the forgiven student debt being a part of their taxable income. Earlier, this amount had to report on Line 8c, Schedule 1, but now this can be left blank.
Next Steps
The best thing taxpayers can do at the moment is to take stock of how these changes affect their filing statuses and strategies and then prepare their documents accordingly.
However, the complexity of filing your taxes cannot be understated, and often the best thing to do is to hire a tax professional to help. With close to two decades of helping Indians in the US prepare for, and file their tax returns, AOTAX is the best. We can help you get everything in order and ensure that your tax forms are error-free. Sign up for free today!
As tax season nears, you may ask what the alternatives available for filing a tax return are. You have three options to file your tax: filing your taxes, filing using online tax software, or filing by hiring a professional. You must have certain information readily available when filing taxes, no matter which method you select. This article will see how to file your taxes, which options are available, and which tax filing methods are best. But before you start to look for ways to file your taxes, you must know:
Do you even have to file taxes this year?
Your income, tax filing status, age, and other criteria will determine whether you must submit a tax return this year. It also depends on whether or not you can be claimed as a tax dependent by someone else.
Even if you aren’t required to file taxes, you should consider doing so anyway: If you qualify for certain tax credits or have already paid some federal income tax, the IRS might owe you a refund that you can only get by filing a return.
In the early months of the following year, “tax season” for the previous tax year begins. For example, the Internal Revenue Service (IRS) will begin receiving and processing returns for the 2021 tax year on January 24, 2022. Also, due to some public holidays in certain states/districts, the deadline for filing taxes is April 19, 2022.
Choose How to File Your Taxes
You can file your taxes in several ways. Hiring the service of a tax professional, using online tax software, or filling out the forms yourself are the three primary options for tax preparation. Take a closer look at these methods below:
1. Filing taxes online with tax software
You already know how to prepare and file taxes online if you’ve used tax software in the past. Many big tax software companies also provide access to human tax preparers.
For example, some companies provide software or support packages that include on-demand, on-screen, or online access to human tax specialists who can answer questions, evaluate your return, and even file your taxes.
Several tax-preparation companies, including big brands, offer free online tax preparation software under the IRS Free File program. You must have an adjusted gross income of $73,000 or less to be eligible.
2. Hire and work with a tax preparer
With a complicated federal tax code that is more than 74,000 pages long, it’s no surprise that more than half of all taxpayers in the United States need a professional to assist them.
If you choose this method, make sure the tax preparer has a Preparer Tax Identification Number (PTIN) from the IRS, and also ensure you ask about the fees upfront. Please note that the IRS requires your tax return to be filed electronically if your tax preparer submits 10 or more returns in a year.
If you do not wish to meet in person with the tax preparer, in that case, there is another way of filing taxes. You can share documents electronically with a tax preparer via a secure channel. Typically, the preparer will send you a link to the portal, where you will create a password and then submit photos or PDFs of your tax documents.
3. Filing taxes on your own
You can file taxes on your own by downloading and printing the forms from the IRS website, then mailing them with a check if you owe taxes.
Another option is filling out the forms online and submitting the return with a credit card payment. Using the Forms, Instructions, and Publications Search engine, you can find all the federal tax forms. In addition, state income tax forms are usually available on your state’s official website.
There is no cost or fee associated with submitting your taxes. Filing taxes on your own helps you understand and know your financial situation since it compels you to monitor and keep track of your transactions, earnings, and spending.
The majority of people who file taxes on their own have a simple tax status, an unaltered tax situation, or a genuine interest in the topic. If you have the necessary forms on hand, it can take only a few minutes.
If you file a paper return, it can take six to eight weeks to obtain your refund, however, you must submit it by mail in the below cases:
You’re married and live in a community property state but filing a separate return.
Whether you hire a tax preparer or prefer filing taxes on your own, you’ll need to gather tax filing information.
The purpose is to collect proof of income, expenses that may be tax-deductible or qualify you for a tax credit, and documentation of taxes paid during the year.
Social Security numbers for yourself, your spouse, and any dependents, if applicable.
W-2 form, showing how much you earned in the past year and how much taxes you have already paid. (If you worked multiple jobs, you may have received multiple W-2 forms).
1099 forms, record money given or paid by someone other than your employer. That is non-employment income such as dividend income, interest income, etc.
Contributions to a retirement account
Mortgage interest and property taxes
Donations to charity
Local and state taxes you paid
Expenses related to education
Medical bills that have not been reimbursed
Federal and state tax returns from the previous year
Collect Income Data
Getting your tax forms together for you and your spouse is a great start, however, keep in mind that you may have income that isn’t listed on your W-2. Remember to include any income you received over the year, such as:
Money earned through investments
Rental properties
Home businesses
Winnings from the lottery or a casino
Itemized Deductions and Credits
The total amount of taxable income is reduced due to tax deductions. Hence, keeping track of everything you can deduct is necessary. The following are some common deductions:
Child care costs
Education costs
Interest payments on a mortgage
Donations to charity
Most deductions necessitate receipts and other documents, so double-check with your tax expert to ensure you have all you need.
Track of Taxes Paid
Most businesses deduct federal, state, and additional taxes from each employee’s pay. On your W-2 form, these deductions will be detailed. You’ll have to keep your tax records if you’re a contract employee or operate a business.
Significant Life Changes
Important life events might have an impact on your tax return. If you had a life event that the IRS recognized, you may be able to claim additional deductions, such as:
Divorced
Got married
Had a baby
Moved to a new state
Closing Thoughts
The federal tax code is constantly changing. Make sure you discuss how these changes may affect you each year with your tax expert. Proposed tax legislation may have an impact on those in higher tax bands. Make sure you understand these bills significantly if your family’s annual income surpasses $250,000.
With over 15 years of experience, AOTAX is the experienced team you need. AOTAX has managed the finances of a number of Indian IT professionals. We have aided in reducing tax burdens and simplifying tax preparation year-round. So, if you’re going to trust a pro, sign up for free with AOTAX today!
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