Living in the US with a working visa comes with its share of challenges, and navigating the legal terrain can be difficult, especially when it comes to something as complex as filing your taxes. For all money earned in the United States, H1-B visa holders are subject to US income tax legislation. But things start to get critical when filing for tax deductions.
So we’ve created a comprehensive guide to tax filing for Indian H1B visa holders. Read on to learn more about the process and get through it painlessly.
Frequently Asked Questions about Tax Filing for Indian H1B Visa Holders in the US
Below are some of the most widely asked questions about tax filing for Indian H1B Visa holders in the US:
Who does this taxation apply to?
You’re a highly-skilled professional from a STEM background and fall under the category of ’alien’. You hold an H1B Visa, have permission to work in America for the next three years, and have an employer sponsoring you. Ahoy! You are now subject to paying taxes on your income at the same rate as any other US citizen or resident.
However, it’s not quite so simple. To be considered a US resident for tax purposes, the Internal Revenue Service (IRS) relies on the additional criteria of physical presence in the country to determine whether a migrant in the workforce is liable to file taxes. What is known as the Substantial Presence Test (SPT) is used to determine eligibility and comes into effect on a calendar-year-by-calendar-year basis.
To pass the test, an individual must have been present in the US for at least:
31 days of the current calendar year and,
183 days over the current year and the two years preceding it. More specifically, this count must include all days in the current year, one-third of the days present in the year before the current year, and one-sixth of the days present two years before the current year.
To illustrate, let’s look at the hypothetical example of Suresh, a software engineer who moved to the US in the year 2019.
Suresh has been physically present in the US for 180 days during the 2019-2021 period and would need to count 180 days for the current year (say, 2021), 60 days for 2020 (⅓), and 30 days for 2019 (⅙). Totaling up, Suresh has 270 days of physical presence in the US, which is more than the minimum required to qualify as a resident for tax purposes.
Of course, there are specific guidelines regarding what counts as a day of presence. You can read more about this on the official IRS website.
How much will I be taxed, and which taxes would I have to pay?
H1B taxpayers can expect to lose anywhere from 20% to 40% of their incomes to federal, state, and local taxes, but this depends on income levels and appropriate deductions. These taxes include:
Federal Income Tax
The taxes charged on your US income as a nonresident H1B holder depend on marginal brackets that vary as per your income. Although tax values are the same as those for US citizens and residents, H1B nonresidents will not qualify for the deductibles available to citizens. You can find out more about an estimate of your tax bracket here.
Medicare and Social Security (FICA)
Roughly 8% of your income will be deducted and paid towards your Medicare (1.45%) and Social Security (6.2%), each of which will be matched by your employer. In addition, employers are liable to pay the same amount on your behalf to the IRS, which secures provisions for pension funds, among others.
State Income Tax
Depending upon the state you live in, the tax you pay could range from 0% to 10% of your income. Some states such as Washington, Texas, and Nevada levy no additional charges, while states like California mandate employers to withhold roughly 7% of employee incomes for taxes.
Local Income Tax
Similar to State Income Taxes, towns and cities may levy additional taxes, and employerscould deduct up to 4% of your income for the same.
Am I eligible for any tax benefits?
H1B Visa holders cannot claim the same tax benefits, credits, and exemptions as permanent residents and citizens.
Preparing the required documentation can be a daunting task, but the general rule of thumb stipulates keeping the following handy:
Photo ID.
Social Security number.
Valid wage documents and earning statements from all employers in the last financial year (form W-2, W-2G, 1099-R,1099-Misc).
Receipts for relevant deductions.
Documents related to name changes, dependency, and relocation due to marriage for married individuals.Tax Filing for Indian H1B Visa Holders in 2022 – Next Steps and the Road Ahead
Tax Filing for Indian H1B Visa Holders in 2022 – Next Steps and the Road Ahead
Tax season is approaching, and filing doesn’t happen overnight. How should you prepare?
Step 1: Check your eligibility
Take the SPT, and make sure you meet the requirements for days present in the country.
Step 2: Get organized
Gathering documents and getting them in order takes longer than you think it would. So to make tax filing as seamless a process as possible, make sure you have everything ready to avoid last-minute scrambling. This, of course, means being aware of deadlines and being prepared well in advance.
Step 3: Find professionals who can help you
Taxes are confusing at their best and daunting at their worst – especially for Desis in a foreign land. Getting the best returns possible requires the technical know-how of qualified professionals. And at AOTAX, we’ve been helping our fellow Indians file their taxes in the US for over a decade.
We offer:
Tax planning advisory, return, and preparation services. We also help with extension filing and ITIN and FBAR FATCA processing.
Easy access to an online portal, and free sign-up for new customers.
You can save $1,000 if you have children below 17.
The Child tax credit is $1,000 < 17 years old at year end.
The Child credit is also a refundable credit (known as the “additional child tax credit”) for certain low-income taxpayers with one or more qualifying children when the taxpayer is not able to claim the full Child tax credit for each child (because tax liability is less than the available credit ).
A non-refundable tax credit for unreimbursed childcare expenses paid by working taxpayers. The Child and Dependent Care Credit is designed to encourage taxpayers to pay childcare expenses so that they can remain gainfully employed.
All individuals earning in Australia are liable to pay taxes to the government. If you are working for an organization and receive a salary, things are relatively easier for you, because your employer pays the taxes on your behalf. However, that doesn’t mean that you shouldn’t lodge your taxes. There are two major reasons why you must lodge your taxes.
Your employer might not be aware of other incomes and any mismatch can get you on to the radar of the ATO.
You can opt for deductions related to your work or other applicable deductions.
And the most obvious reason of them all being, if you have paid more money in taxes, you can get it back.
Assessment
Before you get started with lodging your taxes, it is crucial to know if you really must do it. Well, it is another way of saying you must check if you owe any taxes in the first place. There are several online calculators which will help you make that assessment whether or not you owe any taxes. If the answer is a Yes, you can do the following to lodge your taxes.
Steps to File taxes
Of course, there is more than one mode of lodging your taxes in Australia. But the most preferred and even recommended way is online. When you lodge your taxes online, the entire process is incredibly fast and easy. Not to mention several aids that you have instant access to as well. If you are lodging your taxes for the very first time in Australia, here are the steps.
Before starting, get your Tax File Number or TFN with you. It is also advisable to have any one of the documents such as passport, birth certificate or certificate of citizenship.
You must visit the myGov website and create an account over there.
In order to complete the account creation process, you must verify the newly opened account. To do so, you must call at 132861, follow the instructions and press 5. This will lead you to get the unique linking code for your new account. Use the same to complete the account opening process. The code is valid only for 24 hours, so make it a point to finish the account opening process as soon as possible.
You must now log in to your myGov account and go to the services tab. Over there you will find a link to ATO where you must select ‘I have a linking code’. The website will prompt you with some instructions, follow the same.
Your initial set up for using the services provided by the ATO is now complete. You can go to the myTax link and start with your tax lodging.
If you are not very comfortable with filing your taxes online, you can always do it via a tax agent. Make sure you are availing the services of only registered agents for your tax filing and returns.
Alternatively, you can do it the old school way as well. The ATO still allows you to lodge your taxes via paper returns. You can fill up the forms, provide supporting documents and mail the same. The refunds or processing usually takes up to 50 business days. You can convert those 50 business days into roughly two weeks if you go online.
These are the seven easy steps of filing your taxes in Australia. Should you have any doubts about the process, the ATO website provides exhaustive information and is quite helpful. Once you are ready with your documents, you can lodge them between 1st of July to 31st of October.
Taxes for Foreigners Working in Australia.Taxation isn’t a new concept. It has been in and around for quite some time now. It works on a simple idea that anyone working in a specific country or state ought to pay a certain amount as taxes. The same is then spent on infrastructure and several other growth-related aspects. When you are working in Australia you are liable to pay taxes. Australian residents must pay taxes and non-residents must also pay taxes on their Australian income.
How does Australia’s taxation work?
If you are an expat in Australia and receive wages, salary, cash compensation, or other allowances, you must pay the applicable taxes. As is the case with most taxation system, you are allowed for deductibles from your assessable income. Depending on your net taxable income and the appropriate tax slab, you are liable to pay taxes.
Should your employer provide you with non-cash benefits or compensations, the same is subject to Fringe Benefits Tax. You do not have to scratch your heads over it, as your employer must pay the same. The Australian Tax year starts on the 1st of July and ends on the 30th of June.
What is the tax slab?
The government levies different taxes based on which tax slab you belong to. These are net taxable income, so you must figure out which all deductions are applicable.
Expats earning between 0-18,200 AUD are not liable to pay any taxes at all.
If you earn between 18,201-37,000 AUD, you must pay 19% as income taxes.
For earning between 37,001-87,000 AUD, the income tax rate stands at 32.5%.
If your annual income is within the range of 87,001-180,000 AUD, the income tax rate is 37%.
Individuals taking home more than 180,001 AUD must pay 45% as taxes.
However, if your earnings sum up to 20,542 AUD you are not liable to pay any taxes. Provided you utilize the Low Income Tax Offset or LITO.
Certain Advantages and Disadvantage
If you are an expat earning in Australian Dollars, there are two sides of the coin that you are exposed to. While there are some merits of being an earning Expat, there are certain shortcomings as well. Here are some of the differences.
A resident Australian effectively pays lesser taxes than what a non-resident would. A non-resident pays more taxes per dollar.
An Australian resident is liable to pay taxes on their global income whereas a non-resident must pay taxes only for his Australian income.
Residents have the go green flag for paying medical levy and can claim various medical expenses. On the other hand, a non-resident can neither pay medical levy nor can he/she claim their medical expenses.
Residents have an upper hand when it comes to bank accounts as well, as they can accumulate interests on savings on at a normal rate. Expats on the other hand are taxes at 10% flat on their earnings via interest.
An Australian citizen is liable to pay capital gains tax on almost everything, property, shares, stocks etc. However, an expat must only pay capital gains taxes on real estate or property and not on shares.
Other Benefits
For expats working in Australia, they can claim a certain amount as tax offset and it is applicable to the amount that they have paid foreign taxes on, the assessable income to be more precise. ATO has a tax treaty with more than 45 countries and if you belong to anyone, you can benefit from the same. There are several online calculators which can aid you in understanding your tax liability as an expat.
1. The Earlier You File, the Earlier You Get Your Refund
A good reason to file your taxes early you’ll get your money sooner.
According to the IRS, the average refund was more than $2,800 for 2016 and 2017 Tax Filers…so why miss on that earlier claim and why give you an interest free loan to IRS?
Every year taxpayers have too much tax withholds from their pay checks which means IRS is getting interest free loans from the tax payers. So it’s better to get your hard earned money back from IRS ASAP by filing your tax return early and put that money into your savings account, where it can start accruing interest for you rather than leaving it with IRS till the tax filing deadline.
Getting refund early might also help you to pay your outstanding bills, credit card bills and other debts.
The IRS begins accepting e-filed returns every year in the mid of January.
2. You’ll give yourself more Time to Pay or Plan for Payment
Filing early gives you an extra time to pay taxes you owe.
Let’s say if you prepare & file your taxes in the month of January and determine how much you owe, you will get almost 2 & half months time to arrange your payments to IRS.
It is not mandatory that you need to pay your taxes along with the tax return. You can file your tax return as soon as IRS opens the E-filing window and pay the amount you owe by the deadline (i.e., April 15th)
3. You can prevent yourself from Tax Fraud
The IRS estimates that millions of taxpayers were victims of Identity theft tied to tax returns every year.
Most tax returns frauds occur early in the tax season. If thieves file a return using your Social Security number before you do, the IRS will reject your return since their records shows the refund has already been paid.
If you are a victim of Identity theft, it’ll be on you to get things sorted out, which could not only delay your refund but also constitute a major headache. The IRS says it can take 120 to 180 days (or longer) to resolve tax-related identity theft cases.
So if you file your tax return early and gets on IRS records, it makes it harder for thieves to file a second one and grab your refund.
4. You’ll reduce Stress
Early filers eliminate tax deadline stress.
If you are up against the filing deadline, there is added stress of meeting the deadline. If you file early, you eliminate this stress.
There’s always peace of mind from filing early.
Once your return is filed early, give yourself a small reward for being so efficient and responsible. Then relax while everyone else stresses out about getting their taxes done on time.
5. Your Tax Preparer will have more time for you
By mid-March of the 2017 Tax Season (i.e. 2016 Tax Returns), nearly 78 million people had already filed their income taxes, that left the remaining 68 million people just one month to file theirs by the deadline.
Early filers have greater access to their tax preparer. As the tax deadline approaches, your tax preparer’s schedule tightens. It is best to get on their calendar early when they have more time to devote to you and your return.
Additionally, tax professionals often increase their fees as the tax deadline approaches. So waiting may also cost you more to have your return prepared.
6. Tax Returns Aid in Loan Documentation
You may need your tax return to buy a home.
Some lenders for mortgages may want to see a completed tax return as proof of income. Getting your tax return done early, whether you owe money or expect a refund, gives you a head start on the paperwork you will need for these processes and can reduce delays during the process.
7. File early to fund an IRA before Tax Deadline
If you file early and get a refund, you can use the same money to fund an Individual Retirement Account (IRA) before the April 15th deadline.
Let’s say if you are eligible to get a deduction for IRA in your Tax Return but don’t have funds for the contribution before April 15th, the smart way to is to file your tax return early to get the refund and use the same refund for IRA contribution which would help you to increase your tax savings.
To Summarize
Filing your taxes long before the April 15 deadline might not be your top priority, but there are many benefits to completing your return early. By filing early:
You avoid the last-minute stress,
Have time to plan for paying taxes you may owe,
You can get your refund faster and
Avoid fraud by filling out your tax forms sooner rather than later.
2017 FILING SEASON STATISTICS
IRS Cumulative Statistics comparing 04/22/2016 and 04/21/2017
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