How to save money from your Employee Benefits offered to NRIs in the US

How to save money from your Employee Benefits offered to NRIs in the US

by | Sep 26, 2019 | 401 Plan, federal income tax, income tax, state tax, tax deductions, tax filing, tax rate, tax savings

How to save money from your Employee Benefits offered to NRIs in the US

ForIf you are an NRI and doing a job in the US, you will have to pay taxes to the US Government according to the tax laws framed by the US Government.  an NRI doing a job in the US, there are numerous taxes to be paid. However, some substantial amounts of money can be saved by an NRI by availing of the various employee benefits offered by the employer in the US.

Let us have a look at the taxes which an NRI doing a job in the US is supposed to pay.

Taxes to be paid by an NRI employee in the US

Social Security taxes

Every individual working in the US has to pay the Social Security Tax. This amount is contributed by you and your employer together. Half of this amount is contributed by your employer and you will contribute the other half for the payment of the Social Security Tax. An amount ranging to 6.2% of your gross salary is deductible from your salary for the payment of social security tax.

Medicare Tax

The Medicare tax would be paid by you for the health care services to be availed after your retirement. Your employer will deduct 1.45% from your gross salary for making the payment of the Medicare Tax. Even if you will not be present in the country to avail the retirement benefits, but you are still liable to pay this tax.

Federal Income Tax

This is a tricky category of taxation for the US residents including NRIs and PIOs as well. You will have to pay taxes on the income earned in the US but you will not be able to claim any deductions which the US citizens will avail. However, if you are willing to avail of these deductions then you will have to pay tax on your income earned outside the US as well.

State Tax

You are liable State Tax for that particular state in which you are working.

Global Income Tax

You will have to pay this tax if you are earning dividends on mutual funds, shares, agricultural income, etc.

Paying all these taxes would definitely reduce your take-home salary by a considerable amount. However, in the US your employers will provide a number of employee benefits which would be very helpful for you in saving money.

Let us check out some of these benefits available to NRI employees in the US which help in saving money.

Health Savings Account (HSA)

In case your employer is providing a good health plan with a high deductible, you can consider the option of opening a Health Savings Account (HSA). The maximum limit on the contribution to be made by families is $6900 and for singles, the maximum limit is $3450. This money is taken from your paycheck and is accumulated in a Savings Account that can be used during medical emergencies. However, your withdrawal from the HSA will be tax-free only when you are doing it for medical expenses.

Flexible Spending Account (FSA)

This is another benefit provided by your employer is giving you an opportunity to set aside the entire amount in this account free from ant taxation. The contribution into this account has to be made by your employer but you will have to use the money in this account within a stipulated time period otherwise you tend to lose the amount.

Medical Insurance

This insurance is a major benefit provided by your employer and it will cover expenses incurred in hospital visits, doctor’s visits, medicines, prescriptions, etc.

401(K)

This is otherwise known as your retirement plan and by this; you are contributing towards your savings for your retirement. The contribution to this corpus for retirement is made by you and your employer as well. The maximum limit on the contribution made by you would be up to $19000. Moreover, if you are above the 50 years you can contribute an additional $6000 into your retirement corpus.

Health Reimbursement Account (HRA)

This can be termed as Group Health Plans and are sponsored by you and your employer. The amounts which qualify for your medical expenses in a particular year up to a specific limit are free from taxes. The amount which remains unused can be used in the subsequent years as well.

Accident Insurance

This insurance covers medical examinations, emergency treatments, and ambulance or transportation charges, in-hospitalization expenses.

Hence, in addition to the above-mentioned benefits provided by employers, there are a number of other benefits as well such as Dental Insurance, Vision Insurance, Disability Insurance, Accidental death and, dismemberment insurance, etc. These benefits offered by employers can be a great help to NRIs working in the US in saving money.

401(K) Other Qualified Pre-Tax Retirement Accounts

401(K) Other Qualified Pre-Tax Retirement Accounts

by | Oct 10, 2017 | 401 Plan

401(K) Qualified Pre-Tax Retirement Accounts

Increased life expectancy means you have more years to yourself post retirement. And with the constant rise in commodity prices, you would need more money to cover your retirement comfortably. Thus, spending time on your retirement plans is something that will surely pay off in the longer run.

In 2017, the Social Security payments on an average are $1360. Given the current expenses, you can easily conclude if it is enough for someone or if they would need additional money to live comfortably. Most of us are probably aware of 401(K) and IRA as the most common retirement plans. There are some other retirement accounts that you can consider apart from these two.

401(K)

You can contribute to 401(K) either individually or as part of an organization. 401(K) provided by an employer makes for a great starting platform for a retirement plan. Most of the for-profit organizations provide their employees with 401(K). Teachers and employees of other non-profit organizations have 403(b) instead of it.

401(k) allows you to save up to $18000 of your pre-tax income. And the best part is, if you change your organization, you can carry over the 401(k) to the new employer. As a sole proprietor, you can set up an individual account where you pay for both the employer as well as employee contributions. It is commonly known as solo 401(k).

IRA

Individuals can start contributing $5500 ($6500 if your age is above 50) every year towards their retirement using IRA. You do not have to choose between IRA or 401(k) and can contribute to both. But if you already have a retirement plan, you may not use IRA contributions for deductions, especially if your income is more than $71000 for single filers and $11800 for married joint filing.

SEP IRA

Individuals who are self-employed or have small businesses usually opt for SEP IRA or simplified employee pension IRA. This opens up contributions up to 25% of your income or $53000, whichever is lower among the two. SEP IRA is relatively easier to set up as compared to solo 401(k).

Simple IRA

The Simple IRA is for organizations with less than 100 employees. It calls for easier set up of IRA and with less paperwork involved as well. This allows the employers to either match the contributions of their employees or have unmatched contributions as well.

Health Savings

Health insurance plans with high deductibles make way for good savings in a Health Savings Account. An individual can contribute about $3350 a year and a family can contribute $6650 a year. The money deposited in the HSA can be used for approved medical expenses. If you do not withdraw the amount, it keeps adding on. Once you reach 65 years, you can withdraw the money and use it as retirement savings. You can choose to withdraw the amount before 65 years as well, but that would attract taxes and a 20% penalty.

Roth IRA

A Roth IRA is another great pre-tax retirement account that you can consider. Your contributions grow constantly and if you attain 59 and half years, you pay no taxes on withdrawal as well. For TY 2017 In order to contribute to Roth IRA your annual income should be less than $133000 if you are single filer or $196000 if you are married joint filing. You can certainly contribute to both IRA and Roth IRA, but the ceiling on contribution would change accordingly.

Roth IRA allows you to withdraw your money before 70 years, unlike traditional IRA. Individuals, who do not qualify for Roth IRA, contribute to traditional IRA and convert them to Roth at a later point in time.

Depending on your needs and expectations of the life post retirement, you can choose one or more of the above retirement accounts