Top #6 IT rules for new NRI’s in the US

Top #6 IT rules for new NRI’s in the US

by | Oct 30, 2019 | federal income tax, income tax, tax deductions, tax filing, Tax Planning, tax return

Top #6 IT rules for new NRI’s in the US

Individuals move to the US with an anticipation of a better life and better pay. It can be quite exciting to move to a new country, with so many things to look forward to. However, amidst all this, there is one factor that IT rules for new NRI’s must not forget, taxation. Shifting to a new country means that one must adhere to new tax laws. Being aware of the laws will help you avoid getting unwanted attention from the taxman.

Here are the top 6 IT rules that you should be aware of, to help you with your first tax filing with Uncle Sam.

1.Residential Status

US residents or US citizens are liable to pay taxes on their global income, in which US citizens include NRIs, PIO, OCI. An individual qualifies to be a US resident if they meet any of the following tests.

  • The Green Card Test

If an individual has been a lawful permanent resident of the USA during anytime of the year.

  • Substantial Presence Test

A person should have stayed in the USA for 31 days in the current financial year and a total of 183 years in the previous three years.

2.Make Use of Deductions

There are several legal ways of reducing your tax liabilities and deductions is one of the smarter ways. The recent Tax Cuts and Jobs Act has increased the standard deductions from $6,500 to $12,000 for individual taxpayers and $9,550 to $18,000 for the head of a household.The limits for married couples filing taxes jointly was enhanced from $13,000 to $24,000. You can make use of retirement plans as well to reduce your tax liabilities.

3.Federal Income Tax

Unlike the general notion, not everyone might be required to file their federal income taxes. There are quite a few factors that impact whether or not one has to file their federal taxes. Factors such as the income for a financial year, your age, your tax filing status, your source of income, etc. play a crucial role in deciding where you should file federal income tax or not. It is essential that you figure out whether you are required to file your federal taxes or not.

4.Knowing The Due Date

Forgetting to pay or file your taxes by the due date can cause considerable damage to your yearly finances. The IRS has due dates for filing of taxes and if you do not adhere to it, you will end up paying penalties and fines. These can at times come with interest, which tends to pile up a lot. It is recommended to file your returns at the earliest, even if it has crossed the due dates.

5.Filing Date Extension

There is a clause in the tax laws, which allows taxpayers to opt for an extension in the tax filing dates. But the important thing to keep in mind is that the date extension is only for filing of taxes and not paying the taxes that you owe. As the deadline comes closer and you feel that you are not ready to file your taxes, you can seek extension in the deadline. At the same time, do not forget to pay any pending taxes that you owe.

6.Charity

Contributions towards charity can help you bring down the taxes that you owe to the government. You can either pay by cash or even gifts, but it is limited to 50 percent of your adjusted gross income. Ensure that you have a receipt that states that the donation was made by you.

Being aware of these tax laws will help you get through your first tax year with relative ease.

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.

Top #5 Life-Changing effects and their tax implications for NRIs in the US

Top #5 Life-Changing effects and their tax implications for NRIs in the US

by | Sep 19, 2019 | federal income tax, income tax, NRI, tax deductions, tax rate, Tax Refund, taxes

Top #5 Life-Changing effects and their tax implications for NRIs in the US

Tax implications,Life is a storehouse of changes; every person experiences certain life-changing events that can bring a transition in the entire course of the life of a person. These life-changing events can also bring a great transition in the taxation methodologies of an individual. Tax implications moreover, life-changing events and changes in the rules of taxation are the two major factors that will always cause either an increase or decrease in your taxes.

You can face this type of situation in your life when you have numerous changes happening together in a year. These changes will affect the payable taxes and you need to adjust to these changes.

When you are an NRI in the USA, you will have a number of taxes to be paid such as Medical Care Tax, Federal Income Tax, Social Security Tax, Global Income Tax, etc. These numerous taxes will reduce your take-home salary considerably and on top of this, when you have life-changing events and their implications to be addressed you will really have a tough time in handling these issues.

Let us have a look at the top 5 most crucial life-changing events and the impact they can have on the tax of an NRI in the USA.

Tying the knot

Mostly, all married NRI couples receive tax benefits in the US as they would file the taxes jointly now. This results in lower tax rates and more tax benefits.  But, sometimes if both the spouses are earning too high and are filing their taxes jointly then there might be a scenario of penalty. This might occur due to the reason that by filing joint tax returns, the couple is paying much more taxes than they should have paid as singles. But, there have been various tax reforms that have lowered the tax rates for these couples.

Welcoming a little bundle of joy in your life

This is, in fact, a real life-changing event and would be a crucial phase in life. Your little bundle will not only bring happiness into your life but also will help you in reducing your tax liabilities. The Child Tax Credit helps NRIs in the US in reducing their liable taxes. By this, if your child is below the age of 17 years then you can get a tax credit of $2000 known as Child Tax credit. Moreover, other additional credits are associated with this i.e. Child and Dependent Care Credit and the Earned Income Tax Credit. All of this would be helpful in saving a substantial amount of money.

Separation

Getting separated legally or getting divorced is a tough phase of life and has certain implications related to your taxes as well. According to the new tax laws in the US, the spouses who will be receiving the alimony do not have to pay tax on the received alimony. However, the spouse who will be making the payment cannot claim this as a tax deduction. Precisely, alimony paid is not a tax-deductible component for the payer and also is not included in the income of the spouse receiving it.

This will be the law implication for those married couples who got legally separated after 2018 or before 2019 and then later certain modifications were made into the deductions associated with alimony.

Death of a partner

There is nothing more painful than losing your partner or spouse, but the laws of paying taxes related to this are even more hurtful. You will need to file for an estate tax return depending on the size of your estate and the assets in your estate. Moreover, new tax law states that you will need to pay estate tax only when the value of your estate is above $11,400,000.

Buying or selling a house

There are many additional deductions that you can claim if you are buying a new home or selling a home. When buying a new house, you will be able to claim deductions like paid points, interest on the mortgage, other real estate taxes, etc. However, while selling a house you will not be liable to pay taxes above $500,000 on the gains in case of filing tax returns jointly along with your spouse.

Hence, these life-changing events not only bring a change in your mental state but also affect the state of your tax liabilities. After these events, either you tend to pay more taxes or pay fewer taxes in some respect depending on the taxation laws.

How to Become a Financially Literate NRI in the US?

How to Become a Financially Literate NRI in the US?

by | Sep 13, 2019 | income tax, tax savings, taxes, Taxtips

How to Become a Financially Literate NRI in the US?

To become financially literate NRI  means to be able to manage your money efficiently. It is basically the ability to clearly understand the concept of how money is made, how it is managed and invested, how it is spent economically. Precisely, financial literacy is the skill which lets you utilize your money efficiently and utilization of your money in accomplishing your long term financial goals.

Financial literacy is not a subject that is included in your school or college syllabus; rather it is a clear understanding of your personal debit and credit. This will need constant attention to your expenses and an urge to always sideline your income and expenses together.

Major components of Financial Literacy

The major five components which you can associate with financial literacy are mentioned below.

  • Basics on Budgeting

Creating a budget and maintaining that budget is an important concept of financial literacy. Without a proper budget, you will never be able to understand the whereabouts of where your money is coming and where it is being spent and you will end up in a financial crisis.

  • Interest and its impact

 It is an important concept and needs to be understood as it affects your finances in an intensive manner. This will help you in saving and also better utilization of your money.

  • The habit of saving

For maintaining a healthy and stable financial life, saving is very important. This will inculcate the skill of looking towards accomplishing long-term goals in the future and planning present actions accordingly.

  • Debit and credit

 Proper knowledge about debit and credit is needed to be able to handle finances diligently.

  • Beware of financial frauds

With the widespread use of technology in financial spheres like internet banking, online shopping, electronic fund transfer; your financial data is more prone to risks and should be protected.

When you are residing in a different country, you should have the basic financial literacy related to the financial sphere of that particular country. This will be helpful for you in utilizing your money, saving money and also investing in some useful avenues.

Tips to be a financially literate NRI in the US

Reconciliation of bank accounts regularly

You should make it a habit of going through your bank statement every month when they are sent to you by the bank. By this, you will know in detail about your income, spending and any diversion in a saving plan if you have one.

Utilization of financial tools

There are a large number of financial tools and applications which can help you understand the confusion associated with dollars. You can get to know in details about the income, debit, credit, etc. Moreover, financial tools will give you tips and suggestions on financial planning for improving your financial literacy.

Take online courses

There are numerous professional courses and sessions available online. You can enroll in these sessions and increase your knowledge of finances, NRI taxation policies, NRI tax saving methods, etc.

Make friends

You can join your friends from the US so as to increase your exposure. This will help you in understanding the various financial implications in the country, ways how money is utilized or saved in the US, taxation rules in the US, etc. With the help of online tools, you can have educational gatherings among friends where you can discuss finances and financial goals.

Be vigilant and aware

Since you are in at a new and unknown place now, you should be vigilant about your finances and security related to financial information. You can read books, visit libraries, watch online videos on finances, financial security and financial goals.

Hence, initially, you would definitely find certain differences and difficulties in understanding about finances at a new place. But you can start understanding the methods, rules and, laws gradually.  As an NRI, it is quite necessary for you to understand the finances of the US so that you tend to save a good amount or invest in good avenues.

 

Save money by knowing your Tax Benefits for your Dependents

Save money by knowing your Tax Benefits for your Dependents

by | Sep 6, 2019 | Deduction & Credits, income tax credit, Tax Planning, tax reduction, Tax Refund, taxes

Save money by knowing your Tax Benefits for your Dependents

If you are a citizen in the US or you are paying tax in the US, you can be able to save a lot of money by claiming dependents on your payable taxes. If you are having children and other qualifying dependents that can be used to claim tax benefits, then you are saving a lot of money.Save money by knowing your tax benefits for your dependents.According to the tax laws in the US in the earlier times, for every qualifying dependent, you are qualifying to reduce your income which is taxable by $4050.

The major purpose behind this is significant savings and if you are successful in claiming multiple dependents those savings get accumulated and in turn, you save a good amount on taxes.

By claiming dependents, the scope for other credits such as Earned Income Tax Credit, Child Tax Credit, etc. arises which can be quite beneficial for you. However, the law for the reduction of taxable income by $4050 for every qualifying dependent is not valid since 2018. But there are a number of tax benefits which you can still claim for your qualifying dependents.

Who is a qualifying dependent for the tax benefit in the US?

There are two qualifying categories of dependents who qualify for being used to claim tax benefits. Both the dependents should satisfy the below-mentioned criteria for being able to be used to claim tax benefits.

  • The dependent must be a citizen of US, US resident, US national or a Canadian or Mexican resident.
  • You are not permitted to claim a dependent that is opting for a personal exemption for him and is claiming another dependent on his own tax form.
  • You are also not permitted to claim a dependent that is married and is himself filing a joint tax return.

Your qualifying children

  • You can claim tax deductions for your own children, your siblings or even your grandchildren as your qualifying dependents.
  • The child whom you are claiming should be below the age of 19 and should have lived with you for more than half a year.
  • The child should not be able to provide more than half of his own support and you should be the only person claiming him.

Your qualifying relative

You must be the only person claiming your relative and you must be providing more than half of the financial support for your relative in a year.

The taxable income of relatives must not be more than $4050.

Let us have a look at some of the tax benefits which you can claim for your dependent children and relatives.

Child Tax Credit

If you have a child who is below the age of 17 years, then you have a child tax credit of $2000 to be earned as a tax deduction. Married parents who are filing joint returns can claim this credit if their income threshold is $400,000. If you are a single parent then your income threshold has to be $200,000 for being eligible to claim this credit.

Child and Dependent Care Credit

 In the US, childcare is expensive in nature and if you are paying for the childcare of your dependent children i.e. who are below 13 years of age, then you are eligible to claim Child and Dependent Care credit. This credit here can be defined as a reduction in your payable tax expressed in dollar-to-dollar terms. This credit would range from 20% to 35% of the expenditure incurred by you for childcare and this percentage will depend on your income.

Earned Income Tax Credit

This is an additional credit which can be availed by you if you are claiming your dependents. This tax credit can be availed by you in case of your self-employment income or wages are lower than a particular income level. This tax credit will depend upon another factor i.e. the number of qualifying kids you have.

Tax Credit for dependent relatives

 You are eligible to claim a tax credit for those qualifying relatives who are dependent on you. This tax credit is non-refundable in nature and you can claim up to $500 for each qualifying dependent.

Hence, deductions on the qualifying dependents are an excellent tax-saving option in the US. By these deductions, you can save a good amount of money and also can get back the tax refunds if any.

 

 

 

Top 7 tips for Self Employed NRIs in the US

Top 7 tips for Self Employed NRIs in the US

by | Aug 9, 2019 | IRS, tax deductions, tax filing, Tax Planning, Tax Refund, tax savings, taxes

Top 7 tips for Self Employed NRIs in the US

The person sitting next to you on your flight could be running a small-scale successful business. Working parents now choose to work from home more often than not. The changes in the landscape of career options have been vast over the past few years. Thus, it is no secret that more and more people are willing to take risks and explore more career options that are not only better paying but fulfilling as well. If you are an individual who wants to explore self-employment or are an NRI who wishes to look for self-employment options, you also need to be aware of how taxes work. Here are the top 7 tips, self-employed NRIs which will help you make the most of taxes.

Proper Research

The first step to successful tax filing begins with proper research. Do you due diligence in finding out the total income for a fiscal year. You would also want to be aware of the list of deductions applicable for you. You must also be aware of the deadlines by which you must file your taxes and start acting accordingly. For instance, if your self-employment income exceeds INR 400 for a fiscal year, you are required to file your taxes.

Status

Self-employment doesn’t necessarily mean that you ought to have a company or firm registered to your name or even the income doesn’t have to be your primary source. Given the vast landscape, you could have a primary job and work on your passion over the weekends and earn some money out of it. It is essential that you report all such incomes in your tax returns.

Proper Documents

While preparing for tax returns, having all the relevant documents will help you save a considerable amount of time as well as confusion. From the beginning of a fiscal year, ensure that you keep all the receipts for expenses that you wish to claim, relevant forms, rent bills or mortgage bills if you work from home etc. in a separate folder. Documents such as Form 1099-K or 1099-Misc might also be needed. Having them at a single place will ensure that you have a smooth tax filing process.

Tax Estimations

If you are work for an organization, they take care of withholding applicable taxes before crediting your salary. However, for self-employed individuals, things are a bit different. Since there aren’t any fixed sources of income, you out to estimate your taxes and pay them on a quarterly basis. For the current year, if your tax bill is more than $1,000 you will have to pay estimated taxes.

Work-Related Expenses

The IRS allows individuals to claim deductions on a number of work-related expenses. For example, if you bought a computer or a laptop for your work, you can claim the amount as deduction. You can even claim expenses for driving down to meet a client for business purpose. Keeping a track of such expenses will help you tackle the tax return process in a better way.

Required Forms

Self-employed individuals usually document their income in Schedule C along with any profit or loss of the business. If you own a business with simple earning structure, you would need to file Schedule C-EZ. Thus, understanding the right form depending on your self-employment type is essential.

Tax-Tools

If the tax filing and return process seems overwhelming, you can take the help of several tax tools available. You would only have to provide the essential information, post which the tools will take care of the rest.

Self-employed individuals can use the above tips to handle taxes or overcome tax phobia in a much better way.