Does every NRI in the US need to file their Income Tax?

by | Jan 10, 2021 | income tax, income tax credit, NRI, tax filing, Tax Payers, taxes

Does every NRI in the US need to file their Income Tax? Everyone in the US is not required to file their Income Tax return every year. In case, your total income for a year does not exceed a particular threshold then you would need to file a federal tax return. The amount of income which you would be able to earn before you are needed to file a tax return would be based on the type of income, the age of the NRI and the filing status of the NRI. Gross Income Thresholds Most taxpayers are eligible to claim the Standard Deduction. As an NRI, the Standard Deduction amount for which you would be eligible for is mainly determined by your age and your filing status. The Government usually decides this amount before the tax filing season arrives and this amount would increase for inflation each year. By the help of Standard Deduction and other deductions, your income can be reduced to determine your taxable income. In general, if your income is less than your Standard Deduction then you do not need to file a federal tax return. You would not need to file a federal income tax return if the below-mentioned criteria are true.
  1. If you are below the age of 65 years
  2. If you are filing your tax returns with the Single status
  3. If you do not have any other special conditions which would require you to file the tax returns such as income obtained from self-employment
  4. If your income is less than $12,400 i.e. the Standard Deduction in the year 2020 for a taxpayer.
What would happen if you are only receiving Social Security Benefits? In general, cases, if your only source of income is the Social Security Benefits then you would not have to file a tax return. However, Social Security Benefits have another aspect i.e. if you are married and are filing your tax return separately from that of your spouse then some of your Social Security Benefits must have to be included in your taxable income to know if it is greater than the Standard Deduction you are claiming. Taxability of Social Security Benefits In order to find out if the Social Security Benefits which are receiving are taxable or not, the below-mentioned steps can be implemented.
  1. You can add one-half of your Social Security Income to all other types of income which you are receiving including the income which is tax-exempt.
  2. After that, the amount obtained can be compared to the base amount for determination of your filing status.
  3. In case, the total will be more than the base amount then some of your Social Security benefits would be taxable.
When a dependent would need to file a federal tax return? NRI taxpayers who are claimed as dependents on the tax returns of another person have different filing requirements with the IRS. The income of a dependent can be “unearned” when it would be derived from certain sources such as dividends or interest. If the unearned income of a dependent is more than $1,100 in 2020 then tax return must be filed by the dependent. Filing a Tax return to claim a tax refund There might be instances when there would be the need to file a tax return for an NRI such as taxes would have been withheld from a paycheck and a tax refund is due. If too much amount has been withheld from your paycheck, then the only method by which you would be able to obtain your tax refund is by filing their tax return.
  1. For instance, if you are an NRI who is a taxpayer with a single filing status and earns $2500 during a particular year and $300 is being withheld from your paycheck then you can obtain a refund of $300 as your income is less than Standard Deduction.
  2. If you have a refund due then the IRS would not automatically issue the refund. You would have to file a tax return so as to obtain your refund which is due.
Conclusion Hence, if you are an NRI in the US then there are various criteria which are applicable for determining your tax liability. You must be well aware of these criteria and file your tax returns accordingly.
When you file your 2019 tax return will impact your stimulus payment?

When you file your 2019 tax return will impact your stimulus payment?

by | Mar 30, 2020 | Adjusted Gross Income, COVID - 19, federal income tax, income tax credit, SSN, tax filing, Tax Payers, tax return, taxes, US Government

Calculate your Stimulus Eligibility

When you file your 2019 tax return will impact your stimulus payment?

File your 2019 tax return will impact your stimulus payment, The pandemic COVID-19 continues to have a huge impact on the citizens of the USA. The Federal Government has been taking several steps to alleviate the burden that the common people might be facing due to this dreadful disease. One major step taken by the US Government to help out the common people in easing tax-related stress is by the passing of a $2 trillion stimulus bill. This bill includes a provision by which several citizens of the country would receive stimulus cheque from the Federal Government.

Eligibility for obtaining stimulus cheque

You can qualify to obtain the stimulus cheque from the Federal Government if the below-mentioned conditions are met.

  1. If you are a US resident who is single and have an adjusted gross income which is less than $99,000.
  2. If you file your tax returns as the head of the household and earn an amount below $136,500.
  3. If you are filing your tax return jointly without any children and would earn an amount less than $198,000. 

How to obtain the stimulus cheque    

For obtaining a stimulus cheque, a person should have a Social Security number and should be the residents of the United States. The amount you can receive as a stimulus cheque is based on the adjusted gross income (AGI) that has been listed in your latest tax returns.

The IRS would be using the direct deposit information that you have provided during filing your last tax returns. In case your bank details have not been mentioned while filing the last return, the IRS would send the cheque to the recent address it has. It is also advisable to notify the IRS if you have shifted your house recently. 

Factors affecting the stimulus payment

There are some major factors which can affect your stimulus payment such as

Filing status-If you are single you can receive $1200 as your stimulus payment, but for a married couple who are filing the income tax returns jointly the stimulus payment is $2400.

Size of your family-The stimulus payment also depends on the size of your family and for every child of yours who is below the age of 17 years; the stimulus payment is an additional $500.

Dependent-In case if you are claimed as a dependent on the tax returns of someone else then they would not be receiving any stimulus payment.

Level of your income-If you have a high income, the stimulus payment depends on the level of your income. For a married couple filing returns jointly, the stimulus payment starts reducing if the AGI exceeds $150000 and the same thing can occur for taxpayers who are single and their income exceeds $75000.

 

However, there is another factor is important in determining the stimulus payment and that is whether the tax returns for the year 2019 have been filed or not.

When are you filing your 2019 tax return?

Firstly, the IRS would always check out for tax returns related information for the year 2019 for making the stimulus payment. If there is no information available for the year 2019, the IRS would use the information for the year 2018.

In case, you have a Social Security Number but do not need to file the tax return then your stimulus payment would be done based on the information present in Form 1099-SSA.

This can be utilized as an opportunity by several taxpayers and if you have not filed or prepared your tax returns of 2019, then he can take into consideration the variables like Adjusted Gross Income, family size, etc. to determine higher stimulus payment to occur in which the year 2018 or 2019. 

If, you feel that the payment was better in 2018 than you would hold on to that information or else if the returns of 2019 tend to yield more results then you should file your returns immediately.

Moreover, you must also consider any refund which you might obtain from the 2019 tax returns. It is quite obvious that you will have to make a decision i.e. either a large refund now and a smaller stimulus or larger stimulus immediately and the same refund after some months. 

 

Stimulus payment can be said as an advanced payment which you would make against the actual credit that will be computed on the tax returns of 2020.

  1. In case your advance payment done is less than what you would owe while computing the tax returns of 2020, then the excess would be obtained as a credit on the tax returns. 
  2. However, if advance payment is greater than what you owe while filing 2020 returns then there is no procedure to repay the excess amount or in recognition of the excess amount as income.

Conclusion

Hence, your stimulus payments are highly determined by when you are filing your tax returns. If you have not filed your tax returns for 2019 yet then you must consider if the tax return filing would either increase your stimulus payment or decrease it and then pursue your actions accordingly.

References

https://www.forbes.com/sites/anthonynitti/2020/03/26/when-you-file-your-2019-tax-return-will-impact-your-stimulus-payment/#32168a96b9dc

https://finance.yahoo.com/news/bigger-stimulus-check-waiting-file-123220996.html

https://www.cnbc.com/2020/03/26/coronavirus-stimulus-checks-heres-everything-you-need-to-know.html

https://www.bloomberg.com/news/articles/2020-03-26/when-and-how-will-i-get-that-1-200-stimulus-payment-quicktake

https://www.cnet.com/how-to/coronavirus-stimulus-check-is-official-find-out-if-youre-eligible-for-up-to-1200/

https://www.businessinsider.in/finance/news/how-to-get-a-stimulus-check-from-the-us-government-which-could-pay-up-to-1200-if-you-qualify/articleshow/74837139.cms          

 

Tax relief measures for small businesses during the coronavirus pandemic

Tax relief measures for small businesses during the coronavirus pandemic

by | Mar 21, 2020 | COVID - 19, federal government, global income tax, income tax credit, Investment & Income, Tax credits, tax deadline, Tax exemption, Tax Extension, tax filing, Tax Payers, Tax Refund, taxes, US Government

Tax relief measures for small businesses

during the coronavirus pandemic

The entire nation has been affected by the dreadful coronavirus. The rapid spread of the COVID-19 across the country has affected the economy on a very massive scale. The business operation across the country has come to a standstill especially in the case of small businesses that are tax relief measures. Social distancing and quarantining have led to a decrease in the number of customers coming to purchasing impacting sales. Numbers of employees are also not going on work as everyone is forced to stay inside for preventing further spread of the disease. In such adverse situations where there are huge economic disruptions, the Government is working towards passing legislation that would help in providing financial relief to the businesses and taxpayers.

The Families First Coronavirus Response Act

On March 13th, 2020, President Trump had declared a situation of national emergency along with open access of States and Territories to $50 billion for the shared fight against the disease. Again on 18th March 2020, the Senate had passed the Families First Coronavirus Response Act. This bill was signed by the President on that day which included the below-mentioned highlighted points.

1.Federally mandated paid leave benefits and paid sick leave are to be provided to the eligible employees. The paid sick leave must be provided to the impacted employees for 14 days at the regular rate of pay i.e. max $511 per day. Moreover, employers should also provide the benefits of paid leave to the eligible employees for three months.

2.The availability of tax credits for both employers and self-employed taxpayers have been mandated to reduce the burden of employers arising due to the paid leave

 

Extension in tax payment and tax return filing deadline

The US Treasury Department and the IRS had announced that the deadlines for filing tax returns and tax payments that are due on 15th April 2020 are extended up to 15th July 2020. This extension is applicable for making filing tax returns for 2019, Income Tax payments for 2019 and the estimated income tax payments for 2020.

If there is a tax refund due, then the Income tax returns must be filed as soon as possible so that the refund can be obtained immediately and put to use in this time of crisis.

 

Low-interest loans guaranteed by the SBA

 

When there is a tremendous drop in sales, it becomes quite difficult to manage business expenses, employee wages, bills, etc. In such a situation, a business loan can be taken but then it will have a very high rate of interest. So, to ease down these worries the President has announced that the Government would provide more funds in the federal disaster loans which are backed by the Small Business Administration (SBA).  The loans provided by the SBA are known as the Economic Injury Disaster Loan.These loans would help in providing relief for the qualifying businesses in the below-mentioned forms.

 

  1. Loans at low-interest rates i.e. 3.75% for businesses and 2.75% for non-profit organizations.
  2. Repayment plans are long term in nature i.e. up to a maximum period of 30 years.

If a small business is facing financial issues and is not able to afford bills related to the payroll expenses, fixed debts and accounts payable then it can apply for an “Economic Injury Disaster Loan”.

 

Moreover, the federal and state financial regulators have been encouraging the financial institutions to work in a co-operative manner with those borrowers who belong to the affected communities.

Cash Payment by the Government

Another measure taken by the Government to provide relief to the small businesses is by providing the Stimulus package. Under this package, stimulus checks would be provided to US adults. On 27th March 2020, President Trump signed the CARES Act into law.

By this Act, cash payments would be provided to adult taxpayers up to $1200 for a single person and up to $2400 for couples. If there is a child, then the amount of the stimulus cheque will include an additional $500.

Those individuals who have earned $75,000 in the adjusted gross income (AGI) on the Income-tax returns of 2018 will be receiving a lower amount. Also, those individuals who do not have a federal tax liability will receive $600 under this proposal.       

 

Deferment of

any amount

The IRS has also announced any amount can be deferred related to the Federal tax.  In the Notice 2020-18, the IRS had stated that “there is no limitation on the amount of payment that may be postponed”. Previously, there was a dollar limit on the tax that can be deferred but later on 21st March 2020 this limit has been withdrawn.

This deferment or the postponement of tax payment has only been announced for the federal taxes and is not applicable for any other tax like excise taxes and payroll taxes.

Conclusion

Hence, the various legislations and implementations of new tax laws would be helpful for small business owners to avoid sleepless nights due to tax payments in times of low sales and disrupted business.

References

https://ssfllp.com/coronavirus-covid-19-tax-relief-for-small-businesses/

https://www.patriotsoftware.com/blog/payroll/small-business-relief-coronavirus-pandemic/

 

5 reasons to opt for a professional to file your taxes

5 reasons to opt for a professional to file your taxes

by | Dec 2, 2019 | income tax credit, tax filing, Tax Planning, Tax Refund, tax savings, taxes

5 reasons to opt for a professional to file your taxes

Doing taxes on your own can be overwhelming, to say the least. You must consider the W-2, deductions, write-offs, maybe a collection of 1099s to take care of, etc. This can even more overwhelming considering the fact that you still have a job at hand and several other life decisions. Is there an easy way out? Well, you must file your taxes, there are no shortcuts in that. However, to make your life a bit easier, you can opt for a professional to file your taxes instead.

Here are some of the prominent reasons why you should opt for a professional to file your taxes.

  • Freelancing or side business

The Tax Cuts and Jobs Act introduced recently brings about a lot of changes to the tax regime. If you hold a regular job and have a side hustle along with it, getting professional help for your taxes might be your best bet. People who run businesses are more likely to be put into the 20 percent deduction bracket. Freelancers and people owning businesses might find it a bit difficult to do their taxes on their own.

  • Property Flip

On paper the only two documents that you would need to file for taxes if you have flipped a house are 1098 and 1099-S. However, it is not as straightforward as it might sound. Between the buying and selling of a house, there are a number of transactions that can take place. Opting for professional help in such cases is a smarter choice.

  • Life Changing Events

The occurrence of a life changing event can bring in a myriad of emotions to the table. Life changing events can include graduation, marriage, the birth of a child, divorce, moving on, losing a job or starting with a new one, etc. Such occurrences can complicate your taxes. For starters, it chances your status of filing along with many other things. You must look at different tax benefits, tax credits, etc. to minimize your tax liabilities and to maximize your returns. If you do not want to be bogged down by these complexities, you can take the help of professionals to do your taxes.

  • Student Loans

The equation changes a bit if either you or your spouse has a student loan to take care of. One of the biggest benefits of filing your taxes with the married filing jointly status is that you can expect the lowest tax liabilities. The taxes that you would have to pay individuals would easily overshadow the ones that you would pay with married filing jointly status. And the repayment schedule of student loans depends on the monthly income of the borrower. In certain cases, repaying your student loan on your own can be more beneficial than doing it together. Getting in touch with a professional will help you get over some of these conundrums.

  • Adopting a Child

As noble as the thought of adopting a child is, there are several tax benefits also associated with it. There are quite a few tax incentives for adoption along with tax credits. A sit down with your tax professional will help you make the most of the tax credits available. The downside being, there are higher chances of your taxes being audited. This makes it even more essential to work your taxes out with a professional, to ensure there are no gaps that the IRS can find.

The above are some common scenarios where the need for a tax professional is accentuated. If you have even the slightest of the doubts, do not hesitate to contact one.

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.

 

 

 

How to claim your TDS refund for the NRI’s residing in the US

How to claim your TDS refund for the NRI’s residing in the US

by | Apr 22, 2019 | Blog, income tax credit, IRS, NRI, Tax Payers, Tax Planning, Tax Refund, tax savings, TDS

How to claim your TDS refund for the NRI’s residing in the US

TDS refund For an NRI residing in the US, income tax is applicable for the income that is earned in India. Be it salary earned in India or for services rendered to India or on earnings from investments and assets, NRI is liable to pay income tax if the total income for the financial year is more than Rs. 2.5 lakhs.

In India, It’s not very simple when it comes to income tax rules for NRIs.As per tax rules, any payment to non-resident Indians (NRIs) is required to be made after deduction of tax deducted at source (TDS) even if the income of that person is less than Rs. 2.5 lakhs. However, NRIs are allowed to claim refund of TDS deducted at the time of income tax filing if he/she falls below the minimum taxable income i.e. 2.5 lakhs.

Here are some of the major income types on which TDS is deducted for NRIs.

  • Payments received for services rendered in India
  • Interest income earned on bank savings and deposit accounts – NRO accounts
  • Rental income from property owned in India
  • Sale of bonds, mutual funds and shares
  • Sale of property in India owned by an NRI

TDS refund can be claimed by NRIs residing in the US by filing the income tax return in India. Income tax filing is quite a simple process. As the new financial year begins, it’s also important for NRIs to know the time limit to file the income tax for claiming refund.

NRIs are required to file income tax return before 31st July of the new financial year. Any delay would attract penalty. For example, for the financial year 2018-19, income tax filing needs to be done by 31st July 2019 for claiming TDS refund.

Here are the few easy steps for NRIs to file income tax return in India

Reconcile your incomes and taxes with Form 26AS

After determining the residential status for the financial year, NRI‘s need to reconcile their TDS credit or advance taxes paid with the data reflected in Form 26AS.

Keep the necessary documents ready

Keep important documents such as PAN card, bank details, investment details, TDS certificates, passport and Form 26AS ready as these documents give you relevant information required for income tax filing.

File your income tax return through income tax e-filing portal

  • Log on to income tax e-filing portal with your e-filing account user ID and password. Download ITR2 or ITR3 form depending on your type of income.
  • If you earn any income from business in India, ITR3 would be applicable. ITR2 would be applicable if you are not earning any business income (excludes capital gain on sale of assets/property) in India.
  • Fill in all the relevant details and calculate your tax liability.
  • Once all the details are filled validate your form by entering one time password (OTP) sent to you on your registered number.
  • Save the validated XML file on your system and then upload the saved file with adding your digital signature to it.

Verify your income tax return

Once you are done with uploading your tax return file on income tax portal, ITR-V will be generated which needs to be submitted to IT department. On receipt of this, your income tax return will be processed.

It’s important to note that, refunding of TDS will take about 6 months’ time or more. However, the refund is issued with interest of 6% p.a which is applicable from the end of financial year.

NRIs residing in US can save on TDS through DTAA (Double Taxation Avoidance Agreement) as both the countries have signed tax treaties. In this case, as an NRI taxpayer you can avoid paying tax twice for the same income. DTAA either eliminates or reduces your tax implication on the income earned and taxable in India.

Conclusion

As an NRI, adhering to two different tax laws at once can be quite challenging. Knowing and understanding the process involved in the taxation can help you save tax liabilities. Keep yourself updated and seek a professional help whenever needed.