Tax Tips for the Furloughed NRI’s

by Mounica Kota | Oct 12, 2020 | NRI, tax savings tips

Tax Tips for the Furloughed NRI’s

Due to the pandemic COVID-19, millions of Americans are facing a very tough time maybe physically or financially. The rate of unemployment has been increasing at a very rapid rate with many Americans filing the claims for unemployment benefits. Moreover, the rate of unemployment has increased by 14% in the country due to a loss in work or due to many people being furloughed.

By the CARES Act, the US Government ensured that proper help was provided to those NRIs who have been impacted by the coronavirus. By the CARES Act, unemployment benefits and unemployment increase of $600 in a week was granted. However, if you are a furloughed NRI due to the COVID-19 and are obtaining unemployment benefits then it is quite obvious for you to think about the taxation rules for the unemployment benefit.

What are the taxation rules for Unemployment Income?

Unemployment benefit is considered taxable and it must be considered as a part of your income for the tax year. There are some states which would consider the unemployment income as taxable income.

When you are receiving unemployment income, you would be receiving Form 1099-G which would show the unemployment benefit that you have received.

Tips for those who are receiving Unemployment Benefit

Some major tips for those NRIs who are receiving Unemployment Income are mentioned below.

Adjustment of withholdings

If an NRI is employed, he must take his unemployment benefit into account while filling the W-4 withholding certificate for his employer. This is necessary if there have been no taxes withheld from the unemployment income of an NRI.

Take out federal taxes

Unemployment income is taxable; an NRI must take out federal income from his unemployment income so that there are no problems while filing taxes. NRI taxpayers can withhold up to 10% from their unemployment income by filing Form W-4V Voluntary Withholding Request and providing it to the agency which would be paying the benefits. In case, the NRI does not choose voluntary withholding or does not withhold enough then he can even do estimated tax payments.

The self-employed must consider unemployment while paying estimated taxes

In case, the NRI is a freelancer, a contractor, etc. then the NRI must consider that the unemployment income would be added up to the self-employment net income and would be taxable. If the self-employed NRI plans to pay his estimated quarterly tax, then he can also consider his unemployment income if he does not have federal taxes withheld from his unemployment.

Utilize the newfound credits and deductions that are available

Some of the tax credits and deductions are based on the income of the NRI for which he might not have been eligible before because of higher income. However, the NRI is eligible for this now because of being furloughed. The best examples to explain this are the Earned Income Tax Credit and the Saver’s Credit. According to the IRS data, 20% of people do not remember these two credits. The Earned Income Tax Credit is calculated on the basis of income and is a big credit; in case the NRI has had a low income in the year 2020 due to the loss of wages then the NRI would be eligible for EITC. By this EITC, he would get a credit of worth over $6000 if the family has 3 kids.

By the Saver’s credit, contributions would be made towards retirement. In case, the NRI has paid towards his retirement plan in 2020 and is now under the income threshold by which he would qualify for Saver’s credit then he would obtain a credit whose worth would be up to $1000 in case of being single or $2000 if married and filing tax returns jointly.

The Child and Dependent Care Credit is another tax credit which an NRI might get to see if he had paid someone to take care of his child while he was working or even was job hunting, This percentage of child care credit would be from 20% to 35% of his expenses up to $3,000 if he has a single child and up to $6,000 if he has two or more children based on his income. In case the NRI is having a lower income he might claim 35% of his expenses i.e. $1,050 for a single child and $2,100 for more than two children.

Conclusion

So, these are some of the tax tips which would help furloughed NRIs to understand their tax implications without many complications.

Estimated Tax Tips for the self-employed NRI’s in the US

by Mounica Kota | Oct 12, 2020 | NRI, self employed, tax filing, tax savings tips

Estimated Tax Tips for the self-employed NRI’s

in the US

If you are self-employed NRIs in the US, you will have to make payment for quarterly estimated taxes. Due to the COVID-19 conditions, the deadline for the first and second quarterly estimated tax payment was extended to 15^th July 2020. The deadline for the third quarter estimated tax payment was on 15^th September 2020 and the fourth payment deadline is yet to come.

So, you must know about the basic tax tips which are needed by self-employed NRIs in the US for the estimated tax payments.

Who should make payment for the Estimated Tax?

In the United States, there is a “pay as you go” tax system. This implies that the Government expects that it would receive most of the taxes throughout the year. As a result, employees usually have a certain amount of taxes directly deducted from their paycheck.
However, if you are self-employed i.e. you are a freelancer, or a home-based entrepreneur then taxes are not being withheld from your paycheck. You would be subject to making the payment for the estimated tax.
Generally, self-employed NRIs would be expected for making a payment of estimated taxes only if you are expecting to owe $1000 or more for your tax payment in a year.
In case, you are earning your self-employment income quite unevenly in the year then you would be able to use the Annualised Installment Method at the time of taxation. By this, you can also avoid a penalty for not making the payment of Estimated Taxes every quarter due to uneven income.

When do you need to pay the estimated taxes?

There have been some changes in the deadline for payment of estimated taxes this year due to the onset of COVID-19.

1^st Quarter payment – 15^th July 2020 (Original deadline was 15^th April 2020)
2^nd Quarter payment – 15^th July 2020 (Original deadline was 15^th June 2020)
3^rd Quarter payment – 15^th September 2020
4^th Quarter payment – 15^th January 2021

In case, if the 15^th falls on a weekend then you will have to pay the estimated taxes on the next weekday.

How would you figure out your estimated taxes?

You should use online programs such as QuickBooks Self-Employed which are available for keeping a track of your income, your expenses, and mileage and calculate your estimated taxes for the year. By the online programs, your calculations are done easily thus, finding out your estimated taxes and helping you make the payment on time. Then while annual filing, by the online programs you can very easily export your information of Schedule C into tax filing tools thus, making the procedure easier.

Pro-tip:- For the self-employed NRIs, there is a new sick and family leave tax credit available. This credit is available under the Family First Coronavirus Response Act. In case you are a self-employed NRI and are also impacted by the pandemic, then you are eligible to fund your sick leave and family leave equivalents. This can be done by considering the 2020 tax credits which would be claimed in 2021 and reducing the 2020 quarterly estimated tax payments if you are eligible for those credits. You can estimate your tax credits by online tax credit calculators and thus, reduce your estimated tax payments by the number of credits you must be eligible for.

How to pay your estimated taxes?

Once, you have calculated your estimated tax you must pay them on time. There are several options by which the self-employed NRIs can make their estimated tax payments.

You can use the Electronic Federal Tax Payment System (EFTPS) for the payment of your estimated taxes. It would help in making instant payment and the EFTPS is also considered to be free.
QuickBooks Self-Employed online program would also help you in filing your estimated taxes with the IRS. This method is also fast and error-free as you will not have to re-enter the necessary information into your checkbook or the computer system of the IRS.
Your estimated tax payment can be mailed using the mailing address provided by the IRS in your respective State. Also, you should be careful that your payments are postmarked by the due date for avoiding penalties.

Pro-tip: – You must keep a record of all the estimated tax payments you have done as you will have to enter the information while filing your taxes.

Conclusion

Hence, this information about estimated tax calculation and payment would definitely help you to understand the process better.

The Top #5 Tax saving tips from your new job as an NRI in the US

by Mounica Kota | Aug 23, 2019 | global income tax, NRI, tax deductions, tax rate, tax return, tax savings tips, taxes

The Top #5 Tax saving tips from your new job as an NRI in the US

If you are an NRI working in the US, you will need to pay taxes in US and you will be considered as a Resident alien with respect to tax purposes in US. You will be liable to pay taxes in US if you are a green card holder or you were present in US for a total period of 183 days i.e. you can count on the actual number of days you were present in US in the current year i.e. it should be at least 31 days , one-third of the number of days you have been in US in the first year preceding the present year and one-sixth of the number of days you were present in US in the second year preceding the present year. This is known as the Substantial Presence Test (SPT) used by the IRS to find out your liability to pay tax in US. Tax saving tips from your new job as an NRI in the US

Types of taxes to be paid by an NRI in US

Let us have a look at the types of taxes NRIs need to pay in the US.

Social Security Tax

Social Security Tax is to be paid by every individual who is working in the US. Half of the amount will be contributed by your employer in US and the other half is given by yourself. 6.2% of your gross salary would be deducted as your contribution to Social Security Tax.

Federal Income Tax

Since you are a non-resident in US you will have to pay tax on all income earned in the US without any deductions that the US citizens can avail. However, if you are availing the deductions which the US citizens are enjoying you will have to pay tax on the income earned outside the US as well.

State Income Tax

You will have to pay State Income Tax based on the state of the US in which you are working

Medicare Tax

This tax is paid by you for the health care services which will be availed by you after your retirement and is irrespective of the fact if you would be in the country then to avail them or not. You and your employer will have to contribute 1.45% of your gross salary for this purpose.

Global Income Tax

Any dividend obtained by you on shares and mutual funds in India are to be taxed in the US. Moreover, this rule of taxation is also applicable to any agricultural income and capital gains obtained in India. A foreign tax credit in your US tax return can be claimed by you, in case of tax payment done for the above-mentioned income sources. Form 8938 (Statement of Specified Foreign Financial Assets) and

Form 8621(Passive Foreign Investment Company) can be filed along with the US Tax return for this purpose.

Tax Saving Tips for NRI in new jobs in the US

Some of the tax-saving tips for NRI working in new jobs in US are mentioned below.

Form W-2 must be present with you

This form is a major document required while filing your US tax returns. You can obtain this form from your employer and it will contain details related to your annual payroll. You should collect your Form W-2 from each employer for whom you have worked in a particular year.

Spousal exemption to be claimed and declaration of dependents

An important tax-saving method is by claiming a spousal exemption. For this, you will have to file Form W-7 and apply for an ITIN i.e. Income Tax Identification Number.

While filing for US tax returns, you can declare your dependents even if they are residing in India. However, there are certain laws by which they will have to qualify as your dependents.

Declaration of all financial interest

You will have to submit Form TD 90-22.1 in case of having financial accounts outside US with a value of the accounts exceeding $10,000 on a yearly basis.

Medical deductions should be claimed

You can claim your medical deductions by filing Form 1040; Schedule A in case of your medical expenses exceeding 7.5% of your Adjusted Gross Income.

Make investments or take mortgage loans

You can make investments into retirement schemes, stocks or fixed deposits to save taxes. Also, you can save taxes by taking mortgage loans or by making donations.

Since you are an NRI and new at your job, your income in the US would be reduced up to a large extent due to the payment of taxes. However, these tax-saving tips will help you in reducing your tax liabilities up to some extent.