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The tax responsibilities of immigrants in the United States

Each year, US residents file a tax return with the Internal Revenue Service (IRS) that reports income, expenses, and other pertinent tax information. Taxation is one of the biggest sources of income for the US government. In addition, federal income taxes are used to provide for national programs such as national defense, veterans and foreign affairs, social programs,  community development, law enforcement, and interest on the national debt. 

In general, many immigrants are considered US tax residents and are taxed in the same manner as US citizens on their worldwide income. The contributions made by immigrants have always been vital to the United States economy. Taxes paid by immigrants support local schools, Social Security, Medicaid, and other federal and state public benefits programs. As an immigrant, participation in the economy also helps to create a demand for goods and services, thereby boosting job growth. 

Do I have to pay US taxes if I’m not a US citizen?

Like US citizens, new residents of the United States that are authorized to work and have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) are required to pay state and federal income taxes. The IRS, the government agency created to administer and enforce internal revenue laws, defines residency differently than US immigration law. For tax purposes, workers are defined as either resident or nonresident aliens. 

Resident aliens

Resident aliens are non-US citizens with a green card or can pass the substantial presence test. Green card holders must report and pay tax on all of their income and file a Form 1040 unless they are treated as a resident of a foreign country under an income tax treaty. As a green card holder, you automatically become a US tax resident the year you enter the US on an immigrant visa or when you were approved for an adjustment of status. As a tax-paying resident, you must file Form 1040 with the IRS annually by April 15. 

If you do not have a green card, you may be considered a US tax resident under the substantial presence test. The substantial presence test means that you have been physically present in the United States for at least 31 days out of the current year and 183 days during a three-year period that includes the current year. You are treated as present in the US on any day you are physically present in the country, at any time during the day. However, some individuals are exempt from this rule:

  • An individual temporarily present in the US as a foreign government-related individual under an “A” or “G” visa, other than individuals holding “A-3” or “G-5” class visas.
  • A teacher or trainee temporarily present in the US under a “J” or “Q” visa who substantially complies with the requirements of the visa.
  • A student temporarily present in the US under an “F,” “J,” “M,” or “Q” visa who substantially complies with the requirements of the visa.
  • A professional athlete temporarily in the US to compete in a charitable sports event.

Nonresident aliens

According to the IRS, a nonresident alien is a non-citizen who is not a green card holder and does not pass the substantial presence test. A nonresident who earns income as a US business owner or as an employee still must file US taxes by submitting Form 1040-NR.

In the year of transition between being a nonresident and a resident for tax purposes, you are generally considered a Dual-Status Taxpayer. A Dual-Status Taxpayer files two tax returns for the year—one return for the portion of the year when considered a nonresident and another return for the portion of the year considered a resident. In some situations, a taxpayer can elect to be treated as a full-year resident in the transition year to avoid filing two separate returns.

Tax filing basics

Tax season generally begins in January and ends on April 15. During this time, your employer will either mail or electronically deliver various tax forms for you to submit to the IRS. The deadline to submit the forms is April 15. Generally, you will need to file a W-4 form and a version of Form 1040, depending on your tax residency status. 

While working in the United States, your employer will ask you to complete a W-4 form. W-4 forms determine the amount of your income that will be withheld in taxes. The W-4 form includes a worksheet to help you determine how many allowances to claim. An allowance reduces the amount of taxes withheld from your income. You can claim an allowance for yourself, a spouse, and one for every dependent you claim. The IRS defines a dependent as “either a qualifying child or a qualifying relative of the taxpayer. The taxpayer’s spouse cannot be claimed as a dependent. Some examples of dependents include a child, stepchild, brother, sister, or parent.”

Federal law requires US tax residents and US citizens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers must complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires an individual to report the country in which each account is located.

If you have overpaid your taxes during the year because too much money was withheld from your paycheck or because you submitted excess payments to the IRS, you can claim your refund when you submit your tax returns. The IRS will send your refund via mail, or you can submit your bank information and request to have your refund distributed using direct deposit.

There are three common ways to file your taxes:

The IRS has a Volunteer Income Tax Assistance (VITA) program that helps taxpayers who cannot afford tax preparation, need the help of a translator, or have questions about applying for an ITIN. You can visit a VITA site by going to the IRS Free Tax Prep site and entering your ZIP code. However, before you visit the website, read through Publication 3676-B to learn more about the services that VITA offers. Also, check out what to bring with you so that you can collect all of the documents you’ll need to apply.

Tax credits and deductions

All US tax rules apply to you as a US tax resident, including deductions and credits available to citizens of the US. Credits and deductions can help you save money throughout the year on your taxes or contribute to a bigger tax refund. 

A few examples of credits include:

Earned income credit 

To be eligible, you must:

Child care credit 

Eligibility requirements include:

Resident alien:

  • you paid someone to care for your child so you can work or look for work; and
  • The child is under 13 years old;
  • You are able to claim an exemption for the child.

Nonresident alien:

  • You paid someone to care for your child so that you can work or look for work; and
  • The child is under 13 years old;
  • You can claim an exemption for the child;
  • if you are married, you are filing a joint return with a US citizen or resident spouse.

Tax deductions lower your taxable income for the year. Some examples of tax deductions include

  • Charitable donations – When you donate cash to a public charity, you can generally deduct up to 60% of your adjusted gross income
  • Medical expenses – The IRS lets you deduct medical expenses that are more than 7.5% of your taxable income 
  • State and local taxes – You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property and state and local income taxes or sales taxes.

These are some examples of what you may be qualified for. It’s best to work with a tax professional to take full advantage of all the ways to save on your tax return and maximize your tax refund. 

Do undocumented immigrants pay US taxes?

In the United States, there are different types of taxes, such as income tax, payroll tax, sales tax, and property tax. Regardless of your immigration status, you will pay some type of tax. Like everyone in the United States, undocumented immigrants pay sales tax, and if they pay rent, they also pay property taxes. Undocumented immigrants also file income tax returns. As a report from the Institute on Taxation and Economic Policy (ITEP) points out, “the best evidence suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers (ITINs), and many who do not file income tax returns still have taxes deducted from their paychecks.” The end result is that undocumented immigrants are paying billions of dollars each year in taxes. 

It is required by law that individuals who reside in the United States and earn an income, whether legally or not, must pay taxes on their income and file a tax return. Undocumented residents are not eligible for an SSN and must use an ITIN when filing a tax return. To receive an ITIN to file taxes, you must file Form W-7 – Application for IRS Individual Taxpayer Identification Number, along with your other tax documents. 

A record of filing income tax returns can help defend against deportation and prove that you are a responsible and contributing member of society with a good moral character. Undocumented immigrants should also consider paying income taxes because they may eventually benefit from them when they become citizens. For example, naturalized citizens may include earnings from before they became citizens in their Social Security application if they paid taxes on those earnings.

Regardless of your immigration status, it’s important to understand your tax obligations and how they affect you based on immigration law. And as always, if you are uncertain of how your actions will affect your immigration status, contact an immigration lawyer.

 

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