Working in the United States as a foreigner can be an enriching experience, but it also entails a series of tax responsibilities that are not always clear. Understanding how the U.S. tax system works and what your obligations are is essential to avoid problems with the Internal Revenue Service (IRS) and to ensure you properly comply with tax laws.

The essential keys that every foreigner should know when working in the US and how to properly manage their taxes are listed below:

1. Determine your tax residency status

The first step in understanding your tax obligations is to determine your tax residency status in the US. The IRS classifies foreign workers into two main groups:

• Tax resident: If you meet the substantial presence test (a minimum of 183 days in the US in the last three years), you may be considered a tax resident, which means you must pay taxes on your worldwide income, not just those earned in the US.
• Non-tax resident: If you do not meet the substantial presence test, you will be considered a non-tax resident. In this case, you will only be taxed on income generated within the US (for example, wages from work performed in the country).

2. Know the tax forms you must file

Foreigners must file different forms depending on their residency status:

• Form 1040 (Individual Income Tax Return): If you are considered a tax resident, you must complete this form, which will allow you to report your worldwide income and deductions.
• Form 1040NR (Nonresident Income Tax Return): If you are a nonresident, you will use this form to report only income earned within the U.S.

In both cases, you must detail your income, deductions, and, if applicable, any available tax credits.

3. What income is subject to tax?

Income earned in the US is subject to tax, regardless of your tax residency status. This includes:

• Salaries and wages: Income from work performed in the US.
• Income from professional services: If you are self-employed or freelance.
• Rental or investment income: If you earn income from property or investments in the US.

If you are a tax resident, you will also need to report your worldwide income, i.e., income earned outside the US, which includes any salary, rent, or investment from your home country.

4. Payroll Tax

Regardless of your residency status, if you work in the US as an employee, you will be subject to payroll taxes. This includes:

• Social Security: Contributions to the pension and disability benefits system.
• Medicare: Contributions to the healthcare system for people over 65.

Both taxes are calculated as a percentage of your salary, and generally, your employer automatically withholds them from your pay. If you are self-employed, you will also be responsible for these taxes, although the percentage may vary.

5. Tax Exemptions and Tax Treaties

Some countries have tax treaties with the U.S. that may offer exemptions or reductions in the tax rate to avoid double taxation. This means that if your country has a treaty with the U.S., you may qualify for a tax benefit, such as a lower tax rate or exemption from certain types of income.

It is important to verify whether your country has a tax treaty with the U.S. and whether you are eligible for specific benefits. Consult a tax advisor specializing in international treaties.

6. Credit for Taxes Paid Abroad

If you are a U.S. tax resident and work in another country, you may be eligible for a tax credit for taxes paid abroad. This credit allows taxes you pay in your home country to be credited against your U.S. taxes, reducing double taxation. This credit is especially useful for people with foreign-sourced income, such as those who work remotely for a company outside the U.S.

7. Deadlines and Payments

It's essential that you know the tax deadlines for filing your returns and paying any taxes you owe. The general deadlines are:

• Tax filing deadline: April 15 of the year following the tax year.
• Quarterly payments: If you are self-employed or freelance, you must make quarterly estimated payments to cover Social Security and Medicare taxes.

If you miss these deadlines, you could be subject to penalties and interest, so it's important to stay up to date.

8. Consider professional help

Taxes in the U.S. can be complicated, especially if you are a foreigner working in the country. To ensure you properly comply with all your tax obligations, it is advisable to consult with an accountant or tax advisor familiar with international tax laws and tax treaties. This will help you avoid costly mistakes and optimize your taxes.

In conclusion, working in the US as a foreigner can open many doors, but it also comes with tax responsibilities that you should not overlook. Stay informed, organize your documents on time, and, if necessary, seek professional help to ensure you comply properly with the IRS and avoid problems in the future. If you need help with your tax return, My Accounting Now has a team of accounting specialists. Call us at 786-228-8689 or email us at info@myaccountingnow.com