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Tax Question...W-4

Tax Question...W-4

Old May 29th 2013, 1:55 am
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Default Tax Question...W-4

Hi Folks,

I've received the below note from the Payroll department:

You are receiving this email because we have reason to believe that your W4 may be incorrect. New assignees coming to the U.S. for the first time (or coming as non-resident aliens) must complete the “Nonresident” W4. Until you establish U.S. tax residency Line 3 can only be Single and Line 5 cannot exceed 1 even if you are married and have children. Line 6 must say “Nonresident Alien” where you see the dots. Box 6 and 7 should be left blank.

If you want to learn more about the substantial presence test, try this link http://www.irs.gov/businesses/small/...=96352,00.html


Substantial Presence Test (extracted from the above IRS link)
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
• 1.31 days during the current year, and
• 2.183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
- All the days you were present in the current year, and
- 1/3 of the days you were present in the first year before the current year, and
- 1/6 of the days you were present in the second year before the current year

It seems that I don’t fit the criteria outlined above due to the second bullet, so:
a) Would I be taxed at a flat 30 percent federal tax (as per FDAP (Fixed, Determinable, Annual, or Periodical)?; and
b) I cannot claim any family related allowances?

The one piece that is really bothering me is that I have been asked to declare myself “Single” on the W-4 form as I don’t fit into the criteria!! Is this normal / IRS way of milking the punter?

Hope above makes sense, and thanks in advance for your feedback.
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Old May 29th 2013, 3:06 am
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Default Re: Tax Question...W-4

If you are in the US now and stay till the end of the year you will meet the substantial presence test for this year so I don't understand why you can't complete the W4 on that basis.

Also, realize that the W4 just governs withholding - not the amount of tax that you actually owe at the end of the year.
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Old May 29th 2013, 9:11 am
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Default Re: Tax Question...W-4

Hi,

We are moving in about a week and I looked at this when trying to work out how much tax we would pay I worked out that when we file our tax return in 2014 we would have met the substantial presence test so could file as "resident alien" giving us the option of "married - joint" and claiming our daughter as a dependant (we will get advice if this is the most beneficial way nearer the time). I can only assume that the W4 has to reflect your current status and tax will be withheld on this basis, which means that when your tax return is completed you may owe/get a refund. Like I say, this is my interpretation of it - in about a weeks time my OH will be also trying to fill in the same form so will update how he got on.
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Old May 29th 2013, 4:51 pm
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Default Re: Tax Question...W-4

Originally Posted by HartleyHare View Post
Hi,

We are moving in about a week and I looked at this when trying to work out how much tax we would pay I worked out that when we file our tax return in 2014 we would have met the substantial presence test so could file as "resident alien" giving us the option of "married - joint" and claiming our daughter as a dependant (we will get advice if this is the most beneficial way nearer the time). I can only assume that the W4 has to reflect your current status and tax will be withheld on this basis, which means that when your tax return is completed you may owe/get a refund. Like I say, this is my interpretation of it - in about a weeks time my OH will be also trying to fill in the same form so will update how he got on.
You always get a refund when you file a tax return when too much is withheld. Also it appears that you can choose to be treated as a U.S. resident for the entire year when filing your return if you don't meet the substantial presence test.

http://www.irs.gov/publications/p519...link1000222177
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Old May 30th 2013, 12:46 am
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Default Re: Tax Question...W-4

The "substantial presence test" I always think is a massive red herring because it doesn't apply in a multitude of situations - e.g. you are an LPR, you make a tax treaty claim, you claim a closer connection on Form 8840 then you are non-resident, you claim an exception on Form 8843, etc.

If you are a non-resident alien then usually you must file as single, unless you are a resident of Canada, Mexico or South Korea (and thus benefit from the non-discrimination clause in the relevant treaty). So you put "non-resident alien" on line 6 of W-4. But non-resident alien means you are a person who resides abroad and has US-source income. Are you?

You haven't provided enough information in your OP to answer the question, how many days are you planning to be in the US this year, did you file a 1040 or a 1040NR for 2012? Have you filed a W-8BEN with your bank or a W-9?

It's more about your intent than the substantial presence test.

Read IRS publication 515, "Persons subject to NRA withholding".

If you are resident and can prove it, you can provide that proof to your payroll dept. e.g. a copy of a 1040 or W-9. But the whole purpose of W-4 is for that - to determine withholding. That's what question 6 on the form is for. You just turn around and say you answered correctly, if you want to be taxed as a resident.

Bear in mind though being resident in the US for tax purposes means you're taxed on your worldwide income, so if you reside abroad you wouldn't want to do that.

Also, if you've yet to file a tax return in the US and became tax resident during 2013, you will need to file a dual-status return for 2013 - but by definition that means you are resident for tax purposes. That is the purpose of it, to become resident for tax purposes.

I just make the point here that lots of people, payroll departments, banks, stock brokers etc. use this stupid substantial presence test to determine withholding - you tell them what you are. If you are resident, you tell them that, if you are non-resident you tell them non-resident, regardless of the test because there are all kinds of ways of choosing it on the relevant IRS form regardless of the test. (Bearing in mind if you are a US citizen you obviously can't claim to be a non-resident alien - as Wesley Snipes found out.)

Last edited by Steve_; May 30th 2013 at 12:49 am.
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Old May 31st 2013, 3:24 am
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Default Re: Tax Question...W-4

Dear All - many thanks for your feedback.

Steve,
Many thanks for your detailed response, much appreciated. I have informed the payroll personnel that I'm a US resident, I will meet the substantial presence test for the year 2013 when I file the tax return in 2014.

For completeness, to answer your queries/further clarification, I've yet to file a tax return in the US and became tax resident in March 2013. I have no plans to stay outside the US in the next 12 months except an odd holiday(vacation) if not bankrupted before then

From your note, I underdtand that I would have to file a dual-status return for 2013 - does that mean declaring the money earned between Jan - Mar 2013? Hopefully not
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