Tax Refund Question
First time preparing to File my US Taxes.
I entered US in August and paid taxes for say 5 months. My employer is taking tax automatically and taking it based on my yearly salary. I have only earned roughly 40% of my annual salary yet paid a monthly tax based on annual salary. When filling will the IRS look as my 40% salary earnt as my total over the year and as such I paid too much tax? Rough Example would be Salary 100k tax rate 40% Total Tax due for year: 40k Earnt 40% of salary: 40k Time: 5 months Tax Paid: 40k / 5 = 8k 40% Treated as Full Year Salary 40k Tax rate 20% Tax due : 40k*0.2 = 8k Pro Rate per month = 0.6k I was here 5 months = 5*0.6 Tax due = 3k Tax Refund = 8k - 3k = 5k Assuming the tax rate is 40% at 100k salary and 20% at 40k for example. To note I did not meet the 183 days of being in the country. |
Re: Tax Refund Question
First part of that 40% was probably for FICA which is 7.65% of your income. Then there would have have been state income tax withheld if you live in a state that has an income tax. All of that can be determined by you last paystub of the year. The paystub should indicate federal income tax withheld and you can use Form 1040NR-EZ to determine how much income taxes are owed and the refund due from the federal income taxes withheld.
Since it is an EZ form, it is easy. Form 1040NR-EZ Instructions From 1040NR-EZ |
Re: Tax Refund Question
Thanks Michael, I am just trying to guage if my above example is roughly how they would treat my earnings?
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Re: Tax Refund Question
You may of course want to make a 7701(b) election to file as a full year resident if this is a lower tax result for you. You can file for 2014 from 20 January onwards and your FBAR once the official exchange rate is published.
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Re: Tax Refund Question
Ahh so only Federal Tax Income is refunded? Not State or City taxes?
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Re: Tax Refund Question
Originally Posted by unique_boy
(Post 11526646)
Ahh so only Federal Tax Income is refunded? Not State or City taxes?
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Re: Tax Refund Question
Originally Posted by Cook_County
(Post 11526650)
Most States and some cities issue refunds but of course you have to complete the State and/or City return to figure out the amount refundable, if any.
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Re: Tax Refund Question
Originally Posted by unique_boy
(Post 11526661)
For flip sake! This is pretty confusing first time after years of never having to deal with the HMRC!
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Re: Tax Refund Question
Originally Posted by Cook_County
(Post 11526668)
US tax return filing is mandatory - the system is simply different from the UK system. You agreed (perhaps not knowingly) to dealing with annual income tax and informational return filing when you chose to move to the United States.
I know I will be due a refund but one bit of information that is not clear anywhere. Do they pro rata your taxes owed based on how long you have been here? In simplistic terms in 6 months you have earnt 40k and paid 6k Federal Tax, the tax on a 40k salary is 5k so you are owed 1k State Tax. This is clear to me, note I am just using example numbers to illustrate my question However in cases when you have not been present for the entire year do they follow the following process: Earnt 40k, paid 6k tax, yearly tax is 5k but as person has only been in country for 6 months the tax they owe is only 2.5k? |
Re: Tax Refund Question
Originally Posted by unique_boy
(Post 11526636)
Thanks Michael, I am just trying to guage if my above example is roughly how they would treat my earnings?
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Re: Tax Refund Question
Originally Posted by Michael
(Post 11526687)
You can't without filing out the form. Your example is too simplistic since it doesn't account for exemptions and deductions and the various marginal tax brackets of 10%, 15%, 25%, 28%, 33%, and 39.6%. Since you will be filing form 1040 NR, a simple tax calculator isn't available which would handle all of that for you and give you a rough estimate.
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Re: Tax Refund Question
Originally Posted by unique_boy
(Post 11526772)
Please read my last post. The question isn't so much on how much my refund will be it is about how they treat earnings when oyu have only been in the country for a short period of time.
As an example that I used before, a married person working in the US for 6 months and making $20,000 during that time would pay $0 federal income tax if they were to file form 1040 but a married person working the full year and making $40,000 would pay $2,048 in federal income taxes. Therefore form 1040 NR is used instead and since the IRS doesn't know how much the person made outside the US, it uses gimmicks to try to make the person pay $1,024 or half the amount of someone that worked in the US for the full year working on the assumption that the person made $20,000 outside the US during the year. Since there is no direct correlation, sometimes taxes owed ends up being more or less than what would be considered that taxpayer's fair share. Because of the complexity for 1st year residents, special withholdings for the W-4 is required for 1st year residents but for others, the government doesn't care how the taxpayer fills out the W-4. Form 1040 NR EZ is really easy to fill out and shouldn't take more than a 1/2 hour if you have your latest paystubs and that is the only way you will have an idea of the amount of taxes owed. For USCs that move between states there is a similar problem but the states solve the problem by having a partial year tax return which includes all income from both states to calculate total taxes owed for each state and then prorates the taxes for each state depending on the percentage of income made in each state. For first year foreigners, I'm not sure how the states handle that. |
Re: Tax Refund Question
Originally Posted by unique_boy
(Post 11526772)
Please read my last post. The question isn't so much on how much my refund will be it is about how they treat earnings when oyu have only been in the country for a short period of time.
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Re: Tax Refund Question
Originally Posted by Cook_County
(Post 11526644)
You may of course want to make a 7701(b) election to file as a full year resident if this is a lower tax result for you.
Electing Resident Alien Status Under Section 7701(b)(4) | Hodgen Law PC You can file for 2014 from 20 January onwards and your FBAR once the official exchange rate is published. |
Re: Tax Refund Question
Originally Posted by unique_boy
(Post 11526685)
Do they pro rata your taxes owed based on how long you have been here?
In simplistic terms in 6 months you have earnt 40k and paid 6k Federal Tax, the tax on a 40k salary is 5k so you are owed 1k State Tax. This is clear to me, note I am just using example numbers to illustrate my question However in cases when you have not been present for the entire year do they follow the following process: Earnt 40k, paid 6k tax, yearly tax is 5k but as person has only been in country for 6 months the tax they owe is only 2.5k? As a non-resident alien, you pay tax at the normal U.S. rates on your U.S. source income. In particular, your employment income, any U.S. rentals, etc. If you have U.S. dividends, interest, or certain other types of income, special tax rates apply, usually dependent on tax treaty. You cannot take the normal standard deduction (other than in exceptional cases), or most itemized deductions. However you can claim a personal exemption as normal, and you can take certain itemized deductions such as state income tax. If you want to figure out your tax in advance, you need to carefully work through the form 1040NR form + instructions, plus publication 519, plus any other relevant information on the IRS website. Start here: Taxation of Nonresident Aliens Effectively, (as far as I understand) there is still usually a tax benefit in only have part-year income. Since although you don't get quite as many deductions as those available to U.S. residents, you do get the benefit of the lower tax bands even though you do not have a full year's income. In your previous threads, you suggested you would be on L visa/status. If you are an intra-company transfer employee, have you got a certificate of exemption that allows you to continue paying National Insurance rather than U.S. Social Security tax? Also, is your employer paying for you to have professional tax assistance (first year tax returns are more complex than usual) and if not, why not? |
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