Zez

Tax question....we arrive on 7th sept. am I right that as we are "non resident aliens" hubby can't claim any of the dependants tax breaks? But then once we've been there long enough he can backdate his "resident alien status" to the day we arrived, thereby being eligible for back dated payments? Is his what other have one? Being able to claim deductions for the kids (am possibly me as non working) is going to make a big difference to our finances!

Noorah101

IRS has a different view of "non resident alien" than USCIS does.

He can claim his dependents on the W-4 he will fill out for his employer.

Rene

nun

On the 1040NR your husband will be able to claim an exemption for himself, you and your kids.

Zez

Really? What is USCIS. From what h had read, he thought that as someone just arriving he had to fill out his w-4 without dependants. Can you link me to where you got this info so we can try and get our heads around it.

Thanks

Michael

Although USCIS and the IRS can have a different definition of residency, IRS law is complicated especially for the first and last year. See the following link and hopefully you will get a better idea of what can or cannot be done. There are items such as "First Year Choice", "Dual Status", etc.

If you later discover that your tax filing status would have been better if you filed a different way and were allowed to file that way, then you have 3 years to amend your return.

http://www.irs.gov/publications/p519/ch01.html

Michael

Recently there was someone on BE that had filled out the W-4 that way to try to estimate the correct taxes to be withheld but later the employer disallowed that due to the following supplemental instructions for the W-4.

A nonresident alien subject to wage withholding must give the employer a completed Form W-4 to enable the employer to figure how much income tax to withhold. In completing the form, nonresident aliens should use the following instructions instead of the instructions on Form W-4.

For Forms W-4 completed after December 31, 2005:
1.Check only "Single" marital status on line 3 (regardless of actual marital status).
2.Claim only one withholding allowance on line 5, unless you are a resident of Canada, Mexico, South Korea, a U.S. national, or a student or business apprentice from India.
3.Do not claim “Exempt” withholding status on line 7.
4.Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4.

http://www.irs.gov/Individuals/Inter...ons---Form-W-4

However no matter which way the W-4 is filled out, your year end tax return determines if tax is owed or a refund is to be issued.

Zez

Thank you. I thought that since we won't have made the residency test when we first arrive we'll be non resident aliens, then can make the first year choice once we reach the magic number of days. Until that point our understanding was that we'd get no deductions. Along the right lines?

Zez

Michael, the first publication you linked is the one we've been reading!

Zez

And your second post is exactly what we though we'd have to do. Then, once we make the first year election, they'll owe us the deductions backdated to day 1?

Michael

Because foreign income is not used during your first year to determine what your proportional tax should be owed to the IRS, many deductions, exemptions, credits, etc. are not allowed. I guess you could call it the great equalizer. Since taxes and marginal tax brackets are based on income for the entire year, if all the exemptions, deductions, and tax credits were allowed, you may end up not paying any income tax for the first year.

As an example, if your annual income was $150,000 but you only worked in the US for 4 months with $50,000 in reported US income and were allowed to file married filing jointly with two exemptions with two dependents with two child tax credits and the standard deduction, you would pay $0 in federal income tax.

http://www.dinkytown.net/java/Tax1040.html

Michael

Since the IRS has no way of estimating what your tax liability will be in the first year, they make first year filling out your W-4 form very stringent. Once you become a resident alien for tax purposes, you can fill out the W-4 form any way you desire (you don't have to follow the rules defined in the W-4) and can change the W-4 several times a year as income changes (mortgage interest payments, capital gains, bonuses, stock options, and other things that may not be correctly withheld or deducted). The W-4 is only used by the employer to withhold taxes and is not sent to the IRS. As far as the IRS is concerned, you should pay enough taxes so that you don't owe more than $1,000 at the end of the year (several exceptions apply where penalties and interest are not accessed if you owe more than $1,000).

For example, bonuses and exercised stock options are normally withheld at 25% no matter how the W-4 form is filled out. If your top marginal tax rate is above or below 25%, you may have to change the W-4 to compensate for that of file a quarterly tax payment. However generally as long as you paid as much tax as the previous year, there isn't any penalty for under payment of taxes when you fill out your tax return. If you purchase a home and/or move to a high income tax state (both deductible), you may want to increase your allowances on the W-4 since your taxes will likely be reduced. Much more is on the individual to estimate taxes owed than in the UK.

Zez

Ah that's really helpful. They're strict in Y1 so you don't end up underpaying and owing them loads, and thereafter the onus is on you to fill in W-4 such that you are up to date with what you owe. That seems to make sense. Thanks

Michael

It doesn't make a lot of sense especially if you arrive late in the year since they will likely be withholding significantly too much. Although filing as a "non resident alien" eliminates a lot of deductions, exemptions, and other things that a resident can use, your income will be low for that period but withholdings is based upon as if you made your monthly income for the full year. Taxes owed would probably be much closer if they calculated and withheld taxes based on your estimated pay in the US and filling out the W-4 as they describe but employer's payroll software doesn't have the capability to perform those calculations (since they aren't required) so the law hasn't changed since the law was enacted prior to sophisticated computers to perform such calculations. So I suspect you will get a significant tax refund when filing your tax return.

Zez

I think we worked it out as a refund of a few thousand dollars! First few months will be tight though...trying to view it as saving for visits home

nun

The IRA might be a bit mean on the W-4, but on the 1040NR you can claim the personal, spouse and children exemptions. However, they will only count against US income.