How Does U.S. Tax Law Work with Immigration

How Does U.S. Tax Law Work with Immigration

The Land of The Free is what they call the United States of America, and for a good reason. It has seen notable historical events such as wars, civil rights movements, and reform. The country is heavily influenced by many cultures that stand on its soil, serving as a cultural melting pot of people from different countries who decided to make the U.S. their home.

The U.S. is the third-largest country globally, and its population comes close to 331 million. In addition, a new immigrant moves to the U.S. every 666 seconds, according to the Census Bureau. Putting this claim into numbers, the country had about 46.2 million immigrants, both legal and illegal, in November 2021.

Since immigration numbers keep rising, it’s only fit to impose tax laws that consider immigrants into the equation. But how does this work?

Immigration and Tax Law: Who Has to Pay Taxes?

The United States uses two classifications of people to identify its taxpayers: (1) tax residents and (2) non-tax residents. If you are a U.S. immigrant, you might be wondering where you fit into the equation.

Many situations would require you to pay U.S. taxes even if you aren’t a citizen, but the only way to be certain is if the government classifies you as a tax resident. All permanent residents or green card holders are tax residents, but not all nonimmigrant visa holders are tax residents.

Tax residents must report their income to the IRS and pay their taxes, whether their money was earned in the country or internationally.

If your employer withholds taxes from your wages, but you’re not a tax resident, it may be a good idea to file your taxes because you may get a tax refund.

For tax purposes, if you’re not a U.S. citizen, you’re considered a non-resident and can file a non-resident tax return unless you meet one of these two tests that the IRS uses to know your residency status:

1. Green Card Test (GCT)

Under the Green Card Test, you qualify as a resident for tax purposes if:

  • You’re a lawful permanent resident of the United States at any time during the calendar year.
  • You’re a lawful permanent resident of the United States if, according to immigration laws, you have been given the privilege of permanently residing in the U.S. as an immigrant.
  • You were issued a Permanent Resident Card, Form I-551, also known as a “green card” by the U.S. Citizenship and Immigration Services (USCIS).

2. Substantial Presence Test

You are considered a United States resident for tax purposes if you are physically present in the country at least:

  • 31 days during the current year; or
  • 183 days in three years (including the current and the two years prior)
    • Days within the current year are counted as one.
    • Days of the previous year count as 1/3 of a day.
    • Days of the year prior count as 1/6 of a day.

Depending on your residency status, the way taxes are handled may differ. Below are the different types of resident aliens and how they handle their tax return preparations.

1. Green Cards

As soon as you acquire a green card, you’re automatically classified as a tax-paying resident and must report all of your income, whether earned abroad or not. With a green card, even if you don’t step foot in the United States all year, you still have to report your income to the IRS.

As a green card holder, you must also file an IRS Form 1040 each year by April 15. Failing to do so may be detrimental to your U.S. citizenship. Furthermore, not paying taxes is a criminal offense that can result in losing your green card, or worse, possible deportation.

2. Nonimmigrant Visas

Nonimmigrant visa holders, on the other hand, may or may not report their income and pay taxes. As stated in the previous section, nonimmigrant visa holders only become tax residents if they spend at least 183 days in three years.

However, a weighted system can also put you in the category of a tax resident even if you don’t meet the 183 days requirement. If you have been in the U.S. for at least 183 “weighted” or “average” days during the prior three years, then you become a tax resident, unless you spent less than 30 days of the current year in the U.S.

In a weighted system, the days of the current year count as one day, the days of the previous year count as 1/3 of a day, and all the days two years prior count as 1/6. If the sum of your stay within the past three years adds up to 183 days, you must report your income to the IRS.

If these rules don’t apply to you and you have a tax home in a different country, you may avoid a tax resident classification. However, if the IRS determines that you don’t have a tax home, they may decide that you’re concealing your income to avoid taxes and force you to pay for them anyway.

How Does the U.S. Tax Law Affect Undocumented Immigrants?

Social Security numbers are imperative to paying taxes. However, unauthorized or undocumented immigrants cannot receive a Social Security number. This can be a difficult predicament, especially since the law states that individuals who reside and earn in the United States, legally or not, must pay taxes and file a tax return.

Hence, the IRS introduced the Individual Taxpayer Identification Number (ITIN) in 1996 to allow people who don’t have Social Security numbers to pay their taxes. There are many benefits of having an ITIN, especially for undocumented immigrants; an ITIN can serve as evidence of good moral character if they ever decide to acquire a green card or apply for citizenship in the future.

Read: When and How Do I Apply for an Individual Taxpayer Identification Number (ITIN)?

Get Taxation Immigration Help Today

Proper tax filing is something the IRS takes very seriously. This is especially important if you’re an immigrant, whether legal or undocumented. However, as necessary as the gesture is, it proves to be a difficult predicament, especially for those who aren’t well-versed in U.S. tax laws.

Laws on taxation are tricky and can be grueling to handle by yourself. However, tax resolution companies such as Tax Samaritan can provide you with professional-quality tax resolution services if you need help with yours.

Get a Free Tax Quote →

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