Top 10 Tax Tips for Immigrants
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Here are some more common situations where an immigrant might be required to pay taxes and some information about how to file.
1. WHY SHOULD I FILE TAXES?
You may be violating tax law if you don't file and as a result, you may have to pay additional money for penalties and interest for failing to file and or failing to pay tax due. If you overpaid your taxes through your paychecks and are entitled to a tax refund, you can't get a refund, if you don't file.
2. AM I A "RESIDENT ALIEN" or "NON-RESIDENT ALIEN" FOR TAX PURPOSES?
Being a resident for tax purposes is different from being a resident alien for immigration purposes. To decide whether you were a resident alien for tax purposes, the IRS uses two tests:
Test 1: Do you have a "green card?"
Test 2: Have you been physically present in the US for the required time - which means:
- You were physically present in the US for at least 31 days during the tax year; AND
- You have been physically present in the US for 183 days during the three year period including this tax year and the previous two tax years. For the current year you count all the days present, for the next previous year you count 1/3 the days present, for the earliest year you count 1/6 the days present.
If you do not qualify as a resident under one of the two tests above, you are a nonresident alien for tax purposes. You must file taxes if you are a non resident alien and worked in the US. For tax year 2014, you may not have to file if you earned less that $3,950, the amount of one personal exemption.
When you are not required to file taxes, you still may want to file taxes if you want to claim a refund because too much money was withheld from your paycheck or you want to claim a deduction or credit.
Two reasons nonresident aliens must file taxes are when you are:
Doing a trade or business in the United States (U.S.) or are considered to be engaged in a trade or business in the U.S. even if your income did not come from trade or business conducted in the U.S.
- If you are a nonresident and in the U.S. on certain student visas, you will be considered to be "engaged in a trade or business."
- Not doing a trade or business in the United States but you had income on which you did not pay taxes yet.
If you are a representative of a resident alien or are a fiduciary of a nonresident alien's estate you should consult with the IRS or a qualified tax preparer on when and how you are required to file.
3. WHICH FORM SHOULD I USE TO FILE TAXES?
If you are a resident alien:
- Form 1040-EZ is the most simple tax form to use. It can be filed if you have no dependents and had income consisting of only wages, unemployment or interest: (Income Tax Return for Single and Joint Filers with No Dependents), or;
- Form 1040(A) or 1040 is the form to use if you have dependents and other income not reportable on 1040-EZ: (US Individual Income Tax Return).
If you are a nonresident alien:
- Form 1040 NR (US Nonresident Alien Income Tax Return) or
Form 1040 NR-EZ (US Income Tax Return for Certain Nonresident Aliens with No Dependents) if:
- You do not claim any dependents; and
- You cannot be claimed as a dependent by someone else; and
- You are not claiming an exemption for your spouse; and
- Your taxable income was less than $100,000; and
- You do not claim any federal itemized deductions other than for state and local taxes; and
- Your income was from wages, salaries, tips, taxable refunds of state and local income taxes, and scholarship or fellowship grants; and
- You are not claiming any adjustments to income other than the student loan interest deduction or scholarship and fellowship grants; and
- You are not claiming any credits; and
- You are not filing an expatriation return (U.S. citizens renouncing their citizenship); and
- The only tax you owe is a tax from tax tables or from form 4137 or 8919; and
- You are not requesting a credit of overpaid social security or Tier 1 RRTA tax withheld.
Note: If you are a non-resident alien, income from different sources may be taxed at different rates, see Chapter 4 "How Income of Aliens is Taxed," U.S. Tax Guide for Aliens.
4. CAN I FILE TAXES IF I DON'T HAVE A SOCIAL SECURITY NUMBER?
Yes. If you do not have a Social Security Number, the IRS can issue an Individual Taxpayer Identification Number (ITIN). You use this number on your tax returns instead of a Social Security Number.
The ITIN is for tax use only and cannot be used as a Social Security Number for other purposes. It does not change your employment or immigration status and it does not entitle you to Social Security Benefits. An ITIN does not give you authorization to work.
To apply for an ITIN, you have to file form W-7. It takes approximately 4-6 weeks to get your ITIN. Publication 1915 is available to address your questions about ITINs.
5. WHAT IS MY FILING STATUS?
If you are a Resident Alien for tax purposes, you must file a tax return following the same rules that apply to US citizens. You can choose to file as any of the following:
Married filing jointly if
- You and your spouse were both resident aliens for the entire tax year; or
- Sometimes you can choose to treat your spouse as a resident alien for the whole tax year. Certain conditions apply - (Publication 17, page 22, left column)
Qualifying widower if
- Your spouse died in the tax year, and must also have been a resident alien, see MFJ conditions for dual status issues; and
- You have not remarried;
- You have a dependent child living with you
Head of Household:
- You are unmarried or considered unmarried on the last day of the year; or
- Your spouse is a non-resident alien who has not elected to be treated as a resident alien; and
- You paid more than half of the cost of keeping up a home for yourself and a qualifying person, usually a child who lives with you, (a spouse who has elected NOT to be treated as a resident alien is NOT a qualifying person.);
- You were a resident alien for the whole tax year.
If you are a Nonresident Alien for tax purposes, you can choose to file as any of the following (check Publication 17 for definitions):
Married, filing jointly if:
- You choose to be treated as a resident (and are married to a US Citizen or Resident Alien and they join you in electing to treat you as a resident alien)
Qualifying widower if:
- You were a resident of Canada, Mexico, or South Korea or a US National; AND
- Your spouse died during the tax year; AND
- You have not remarried; AND
- You have a dependent child living with you; AND
- You are filing form 1040NR
- Married filing separately
Married filing as a Single Nonresident Alien if:
- You file form 1040NR and you are from Mexico, Canada, South Korea or married to a US National, AND
- You lived apart from your spouse during the last six months of the year.
- Single if you are unmarried
Head of Household status is not available to Nonresident aliens.
6. CAN I CLAIM THE EARNED INCOME CREDIT?
An alien may be able to claim the Earned Income Credit if:
- You have earned money from a job in the last three years below a certain amount; and
- You have taken care of children in your household in the past three years; (these children must be considered "qualifying children." See Publication 17, p. 230, Table 36-1.
- There is a smaller credit available for taxpayers without children.
- You have a Social Security card which does not read "Not Valid for Employment."
- You are a nonresident alien but you elect to be treated as a resident spouse when filing a joint return with a US citizen or resident spouse.
You cannot claim the Earned Income Credit if:
- Your filing status is "married filing separate"; or
- You are filing under an ITIN;
- Your children do not have valid Social Security Numbers that permit them to work in the United States; (the Social Security card states - "Not Valid for Employment")
- You are not a resident alien for tax purposes (see question 4);
- If the children did not live with you six or more months during the tax year.
- Your Social Security card states - "Not Valid for Employment."
7. CAN I CLAIM THE CHILD CARE CREDIT?
If you are a resident alien (for tax purposes), you can claim the Child Care Credit if:
- you paid someone to care for your child so you can work or look for work; and
- The child is under 13 years old;
- You are able to claim an exemption for the child.
If you are a nonresident alien (for tax purposes), you can claim the Child Care Credit if
- You paid someone to care for your child so that you can work or look for work; and
- The child is under 13 years old;
- You are able to claim an exemption for the child;
- if you are married, you are filing a joint return with a US citizen or resident spouse.
8. CAN I CLAIM ANY EXEMPTIONS?
Resident aliens for tax purposes: you can claim exemptions for spouse or dependents according to the rules for United States Citizens, with the following additional limits:
- Spouse: you can claim an exemption for a spouse who had no U.S. income even if your spouse has not come to the U.S.
- Children: You can claim an exemption for qualifying children if the child is a citizen or national of the U.S., or a resident of the U.S., Canada, or Mexico for part of the year.
- Spouse or Dependents must have either a Social Security Number or an ITIN (Individual Taxpayer Identity Number).
Non-resident aliens for tax purposes: you may qualify to claim exemptions for dependents if you are the following:
- Residents of Mexico, Canada or the United States;
- Residents of South Korea (There are additional rules. See page 27 of Publication 519 (2015));
Students and business apprentices from India that meet certain treaty requirements
- If your dependents were not admitted to the United States on F-2, J-2 or M-2 visas and dependents meet the same rules that apply to US citizens.
9. CAN I CLAIM THE CHILD TAX CREDIT?
An immigrant can claim the child tax credit for his or her child if:
- The child is a United States Citizen or resident alien for income tax purposes (see above); and
- You claim the child as your dependent on your tax return; and
- The child was younger than 17 at the end of the tax year; and
The child is a qualifying child who is either:
- Your son, daughter adopted child, grandchild, step child, your brother, sister, stepbrother or stepsister; or
- The descendant of anyone listed above; or
A foster child who is:
- A child placed with you by an authorized placement agency.
10. DOES THE NEW REQUIREMENT TO HAVE HEALTH INSURANCE OR PAY A PENALTY APPLY TO ME AND MY HOUSEHOLD?
Immigrants who are lawfully present in the U.S.:
1. May have an obligation to maintain health insurance for themselves and their tax dependents who are also lawfully present; or
2. Pay a penalty called a “shared responsibility payment.”
3. An immigrant who is not lawfully present will not have to pay a shared responsibility payment for him or herself.
a. However, if this immigrant has a dependent for tax purposes, who is either lawfully present or who is a U.S. Citizen, the immigrant may have to pay a penalty for the dependent if the dependent does not have health insurance.
4. Most people will have insurance through their employers or often will have coverage through Medicaid or Iowa Health and Wellness. If you and your dependents for tax purposes already have health insurance that offers you minimum essential coverage then you don’t have to do anything.
If you don’t have insurance:
1. Immigrants and their children who are lawfully present may qualify for insurance through the “Health Insurance Marketplace” also called the “Healthcare Exchange.”
2. They may also qualify for a tax credit to help pay for insurance.
3. An immigrant who is not lawfully present is permitted to apply for insurance for a lawfully present child through the exchange and receive a credit for that child.
4. Immigrants who received deferred action for childhood arrivals (DACA) or “DACA”recipients do not qualify for insurance even though they are currently considered lawfully present.
5. “DACA” recipients and the taxpayers that may claim them as dependents for tax purposes do not have to pay a penalty for the recipient.
Information on the Healthcare Exchange:
1. To find out more about health insurance through the “Healthcare Exchange” you may call 1-800-318-2596 or go to www.healthcare.gov
2. Deadline to enroll in insurance through the exchange for 2015 coverage is February 15, 2015.
WHERE CAN I GET HELP WITH TAX PROBLEMS?
Iowa Legal Aid helps low-income taxpayers with their tax rights and responsibilities though our Low-Income Tax Clinic (LITC). The LITC educates and assists people who use English as a second language about the Earned Income Credit and other tax issues.
INTERNAL REVENUE SERVICE, Pub. No. 519 , U.S. Tax Guide for Aliens 2010.
INTERNAL REVENUE SERVICE, Pub. No. 17, Tax Guide 2010 For Individuals.
INTERNAL REVENUE SERVICE, Pub. No. 501, Deductions, Exemptions and Filing Information 2010.
As you read this information, remember this article is not a substitute for legal advice.
As a general rule, Iowa Legal Aid’s Low-Income Taxpayer Clinic does not prepare tax returns.