4 Tax Laws that Affect Immigrants
Most immigrants to the United States (U.S.), no matter if they are citizens or not, are expected to pay taxes every year. You might wonder if the amount of time you spend in a country determines whether or not you have to pay taxes or not. The truth is that even if immigrants live outside of the U.S. for several months out of the year, they are still required by law to file taxes with the IRS for any earnings while in the U.S.. Below is more on what you should know.
1. Green Card Holders Must Pay Taxes
All immigrants who have successfully acquired a green card must pay taxes. Essentially, green card holders are considered American citizens and must report all income to the IRS. Green card holders who fail to file their taxes may jeopardize their odds of becoming United States citizens and could even face deportation and invalidation of their green cards.
2. Employers of Immigrants Should Still Withhold Wages
Most immigrants on work visas continue to pay into Social Security and Medicare during their time in the United States. Many Silicon Valley companies sponsor skilled immigrants to work in the technology and engineering industries. Since they're not citizens of the U.S., they will not qualify to receive Medicare or Medicaid. However, employers are still required to withhold taxes for these programs from all employees.
Employees on work visas will need to complete the same W-4 withholding paperwork as all employees. This, and all other employment paperwork, should remain with the company and be updated whenever necessary as long as they are employed by the business.
3. Tax Residents Must Report World Income
The federal government divides immigrants based on their taxable status, which means they're either taxable — like green card holders and immigrants on long-term work visas — or they're tax-exempt, like immigrants on temporary or tourist visas.
When immigrants file taxes with the IRS, they must report their worldwide income. This includes:
- Business income in foreign countries
- International property and investments
- Personal income from foreign countries
- Income from international stock markets
It's important to note that just because the United States government expects you to report all of your income on your taxes, it may not tax you on them. Many countries have agreements with the U.S. to avoid double-taxation — paying for taxes in multiple countries. If you've already paid taxes on it for another country, the IRS should deduct the taxes owed.
4. Staying in the United States Could Qualify You to Pay Taxes
If visitors to the country are not planning an extended stay, the U.S. does provide non-taxable visas for 90 or 180 days. However, if you're on a visa that doesn't require you to pay taxes and you stay in America for longer than 180 days, then you have to report your income to the IRS.
After 180 days, you are considered to have lived in the U.S. for more than half of the year and for tax purposes, can be treated as a resident.
Undocumented Immigrants Still Pay Taxes
If an undocumented immigrant receives a paycheck, they will typically have taxes withheld. Employers are required to submit W-2 forms for all of their employees. This includes the employee's name, address, and social security number. Since, undocumented immigrants do not have social security numbers, whatever is entered will not match IRS' records.
When this information does not match, the withholding is held in the Earnings Suspense File, waiting for the taxpayer to claim the withholding. In some cases, this can be the result of a clerical error such as an employer reporting the wrong social security number, and the withholding will be credited properly once the error is discovered and corrected. In the case of undocumented immigrants, the money will sit in the account uncollected. Billions annually end up as unclaimed from the Earnings Suspense File.