The majority of U.S. residents tend to think that immigrants don’t pay taxes for the first 7 years. However, this is a wrong conception that most people believe. The Federal Government collects taxes from the new immigrants.
The governmental bodies don’t consider an immigrant an “exempt individual”. However, tax treaties are applicable to new immigrants in the U.S.A. Residents of foreign countries can reduce their annual tax rate under these treaties.
Did you recently move to the U.S.A from Italy? You must be aware of the country’s tax law. Otherwise, you might have to pay a penalty charge each month to repay the amount. The Federal Government charges 0.5% of the unpaid taxes from new immigrants.
Now, we will discuss the U.S. tax law and taxpayer bill of rights which immigrants must know about:
Residency Under U.S Tax Law – What is it & How Does it work?
You must know that individuals who reside outside the U.S. are considered to be immigrants according to the immigrant law of the U.S. However, the tax law refers to the new immigrants as nonresidents.
Both immigrants and U.S. residents pay the taxes in the same way. Immigrants must pay the tax on the income they derive from sources within the country. Is your source of income connected to the U.S. business? You must report it to the Federal Government and pay taxes like residents.
The residency rules for U.S. tax are mentioned in the Internal Revenue Code section 7701 (b). It helps the federal government to determine whether the alien individual is from the U.S.A.
When does the Federal Government consider an immigrant as a U.S. resident? If you go through the following tests between January 1 to December 31:
- Green Card Test
- Substantial Presence Test
The Substantial Presence Test determines the days you are living in the United States. Remember that an undocumented immigrant has undergone this physical presence test.
When Can an Immigrant in the United States Override the Green Card and Substantial Presence Test Result?
There are some instances where a non-resident can decide to cancel the green Card and Substantial Presence Test results. If you are new to the U.S., you must check the following reasons to override the result:
- If you have a close connection to a foreign country
- When you are eligible for the “First-Year Choice” and the government treats you as a resident
- If your spouse is from the United States and you’re treated as a non-immigrant
- You’re qualified as a foreign country’s resident under its residency law
Can You Be an Immigrant and a Resident for U.S. Tax Purposes at the Same Time?
Most immigrants in the U.S. are unaware that they can be a non-resident and a resident in the same tax year. How does the Federal Government count an immigrant’s tax year? They count the year you arrived or departed from the United States.
However, individuals who are considered a resident and non-residents must file a dual-status income tax return. Ensure to check the restrictions and rules to file it in the U.S. Mention your name, address, and taxpayer identification number before submitting the document.
The Taxpayer Bill of Rights in the U.S. – What is it?
An immigrant must understand the Taxpayer Bill of Rights before paying the revenue. It groups ten fundamental rights related to the tax code of the U.S.
The Taxpayer Bill of Rights makes the tax-paying rules easier and clearer for immigrants and residents. Do you live in the U.S. for more than 2 years? You must acknowledge your rights related to tax payments.
Here are the 10 fundamental rights for immigrants and U.S residents:
1. The Right to be Informed
This first taxpayer bill of rights is pretty easy to understand. According to it, every taxpayer has the right to know the tax laws’ rules and obligations. They must have a clear explanation of the IRS procedures.
The taxpayers should have the proper instructions about the tax laws. They must get information about when the government sends income tax notices. Besides, immigrants and residents have the right to know the IRS decision related to their tax accounts.
2. The Right to Quality Service
Every taxpayer has the right to receive professional assistance when dealing with their IRS. Moreover, they will get a prompt response from the IRS based on this law.
The IRS must communicate with the taxpayers if any internal problems occur. They have the right to speak to a supervisor or expert if the IRS doesn’t communicate with them or provides inadequate service.
3. The Right to Pay No More than the Correct Amount of Tax
Taxpayers must pay only the tax amount that is legally due to the Federal Government. However, they should check the interest rate and penalty charges before repaying the money. Based on this law, the IRS will be applied to all tax payments.
4. The Right to Challenge the IRS’s Position and Be Heard
You can raise questions and objections if the IRS acts improperly. Additionally, taxpayers can provide documents that support their objections. The IRS must consider their objections and documentation if they are valid. Taxpayers have the right to receive a response if the IRS agrees with their claims.
5. The Right to Appeal an IRS Decision in an Independent Forum
If you are an immigrant and your income is derived from a source within the U.S., you have the right to reconsider an IRS decision. Besides, taxpayers will receive a written letter from the Office of Appeals. They can then start the legal proceedings and take the case to the U.S. court.
6. The Right to Finality
Taxpayers can ask for the maximum amount of time they have to challenge the IRS decisions. Moreover, they have the right to know when the IRS audits a tax year or collects tax debts. The Federal Government also allows you to ask the time when the IRS will complete an audit.
7. The Right to Privacy
Privacy plays a crucial part when it comes to paying taxes. Hence, residents and nonresidents can ask if the IRS is reviewing their financial information. The IRS should collect the taxpayers’ information that is necessary for verifying the tax amount.
The IRS must respect all taxpayers’ process rights, including investigations. They must be informed by the IRS for the due tax collection.
8. The Right to Confidentiality
Taxpayers in the U.S. can expect that the information they share with the IRS will not be disclosed to any third parties. The IRS should never share the details with any agencies or other taxpayers.
The Right to Confidentiality ensures taxpayers can take legal steps if anyone discloses sensitive details. You have the right to take action against employees and even return preparers.
9. The Right to Retain Representation
Every taxpayer has the right to select an authorised representative to deal with the IRS. They are also allowed to receive assistance from the Low Income Taxpayer Clinic. However, you can only get help from Low Income Taxpayer Clinic if you can’t afford an authorised representative.
10. The Right to a Fair and Just Tax System
You have the right to know the consequences of not paying the taxes on time. Every taxpayer will get tax-related information timely to avoid paying penalty charges.
Besides, taxpayers with financial constraints must get assistance from the Taxpayer Advocate Service. The Taxpayer Advocate Service can help individuals if the IRS fails to solve tax-associated issues.
Obligations Associated with the U.S Tax Payments:
New immigrants and residents of the U.S. must report their monthly/yearly income to the IRS. Do you get a portion of your income from investments? You must report to the IRS to avoid legal hearings.
No matter how long you live in the U.S., the government can’t tax all your income. However, the tax amount for immigrants and U.S. residents is the same. Contact a tax accountant or lawyer if you’ve any queries related to tax payments.
