Expatriate tax ebook - United States - Inbound
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What taxes?
Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes
Capital gains tax
Capital gains from the sale of investment assets held for less than 12 months are generally taxed at the tax payer’s regular tax rates. Long term capital gains (sale of investment assets) held for more than 12 months are generally taxed at 15%, or the taxpayer’s marginal rate if it is lower. Some exceptions apply.
Taxpayers may exclude up to US $250,000 (US $500,000 for married filing jointly) in capital gain on the sale of a personal residence, if certain conditions are met.
Inheritance, estate & gift taxes
Residency rules for estate and gift taxes differ from the rules for income taxes. Estate and gift taxes apply to foreign nationals who are domiciled in the US, or have certain types of property in the US. Obtaining a green card is evidence of domicile, but the substantial presence test does not apply to these transfer taxes. Nonresidents are only subject to tax on US situs assets as defined by law, regulation and administrative interpretation.
Investment income
Generally, investment income such as interest, rents, and royalties received by a resident of the US is taxed as ordinary income regardless of source. However, qualifying dividend income is generally taxed at 15% (or at the taxpayer’s marginal rate if it is lower), with some exceptions.
Local taxes - State and local taxes
Most states in the US, and many cities and towns, levy a separate income tax on individuals. The method that each state uses in determining tax liabilities varies, as do tax rates, extension procedures, residency rules and the availability of foreign tax credits.
Real estate tax
Real estate taxes are generally assessed at the local level and are paid on property not connected with a trade or business or on property held for the production of rents or royalties. It may be deductible at the federal level by tax residents if deductions are itemized.
Social security taxes
As a general rule, the Federal Insurance Contributions Act (FICA) imposes both US Social Security and Medicare tax on all compensation received for services performed within the US, regardless of citizenship or residence of the employee or employer, the number of days worked, or the amount of wages earned. Nonresident aliens, however, may be exempt from FICA tax based on the type of visa they hold.
FICA requires matching contributions from the employer and the employee for both Medicare and U.S. Social Security (also called old age, survivors, and disability insurance, or OASDI). The OASDI rate is generally 6.2% for both employers and employees, but under a special temporary provision is only 4.2% for individuals in 2011. OASDI is imposed up to a wage cap that is adjusted for inflation each year and is $106,800 in 2011. The maximum OASDI tax in 2011 will be $4,486 for employees. The Medicare tax rate is 1.45% for both the employer and the employee and it is not capped.
A foreign national employed in the US may be subject to the social security laws of both the US and their home country. Totalisation agreements are designed to alleviate this double taxation by allowing the foreign national to be covered under only their home social security system. The specific totalisation agreement should be reviewed to determine which country’s social security system claims coverage.
Stock options
The taxation of an individual on stock option income depends on what kind of option has been granted (e.g. incentive stock options or nonqualified options). A stock option is the right granted to an employee in consideration for the performance of services, to purchase shares in a corporate employer or related company. The option agreement usually specifies the purchase price and time period during which the option may be exercised.
The tax treatment of stock options is a complicated area and specialist advice should be sought.
Wealth tax
There is no wealth tax in the U.S.
Other specific taxes
There are no other specific taxes in the US.
Information about United States - Inbound:
Last updated 8 June 2011
This information has been provided by Grant Thornton LLP and is for informational purposes only. Grant Thornton LLP is the U.S. member firm of Grant Thornton International. Grant Thornton International Ltd is one of the world's leading organizations of independently owned and managed accounting and consulting firms.
This document supports Grant Thornton LLP’s marketing of professional services, and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document we encourage you to contact us or an independent tax advisor to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this document is not intended by Grant Thornton to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
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Contact us
For further information on expatriate tax services in the United States contact Linette Barclay or visit the US International Expatriate Services webpage.