Tax In USA

A Contractor's Guide to Taxes : 

One of the most consistently challenging aspects of contracting in USA is complying with the country’s tax system. As well as paying tax in the US, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge. 

How do I calculate my taxable income: 

If you’re working in the USA under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. Your employer is required to withhold federal income tax, social security tax, Medicare tax and other deductions from each payment of wages and/or other compensation. This means that they calculate and process your taxes for you and then send you a net wage. This is the easiest way to handle your income tax in the USA, but contractors may not be offered this service because of their short stay with each employer.

Anybody who can’t pay their tax in the USA through PAYE is left with the prospect doing everything themselves.

Do you know much about US Tax Law? Does the US have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in the US can range from 10% to 39.6% percent, and you need to be sure you are placed in the correct tax brackets.

Tax Calculator: 

If you are a contractor and want a calculation on your tax and net retention in the US, we can supply it to you free of charge. 

Using an Umbrella Company for Income Tax : 

Contractors in the US are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. An umbrella company in the US can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).

The companies are experts in taxation in the US, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the US tax office or tax department directly including processing your tax refund if you are eligible.

How We Can Help You with Tax: 

We work with numerous umbrella companies in the US, many of whom are experts in tax and immigration laws. If you have any questions about tax in the US, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their US work permit.

Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in the US but without the overhead of directly dealing with the US tax authorities. Get in touch with us today for some reliable advice on tax in the US!

 

When Do You Need to Lodge Your Tax Return?: 
April 15
Tax Filing Deadline : 
April 15 (or the following business day if April 15 falls on a weekend or a public holiday)
Can you file it online? : 
Yes, https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
Currency: 
US Dollar (USD)
Tax-free Threshold in: 
None
Grossed Income: 
Married Filing Jointly
Grossed Income: 
0-18,650
Tax Rate: 
10%
Grossed Income: 
>18,650-75,900
Tax Rate: 
15%
Grossed Income: 
>75,900-153,100
Tax Rate: 
25%
Grossed Income: 
>153,100-233,350
Tax Rate: 
28%
Grossed Income: 
>233,350-416,700
Tax Rate: 
33%
Grossed Income: 
>416,700-470,700
Tax Rate: 
35%
Grossed Income: 
>470,700
Tax Rate: 
39.6%
Grossed Income: 
Married Filing Separately
Grossed Income: 
0-9,325
Tax Rate: 
10%
Grossed Income: 
>9,325-37,950
Tax Rate: 
15%
Grossed Income: 
>37,950-76,550
Tax Rate: 
25%
Grossed Income: 
>76,550-116,675
Tax Rate: 
28%
Grossed Income: 
>116,675-208,350
Tax Rate: 
33%
Grossed Income: 
>208,350-235,350
Tax Rate: 
35%
Grossed Income: 
>235,350
Tax Rate: 
39.6%
Grossed Income: 
Head of Household
Grossed Income: 
0-13,350
Tax Rate: 
10%
Grossed Income: 
>13,350-50,800
Tax Rate: 
15%
Grossed Income: 
>50,800-131,200
Tax Rate: 
25%
Grossed Income: 
>131,200-212,500
Tax Rate: 
28%
Grossed Income: 
>212,500-416,700
Tax Rate: 
33%
Grossed Income: 
>416,700-444,550
Tax Rate: 
35%
Grossed Income: 
>444,550
Tax Rate: 
39.6%
Grossed Income: 
Single
Grossed Income: 
0-9,325
Tax Rate: 
10%
Grossed Income: 
>9,325-37,950
Tax Rate: 
15%
Grossed Income: 
>37,950-91,900
Tax Rate: 
25%
Grossed Income: 
>91,900-191,650
Tax Rate: 
28%
Grossed Income: 
>191,650-416,700
Tax Rate: 
33%
Grossed Income: 
>416,700-418,400
Tax Rate: 
35%
Grossed Income: 
>418,400
Tax Rate: 
39.6%
How long does it take to set up: 
6 days
How much does it cost: 
USD750
Is it easy? : 
Starting a Business Rank: 49/190 (Source: World Bank)
How to File Taxes in: 

You can file your taxes online or by mail.

Step 1: Gather all relevant documents and information. These may include:

  • Your Adjusted Gross Income (from your last year’s tax return or the IRS Get Transcript Online tool) 
  • Social Security numbers for yourself, your spouse and dependents (if applicable)
  • W-2s, showing annual wages from your employers
  • Any forms showing interest, tax credits and/or dividends paid to you

Click here for a comprehensive list.

Step 2: Obtain the relevant tax forms. IRS e-file can choose the best form for your situation. In general, use:

  • 1040EZ if your taxable income is below $100,000; your filing status is single or married filing jointly; you are not claiming any dependents; and your interest income is $1,500 or less.
  • 1040A if your taxable income is below $100,000; you have capital gain distributions; you claim certain tax credits; and you claim adjustments to income for IRA contributions and student loan interest.
  • 1040 if your taxable income is $100,000 or more; you claim itemized deductions; you are reporting self-employment income; and you are reporting income from sale of a property.

Step 3: Sign and submit your tax forms. This can be done online or by mail. The postal address for your state can be found on the IRS website here.

Notes: 

Which Category: The four different categories of taxpayers are subject to different tax rates. Married taxpayers can benefit more from filing jointly than from filing separately. However, they may not be able to, if either spouse is a non-resident at any time during the tax year.

Estimated Tax Payments: Your employer (or umbrella company) is required to withhold taxes from each payment of wages and/or other compensation. You may be required to pay estimated tax in quarterly instalments if it is expected that withholding will not cover your annual tax liability. Federal estimated tax payments are due on April 15, June 15, September 15 of the current year, and January 15 of the following year.

Does the 183 day rule apply in: 

Yes.

When do you become a tax resident in: 

You become a tax resident in USA when:

  • You become a ‘green card’ holder i.e. you become a lawful permanent resident; or
  • You meet the ‘substantial presence test i.e. you are present in the US for at least 31 days in the current year and a total of 183 days during the current year and preceding 2 years. Each day of presence during the current calendar year counts as 1 day, each day in the preceding year counts as 1/3 of a day and each day in the second preceding year counts as 1/6 of a day.
Am I taxed on my global income in: 

Yes. Residents who hold green cards but leave the US to live abroad indefinitely or permanently will continue to be taxed as foreign residents (i.e. taxed on their global income) until the green card is relinquished.

Client comment

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