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Income Taxes in the US: The Final Steps

Paying income tax in the US is complicated. Tax is due on several levels: You need to pay US income tax to the federal government as well as the individual state. Sometimes, local income tax is also due. This overview helps expats to navigate such tax issues, providing guidance for filing your tax returns.
If you need help with your tax return, don’t hesitate to contact the IRS!

After adjusting your gross income and subtracting the eligible tax deductions, you have arrived at your taxable income. With this number, you can calculate your income tax, as we have explained on the previous page.

However, before you finally submit your forms and paperwork to the IRS, there are some additional steps to take.

Step 8: What about Alternative Minimum Tax?

First, you might have to pay AMT as well. AMT is short for alternative minimum tax. It is basically a tax system of its own that runs parallel to regular income tax.

AMT is a complex and controversial matter, which we won’t describe in detail here. You can try using the online AMT assistant to find out if you are obliged to pay alternative minimum tax. If you aren’t, simply ignore this issue.

However, if AMT does apply to you, you need to pay either your normal income tax or the AMT, whichever is higher. If you neglect to pay AMT when figuring your taxes, the IRS may collect it from you after processing your annual tax return.

Step 9: Deduct Tax Credits

From your total tax burden, you can directly deduct selected tax credits if they fit your particular case. Potential tax credits include:

  • child care and dependent care credit
  • tax credit for elderly or disabled people
  • child tax credit
  • education credit
  • earned income credit for low-income workers
  • adoption credit
  • foreign tax credit, etc.

Once you have subtracted the tax credit(s) you are entitled to, you’ll know, finally, how much tax you owe to the IRS.

Taxes are due either in the form of withholding tax or as estimated tax payments. Taxes on employment income, as well as on interest and dividends, are automatically withheld at the source.

But if this withholding tax does not cover your entire tax burden, you have to make estimated tax payments every quarter in the following tax year. If you’d like to avoid that hassle, you can simply ask your employer to increase your monthly withholding tax and transfer more money from your salary to the IRS.

State and Local Income Taxes

Now that you have tackled your federal income tax, paying taxes on the state level will be much easier. Obviously, you should first find out if you owe any state income tax at all. Some of the 50 states don’t levy any additional taxes on their lucky residents. Go to your state’s department of finance or revenue, to the state tax board, the comptroller, etc., to see if there is actually a state income tax.

Before you are required to pay any income tax in a specific state, you usually have to fulfill certain requirements with regard to local residency, as well as minimum income. When you have filled in your federal income tax forms, you can re-use a lot of the respective information for state income tax returns. However, many details – like special tax deductions or tax rates – vary greatly from state to state.

In some places, you also have to pay income taxes on a local level. Please contact the municipal government of your city or town to see if this is the case. For example, if you live in NYC, you owe local income tax, too. It can simply be filed together with your state income tax return via the New York Department of Taxation and Finance. However, in other cities in New York State (e.g. in Albany, NY), you needn’t worry about additional income tax.

State income taxes are normally independent of your federal residency status. It doesn’t really matter whether you are a resident alien or a non-resident alien taxpayer, as per the IRS. When it comes to income tax in a particular state, it is your residence in that one state which is more important. Residency tests in individual states may also differ from the substantial presence test we have described in the first part of this guide.

Further Information for Foreign Nationals

The distinction between resident and non-resident aliens obviously matters greatly on a federal level. If you want to know more about the taxation of non-resident aliens and dual-status taxpayers, as well as tax treaties and the IRS departure permit, check out our article on US taxes for non-resident aliens and other international issues.  

If you need to read up on the details involved in filing your income tax return with the IRS, there is a variety of official publications available online. Publication 17 is the best starting point for resident aliens. In case you have any specific questions, you can also contact the IRS directly. They offer free telephone assistance, Monday through Friday from 7 am to 7 pm, or you can opt to visit a local Taxpayer Assistance Center in person.  

 

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