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International Tax Issues in the US

If you aren’t considered a fiscal resident, doing your US taxes comes with its own set of potential pitfalls. Our guide summarily covers taxation for non-resident and dual-status aliens, as well as other issues of interest to expats: tax treaties and the final departure permit from the IRS.
Don’t forget to get a departure permit from the IRS when you leave the United States!

Dual-Status Taxpayers

Some expats living and/or working in the United States count as dual-status taxpayers. This means that they have been both non-resident aliens and resident aliens for fiscal purposes in one and the same tax year. In most cases, this applies to foreign nationals in their year of arrival in/departure from the United States.

It can be rather tricky to work out what the official starting date of your fiscal residency in the US is. A similar problem may arise for the year of your departure, regarding the actual residency termination date, after which you are defined as a non-resident alien.

If you suspect that you might be a dual-status alien in a particular tax year, it is best to contact an expert. Not only might it be hard to figure out when you become (or cease to be) a resident tax-payer. There may also be special restrictions with regard to filing status, tax deductions, personal exemptions, and tax credits.

Last but not least, two different sets of rules apply to two parts of the fiscal year: For the period when you count as a non-resident alien, you’ll be taxed according to the principles outlined on the previous page. Once you are considered a resident foreign national, you will be subject to the income tax regulations for US citizens, as described in our other tax guide. Figuring your US taxes is therefore even more complex.

Again, the IRS Tax Guide for Aliens provides in-depth information on dual-status tax years.

Bilateral Tax Treaties

Regardless of fiscal residency status, expatriates relocating to the US should always check if there is a tax treaty between the US government and their own country of origin. You can find a list of all current treaty countries on the IRS homepage (please scroll down a little).

Expats may be able to profit from tax treaties in several ways. For example, the treaty might stipulate lower rates for flat taxes, e.g. on income from capital gains.

Moreover, despite passing the substantial presence test for fiscal residency in the US, you could be regarded as a non-resident alien under treaty regulations. This does not only mean that you usually won’t be taxed on the same income twice. Depending on the tax laws of your home country, this may results in further financial benefits. Ask an experienced tax consultant who is familiar with both sets of tax laws to advise you on your individual case.

The Departure Permit

In addition to international tax treaties, expat taxpayers in the US should also have heard about the so-called "sailing permit". This departure permit, also known as "certificate of compliance", forms part of the last income tax return which you have to hand in before leaving the United States.

Some foreign nationals, e.g. government representatives with diplomatic passports and their dependents, international students at US universities, and exchange visitors, may be exempt from that obligation. All other aliens need to include the "sailing permit" in their final tax return.

For this purpose, please get in touch with the IRS about 30 days to two weeks before your planned departure. They will tell you which form to fill out and which other documents to include. The list of required paperwork can be fairly long, so you’d better avoid waiting till the last possible moment.

Then, once you send in your departure permit and the last tax return, you either need to pay outstanding taxes before you leave, or you must furnish a bond to guarantee future payment to the IRS. 

 

We do our best to keep this article up to date. However, we cannot guarantee that the information provided is always current or complete. 

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