Income Tax Basics
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In the United States, individuals pay taxes on their income to the federal government and some state and local governments. Examples of income are wages, fellowships, taxable scholarships, dividends, and gains from stock sales. The taxing authorities (federal, state, and local governments) don’t tell you the amount of your income tax. After the tax year ends, it is your responsibility to submit the correct form to report your income, tax deductions, and eligible tax credits. Your entries for these items determine the amount of your income tax which you also report on this form. This form is called a tax return.
A tax return is different from a tax refund. The U.S. income tax system is a pay-as-you-go system. You pay income tax as you earn or receive your income during the year through tax withholding and estimated tax payments. If your income tax reported on your tax return is less than the tax you paid during the year, you receive a refund of the amount of tax you overpaid. On the other hand, if your tax is more than the tax you paid during the year, you owe tax and will need to pay the amount due by the tax filing deadline in mid-April.
Federal Tax Residency
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Every individual has a federal tax residency status (U.S. tax resident or U.S. tax nonresident). Tax residents and tax nonresidents follow different tax rules. Therefore, the first step in the tax process is to determine your federal tax residency status. If you are a U.S. citizen or a U.S. national, you are automatically a tax resident. If you are an alien (the legal term for an individual who is not a U.S. citizen or U.S. national), you may be a tax nonresident or a tax resident. (If you are both a nonresident and a resident in the same year, you have dual status.) If you are an alien and not a green card holder, your residency status is based on the result of a special tax residency test called the Substantial Presence Test.
If you are an alien who is not a green card holder, the easiest and most accurate way to determine your federal tax residency status is to use the Am I a Nonresident? tool developed by the Nonresident Tax Help Group (NoRTH). Select the tax year and enter your visa and entry and exit dates for all your visits to the U.S. and the tool will provide your residency status.
Click here for Resident taxes.
Click here for Nonresident taxes.