Worldwide Tax Summaries
The new Trump administration and a Republican-controlled Congress are setting the stage for a significant ’must-pass‘ tax bill. Numerous 2017 Tax Cuts and Jobs Act (P.L. 115-97 or so-called TCJA) income, gift, and estate tax provisions are set to expire or change at the end of 2025. A lack of action would result in across-the-board tax increases for individual taxpayers. These provisions include:
It’s unclear what legislation will be enacted, but the Trump administration would likely aim to make the decreased income tax rates permanent. Setting a new sunset date could also occur. Other Trump proposals include:
The United States levies tax on its citizens and residents on their worldwide income. Non-resident aliens are taxed on their US-source income and income effectively connected with a US trade or business (with certain exceptions).
For individuals, the top federal income tax rate for 2024 is 37%, except for long-term capital gains and qualified dividends (discussed below).
P.L. 115-97 reduced both the individual tax rates and the number of tax brackets. P.L. 115-97 sunsets after 2025 many individual tax provisions, including the lower rates and revised brackets.
| Taxable income (United States dollars or USD) | Tax rate (%) |
| 0 to 11,600 | 10 |
| 11,601 to 47,150 | 12 |
| 47,151 to 100,525 | 22 |
| 100,526 to 191,950 | 24 |
| 191,951 to 243,725 | 32 |
| 243,726 to 609,350 | 35 |
| 609,351+ | 37 |
| Taxable income (USD) | Tax rate (%) |
| 0 to 23,200 | 10 |
| 23,201 to 94,300 | 12 |
| 94,301 to 201,050 | 22 |
| 201,051 to 383,900 | 24 |
| 383,901 to 487,450 | 32 |
| 487,451 to 731,200 | 35 |
| 731,201+ | 37 |
| Taxable income (USD) | Tax rate (%) |
| 0 to 16,550 | 10 |
| 16,551 to 63,100 | 12 |
| 63,101 to 100,050 | 22 |
| 100,051 to 191,950 | 24 |
| 191,951 to 243,700 | 32 |
| 243,701 to 609,350 | 35 |
| 609,351+ | 37 |
| Taxable income (USD) | Tax rate (%) |
| 0 to 11,600 | 10 |
| 11,601 to 47,150 | 12 |
| 47,151 to 100,525 | 22 |
| 100,526 to 191,950 | 24 |
| 191,951 to 243,725 | 32 |
| 243,726 to 365,600 | 35 |
| 365,601+ | 37 |
In lieu of the tax computed using the above rates, the individual AMT may be imposed under a two-tier rate structure of 26% and 28%. For tax year 2024, the 28% tax rate applies to taxpayers with taxable incomes above USD 232,600 (USD 116,300 for married individuals filing separately).
For 2024, the AMT exemption amount is USD 133,300 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and USD 85,700 for all other taxpayers (other than estates and trusts), and the phase-out thresholds are USD 1,218,700 for married taxpayers filing a joint return and USD 609,350 for all other taxpayers (other than estates and trusts).
The AMT is payable only to the extent it exceeds the regular net tax liability. The foreign tax credit is available for determining AMT liability to the extent of the foreign tax on the foreign-source AMT income (AMTI), subject to certain limitations.
AMTI generally is computed by starting with regular taxable income, adding tax preference deductions (claimed in the computation of regular taxable income), and making special adjustments to some of the tax items that were used to calculate taxable income. For example, the taxpayer must add back all state and local income taxes deducted in computing regular taxable income.
For non-resident aliens with a net gain from the sale of US real property interests, the AMT is calculated on the lesser of AMTI (before the exemption) or the net gain from the sale of the US real property interest.
A 3.8% 'unearned income Medicare contribution' tax applies on the lesser of (i) the taxpayer's net investment income for the tax year or (ii) the taxpayer's excess modified adjusted gross income over a threshold amount (generally, USD 200,000 for single taxpayers and heads of households, USD 250,000 for a married couple filing a joint return and surviving spouses, and USD 125,000 for a married individual filing a separate return).
The tax, which is in addition to the regular income tax liability, applies to all individuals subject to US taxation other than non-resident aliens. Net investment income generally includes non-business income from interest, dividends, annuities, royalties, and rents; income from a trade or business of trading financial instruments or commodities; income from a passive-activity trade or business; and net gain from the disposition of non-business property.
Most states, and a number of municipal authorities, impose income taxes on individuals working or residing within their jurisdictions. Most of the 50 states impose some personal income tax, with the exception of Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, which have no state income tax. New Hampshire and Tennessee (until 1 January 2021) tax only dividend and interest income. Few states impose an income tax at rates that exceed 10%.
The determination of an alien's residence status is subject to a set of relatively objective tests. These rules generally treat the following individuals as residents:
Special rules apply when determining the portion of the year an individual will be treated as a resident or non-resident in the first and last years of residency.
Note that resident alien status often results in lower US tax than non-resident alien status, due to increased allowable deductions and lower tax rates for certain married taxpayers. Consequently, certain non-resident aliens may choose to elect resident alien status, if specific requirements are met.
The United States has income tax treaties with a number of countries for the purpose of eliminating double taxation (see Tax treaties in the Foreign tax relief and tax treaties section). If there is a tax treaty in effect between the United States and an individual's country of residence, the provisions of the treaty may override the US resident alien rules. Under many of these treaties, an individual classified as an income tax resident under the internal laws of both the United States and one's home country, who can show that a 'permanent home' is available only in the home country, will generally be classified as a non-resident alien for purposes of US income tax law. A form must be filed in order to claim non-resident alien status as the result of a tax treaty.
To the extent that an individual is a green card holder and avails oneself of the residency override provisions of the treaty, the individual may be subject to the expatriation rules discussed above. Professional advice should be sought before claiming treaty benefits for this purpose.
For 2024, social security tax (old-age, survivors, and disability) will be withheld at the rate of 6.2% on the first USD 168,600 of wages paid.
Medicare hospital insurance taxes must be withheld on 1.45% of all wages. The social security taxes for resident self-employed individuals are equal to 12.4% of the first USD 168,600 for 2024. Medicare hospital insurance taxes are equal to 2.9% of all net self-employment income. Note that non-resident aliens are not subject to social security and Medicare hospital insurance taxes on self-employment income.
The employee portion of Medicare hospital insurance tax is increased by an additional 0.9% on wages received in excess of USD 250,000 for a married couple filing a joint return, USD 125,000 for a married individual filing a separate return, and USD 200,000 for all other individuals (these thresholds are not indexed for inflation).
Social security and Medicare hospital insurance taxes are not deductible when determining an employee's taxable income. However, a deduction is allowed for an amount equal to one-half of the combined self-employment social security and Medicare hospital insurance taxes that are imposed.
Note that the United States has entered into Totalisation Agreements with several nations (see Tax treaties in the Foreign tax relief and tax treaties section) for the purpose of avoiding double taxation of income with respect to social security taxes and allowing individuals who participate in more than one social security system to qualify for benefits that would not be available under domestic law. These agreements must be taken into account when determining whether any alien is subject to US social security and Medicare hospital insurance taxes or whether any US citizen or resident alien is subject to the social security taxes of a foreign country.
The maximum federal tax rate on capital gains is 20% for assets held for more than 12 months, with a few exceptions. The graduated income tax rates apply to capital gains from assets held for 12 months or less.
There are three capital gains income thresholds. For 2024, these thresholds apply to maximum taxable income levels, as follows (amounts in USD):
| Single taxpayers | Married filing jointly | Head of household | Married filing separately | Long-term capital gains rate (%) |
| Up to 47,025 | Up to 94,050 | Up to 63,000 | Up to 47,025 | 0 |
| 47,026 to 518,900 | 94,051 to 583,750 | 63,001 to 551,350 | 47,026 to 291,850 | 15 |
| Over 518,900 | Over 583,750 | Over 551,350 | Over 291,850 | 20 |
The United States does not have a federal level consumption tax, but most states and many municipal authorities have sales and use taxes. They are generally imposed as a percentage of the retail sales price, and the combined state and local rate may rise above 10%. Each state has its own tax rate and rules regarding which purchases are taxable.
The United States does not have a federal level net wealth/worth tax.
The United States imposes a federal estate tax on the fair market value of assets that an individual owns at death. Individuals who are domiciled in the United States are subject to federal estate tax on their worldwide assets (usually including life insurance proceeds). Individuals who are not US-domiciled are subject to US federal estate tax on only US-situs assets. Because the term 'domicile' is highly subjective, it is often difficult to know whether a particular individual is resident or not for estate tax purposes.
The federal estate, gift, and generation-skipping transfer tax rate is 40%, and the exemption for 2024 is USD 13,610,000 per person. The gift and estate tax exemptions remain unified, so any use of the gift tax exemption during one's lifetime would decrease the estate tax exemption available at death. Note that the American Taxpayer Relief Act of 2012 increased the top estate, gift, and generation-skipping transfer tax rates from 35% to 40% for estates of decedents dying after 31 December 2012. In 2017, P.L. 115-97 maintained this rate but almost doubled the exemption for all three taxes.
Current law allows a 'step-up' in basis to fair market value at date of death. The gift tax exclusion for annual gifts is USD 18,000 per donee for 2024. There are provisions for unlimited transfers directly to educational institutions and health care providers.
The purpose of the gift tax is to prevent the lifetime transfer of assets without estate tax liability. Similarly, a generation-skipping tax exists to prevent avoidance of tax by skipping generations when making large transfers of assets.
Assets bequeathed to an individual's spouse are exempt from estate and gift tax until the spouse's death, if such spouse is a US citizen.
Many states have estate and gift taxes similar to the federal taxes. As an alternative, some states may have an inheritance tax, which is a tax that imposes the liability on the recipient instead of the donor.
The United States does not have a federal level property tax, but property taxes are imposed in most states on the owner of both commercial and residential real property, based on the value of the property. The tax is usually imposed at the municipality or county level, and the tax rates vary widely depending on the fiscal needs of the taxing jurisdiction. Personal property taxes are also imposed in a number of states, but usually only on automobiles. A few states impose intangible property taxes on investment assets.
The United States does not have federal level luxury taxes. However, the federal and state governments impose excise taxes on a variety of goods. For example, a federal and state excise tax is imposed on gasoline and diesel fuel used for transportation. The excise taxes are levied item by item and lack any uniformity in rates.
Citizens, resident aliens, and non-resident aliens are taxed on compensation earned for work performed in the United States, regardless of when or where payments are made, absent a treaty or Internal Revenue Code provision to the contrary. Employees are generally not taxed on reimbursements for either personal living expenses (i.e. food and housing) or for travel expenses while 'away from home'. However, reimbursements for similar expenses of a spouse or dependent are taxable. Note that being 'away from home' requires a temporary absence from an individual's tax home. Assignments for more than one year in a single work location are not considered to be temporary, regardless of all other facts and circumstances.
After-tax dollars contributed by the taxpayer to a pension are partially taxable. The component of the pension payment that represents a return of the after-tax amount paid is not subject to tax.
Multiple types of equity compensation are typically utilised in the United States. These include stock options and various payment rights based on stock value. The taxation of these different instruments varies. If a taxpayer receives an option to buy or sell stock or other property as payment for services, the taxpayer may have income when the option is received (the grant) or when the option is exercised (used to buy or sell the stock or other property). Upon grant and exercise of a statutory stock option, however, taxpayers generally do not include any amount in income for federal tax purposes until the stock purchased by exercising the option is sold.
Foreign nationals who are granted stock options prior to the start date of their residency in the United States may be subject to US income tax at exercise on all or part of the realised income at such time. In most cases, when a foreign national who is a resident alien exercises an option to buy foreign stock, the spread between the option price and the fair market value of the stock at the time of exercise is subject to US income tax. A portion of the spread will be treated as foreign-source (to the extent allocable to services rendered in the foreign country). As a result, even though the full spread will be subject to tax in the United States, a foreign tax credit may generally be claimed to minimise the US income tax (assuming foreign tax is paid on this income).
When an individual works for oneself, that individual generally is deemed to have self-employment income. Self-employment income is taxed under US law in a manner similar to employment compensation. However, a self-employed individual often may claim more liberal deductions for business expenses than an employee. It is important to note that citizens and resident alien individuals may (subject to certain exceptions) be subject to increased social security contributions in the United States on self-employment income earned while resident in the United States (see Social security contributions in the Other taxes section for more information).
Capital gains of a citizen and a resident alien are included in worldwide income and are subject to US taxation (see Capital gains tax in the Other taxes section for more information).
Non-resident aliens are taxed at 30%, collected by withholding at the source of the payment, on US-source net capital gains if they are in the United States for 183 days or more during the taxable year in which the gain occurs. The operation of this provision is limited to situations in which an alien is not otherwise taxed as a resident under the substantial presence test (see the Residence section for more information). Capital gains from US real property interests are taxable regardless of US presence. Additionally, capital gains from the sale by non-residents of US partnerships with effectively connected income (ECI) now will be subject to US tax. There are also withholding requirements on the gross proceeds from the sale of US real property interests as well as partnerships with ECI.
Dividend income received by a citizen or resident alien is subject to US tax, whether it is from US or foreign sources. The maximum federal income tax rate on 'qualified dividends' received from a domestic corporation or a qualified foreign corporation is 20% (23.8% if the net investment income tax applies). Non-resident aliens' US-source dividends generally are subject to a flat 30% tax rate (or lower treaty rate), usually withheld at source.
Interest income received by citizens and resident aliens is subject to US tax, whether it is from US or foreign sources.
Non-resident aliens' US-source interest is generally subject to a flat 30% tax rate (or lower treaty rate), usually withheld at source. Note that certain 'portfolio interest' earned by a non-resident alien is generally exempt from tax.
Rental income received by citizens and resident aliens is subject to US tax, whether it is from US or foreign sources.
Non-resident aliens' US-source rents are generally subject to a flat 30% tax rate (or lower treaty rate), usually withheld at source. However, a non-resident alien can elect to report real property rental income net of expenses, subject to tax at graduated rates.
Certain items are generally exempt from personal income tax. For example, property acquired by gift or bequest is generally not included as taxable income (although income generated on that property would be subject to tax). A common type of tax-exempt income is interest from municipal bonds.
Some taxpayers choose to itemise their deductions if their allowable itemised deductions total is greater than their standard deduction. Other taxpayers must itemise deductions because they aren't entitled to use the standard deduction.
Instead of itemising deductions, citizens and resident aliens may claim a standard deduction. The basic standard deduction for 2024 is USD 29,200 for married couples filing a joint return, USD 14,600 for individuals, and USD 21,900 for heads of household. These amounts are adjusted annually for inflation. Non-resident aliens may not claim a standard deduction.
Individuals, including resident aliens, who are blind or age 65 or over are entitled to a higher standard deduction. For 2024, such an individual who is married may increase the standard deduction by USD 1,550; if such an individual is single, the additional standard deduction is USD 1,950. If an individual is both blind and age 65 or over, the standard deduction may be increased twice.
Employees may not deduct certain 'ordinary and necessary' unreimbursed work-related expenses as an itemised deduction. This includes travel expenses and transportation costs, business entertainment and gifts, computers and cell phones if required for the taxpayer's job and for the convenience of the employer, uniforms, and home office expenses, among others.
Many of these expenses could potentially be deducted in tax years prior to 2018 as itemised expenses. However, P.L. 115-97 repealed various itemised deductions. For tax years before 2018, citizens, residents, and non-resident aliens generally were able to deduct expenses incurred for the following:
Business expenses were deductible only to the extent that, when added to other miscellaneous itemised deductions, they exceeded 2% of adjusted gross income. However, unreimbursed moving expenses were not subject to the 2% floor and were deductible in arriving at adjusted gross income. Reimbursements for moving expenses may have been eligible for exclusion from an employee's income; if reimbursement of moving expenses was excluded, then the expenses were not deductible by the employee.
Citizens and resident aliens can deduct the following common items:
Non-resident aliens may deduct, subject to limitations, casualty and theft losses incurred in the United States, contributions to US charitable organisations, and state and local income taxes.
No deduction is allowed for personal interest. However, interest paid on investment debt is deductible, but only to the extent that there is net investment income (i.e. investment income net of investment expenses other than interest). Disallowed excess investment interest expense may be claimed as a deduction in subsequent years, to the extent of net investment income.
Alimony is not deductible (for divorces occurring after 31 December 2018).
An individual's capital loss deduction is generally limited to the individual's capital gains plus USD 3,000.
Losses incurred by individuals that are attributable to an activity not engaged in for profit (i.e. 'hobby losses') are generally deductible only to the extent of income produced by the activity. However, any allowable hobby loss deductions are categorised as miscellaneous itemised deductions. Since P.L. 115-97 disallows miscellaneous itemised deductions for tax years 2018-2025, hobby losses are effectively non-deductible under current law.
For tax years beginning after 2021, individual taxpayers are eligible for:
Note that the CARES Act temporarily allowed taxpayers to carry back 100% of NOLs arising in tax years beginning after 2017 and before 2021 to the prior five tax years, effectively delaying the 80% taxable income limitation and carryback prohibition until 2021. The CARES Act also temporarily allowed taxpayers to claim an NOL deduction equal to 100% of taxable income (rather than the current 80% limit).
Active net business losses attributable to trades or business from flow-through entities in excess of certain limits are disallowed and treated as NOL carryforwards in the following tax year under Section 461(l). For the 2024 tax year, the limit is USD 305,000 (USD 610,000 for joint filers). Net business losses in excess of these amounts will be disallowed on the 2024 return and will be carried forward as a net operating loss carryover unless changed by legislation.
This excess business loss limitation rule applies for tax years after 2020 and is set to expire after 2028. The CARES Act retroactively turned off the excess active business loss limitation rule of P.L. 115-97 in Section 461(l) by deferring its effective date to tax years beginning after 31 December 2020 (rather than 31 December 2017).
Taxpayers (generally US persons and foreign persons with effectively connected US trade or business income) may claim a credit against US federal income tax liability for certain taxes paid to foreign countries and US possessions. Foreign income, war profits, and excess profits taxes are the only taxes that are eligible for the credit. Taxpayers may choose to deduct these taxes with no limitation or, alternatively, claim a credit subject to limitations.
The United States has tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from US taxes, on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Under these same treaties, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within foreign countries.
Most income tax treaties contain what is known as a 'saving clause', which prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of US-source income.
The United States has tax treaties with the following countries:
| Armenia | Iceland | Poland |
| Australia | India | Portugal |
| Austria | Indonesia | Romania |
| Azerbaijan | Ireland | Russia* |
| Bangladesh | Israel | Slovak Republic |
| Barbados | Italy | Slovenia |
| Belarus* | Jamaica | South Africa |
| Belgium | Japan | Spain |
| Bulgaria | Kazakhstan | Sri Lanka |
| Canada | Korea | Sweden |
| Chile | Kyrgyzstan | Switzerland |
| China | Latvia | Tajikistan |
| Cyprus | Lithuania | Thailand |
| Czech Republic | Luxembourg | Trinidad |
| Denmark | Malta | Tunisia |
| Egypt | Mexico | Turkey |
| Estonia | Moldova | Turkmenistan |
| Finland | Morocco | Ukraine |
| France | Netherlands | United Kingdom |
| Georgia | New Zealand | Uzbekistan |
| Germany | Norway | Venezuela |
| Greece | Pakistan | |
| Hungary* | Philippines |
* Partially suspended, suspended, or terminated.
The United States has entered into Totalisation Agreements (see Social security contributions in the Other taxes section) with the following nations:
| Australia | Germany | Poland |
| Austria | Greece | Portugal |
| Belgium | Hungary | Slovak Republic |
| Brazil | Iceland | Slovenia |
| Canada | Ireland | South Korea |
| Chile | Italy | Spain |
| Czech Republic | Japan | Sweden |
| Denmark | Luxembourg | Switzerland |
| Finland | Netherlands | United Kingdom |
| France | Norway | Uruguay |
Citizens, resident aliens, and non-resident aliens may claim a child tax credit if the child is a resident of the United States. If the child has not reached the age of 17 by the end of the year, a tax credit is allowed for up to USD 2,000 per child (of which up to USD 1,700 is refundable). The amount of the credit is reduced once the taxpayer’s income reaches USD 400,00 for married filing jointly and USD 200,000 for singles for all other filers. P.L. 115-97 also provided a USD 500 (per dependant) non-refundable credit for a qualifying dependant other than a qualified child.
Dependant care expenses paid up to USD 3,000 for one qualifying child or USD 6,000 for more than one qualifying child are eligible for a credit equal to 20% to 35% of the expenses paid, depending upon the taxpayer’s adjusted gross income. The credit is non-refundable.
Numerous other tax credits exist at the federal, state, and local levels to provide an incentive for certain actions. Thus, determining if one or more of these credits would apply to a taxpayer would require a review of multiple sources of tax law.
The United States tax year generally is the same as the calendar year, or 1 January through 31 December.
Individual income tax returns (Form 1040) are due on the 15th day of the fourth month after the end of the tax year (i.e. 15 April) unless that day is a Saturday, Sunday, or federal holiday, at which point the return is considered timely filed on the next business day. If the taxpayer is unable to file the federal individual income tax return by the due date, it may be possible to receive an automatic six-month extension of time to file. To do so, the taxpayer must file Form 4868 (Application for Automatic Extension of Time To File US Individual Income Tax Return) by the due date for filing the return. Note that filing for an extension does not extend the time to pay taxes. If the amount due is not paid by the regular due date, interest will accrue.
Husbands and wives may generally file a joint return only if each is either a citizen or a resident. However, where only one spouse is a full-year or part-year citizen or resident, a joint return may be filed if both spouses agree to be taxed as full-year residents on their combined worldwide income.
Generally, joint filing will result in a lower tax liability than separate filing. This determination can be made with certainty only after a thorough review of the taxpayers' facts and circumstances. Married non-resident aliens (i.e. where both spouses are non-resident aliens) may not file joint returns and must use the tax table for married persons filing separate returns. Non-resident aliens may not file as heads of household.
If federal income tax is owed, payment is due on 15 April in order to avoid interest and penalties for non-payment.
Most types of US-source income paid to a foreign person are subject to tax at a rate of 30%, collected through withholding, although a reduced rate or exemption may apply under an applicable tax treaty or statutory exemption. In general, a person that makes a payment of US-source income to a foreign person must withhold the proper amount of tax and deposit it with the US government, report the payment on Form 1042-S, and file a Form 1042 by 15 March of the year following the payment(s).
Income tax is withheld from employee compensation. Citizens, resident aliens, and non-resident taxpayers with significant income not subject to withholding (e.g. self-employment income, interest, dividends) must generally make quarterly payments of estimated tax due 15 April, 15 June, 15 September, and 15 January following the close of the tax year. Non-resident aliens who do not have any income subject to payroll withholding tax must make three estimated tax payments (rather than four) due 15 June, 15 September, and 15 January, with 50% due with the first payment.
The tax authority in the United States is the Internal Revenue Service (IRS). An audit is an IRS review of an individual's accounts and financial information to ensure information is being reported correctly and to verify the amount of tax reported on the individual's tax return is accurate. An individual's tax return may be examined for a variety of reasons, and the examination may take place in any one of several ways. Returns are chosen by computerised screening, by random sample, or by an income document matching program. After the examination, if any changes to the individual's tax are proposed, one can either agree with those changes and pay any additional tax owed or one can disagree with the changes and appeal the decision.
In the event of a disagreement, the IRS has an appeals system. If taxpayers do not reach an agreement with the IRS Office of Appeals, or if the taxpayer simply does not want to appeal the case to the IRS Office of Appeals, in most instances the taxpayer may take the case to court.
If taxpayers overpay their tax, there is a limited amount of time in which to file a claim for a credit or refund. Taxpayers can claim a credit or refund by filing Form 1040X and mailing it to the IRS Service Center where the original return was filed. A separate form must be filed for each year or period involved, along with an explanation of each item of income, deduction, or credit on which the claim is based.
Generally, the IRS has three years after a return is due or filed, whichever is later, to make tax assessments. That particular date is also referred to as the statute expiration date. Statute of limitations will also limit the time taxpayers have to file a claim for credit or refund.
The Treasury Department's Office of Tax Policy and IRS use the 'Priority Guidance Plan' each year to identify and prioritise the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The 2023/24 Priority Guidance Plan focuses resources on guidance items that are most important to taxpayers and tax administration. Published guidance plays an important role in increasing voluntary compliance by helping to clarify ambiguous areas of the tax law.
Resident alien husband and wife with two children (age 7, 9), both of whom qualify for the child tax credit; one spouse earns all the income, none of which is foreign-source income. A joint return is filed. AMT liability is less than regular tax liability.
Calculations based on 2024 tax tables.
| USD | |
| Gross income: | |
| Salary | 150,000 |
| Interest | 18,500 |
| Long-term capital gain (on assets held for more than one year) | 3,000 |
| Total gross income | 171,500 |
| Adjustments | 0 |
| Adjusted gross income (AGI) | 171,500 |
| Less: | |
| Standard deduction | (29,200) |
| Taxable income | 142,300 |
| Tax thereon: | |
| On taxable income of 139,300 (142,300 less capital gain of 3,000) at joint-return rates | 20,752 |
| On 3,000 capital gain at 15% | 450 |
| Total tax before credits | 21,202 |
| Less: | |
| Credits (child tax credit equal to 2,000 per child) | (4,000) |
| Net tax | 17,202 |
Certain legal entities are 'flow-through entities' (e.g. partnerships, S corporations). Income accrued by such entities is not taxed at the entity level. Instead, the income 'flows through' to the owners or shareholders, who then are taxed on the revenues.
Section 199A provides a 20% deduction to domestic owners of flow-through entities against their qualified business income for tax years beginning after 31 December 2017, and before 1 January 2026. Complex rules apply with respect to this deduction.
The PFIC rules apply to US persons who hold interests in certain foreign corporations that meet specific tests. At the end of January 2022, the IRS issued proposed regulations (the 2022 proposed regulations) regarding the treatment of domestic partnerships and S corporations that own stock in PFICs and their domestic partners and shareholders. The proposed regulations would be very burdensome for partners of domestic partnerships and shareholders of S corporations, and Treasury and the IRS are seeking comments from practitioners.
The current PFIC regulations adopt an entity approach whereby domestic partnerships and S corporations holding PFICs are generally responsible for making elections (e.g. qualifying electing fund and mark-to-market), calculating inclusion amounts, and reporting (e.g. filing Forms 8621).
The proposed PFIC regulations adopt an aggregate approach whereby the responsibility for making elections, calculating inclusion amounts, and reporting is pushed down to the partner and S corporation shareholder level. Furthermore, partners and S corporation shareholders would have to inform the partnership or S corporation through which they are indirect owners of PFICs of any elections made so that the partnerships and S corporations could track relevant attributes impacted by these elections.
Although the United States has no foreign exchange controls, any 'United States person' who has a foreign financial account (or a signature authority over such account) during the year may be required to file a report with the US Treasury Department by 15 April of the following year, although an automatic extension is currently provided until 15 October of the following year. The term 'United States person' has been expanded to include a citizen or resident of the United States or a person in and doing business in the United States. The form need not be filed if the value of all foreign financial accounts does not exceed USD 10,000 at any time during the year.
In addition, if cash equal to or in excess of USD 10,000 is brought into or sent out of the United States at any time in the year, it must be reported to the US Customs Service.
Individuals who plan to move to the United States for temporary assignments must apply for and obtain, from the US Citizenship and Immigration Services (USCIS), visas that permit them to work in the United States. Typically, the visa will be a non-immigrant visa, such as an E, H, or L visa. Those who plan to remain on a non-US payroll and work for a relatively short time period in the United States (i.e. several weeks) may be able to obtain a B-1 visa (business visitor visa). The type of visa will depend on the nature of the proposed function in the United States and the proposed duration of the stay. A visa that permits an individual to work in the United States for several years may take several months to obtain.
The USCIS rules are very complex, and professional advice from an immigration attorney should be sought well in advance of any intended move to the United States.
A non-immigrant visa is usually limited to a fixed number of years. An immigrant visa, for permanent residence (a green card), allows individuals to remain indefinitely in the United States, even if they change employment or cease to work at all. Obtaining a green card is more complex than obtaining a non-immigrant visa, the process usually takes much longer, and the tax implications of having one are complex. Advice should be sought prior to making application for permanent residence to make sure that all of the benefits and obligations that are involved are correctly understood.
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Krishnan Chandrasekhar
US Tax Leader, PwC US |
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Ed Geils
US Tax Knowledge Management Leader, PwC US |