TAXES IN USA

Residents

Determining an alien's residency status is determined through a series of relatively objective tests. These rules consider the following individuals to be residents:

All lawful permanent residents for immigration purposes (i.e., green card holders). Resident alien status generally continues until the green card is officially revoked. Thus, individuals who hold green cards but leave the United States to live abroad indefinitely or permanently generally continue to be classified and taxed as resident aliens until the green card is revoked. The rules also apply to individuals who have relinquished their green cards if they held the green card for at least eight of the 15 years preceding the relinquishment. You should always seek professional tax advice before obtaining or relinquishing a green card.

Individuals who meet the "substantial presence test." An individual meets this status if he or she is in the United States for at least 31 days in the current year and a total of 183 equivalent days during the current year and the two preceding years. For purposes of the 183-day equivalent requirement, any part of a day during which an individual is in the United States during the current calendar year counts as a full day; each day in the preceding year counts as one-third of a day; and each day in the second preceding year counts as one-sixth of a day. Note that an individual who is in the U.S. for less than 183 days in the current tax year and may establish a "tax home" in another country and a "closer connection" with it for the entire year may still qualify as a nonresident alien even if the three-year 183-equivalent day requirement is met. Exceptions are also available for certain students, teachers, or interns; members of foreign courts; employees of foreign governments and international organizations; certain individuals with health problems that arise while in the United States; and certain residents of Mexico and Canada who travel to work in the United States.

Special rules apply in determining the portion of the year during which an individual will be considered a resident or nonresident in the first and last years of residence.

Note that resident alien status often results in lower U.S. tax than nonresident alien status because of increased allowable deductions and lower tax rates for some married taxpayers. Consequently, certain nonresident aliens may elect resident alien status if certain requirements are met.

The United States has entered into income tax treaties with a number of countries to eliminate double taxation. If a tax treaty is in effect between the United States and an individual's country of residence, the provisions of the treaty may override the rules for U.S. resident aliens. Under many of these treaties, an individual classified as a tax resident under the domestic laws of both the United States and his or her home country who can demonstrate that "permanent residence" is available only in the home country is generally classified as a nonresident alien for purposes of U.S. income tax law. To qualify as a nonresident alien as a result of a tax treaty, a form must be completed.

To the extent that an individual is a green card holder and benefits from the treaty's residency waiver provisions, the individual may be subject to the expatriation rules discussed above. Professional advice should be sought before claiming treaty benefits for this purpose.

Taxes on the income of individuals:

The United States taxes its citizens and residents on their worldwide income. Non-resident aliens are taxed on their U.S. source income and income effectively connected with a U.S. trade or business (with certain exceptions).

Individual income tax rates:

For individuals, the top income tax rate for 2022 was 37%, except for long-term capital gains and qualified dividends.