FATCA Lawyers | U.S. Visas & IRS Tax Requirements – International Tax
FATCA is the (Foreign Account Tax Compliance Act) and it is an international tax law that is designed to oversee foreign account reporting and compliance for US taxpayers worldwide.
For many individuals who work in the United States on an H-1B or other visa, they may incorrectly believe that they are not subject to US tax and/or FBAR reporting requirements as if they were a US Citizen or Legal Permanent Resident – but that is incorrect, and depending on the duration of time they reside in the U.S., they may be subject to tax just as if they were a US Citizen or Legal Permanent Resident
If a US Visa Holder needs the substantial presence test then they are still liable to file US taxes just as they would as if they were a USCitizen or Legal Permanent Resident; this also includes FBAR filing requirements and foreign account reporting as set forth under IRS Tax Law.
The following is a summary of the substantial presence test followed by a summary of FATCA:
Substantial Presence Test
As a non-US citizen and non-US green card holder, you are generally only required to pay tax on your “US Effectively Connected Income” (money you earn while working in the United States). However, if you qualify for the Substantial Presence Test, then the IRS will tax you on your WORLDWIDE income.
IRS Substantial Presence Test generally means that you were present in the United States for at least 30 days in the current year and a minimum total of 183 days over 3 years, using the following equation:
- 1 day = 1 day in the current year
- 1 day = 1/3 day in the prior year
- 1 day = 1/6 day two years prior
Example A: If you were here 100 days in 2016, 30 days in 2015, and 120 days in 2014, the calculation is as follows:
- 2016 = 100 days
- 2015 = 30 days/3= 10 days
- 2014 = 120 days/6 = 20 days
- Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).
Example B: If you were here 180 days in 2016, 180 days in 2015, and 180 days in 2014, the calculation is as follows:
- 2016 = 180 days
- 2015 = 180 days/3= 60 days
- 2014 = 180 days/6 = 30 days
- Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.