EP 11: The IRC Code: A Course Map to Navigate U.S Taxes.
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Filing taxes in the U.S. is generally a stressful process. It's extra stressful for those who are new in the US, especially since filing taxes in the U.S. is very different from other countries.
In this episode, we discuss different aspects of filing taxes for both U.S. tax residents and tax nonresidents. We start by discussing dates and different deadlines. We then move on to information gathering - what are the key pieces crucial for completing U.S. taxes?
Tax forms that you provide the info - most of these forms have already been provided to the IRS.
We then move on to refunds and some of the cultural issues that come through.
Other items we discuss include
Withholding/underholding and the consequences of that.
Ways of mitigating paying high taxes
Foreign assets reporting, foreign income, tax treaties, foreign tax credits
How and where to file taxes (self-software, tax-filing firms, CPAs/EAs, etc)
We end with a call to be proactive, including self-education, as the more you understand, the easier it will be to plan for the long term.
The speakers' views and opinions discussed in this episode, should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.
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Jane Mepham, CFP (00:03.055)
We're back with another shorty episode where we take a time used in the cross-border finance and tax space and translate it into plain English in 10 minutes or less. Okay today we're going to talk about payroll taxes. So Manasa, is your coffee ready? Because I think we're going to need it for this one.
Manasa Nadig, Enrolled Agent (00:26.122)
absolutely jay so what are payroll taxes
Payroll taxes are basically FICA taxes paid by both the employer and the employee. And that's 6.2% for Social Security and 1.45% for Medicare paid by the employer and the employee each. Basically, these are government programs designed for retirement. And you pay into these programs through these taxes.
the employers just like I said match the FICA taxes paid by the employees by withholding them from the employees gross pay and then remitting it to the government at a certain cadence. Wage earners cannot opt out of paying FICA taxes so this is not a choice it's mandatory.
not just employees, self-employed persons in the US also pay into FICA. Now they are considered to be both the employer and the employee for this purpose and they have to pay both the share of the employee and the employer along with their federal taxes when they file their tax return.
So that's a little bit about what payroll taxes are. And if you are curious, a quick history about FICA is that FICA stands for the Federal Insurance Contributions Act and that was enacted in 1935. So it's been around for quite a long time.
Manasa Nadig, Enrolled Agent (02:24.322)
and it was part of President FDR's new deal and it was designed to provide financial aid for the elderly and the disabled. So that's a little bit about FICA, Jane. What do you think? Do you want to talk about how this affects workers on non-immigrant status?
Jane Mepham, CFP (02:46.803)
Yes. So if you're on non-immigrant visas, absolutely. So if you're on a non-immigrant work visa, and we know which ones those are, you are most likely a US tax resident. In that case, yes, you do pay FICA taxes. And I've had folks sometimes reach out and say, oh, what the heck is this FICA? What is this FICA on my pay stub?
Manasa Nadig, Enrolled Agent (02:49.638)
non-immigrant visas. I'm sorry.
Jane Mepham, CFP (03:17.038)
And yes, you do pay your FICA taxes.
If filing as a US tax non-resident, you don't pay the FICA taxes because if you think about it, by default, this is money that would actually help you or money you'd use in your retirement. And by the nature of it being a non-immigrant visa, especially the one that I'm going to mention shortly, the assumption is you're not going to be here when you retire. So if, for example,
one visa and it's your five calendar years, the government expects that you will be going home at some point and so you don't pay FICA taxes on this. Okay, now if you're a US tax resident abroad, this means you're either a citizen or green card holder and you have income from self-employment, you do pay the FICA taxes.
Okay, anything else you want to add to these, Manasa?
Manasa Nadig, Enrolled Agent (04:25.494)
Yes, definitely. Speaking of US citizens and green card holders abroad who may have self-employment income, remember that there are countries that have what are totalization agreements with the US. So the totalization agreements basically are like the income tax treaty, except that they cover only the social security part of the taxes. So if you live and you work
where you have these self-employment taxes or you are paying to that government, you know, social security taxes, then please look into whether that country has a totalization agreement with the United States and whether those credits can be banked into your U.S. social security.
So yeah, I guess that brings us to the close of another Shorty episode today. And you know, dear listener, if you like this content, and if you like what you, what we are doing with the Shorty episodes, or even with the long ones, please write to us and let us know what else you would like us to talk about.
The website is theiamcafe.com and please share, like and subscribe to our episodes on whichever platform you listen to podcasts. Thank you.
Jane Mepham, CFP (05:57.287)
Bye.
