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~Tax Issues~

"AN EXISTING LINK TO AN IMMIGRANTS RESOURCE CHAIN"
TAX GUIDE FOR ALIENS, IMMIGRANTS AND MIGRANT FARM WORKERS
EASY REFERENCE CHART FOR FREQUENTLY ASKED QUESTIONS

"An Existing Link to an Immigrants Resource Chain"

Foreword

In an intense struggle for survival, many immigrants come to the United States in search of work. Frequently, the immigrant obtains a low-paying job in the service or agriculture industry. Often these jobs pay minimum wage, and in some cases, less than minimum wage. For example, certain agricultural and service providers meet exceptions to the Fair Labor Standards Act. As a result, the employers are able to pay their workers wages significantly less than minimum wage for physically demanding labor. Since a large number of minimum wage jobs do not pay benefits, the immigrant’s income is further reduced by medical costs.

Additionally, each commercial transaction tends to deplete the immigrant’s income. First, employers deduct approximately 7.65% of the employee’s gross wages for social security and Medicare taxes. Second, many immigrants obtain jobs through contact individuals who receive a percentage to the immigrant’s wages. Third, since immigrants face additional cultural barriers, they do not have checking or savings accounts and many banks charge higher fees to cash their paychecks. Fourth, immigrants pay excessive fees to transfer money back home to their relatives living in other countries. As a result, the amount of income, if any, necessary for basic living expenses is virtually nonexistent. Therefore, access to community resources becomes an essential link in an immigrant’s survival chain.

While immigrants can file a federal tax return and may be able to recapture some of the withholding tax withheld from their wages, this is a link or resource that immigrants fail to utilize. Additionally, some immigrants are also entitled to tax credits, such as the earned income credit, that will put extra money in their pockets. Unfortunately, misconceptions and unfamiliarity with federal tax law prevents immigrants from filing an income tax return requesting an available tax refund.

Fortunately, the Internal Revenue Code provides some flexibility for individuals who are not citizens of the United States. Congress took a novel approach in devising a classification system differing from the classification system used by the Immigration and Naturalization Service (INS). Immigrants are considered resident aliens if they have obtained a greencard or have been substantially present in the United States for at least 183 days, determined by a specific formula, during a period of three years. As a resident alien, immigrants may be entitled to a refund of excess federal withholding tax and a host of tax credits. For example, a resident alien meeting the earned income credit requirements who grosses approximately $9,000 per year may be able to receive a refund of $3,756 in earned income credit benefits.

Alternatively, immigrants who do not meet the greencard or substantial presence test may still be entitled to a refund of excess withholding. However, many immigrants avoid claiming a refund because they have been unable to obtain a social security number. The Internal Revenue Service solved this dilemma by allowing individuals who cannot qualify for a social security card, the option of obtaining an Individual Taxpayer Identification Number (ITIN). While this number is only valid for tax purposes, the number is formatted like a social security number and can be used in place of the social security number on the individual’s tax return. As a service provider, it is extremely important that you read the tax summary listed below and inform your clients of this link to an existing financial resource.

TAX GUIDE FOR ALIENS, IMMIGRANTS AND MIGRANT FARM WORKERS

Introduction

This tax guide is designed to give you information that you will need to file your United States tax return. Additionally, the information will help you determine whether you are eligible for an income tax refund of your federal withholding tax and certain tax credits. You can get tax forms and other information on this topic by accessing the:

Who Is Considered an Alien?

For tax purposes, an alien is any individual who is not a United States citizen. This category includes aliens, immigrants and migrant farm workers. The Internal Revenue Service classifies aliens as either resident aliens or nonresident aliens. Tax treatment of your U.S. income and tax credit eligibility is directly dependent on your classification as a resident or nonresident alien.

Am I a Nonresident Alien or Resident Alien?

Nonresident Alien

If you are an alien (not a U.S. citizen), you are considered a nonresident alien unless you meet one of the two tests described under Resident Aliens. Undocumented individuals and migrant farm workers are usually classified as nonresident aliens.

Resident Alien

You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for the calendar year (January 1-December 31).

Green Card Test

You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during the calendar year. This is known as the "green card" test. You are a lawful permanent resident if at any time you have been given the privilege, according to immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the Immigration and Naturalization Service (INS) has issued you an alien registration card, also known as a "green card". You continue to have resident status under this test unless it is taken away from you or is administratively or judicially determined to have been abandoned.

Resident status taken away. Resident status is considered to have been taken away from you if the U.S. government issues you a final administrative or judicial order of exclusion or deportation. A final judicial order is an order that you may no longer appeal to a higher court of competent jurisdiction.

Resident status abandoned. You, the INS, or a U.S. consular officer may initiate an administrative or judicial determination of abandonment of resident status. If you initiate the determination, your resident status is considered to be abandoned when you file either of the following with the INS or U.S. consular officer:

  1. your application for abandonment, or
  2. your Alien Registration Receipt Card attached to a letter stating your intent to abandon your resident status.

You must file the letter by certified mail, return receipt requested. You must keep a copy of the letter and proof that it was mailed and received.

If the INS or U.S. consular officer initiates this determination, your resident status will be considered to be abandoned when the final administrative order of abandonment is issued. If you are granted an appeal to a federal court of competent jurisdiction, a final judicial order is required.

A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions.

Substantial Presence Test

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
  1. All the days you were present in the current year; and
  2. 1/3 of the days you were present in the first year before the current year, and
  3. 1/6 of the days you were present in the second year before the current year.

Example. You were physically present in the United States on 120 days in each of the years 1996, 1997, and 1998. To determine if you meet the substantial presence test for 1998, count the full 120 days of presence in 1998, 40 days in 1997 (1/3 of 120), and 20 days in 1996 (1/6 of 120). Since the total for the three-year period is 180 days, you are not considered a resident under the substantial presence test for 1998.

Days of Presence in the United States. You are treated as present in the United States on any day if you are physically present in the country at any time during the day. However, there are exceptions to this rule. Do not count the following days of presence in the United States for the substantial presence test.

  • Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or Mexico.
  • Days you are in the United States for less than 24 hours when you are in transit between two places outside of the United States. You are considered to be in transit if you engage in activities that are substantially related to completing travel to your foreign destination.
  • Days you are in the United States as a crew member of a foreign vessel.
  • Days you are in the United States because of a medical condition or problem that developed while you were in the United States.
  • Days you were an exempt individual. You are an exempt individual if you are temporarily present in the United States as a foreign government related individual, teacher or trainee temporarily present, student temporarily present, or professional athlete temporarily in the U.S. to compete in a charitable sporting event.

Can My Nonresident Spouse be Treated as a Resident?

If at the end of the tax year, you are married and one spouse is a U.S. citizen or resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident. This includes situations in which one spouse is a nonresident alien at the beginning of the tax year, but a resident alien at the end of the year. If you make this choice, you and your spouse are treated for income tax purposes as residents for the entire tax year. You must file a joint income tax return for the year you make the choice, but you and your spouse can file joint or separate returns in later years.

You can make the choice to have a nonresident spouse treated as a resident spouse by attaching a statement to the joint return for the first tax year for which the choice applies. The statement should contain the following:

  1. The statement should contain a declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire year, and
  2. The name, address, and identification number of each spouse.

What Sources of Income Should I Include?

Resident Alien

A resident alien is taxed on income from all sources. A resident alien’s income is taxed in the same manner as a U.S. citizen’s income.

Nonresident Alien

A nonresident alien is usually subject to income tax only on U.S. source income. This is income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States. Taxable income includes all wages and any other compensation for services performed in the United States. This includes income earned from farm work and construction work where the individual is paid in cash or by personal check.

Do I Have to Have a Social Security Number to File an Income Tax Return?

A taxpayer identification number must be furnished on all returns, statements, and other related documents. For an individual this is a social security number (SSN). If you do not have and are not eligible to get a social security number, the IRS will issue you an individual taxpayer identification number or ITIN number.

Generally, you can get an SSN if you have been lawfully admitted to the United States for permanent residence or under other immigration categories that authorize U.S. employment. To apply for a SSN number, get Form SS-5 from your local Social Security Administration (SSA) office or call the SSA at 1-800-772-1213. The completed form should be returned to the SSA. It usually takes about two weeks to get a SSN.

Individual Taxpayer Identification Number (ITIN).

An ITIN, or Individual Taxpayer Identification Number, is a tax processing number that became available on July 1, 1996, for certain resident and nonresident aliens, their spouses and dependents. The ITIN is only available to individuals who cannot get a Social Security Number (SSN). It is a 9-digit number beginning with the number "9", formatted like a SSN (NNN-NN-NNN). Enter the ITIN wherever a SSN is required on your tax return. ITINs are currently for tax use only. An ITIN does not affect your immigration status or your right to be legally employed in the United States. 26 C.F.R. 301.6109-1(a)(d)(3).

ITINs are only used for federal income tax purposes. The issuance of an ITIN does not:

  • entitle the recipient to Social Security benefits or the Earned Income Tax Credit (EITC);
  • create an inference regarding the individual’s immigration status;
  • give the individual the right to work in the U.S.

To apply for an ITIN, file form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. You may complete and sign a Form W-7 for a minor dependent. However, other dependents and spouses must complete and sign their own Form W-7. Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. It usually takes approximately 30 days to get an ITIN. FormW-7 should be filed for the following:

  • Alien individuals who are claimed as dependents and are not eligible for an SSN, and
  • An alien individual spouse who can be claimed as an exemptions and who are not eligible for an SSN.

Two Ways to Get an ITIN

1. Form W-7 and accompanying original documents or certified copies, will be accepted by mail at:

Internal Revenue Service
ITIN Unit
P.O. Box 447
Bensalem, PA 19020
DP 426

Any original documents such as passports, visas or driver’s licenses, will be returned to the applicant. The term certified copies is one where the copy is certified by the issuing agency or custodian of original record.

  1. The Internal Revenue Service has also approved private concerns, accountants, business advisors, attorneys, etc., to act as Acceptance Agents for Form W-7. These individuals can accept form W-7 and inspect the accompanying documentation. The agent will then submit the forms to the IRS.

You can access a current list of IRS Acceptance Agents at www.

What Exemptions or Deductions May I Use on My Tax Return?

Exemptions:

Resident Aliens

Resident aliens can claim personal exemptions and exemptions for dependents according to dependency rules for U.S. citizens. The dependent must be a U.S. citizen or national of the United States or be a resident of the United States, Canada or Mexico for some part of the calendar year in which your tax year begins. For more information on exemptions, download a copy of Publication 501. Your spouse and each dependent must have a SSN or ITIN.

Nonresident Aliens

Generally, if you are a nonresident alien engaged in a trade or business in the United States, you can claim only one personal exemption (2,700 for 1998). You may be able to claim an exemption for a spouse if you are a resident of Canada or Mexico and your spouse had no income from U.S. sources. You may be able to claim an exemption for a dependent if the dependent is a resident of Canada or Mexico and meets the dependency tests required for U.S. citizens. Your spouse or dependent must have a SSN or ITIN.

Can I Receive a Refund of any Tax Payments or Tax Credits?

Resident Aliens

Resident aliens can report tax withheld and receive a refund of the excess withholdings paid over their tax liability. Resident aliens are accorded the same tax treatment for overpayments as U.S. citizens.

Child Care Credit. Resident aliens can take a deduction for the child care credit if they paid someone to care for their dependent who is under age 13, or their disabled dependent or disabled spouse so that they could look for work. Generally, you must be able to claim an exemption for your dependent. For more information on the child care credit, obtain Publication 504 and IRS tax form 2441.

Elderly or Disabled Credit. Resident aliens may qualify for this credit if 65 or over or if retired on permanent or total disability. For more information on this credit, get Publication 524 and IRS schedule R.

Child Tax Credit. You may be able to take this credit if you have a qualifying child. For this credit a qualifying child:

  • Is a U.S. citizen, national, or resident alien,
  • Is claimed as a dependent on your tax return,
  • Is your son, daughter, adopted child, grandchild, stepchild, or foster child, and
  • Was under age 17 at the end of the year.

Use the IRS Child Tax Credit Worksheet in the tax form instructions to figure the amount of your credit.

Education Credits. You may qualify for these credits if you paid qualified tuition and related expenses for yourself, your spouse or your dependent. There are two education credits: the Hope credit and the Lifetime Learning credit. You cannot claim these credits if married filing separately. For more information, see Publication 970. The Hope and Lifetime Learning credit is calculated on tax form 8863.

Foreign Tax Credit. You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. To claim the credit for income taxes paid or accrued to a foreign country, you generally will file form 1116 with form 1040. For more information on the foreign tax credit, get Publication 514.

Earned Income Credit. You may qualify for up to $2,271 if a child lived with you in the United States and your earned income and modified adjusted gross income were each less than $26,473. If two or more children lived with you in the United States and your earned income and modified adjusted gross income were each less than $30,095, your credit could be as much as $3,756. If you do not have a qualifying child and your earned income and modified adjusted gross income were each less than $10,300, your credit could be as much as $341. If you are married, you must file a joint return to qualify unless you lived apart from your spouse during the last 6 months of the year and you are eligible to file as head of household.

For an earned income credit brochure translated in Spanish, visit the World Wide Web at www.irs.ustreas.gov.

The taxpayer, spouse and any qualifying child must have a SSNs. You cannot claim the credit using the ITIN.

Adoption Credit. You may qualify to take a tax credit of up to $5,000 for qualifying expenses paid to adopt an eligible child. The credit can be as much as $6,000 if the expenses are for the adoption of a child with special needs. To claim the adoption credit, file form 8839 with your 1040 or 1040A. For more information, get Publication 968, Tax Benefits for Adoption.

Nonresident Alien

A nonresident alien can claim some of the same credits as resident aliens. You can also take a credit for taxes that have been withheld from your income.

Tax Withheld. You can claim certain amounts withheld during the year as a credit against your U.S. tax.

Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a credit against your U.S. income tax liability for the same year. You can claim the credit for income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wage payment was connected with a trade or business in the U.S.

Child Care Credit. Aliens can take a deduction for the child care credit if they paid someone to care for their dependent who is under age 13, or their disabled dependant or disabled spouse so that they could look for work. Generally, you must be able to claim an exemption for your dependent. For more information on the child care credit, obtain Publication 504 and IRS tax form 2441.

Married nonresident aliens can claim the credit only if they choose to file a joint return with a United States citizen or resident alien spouse. The amount of the child or dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. If you are married, the expense cannot be more than the lesser of your earned income or the earned income of your spouse. Earned income generally means wages, salaries and personal services performed.

Child Tax Credit. You may be able to take this credit if you have a qualifying child. For this credit a qualifying child:

  • Is a U.S. citizen, national, or resident alien,
  • Is claimed as a dependent on your tax return (To be a dependent, your child must be a resident of Mexico, Canada or the U.S.) ,
  • Is your son, daughter, adopted child, grandchild, stepchild, or foster child, and
  • Was under age 17 at the end of the year.

Use the IRS Child Tax Credit Worksheet in the tax form instructions to figure the amount of your credit.

Education Credits. If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. However, if you are married and choose to file a joint return with a U.S. citizen or resident spouse, you may be eligible for these credits.

Foreign Tax Credit. You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. To claim the credit for income taxes paid or accrued to a foreign country, you generally will file form 1116 with form 1040. For more information on the foreign tax credit, get Publication 514.

Earned Income Credit. If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. However, if you are married and choose to file a joint return with a U.S. citizen or resident spouse, you may be eligible for the credit.

You, your spouse, and any qualifying child must have SSNs. You cannot claim this credit using an ITIN.

Adoption Credit. You may qualify to take a tax credit of up to $5,000 for qualifying expenses paid to adopt an eligible child. The credit can be as much as $6,000 if the expenses are for the adoption of a child with special needs. To claim the adoption credit, file form 8839 with your 1040 or 1040A. For more information, get Publication 968, Tax Benefits for Adoption.

Married nonresident aliens can claim the credit only if they choose to file a joint return with a U.S. citizen or resident alien spouse.

Excess Social Security tax Withheld. If you have two or more employers, you may be able to claim a credit against your U.S. income tax liability for social security tax withheld in excess of the maximum required.

Where Can I Receive Free Assistance in Filing My Tax Return?

The Internal Revenue Service sponsors the Volunteer Income Tax Assistance (VITA) program which provides free tax counseling and tax preparation to low-income, elderly and disabled taxpayers. Both resident and nonresident aliens qualify for free tax assistance in the VITA program. Specially designated sites provide Spanish speaking volunteers. For a list of these sites, call 1-800-829-1040.

EASY REFERENCE CHART FOR FREQUENTLY ASKED QUESTIONS

Am I nonresident alien or a resident alien?

A nonresident alien is undocumented. A resident alien is either documented, has a green card, or has met the IRS substantial presence test requiring residence in the U.S. for 183 days of the past three years. See the above discussion on the "substantial presence" test.

Can I be a nonresident alien and a resident alien in the same year?

You can be both a nonresident and a resident alien during the same tax year.

I am a resident alien and my wife is a nonresident alien, are there special rules for us?

If, at the end of the tax year, you are married and one spouse is a U.S. citizen or resident alien and the other spouse is a nonresident alien or undocumented, you can treat the nonresident spouse as a U.S. resident.

I moved to the U.S this year. Can I deduct my moving expenses on my U.S. tax return?

If you are a nonresident alien temporarily in the U.S. earning taxable income, you can deduct moving expenses if you are a full-time employee at least 39 weeks during the 12 month period after you move and your new job location is at least 50 miles farther from your former home than your former job location.

Can I claim an exemption for my spouse and children?

Resident aliens can claim the same exemptions as a U.S. citizen. The nonresident alien’s spouse must have no gross income for tax purposes and the dependents must be residents of Canada or Mexico.

Can I get a refund of the withholding tax deducted by my employer?

You may get a refund of withholding tax if your withholding exceeds your tax liability.

I plan to leave the United States. Can I get a refund of the social security and medicare tax that my employer deducted?

Generally, you cannot receive a refund of the social security and medicare tax that your employer deducted unless the employer withheld more than the maximum amount allowed by the IRS.

I am undocumented. Can I file a tax return without a social security number?

Yes, but you must fill out form W-7 and receive an individual taxpayer identification number (ITIN).

If I am not eligible for a social security number, how do I get an individual taxpayer identification number (ITIN)?

File form W-7 with the IRS or with an Acceptance Agent.

I can not speak English, can anyone help me fill out the ITIN application?

Yes, the IRS has Volunteer Income Tax Assistance (VITA) sites with Spanish speaking volunteers. Designated Acceptance Agents can also assist aliens with this application.

I worked in 1998, am I eligible for the earned income credit?

If resident aliens meet the earned income credit requirements, they can claim the earned income tax credit. Generally, nonresident aliens are not eligible for the EITC.

What tax forms must I file and where do I file them?

Resident aliens file 1040EZ, 1040A or 1040. Nonresident aliens file 1040NR-EZ or 1040NR.

I do not understand the tax forms, can someone help me fill them out?

Yes, the IRS has Volunteer Income Tax Assistance (VITA) sites with Spanish speaking volunteers.

I pay income taxes to my home country. Can I get a credit for these taxes on my U.S. tax return?

If you meet certain requirements, you can claim the foreign tax credit and receive a credit against your tax liability.

 

 

 

 

This page was created 04/99.

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