3 Things to Know about Taxes in the United States

The tax system in the United States: 1 country, 3 taxes

As a reminder, the United States is based on a federal system. Taxes are therefore divided into 3 levels:

• The Federal Tax

• The State Tax

• And the local government tax, or Local Tax

Federal Tax rates range from 10% (for income not exceeding $11,000/year) to 37% (for income over $578,125.00).

In terms of state tax, the rates vary from state to state. Moreover, some states such as Florida, Texas, and Alaska do not apply a state tax. 

As a result, taxes in the United States depend not only on your income, but also on the state in which you live.

US-style taxes: withholding tax and instalment payments

There are two ways the US withholding tax is applied: 

• Tax deducted at source, or Withholding Tax, is provided directly by the employer. To this end, employees fill out a W-4 Form at the time of hiring. The information it contains, in particular family information, then determines the bracket to be applied for federal tax and social contributions.

• Instalments, or Estimated Tax, is a tax modality that applies in the case of independent activities, rental income, capital gains, etc.

Be aware, however, that in both cases, if the estimated tax collected is not sufficient, a penalty may be applied at the time of assessment.

Tax residency: Are you taxable in the United States or in your country of nationality?

Even if you do not have a green card, you are considered a tax resident:

• if you are physically present in the United States for more than 183 days in three consecutive years, 

• including at least 31 days of the current year.

These conditions are called the “presence test”. In this case, all income, including foreign income, must be reported to the U.S. tax authorities. However, there are exceptions—for example, if you are an intern, teacher, professional athlete, student, au pair in the United States, or a diplomat.

In the event of double taxation, you will need to demonstrate that you have greater economic and social ties in one of the two countries of residence. Some countries have concluded a bilateral convention with the United States to simplify the resolution of these situations.

And even if you are not considered a tax resident, be aware that you remain taxable, but only on your U.S. income.

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