The US Tax System: Myths and Tips

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Detailed analysis American taxation from the employee’s point of view - from leading Wargaming analyst Alexander Nenadavets.

In my opinion, this is the question that causes the most interest and fear among those moving to the United States, and is comparable to questions about health insurance. It's time to dispel a couple of myths and talk about my experience with taxes. By the way, I will only cover taxes on the employee side, not the employer side, which is another broad topic. I have already paid taxes in the USA 3 times: 1 time - not being a tax resident, and 2 times, respectively, being one.

The very first thing they say about taxes in the United States - everyone pays taxes himself.

Myth # 1 - you pay your taxes yourself

It is important to say at once that any salary proposal with the USA is a salary before taxes. I think you know it, but still. Largely because of this system, this myth appeared. The statement about self-pay taxes is true only on 50%. In fact, the system from the outside looks the same as in Belarus. When you apply for a job, you fill out a form where you enter your SSN, information on marital status, children, and based on this information, federal and other taxes are calculated, for which you will pay during the year.

By the way, you can ask to lower the rate and pay less than you thought, it does not matter at this stage. And then, during the year you pay taxes in the same way as you did in Belarus, that is, they are deducted from your salary and you receive money “like” on the card after taxes. Why “like”? Because at this stage, everything does not end there. From January to April, the tax period begins, when it is necessary to file declarations, more on this below.

Before I move on to other myths, let's see who should pay taxes at all and what taxes to pay.

You will have to pay taxes if you have been in the US for more than 180 days - it is after this period that you become a tax resident. If you were in the US for less than 180 days, you will pay in your home country. Belarus and the United States have signed a double tax treaty, so you only need to pay in one country. For example, a long time ago I worked for 3 months during the summer in the USA and paid taxes. When I returned to Belarus, I submitted documents for a refund and returned somewhere around 60-70% of the taxes paid. This also means that if you bring or transfer some money from Belarus to the USA or from the USA to Belarus, and it appears in your account, you do not need to pay taxes on this money.

By the way, if you are a US citizen, you must submit a declaration and declare all incomes worldwide, regardless of where you live (this does not apply to green card holders).

However, if certain conditions for the duration of residence abroad are met, foreign income taxes will not be asked to pay you (and if they are not met they will be asked).

In the US, there are different types of taxes: sales tax, real estate tax, car tax, etc. I think you should write about them separately. In this article I want to tell, as I said above, about the taxes that are levied on the wages of workers in the United States.

Total 4 taxes of this type (already difficult):

1) Federal tax - this tax is the same for all states, and it depends on the level of income and some other factors.

In the US, a progressive tax rate is used, that is, the more you earn, the more you will pay taxes. See below the picture with the stakes (relevant for 2016 of the year). In fact, betting options are quite a few. I have only quoted here the rates when filing taxes for the family (served together, but can be filed separately) and when filing taxes for an unmarried tax resident.

Photo facebook.com/anenadovets

I’ll say right away that in most cases, it’s more profitable for families to go together than separately, and the tax resident will pay less in marriage than the one who is not married (bachelor tax?).

State tax - It varies by state from 0% (Texas and several other states) to 13% (California). Keep this in mind when choosing a state to move!

But at the same time also look at the property tax if you are going to buy something here. In Texas, for example, property taxes are several times higher than in California (although real estate in California is several times more expensive). Not once heard that Florida is a very profitable state in terms of taxes. Apparently, therefore, and not just because of the climate, so many American pensioners are moving there.

Photo facebook.com/anenadovets

Social security tax - tax to ensure pensions, payments to the disabled and the unemployed. This tax is 6.2% of total income, the employer also pays the same%.

Medicare - A tax on medical care for the poor and the elderly. This tax is 1.45%, and the employer pays the same% for you.

So, let's now figure out how much you still have to pay. Take the example of a family from Colorado (state tax - 5%), whose annual taxable (this is important!) Income per family was $ 100,000.

1) Federal tax: $ 18,450 this family will pay $ 1,845 (10% rate);

$18,450 to $74,900 – $8,467 (15% rate);

$74,900 to $100,000 – $6,275 (25% rate);

Total: $ 16,587 (16.5% of salary).

2) State tax - 5% of income or $ 5,000

3) Social security tax - 6.2% of income or $ 6,200

4) Medicare tax - 1.45% of income or $ 1,450

Total we get: $ 29,237 or 29.2% of family income. Lots of.

Myth #2 - Taxes in the USA are higher than in homeland

It is quite difficult to compare here, but in some cases, it may happen that you pay taxes less than you paid in Belarus. I did it.

In the calculations above, I indicated that this is taxable income, but in most cases, your annual income will be less than taxable income. Deductions from your taxable base are called exemptions. What it is? In simple terms, these are factors that reduce your taxable base. For example, there is such a deduction as personal exemption. What is necessary for him is essentially nothing, he simply is and applies to every member of the family. In 2016, it was $ 4,050, i.e. if, for example, our family from Colorado has 2 children, the deduction for personal exemption will be $ 4,050 * 4 = $ 16,200.

Let's recalculate the tax with the new base - $ 83,800 (100,000- $ 16,200):

1) Federal tax: $ 18,450 this family will pay $ 1,845 (10% rate);

$18,450 to $74,900 – $8,467 (15% rate);

$74,900 to $83,800 – $2,225 (25% rate);

Total: $ 12,537 (12.5% of salary).

Changes in the database are applied only to the federal tax, therefore, all below are unchanged.

2) State tax - 5% of income or $ 5,000

3) Social security tax - 6.2% of income or $ 6,200

4) Medicare tax - 1.45% of income or $ 1,450

Total we get: $ 25,187 or 25.1% of family income. Anyway, a lot.

The beauty is that such deductions can be collected quite a lot. There are deductions for the availability of a mortgage, for the education of children, for some purchases related to work, for medical expenses, for having medical insurance (and you are obliged to have it), for putting it into your pension fund (remember I wrote about 401K - so you will pay for these savings in old age when you decide to use them), for having lost dividends on collapsed stocks, for charity, etc. And that's why America usually keeps all checks all printouts, all contracts and contracts - for at least a year.

Myth # 3 - Difficult to file a tax return

Not really. If you simply work as an employee in the same state, receive a salary, then you submit your tax return without any problems. There are such services as Turbotax or TaxAct, in which, answering simple questions, you fill in all the information, calculate your deductions and send the electronic declaration in electronic form to the IRS. Yes, the first time the process will take you 2 hours, because you will re-read and re-check everything (or not) all of a thousand times. Next year, the system will automatically pull up all your data from the old declaration and filling in will take 20 minutes.

Of course, if you have high incomes or a complex income structure, or you are claiming large deductions, you can turn to tax consultants who will study your situation in detail and will make your taxes for a certain amount or% of the return.

In short, the tax return process is as follows:

Step 1 - In January, you will receive a W-2 form, where everything you earned and all taxes that you paid will be listed. At my work an accountant gives this form right in the hands. If you have a savings account in the bank where interest is calculated (0.01% per annum right now), they will send another W2 form.

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Step 2 - You pay a subscription to TurboTax ($ 30 per year) and, following simple and clear instructions, fill out your tax return. The form must be sent until mid-April (sometimes this period may be extended). You can, of course, do everything on the IRS website for free, but I would not advise if you do not understand all the subtleties and do not know all the deductions.

Step 3 - Everything! Praise yourself for how smart you are and how easy it is to handle everything. Waiting for a return if you are applying for it. Yes, taxes can be returned if you paid more than you need. And it's damn nice!

If you are claiming a refund, after reviewing your declaration (within a few days), the money will fly to your card in a couple of weeks. Last year, the IRS returned around $ 60 million in taxes to citizens. Local stores and businesses are always satisfied with various promotions and offer discounts in the period of tax returns. With this money is much easier to part. Although I know cases when taxes had to pay extra.

What happens if I make a mistake in my tax return? Better not to do this. Still, taxes in the United States are a very sensitive subject, and failure to pay taxes or conceal income is very seriously punished by fines or imprisonment.

If the IRS has any questions about your tax return, it can be sent for an audit. According to the IRS, fewer 1% (0.7% in 2016 year) tax returns are sent to the audit, so if you don’t hide your millions of income, you don’t need to worry. But then again, read everything carefully and recheck, especially the first time.

Alexander Nenadaviec, lead analyst at Wargaming. Photo facebook.com/anenadovets

What else to remember

In 2015, the Government of Belarus and the USA signed the FATCA agreement on tax control of accounts. This means that Belarus and the United States exchange tax information on tax resident accounts.

If you have a deposit in Belarus (if I'm not mistaken, the amount on all accounts must be more than $ 10K during the year), and you pay taxes in the USA, you must inform the IRS about this deposit when you file taxes. You will need to complete another form on the IRS website. It doesn't take long, and TurboTax will remind you of this. For failure to report this information also faces a considerable fine.