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IRS Issues Revised Tax Guide For Aliens

by Mike Godfrey,, Washington

03 February 2015

The Internal Revenue Service (IRS) has released revised versions of its Tax Guide for Aliens, providing guidance for resident and nonresident aliens for use in preparing their 2014 tax returns, and of its Tax Guide for Individuals Receiving Income from the United States Possessions – American Samoa, Puerto Rico, the US Virgin Islands, Guam, and the Northern Mariana Islands.

The Tax Guide For Aliens provides guidance for resident and nonresident aliens to help them prepare their 2014 tax returns. It points out that, for tax purposes, an alien is any individual who is not a US citizen, but resident aliens are generally taxed on their worldwide income – the same as US citizens – while nonresident aliens are taxed only on their income from sources within the US and on certain income connected with the conduct of a trade or business in the US. Information in the publication is therefore not as comprehensive for resident aliens as it is for nonresident aliens.

The tax guide shows, in particular, how aliens can determine their residence status and what information they need to file their returns. An initial table in the guide provides a list of questions and provides the chapter(s) where a taxpayer can find the relevant guidance.

The guide newly discusses eligibility to claim the premium tax credit under the Affordable Care Act, being relevant for a taxpayer, their spouse, or their dependent enrolled in health insurance through the Health Insurance Marketplace. If advance payments of the credit were made to a health insurer during the year, the taxpayer must file both a 2014 tax return and a Form 8962 (Premium Tax Credit).

There has also been a USD50 increase in the personal exemption for nonresident aliens for tax years beginning in 2014 to USD3,950, and an extension through 2014 of the treatment of a regulated investment company (RIC) as a qualified investment entity (QIE).

The special rules that apply to distributions from a QIE attributable to the gain from the sale or exchange of a US real property interest will therefore continue to apply to any distribution from a RIC in 2014. Beginning in 2015 (unless extended by legislation), a RIC will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a real estate investment trust.

Furthermore, the exemption from tax of interest-related dividends and short-term capital gain dividends received from mutual funds or other regulated investment companies was scheduled to expire at the end of 2013, but has been extended through 2014. The exemption now expires for amounts paid in tax years beginning after December 31, 2014, unless extended by legislation.

Meanwhile, the revised tax guide for individuals receiving income from the US possessions discusses the requirements for being considered a bona fide resident of the listed possessions, and gives the rules for determining if such a resident's income is from sources within them or effectively connected with a trade or business there.

It also looks at the rules for filing tax returns when you receive income from any of these possessions. A taxpayer may have to file a US tax return only, a possession tax return only, or both returns, depending generally on whether he or she is a bona fide resident of the possession. In some cases, a taxpayer may have to file a US return, but will be able to exclude income earned in a possession from US tax.

Among the new notifications in the publication, it is pointed out that the maximum amount of self-employment income subject to social security in 2014 is USD117,000 (increased from USD113,700 in 2013), while the maximum income for using the permitted optional methods is USD4,800 (USD4,640 in 2013).

Additional Medicare Tax (AMT) may be required, and a taxpayer may need to report AMT withheld by an employer. Bona fide residents of Puerto Rico and American Samoa who have a federal income tax return filing obligation may also be liable for the Net Investment Income Tax (NIIT), if the taxpayer's modified adjusted gross income from non-territory sources exceeds a specified threshold amount, but the NIIT does not apply to any individual who is classified by the US as a non-resident alien.

TAGS: individuals | compliance | tax | investment | real-estate investment | tax compliance | Northern Mariana Islands | insurance | real-estate | Samoa | Virgin Islands | Internal Revenue Service (IRS) | tax authority | health care | self-employment | legislation | withholding tax | social security | American Samoa | Puerto Rico | United States | tax breaks | individual income tax | Guam | Expats | Investment | Property Investment | Invest | Investment | Tax

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