Individual Taxes in the United States
1. Tax Base For Non-Residents and Residents
Resident taxpayers pay federal tax on the global income, with amounts for foreign income taxes.
Non-resident payers are subject to central tax on US-source non-ECI and ECI (Effectively Connected Income). Most state taxes apply across non-resident and resident individuals who live in their territory.
TABLE (place table here, mentioned on the last page)
2. Tax Credits and Allowable Deductions
The state of residence decides the allowable deduction. It may include credits for:
1) Dependencies and families such as disabled and elderly tax credit, adoption credit and child tax credit
2) Education
3) Healthcare
4) Homeowners such as low-income housing amount, mortgage interest credit
5) Saving and income such as foreign tax credit
6) Electrical vehicle amount, along with the deductions for work-related expenditure (bad debt, deductible business expenditure)
7) Itemised deduction (e.g. charitable contributions, gambling loss and real estate tax)
8) Education investments and others, such as losses and alimony.
Foreign residents and citizens may also demand a standard deduction rather than itemising deductions. The necessary standard deduction for the year 2020 is USD 12,400 for payers, USD 24,800 for joint return filed by the couples and for owners of households this amount is 18,650.
3. Special Expatriate Tax Regime
The United States imposes the tax on its residents and citizens on their global income. The non-resident citizens are taxed on their source income (US-ECI) and income which is completely connected with business and US trade. As per the American laws, a foreign resident is an individual who is not a national or citizen of America and who satisfies either the substantial presence test or the green card test for the financial calendar year. The status of foreign resident usually results in lower tax (US tax) than the level of non-resident status. It is because it allows greater allowable deductions and cheaper tax rates for some specific married taxpayers.
If there is a tax agreement between a taxpayer’s residence country and the United States, the terms of the treaty may revoke the foreign resident rules. The tax of expatriation applies differently and depends on the expatriation date. Individuals have to pay the penalty if they do not file the expatriation application 8854. The charge on penalty is USD 10,000.
4. Capital Tax Rate
These gains are taxed as regular income. If the assets are kept for less than 12 months, then a graduated tax rate applies to the capital gain. The maximum amount of tax rate is 20% on capital gains if the assets are held for 12 months or more.
The social security tax (for employees in 2020) for survivors, old-age and disability, is imposed at the interest rate 6.2% on the initial USD 137,700 of paid wages.
Tax for Medicare hospital insurance is about 1.45%.
For generation-skipping transfer, estate and gift the rate of tax is 40%
On net investments above the threshold amount, individuals have to pay a tax of 3.8%.
For compensation, self-employment income, wages which surpass more than the threshold value, the tax rate percentage is 0.9%.
| Various rates depending on the situation of the family (married couples come under a common method, married couple counted as individual assets method, head and single of the family), restricted to seven rates | 2020 Central Income Tax Rates |
| For Single payers (USD) | Tax Rate |
| 0 to 9,875 | 10% |
| 9,876 to 40,125 | 12% |
| 40,126 to 85,525 | 22% |
| 85,526 to 163,300 | 24% |
| 163,301 to 207,350 | 32% |
| 207,351 to 518,400 | 35% |
| 518,401 or more | 37% |
| Married couples Filing tax Jointly (USD) | Tax Rate |
| 0 to 19,750 | 10% |
| 19,751 to 80,250 | 12% |
| 80,251 to 171,050 | 22% |
| 171,051 to 326,600 | 24% |
| 326,601 to 414,700 | 32% |
| 414,701 to 622,050 | 35% |
| Above 622,050 | 37% |
| Married tax filed individually (USD) | Tax Rate |
| 0 to 9,875 | 10% |
| 9,876 to 40,125 | 12% |
| 40,126 to 85,525 | 22% |
| 85,526 to 163,300 | 24% |
| 163,301 to 207,350 | 32% |
| 207,351 to 311,025 | 35% |
| 311,026 or more | 37% |
| Owner of Household (USD) | Tax Rate |
| 0 to 14,100 | 10% |
| 14,101 to 53,700 | 12% |
| 53,701 to 85,500 | 22% |
| 85,501 to 163,300 | 24% |
| 163,301 to 207,350 | 32% |
| 207,351 to 518,400 | 35% |
| 518,401 or more | 37% |
Local and State Income Tax Rates
- Most municipal authorities, and states, impose income taxes on the person working or living within their country jurisdictions.
- The Central income tax due date for filing is 2020 second and first quarter calculated tax amount had been extended to date 15 July 2020.
