Immigration Status, Taxes and You

Filing taxes as an immigrant is an essential process because it allows you to comply with the law requiring that all individuals who earn wages file taxes to the federal government.

Tax season is just around the corner, and with it comes a ton of questions, the largest being whether you should file at all.  Perhaps you don't have a social security number, or you're uncomfortable sharing your information with the IRS.  Whatever your concerns, seeking the answers to your questions can help you make an informed decision.   

If you file taxes correctly and on time, regardless of your immigration status, there will be no adverse effects.  The information you provide the IRS is confidential and is not shared with any other governmental agency with a few exceptions.  The Taxpayer Bill of Rights establishes that a taxpayer has the right to privacy.  Understanding your rights can help ease your mind if you fear, filing will harm you and your family.

There are multiple benefits to paying taxes.  You're eligible to receive a tax refund because often, we pay more than we owe.  There are also other credits such as the Child Tax Credit, that you can only benefit from if you're filing.  Filing taxes is a significant and necessary step in becoming a permanent resident too.  In the naturalization process, one of the requirements is to determine if a person has good moral character. In showing that tax has been paid and filed on time, you're laying the solid groundwork in proving your ethical compass.

One of the biggest stumbling blocks for immigrants at tax time is that many may not have a social security number.  The IRS requires that returns have an identification number.  For those without one, the IRS issues an Individualized Tax Identification Numbers (ITINs).  To get an ITIN, you need to request the W-7 form, and timing is critical because it takes 6-10 weeks to process.

We're here to help answer your questions.  Lewis CPA can help you gain the knowledge and understanding you need to make an informed and educated decision.

The Basics of Back Taxes

Not filing your taxes is one of those “cardinal sins” that we’re all taught not to commit. However, life and circumstances can and often do get in the way, which can lead to not having filed your taxes in a year or even several years. If you are in this situation and aren’t sure what to do, take a deep breath and try to relax. There is a way out, and often, that way simply begins with filing your tax returns. 

Do a Little Backtracking

The easiest way to make a fresh start, surprisingly, is to go back a little. Get your tax return from the last time you filed your taxes. Whether you still have the information available or you have to request tax documents from the IRS or former employers, the key is to gather old data that will be useful to you as you file current returns and figure out what you need to catch up on.

Catch Up

Once you’ve got the old information you’ll need, it’s time to dig into the new. File tax returns for the current tax year. While you can do it yourself, you’re much better off using a tax professional who can help you to file your returns and make sense of any back taxes that you may owe. If you have even the slightest doubt about handling your taxes on your own or if you just want to be sure you do everything right, remember that a professional is always your best bet.

Pay off Debts

If it turns out that you do owe the IRS money once you’ve filed, come up with a plan to pay them back. You may be eligible to sign up for a payment plan or to ask for a special offer in compromise. Your tax professional can be helpful in explaining the different options to you and in helping you to find the best one to meet your needs.

Once you’ve got your back taxes sorted out, the key is to work with your tax professional to make a viable plan for the future so that you never find yourself in this type of situation again.

Taxes on Earned Income vs. Unearned Income

If you’ve been filing taxes, then you are probably already aware that there is a difference between “earned income” and “unearned income.”    

To put it simply, earned income is any money that you make from working, such as and including wages, tips, and salaries. It also includes union strike benefits, long-term disability benefits (in some cases), and more.

Unearned income, on the other hand, is money that you get not from working but from investments or through chance. Things like annuity payments, retirement account distributions, interest income, alimony, bond interest, and more all count as unearned income.

While earned and unearned income are obviously different, both are subject to being taxed, and it is important to understand the basics of taxation as they relate to both types of income.

Earned Income

When it comes to earned income, you will typically have to pay both social security/medicare taxes, as well as federal and state income taxes.

Your social security tax is based on your earned income up to your contribution and benefit base while Medicare tax is 2.9% of your wages.

Your state income taxes will vary based on a number of factors.

Unearned Income
Fortunately, when it comes to unearned income, you don’t have to worry about payroll taxes. You do, however, need to count any unearned income in your adjusted gross income, which will, in turn, be taxed.

As you can see, no matter what type or types of income you are dealing with/have, taxes are going to happen. To help make these taxes as low as they possibly can be and to receive maximum tax benefits all around, be sure that you hire a tax professional to work on your side! This can make all the difference when it comes to paying less money in taxes, no matter what your income type or types.

Should You File Jointly or Separately?

Married couples have two options when it comes to filing their taxes- they can file them jointly or separately. While the vast majority of married couples choose to file jointly, that’s not always the right decision. Sometimes and in certain situations, you and your spouse can actually save more money by choosing to file separately; however, this really should be decided on a case by case basis. With that said, though, there are a few tips that can let you know which filing method will likely be the most beneficial for you and your spouse.   

Filing Jointly

Generally, you and spouse should be filing jointly if you have children together. You’ll miss out on childcare credits, student loan deductions, and other child-related exceptions if you file separately.

You’ll also want to file jointly if one spouse has a much larger income than the other or has the only income. When you are in this situation and you file jointly, you’ll enjoy more deductions and credits, which benefits both of you!

Filing Separately

Though it’s not the most popular option, there really are a variety of situations in which filing separately is in your best interest. Typically, for example, if one spouse has very high deductible expenses, it’s best to file separately since that spouse can enjoy more deductions off those expenses than he would if they were combined with his spouse’s.

It’s also a good idea to file separately if you both earn the same or almost the same amount so you can (hopefully) avoid being bounced into a higher tax bracket and thus a higher tax rate.

Sadly, it’s also a good idea to file separately if you and your spouse are considering divorcing soon and/or if, for some reason, you don’t trust your spouse or don’t want to be involved in his or her financial dealings.

In spite of these tips, it’s important to remember that they are only generalized tips. Every situation is unique, which is why it’s always in your best interest to seek counsel from a tax advisor before you file either way.

Related articles

• Video: Should a Married Couple File Jointly or Separately? (turbotax.intuit.com)