Navigating the tax filing process as a Non-Resident Indian (NRI) in the United States can be complex due to dual tax obligations. Understanding the essential steps and requirements ensures compliance and maximization of available tax benefits. Here is a comprehensive guide to the tax filing process for NRIs residing in the US.
Step 1: Determine Tax Residency Status
The Internal Revenue Service (IRS) classifies individuals based on the Substantial Presence Test (SPT). If an individual has spent 183 days or more in the US over three years (counting all days in the current year, 1/3 of the previous year, and 1/6 of the year before that), they are considered a tax resident. Otherwise, they qualify as a non-resident.
Resident Aliens: Must report global income.
Non-Resident Aliens (NRAs): Only US-sourced income is taxable.
Step 2: Gather Necessary Documents
Before tax filling process for us nri, ensure you have the required documents:
Form W-2 (for employment income)
Form 1099 (for freelance, dividends, or interest earnings)
Form 1042-S (for foreign individuals receiving US income)
Bank Statements (for tracking earnings and expenses)
Foreign Account Details (for compliance with FATCA and FBAR regulations)
Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
Step 3: Identify Taxable Income
NRIs classified as tax residents must report:
Salary from US and foreign employers
Rental income from properties owned globally
Investment earnings, including capital gains
Interest from bank deposits and dividends
Non-residents report only US-sourced income.
Step 4: Utilize Deductions and Credits
NRIs can benefit from various deductions and tax credits to reduce taxable income:
Foreign Earned Income Exclusion (FEIE) – Form 2555: Exempts up to $120,000 of foreign income (2023 limit).
Foreign Tax Credit (FTC) – Form 1116: Prevents double taxation by allowing credit for taxes paid abroad.
Standard or Itemized Deductions: Reduce taxable income further.
Step 5: Report Foreign Bank Accounts and Assets
FBAR (FinCEN Form 114): Required if foreign accounts exceed $10,000 at any time during the year.
FATCA (Form 8938): Required if total foreign assets exceed $50,000.
Step 6: Choose the Appropriate Tax Form
Form 1040: For NRIs who qualify as tax residents.
Form 1040-NR: For non-resident aliens.
State Tax Returns: If applicable, file in the state of residence.
Step 7: File the Tax Return
NRIs can file taxes through various methods:
IRS Free File (for incomes below $73,000)
Tax Software (such as TurboTax or H&R Block)
Professional Tax Consultants (for complex tax situations)
Step 8: Meet Tax Deadlines
April 15: Standard tax filing deadline.
June 15: Automatic extension for NRIs living abroad.
October 15: Extended deadline if Form 4868 is filed.
Step 9: Pay Any Tax Dues
If taxes are owed, payments can be made through:
IRS Direct Pay
Electronic Federal Tax Payment System (EFTPS)
Wire Transfers from foreign accounts
Step 10: Maintain Tax Records
Tax returns and related documents should be retained for at least three to six years for future reference and potential audits.
Conclusion
Filing taxes as a India USA taxes-based NRI involves understanding residency status, reporting income, utilizing deductions, and meeting compliance requirements. Seeking expert assistance ensures proper filing and maximization of tax benefits. For professional tax advisory and compliance services, Dinesh Aarjav & Associates is here to help.
