US Tax Filing FAQs for Internationals–Why File? Penalty? Deadlines

There’s a saying that “two things are certain in life, death and taxes”. Well it is true, and some people do think that is a necessary evil. Though they may not be evil till we realize their importance.  If you are filing Taxes as Dependent on H4 or other visa by applying ITIN Number, many of you may wonder why dependents should file taxes, what are the deadlines, and many such common questions…I will try to address some of these tax related queries in this article that may help you realize why they are so certain and can be evil.

Why to file taxes (for Taxpayers H1B, L1 holder or other immigrant visa)?

Generally, who so ever is earning in US should pay taxes and oblige to US tax laws. The terms of your visa may also require you to comply with all laws of the United States, including the requirement to file an income tax return. If you do not file your return and there was extra money withheld by employer from your pay check, you will never get that money back. Even if one does expect a refund, it’s better to file (if in case you are liable for some deductions and you get refund). You may also need to file your tax returns, at the end of each year, primarily to have a proof of fulfilment of your tax liabilities. However, if you miss to file a return and had some tax due on you, you may face penalties.

Do dependents like H4 or Children, who are not working need to file tax returns and if yes why?
Yes, dependents who are not working like H4 Visa holders and Children need to file tax return to claim their dependent status and hence get tax benefits. Claiming dependents mean more tax exemptions, and may also qualify for certain tax credits and/or a better filing status (deductions).

What Are Tax Deductions, Exemptions and Tax credits?

Exemption means exclusion, i.e. if certain income is exempt from tax and it will not contribute to the total income of a person. Deduction means subtraction i.e. an amount that is eligible to reduce taxable income. Unlike exemption and deductions that reduce taxable income; tax credits are subtracted directly from a person’s tax liability reducing taxes dollar for dollar

What are crucial dates of filing tax in USA?

In general, a tax year runs from 1st January to 31^st December and returns are filed next year.

• January 31: For employers to mail out Form W2 forms ( Tax Forms) to employees
• April 15: General/original due date to file taxes and individual tax returns (Form 1040, 1040A, or 1040EZ) for the previous year or to request an extension to file return (Form 4868). For tax year 2015, it was April 18, 2016. However, payment of tax was still due at this date and even with extension one has to pay penalties.
• October 15: Extended due date to file individual tax returns. However, it is not an extension of time to pay your tax bill. This is the last day when the IRS will accept an electronically filed tax return, after that only paper file can be submitted. For tax year 2015, it’s October 17, 2016.

These above due dates (deadlines) are mainly applicable when you owe taxes. If you don’t owe taxes and certainly expect a refund, there may not be a deadline but to get the benefit of any allowable deductions or credits, you must timely file a true and accurate income tax return within 16 months of the due date just discussed, else you will be donating your refund to US Treasury. Reference: https://www.irs.gov/uac/about-publication-519

What are the options, if you miss the deadlines and is there any penalty?

Missing deadlines and corresponding penalties depends upon who owes whose money:

• If you owe taxes: File your return and pay off as much of your tax bill you can, as soon as possible to minimize penalties. The penalties are described with different scenarios:
  • If you pay your taxes by original due date (April’s date) while filing an extension for tax return: No penalty
  • If you pay 90% of your taxes by original due date (April’s date) while filing an extension for tax return: No penalty if you pay rest amount by extension date.
  • If you did not pay your tax in full by the original due date but filed an extension: Regardless of extensions of time to file, you may be subject to the failure to pay penalty, amounting 0.05% up to a maximum of 25% of your unpaid tax bill for every month your tax remains unpaid after the April deadline. Interest is also charged on penalties
  • If you did not pay your tax by due date and also didn’t file your extension: If your return was not filed by the due date, you may be subject to the failure to file penalty, amounting to 5% of your unpaid tax bill for every month your tax bill remains unpaid after the April deadline, up to a maximum of 25%. This penalty also applies if you owe taxes, filed an extension, but didn’t file your return by October’s extension date. If you file after 60 days after the original due date, the minimum penalty is $135 or 100% of your unpaid tax, whichever is smaller.
  • For any month(s) in which both the late-payment and late-filing penalties apply, the 0.5% late-payment penalty is waived.   Check out  Penalties for Late Tax Filing on IRS website
• If the government owes your money (you are getting refund): There may be no penalty. E- file return by October date (if extension was applied) else paper-file your return any time up within 16 months of the tax filing deadline date.

  Reference: https://www.irs.gov/uac/about-publication-519

What if someone don’t file return? What are pros and cons?

For tax payers, to get their refund back and claim tax benefits for dependents, it is important to file. Also, it might be good in long run to establish a good moral character by complying with tax laws while applying for immigration.  If someone does not file and owe taxes, consequences may range from tax penalties to deportation and visa revocation.

Does not filing taxes on time impact your green card status or application?

Failure to comply with U.S. tax laws can also make it more difficult for you to obtain a green card. If you have it, failing to comply taxes will hurt your ability to qualify for U.S. citizenship. For applications such as naturalization, you are required to show that a good moral character. The guidelines provide that someone who avoids paying taxes lacks good moral character. Therefore, if you are applying for naturalization, you should not be negligent on your taxes. It may also be considered a crime — and if you are found guilty, your green card can be revoked and you may be deported.

Any other common Tax questions that I have missed?  Add your thoughts, comments.

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