New to the United States? Understanding the Basics of the U.S. Tax System
Moving to U.S.?
Moving to the United States can involve many adjustments, including learning how the U.S. tax system works. Many new residents are surprised to learn that the U.S. tax system operates differently than the systems used in many other countries.
The goal of this article is to explain some of the basic ideas behind U.S. taxes so that new residents can avoid confusion and stay compliant with the law.
The U.S. Tax System Relies on Self-Reporting
One of the biggest differences in the United States is that the tax system largely relies on self-reporting.
This means taxpayers are responsible for reporting their income and calculating their taxes each year by filing a tax return. In many other countries, taxes are handled primarily through withholding by employers or by government calculation.
In the United States, most individuals must file a tax return every year if their income exceeds certain thresholds.
Filing a Tax Return
Most taxpayers file an annual federal income tax return using Form 1040.
For most individuals, the filing deadline is April 15 each year. If the deadline falls on a weekend or holiday, the due date may move to the next business day.
Even if taxes are withheld from wages during the year, filing a tax return is still usually required.
U.S. Taxes Apply to Worldwide Income
Another important concept is that the United States taxes worldwide income.
This means that taxpayers must report income earned both inside and outside the United States. For example, income may need to be reported from:
- foreign employment
- rental property located abroad
- foreign bank accounts
- investments held in other countries
There are rules and credits designed to prevent double taxation, but the reporting requirements still apply.
Identification Numbers for Tax Filing
To file a tax return in the United States, a taxpayer must have a valid identification number.
The two most common types are:
Social Security Number (SSN)
This number is issued by the Social Security Administration and is typically provided to U.S. citizens and individuals authorized to work in the United States.
Individual Taxpayer Identification Number (ITIN)
An ITIN is issued by the IRS for individuals who need to file a tax return but are not eligible for a Social Security Number.
An ITIN allows a taxpayer to comply with tax filing requirements, but it does not authorize employment or change immigration status.
This article is for informational purposes only and should not be considered tax advice. Every taxpayer’s situation is different. If you have questions about your specific tax situation, please contact GurelCPA for a consultation.
Keep Good Records
Keeping accurate records can make filing taxes much easier. Important records may include:
- wage statements (Form W‑2)
- forms reporting other income (such as 1099 forms)
- records of deductible expenses
- documentation of foreign income or assets if applicable
Good recordkeeping can also make it easier to respond if the IRS ever asks questions about a tax return.
Please Share This Information
Most of the people who read this article already understand the basics of the U.S. tax system. However, many people in our communities may still be learning how it works.
If you know someone who recently moved to the United States, or someone who may not be familiar with the U.S. tax system, please consider sharing this article with them. A little information at the right time can help someone avoid confusion, mistakes, or bad advice during tax season.