tax - AM22Tech

How to file US Tax on NRE, NRO Interest (without 1099-INT)

Anil Gupta — Fri, 22 Jan 2016 07:25:19 +0000

If you have been living in the USA for more than 6 months today, you should add your Indian income like NRE/NRO account interest, PPF interest, rental income, share dividends, mutual fund dividends, or sale profit to your US income tax return.

As per the IRS and US taxation system, your worldwide income is taxable in the US as long as you are a tax resident.

You can find your Tax residency by going through the IRS substantial presence test. In simple terms, if you have stayed in the USA for about 183 days, you should add your Indian income to your US 1040 tax return form.
You can take the foreign tax credit for the taxes paid in India already as TDS (tax deducted at source).

NRE/NRO Tax by the Indian Government

NRE account interest income is non-taxable in India. Hence, no tax is withheld/deducted automatically by Indian banks.

On the other hand, NRO account interest is taxable at a straight 30% plus applicable surcharges and the cess.

You will be issued Indian TDS form 16A by your bank for this tax deduction which can be claimed in the US tax return as a ‘foreign tax credit’.

Calculate the Total Interest in the Indian Bank

Almost all the banks in India pay out interest quarterly (every 3 months).

You just need to pull out each bank (e.g. ICICI, SBI, HDFC, Kotak, etc.) statement ending in March, June, September, and December. Find the interest pay-out and add up.

There is no clear guidance for the months or financial year that should be used that we could find. So, we suggest using the Indian interest from Jan to Dec to add to your US taxes.

This means:

Count March’s (of the previous year) interest as well.
Remember, the financial year in the USA is counted from 1 Jan to 31 Dec whereas, in India, it is 1 April to 31 March.

Indian Interest Conversion to USD

IRS publishes the exchange rate for all foreign countries as ‘year-end treasury rates’. Use this rate to convert India (or for that matter, any other country) to reach a USD amount.

It is possible that the current year’s rate is not published by the IRS. In that case, use the xe.com rate for Dec 31.

Example:

If you earned a total of 10,000 INR as NRE interest (add the sub-totals of all your foreign bank account’s interest), then your interest income in USD would be $143 if the exchange rate is 1 USD = 70 INR:

10,000 / 70 = $143

US Tax Form 1040 – Foreign Tax Credit

File the US income tax form 1040 with online services like Turbo Tax, TaxAct, HR Block, Liberty Tax, or FreeTaxUSA.

We have also used e-file.com and their online federal returns software is as good as any other with more free filing options.

Irrespective of the tax filing service you use, you should fill up Schedule B to disclose your Indian income as foreign income.

You should:

Find the total amount of Tax (called TDS in India) deducted by the bank (by looking at bank statements).
Indian bank should have sent you Form 16 (an Indian version of the tax form).

ICICI normally sends form 16 by postal mail or email if you have registered. The same may be available online for Citibank, SBI, or HDFC India customers.

On the other hand, If you paid any income tax in your foreign (the tax might have been applied if you are not from India) country, you should enter the information in the appropriate section.

FAQ

Is Interest Earned on NRE Account Taxable in the US?

Interest earned on an NRE Account or NRO Account is Taxable in the U.S. including NRE FD and NRO FD interest.

You have to add all your income from India to your US income and pay taxes if you are a Green Card holder, PIO, OCI, or legal resident (working on H1B, L1B, H4 EAD, or any other work visa in the USA).

The income includes the Indian mutual fund dividend too if you have invested in an SIP (systematic investment plan) in India.

Do Indian Banks Issue Form 1099-INT for Interest Income?

Indian banks do not issue Form 1099 INT for interest earned in the NRE account. You are responsible for disclosing the foreign interest income on the US income tax form 1040.

Even US-based banks do not issue 1099-INT if the total interest for the year is less than $10.

Do we have to pay Tax on the NRO account Interest in the USA?

You have to pay US income tax on the Indian NRO account interest income.

You can claim the TDS deducted by an Indian bank from your NRO account as Tax Paid to a foreign government on your US tax return.

Should I Convert the Indian Savings account to an NRO after moving to the USA?

You should convert your Indian savings bank account to an NRO account after moving to the USA.

Converting an Indian savings account to an NRO is part of Indian tax law and not the USA.

If you have lived outside India for more than 6 months, you are counted as an NRI (Nonresident Indian) as per income tax laws.

Is Indian PPF Account Interest taxable in the USA?

The interest earned in the Indian public PPF account is also taxable in the US.

Are Mutual fund dividends received in India taxable in the USA?

Mutual fund dividends received in India are taxable in the USA.

Is a Stock Sale that is not taxable as per Indian Law taxable in the USA?

Any income or profit received after the sale of stocks that are exempted as per Indian taxation can be taxable in the USA.

You should add the total profit to the US tax return and then it will be taxed as per the US rules.

It is required to be added to the IRS 1040 form even if you did not pay any tax on this income in India as per Indian income tax law.

I came to the US on an H1B visa in Oct. Should I add my Indian bank interest?

It depends on which US tax form you are filling out.

If you came to the US in October, then you will not be counted as a tax resident for that year as you only spent about 3 months in the US in that year.

In this case, you may not be required to add your Indian interest to the US tax return.

It is better to visit a tax consultant or use a CPA to file your return in this case.

Should I add my Indian salary to the US tax return if I come to the US first time mid-year?

If you worked for more than 6 months in the USA from Jan to Dec on your first visit to the US, you would pass the substantial presence test.

In this case, you would need to show your Indian income and foreign tax paid on your return.

I suggest checking with your tax consultant and filing.

It is better to file using a CPA in your first year to avoid issues.

You can file yourself using free tax software online from next year onwards when the income is not mixed between India and the US.

The post How to file US Tax on NRE, NRO Interest (without 1099-INT) appeared first on AM22Tech.

Green Card i485 EAD Helps Get Child Tax Credit (and Job Porting without PERM)

Anil Gupta — Wed, 28 Oct 2020 00:07:28 +0000

Once you file an i485 application, you become eligible for multiple benefits that are not available otherwise.

Filing the adjustment of status gives your non-immigrant kids an EAD and AP irrespective of whether the priority date (PD) date is current in the visa bulletin’s ‘Final Action’ or ‘Date of filing’ chart.

Here are the benefits.

#1 Child Tax Credit by IRS

H1B workers with non-US citizen kids used to receive child tax credit until the 2017 tax year.

With the new tax law (called Tax Cuts and Job Act 2017) passed by the Trump government, the child tax credit was restricted only to kids with SSNs.

Most non-US citizen kids on dependent H4 or L2 visas are not eligible to get SSNs. They all have ITIN which is not eligible for the child tax credit with the new tax law.

In this new tax law:

The child tax credit was doubled from $1000 to $2000.
The child’s SSN was made mandatory. Earlier, H4 and L2 kids with ITIN were also eligible for this credit.

#2 Job Change

Once your i485 has been pending for over 180 days with an approved i140, you gain additional wings to fly freely.

As per AC 21 law, you can change the job and the new employer can simply file form i485J to port your pending AOS application.

This also means that the new employer does not need to file their own PERM and i140 applications.

Isn’t it great?

You save the hassles of job scrutiny and easily save about 1-2 years of PERM + i140 processing time.

I485 Pending (180+ days) and i140 approved: You are safe to change jobs but most attorneys recommend waiting for 180 days after the i140 approval date too.
I485 pending (180+ days) and i140 approved for 180 days: You are safe. No issues as long as you change your job to the same or similar profession. As per general practical rule, the job duties in a new job should be at least 50% similar to the current job.
I485 pending (180+ days) and i140 pending: It’s NOT safe to change the job before i140 approval. You will lose everything if the employer withdraws your pending i140. You can upgrade i140 to premium without an issue unless you have an H4 child that needs child age protection.

That’s a perk only offered to people who got the chance to file i485.

Will I need to file an H1B Transfer?

If you do not want to use i-485 EAD to work for the new employer, then yes, the new employer will have to file your H1B transfer and i485J supplement.

If you do use i485 EAD, then there is no need to file an H1B transfer.

Note that most people like to maintain H1B status just to avoid a situation where their i485 is denied in the future but this is not required by law.

Another situation where you may want to keep using H1B and not depend on i485 EAD is when you have filed EB2 to EB3 downgrade. Maintaining H1B will help you move from EB2 to EB3 and vice versa easily based on which queue is moving faster.

Most employers will be happy to hire you since your pending i485 gives them breathing space too.

Child EAD with i-485 Application

If you are eligible to file an i-485 even if the PD date is only current in the ‘date of filing’ chart in the most recent USCIS visa bulletin, we strongly recommend filing an EAD for your child irrespective of his/her age.

A child’s EAD helps you get the social security number for your child which in turn makes him/her eligible to claim a ‘child tax credit’ on your next year’s 1040 tax return.

This is a sample EAD card for category C09 (which is pending i485).

i485 EAD with i131 advance parole

i-485 EAD card has category C09 and is allowed to get an automatic 6-month extension if the current one expires. This is unlike H4 and L2 EADs which do not get any automatic work authorization.

The child tax credit can be as high as $2000 per child based on your family’s taxable income.

The amount is reduced as your total household income increases.

This can easily set off the attorney’s i-485 EAD filing fee if you are thinking of saving money there as your child does not intend to work anyway.

You can also file the i-485 EAD yourself as the i-765 EAD form is simple to fill.

Required SSN

IRS rules make it mandatory for your kid to have a ‘required SSN‘ to claim their child tax credit on the tax return.

IRS Publication 972 lists the child tax credit requirements.

Child tax credit with i485 EAD and SSN

The term ‘required SSN‘ means that the SSN should be valid for employment in the USA.

Does my child’s SSN pass “Required SSN” requirement?

Look at these cases:

#1 Child is a US citizen

If your child was a U.S. citizen when the child received the SSN, the SSN is valid for employment and passes the “required SSN” requirement.

#2 Child SSN card marked “Not Valid for Employment”

If “Not Valid for Employment” is printed on your child’s social security card, then your child does not pass the ‘required SSN‘ test.

If your child’s immigration status has changed so that your child is now a U.S. citizen or permanent resident, you have to get a new social security card without the legend to be eligible to claim the tax credit.

The Social Security office can issue you a new card.

#3 Child EAD marked “Valid for Work Only With DHS Authorization”

USA SSN card – valid only with DHS authorization

If “Valid for Work Only With DHS Authorization” is printed on your child’s social security card, your child has the required SSN for as long as the DHS authorization is valid.

Most H1B, H4, L1, and L2 Social Security cards will have the annotation of “VALID FOR WORK ONLY WITH DHS AUTHORIZATION“.

This essentially means that a child can be claimed for the child tax credit as long as the EAD is valid.

You will need to get this “DHS Authorization” condition/label removed from your SSN card once you get your green card.

FAQ

Can we use a child’s EAD for a child tax credit even if filed EB2 to EB3 downgrade?

You can apply for your child’s SSN and use it for tax filing purposes.

The EB2 to EB3 downgrade is not affected as long the kid uses the i-485 EAD for actual work and making money.

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