How To: Do your taxes in the US

Below we have compiled for you basic information about the tax system in the US. As this is a very complex topic and a detailed explanation would go beyond the scope of this newsletter, you will, as usual, find links to websites with further information.

To avoid double taxation, a double tax agreement exists between Germany and the US. As a general rule, taxes have to be paid in that country where the income is being earned. So-called resident aliens (green card holders with an unlimited residence permit), will be treated like US citizens, i.e. they have to pay the taxes for their worldwide income in the US. So-called non-resident aliens (with limited residence permit) only have to pay taxes for the income earned inside the US and through trade with the US.

So you will have to pay taxes in the US if you are holding a permanent residence permit (green card) or in the case of so-called substantial presence. This means, you have to have spent at least 31 days of the present year inside the US. In addition, the number of days spent in the US over the course of the present year, plus one third of the previous year's days in the US, plus one sixth of the days in the US of the year before that has to equal a total of 183 days or more.

Income tax in the US has three different levels: Federal Income Tax, State Income Tax and Community/Local Income Tax. Income tax varies from state to state and community to community. Some states do not have an income tax. In that case, only the Federal Income Tax has to be paid. However, sometimes the Local Tax almost makes up completely for the missing State Tax.

The Federal Income Tax is the same all over the US, and raised by the Department of Treasury's Internal Revenue Service (IRS). You will find a lot of information on the Internal Revenue Service's website, both as an individual or a company, including tax forms, instructions and IRS publications. Find more on www.irs.gov.

The FTA (Federation of Tax Administrators) provides you with links to the websites of the states' departments of revenue. The FTA website offers general descriptions of all the states' websites in the links section. It also contains several charts stating the rates of taxation for income tax in the 50 states, sales tax, and many other taxes. Find more on www.taxadmin.org.

Or get more information on the US tax system at the IRS's office at the US embassy in Berlin:

U.S. Internal Revenue Service
Embassy of the United States
Clayallee 170
14195 Berlin
Tel: 030-8305-1140
Fax:030-8305-1145