Payment Of Tax Under United States

Residents are subject to withholding of income tax on wages paid by their employer. Nonresidents are subject to withholding of income tax on wages paid by their employer for services performed in the United States (i.e., income effectively connected with a U.S. trade or business). A nonresident may also be subject to withholding on U.S. source income that is not effectively connected with a U.S. trade or business (generally, investment income). The withholding rate is 30 percent imposed on gross income, unless lowered by treaty.

A taxpayer must pay a certain amount of tax (through withholding and estimated tax payments) during the current year to avoid penalties for under-payment. A nonresident who earns income that is effectively connected with a U.S. trade or business (other than personal service income) is subject to the same estimated tax payment requirements as residents.  These and other rules related to the payment of tax are discussed below:

Withholding of Taxes

Employers are generally required to withhold federal income tax from an employee’s compensation and to pay the withheld tax to the government. The employee then claims the withheld tax as a credit on his or her federal income tax return. The employer must provide the employee with Form W-2, which shows the compensation paid and tax withheld during the calendar year. Form W-2 must be supplied by January 31 of the year following the tax year in which the compensation was paid.

Resident aliens generally are subject to withholding on compensation in the same manner as U.S. citizens. Compensation paid to nonresident aliens for services performed in the U.S. is subject to the same rules, unless the compensation is exempt by treaty.

Additionally, employers may be required to withhold other taxes, including U.S. social security tax and state and local income taxes.

Compensation paid to nonresident aliens for independent personal services as well as interest, dividends,  and certain other passive income generally are subject to U.S. withholding tax at 30 percent, if such items are from U.S. sources.

Estimated Tax

Generally, 90 percent of the total tax liability for the year must be paid throughout the year in order to avoid significant penalties for under-payment of tax. To provide for current payment of income taxes not collected through withholding, the law generally requires that an individual pay an estimated tax if the total amount of taxes withheld from wages during the year will not be sufficient to avoid penalties for the under-payment of estimated tax. However, no penalty for under-payment of estimated tax is imposed if the tax liability for the year, less tax withheld from wages, is less than USD 1,000.