Tax system in the USA for emigrants

In the USA, US citizens, green card holders and people who live in the USA for at least 183 days a year are liable for tax. Taxes are levied on worldwide income. Tax returns must be filed annually by April 15 using Form 1040.

Green card holders who live permanently in the USA must file a US federal income tax return (Federal Form 1040). Exceptions apply if their green card status has been revoked or surrendered, their worldwide income does not exceed certain limits or they are considered non-residents of the USA under a double taxation treaty.

For example, green card holders who are unmarried and under the age of 65 do not have to file a tax return for the 2023 tax year if their income is less than USD 12,950.

The double taxation agreement between the USA and Germany applies to German green card holders whose main place of residence is in Germany. This agreement is intended to prevent income from being taxed twice. In the first year, a US Nonresident Alien Income Tax Return (Form 1040NR) and a copy of Form 8833 must be submitted.

The USA levies various types of tax: federal, state and local. Income tax is progressive and varies from state to state. Other types of tax include the property tax on real estate, the Social Security tax, the Medicare tax, the sales tax on purchases and the excise tax on certain goods.

Federal income tax in the US is progressive and ranges from 10% to 37% (as of 2023). Here are the tax brackets for 2023:

– 10% on income up to 10,275 US dollars (single persons) or 20,550 US dollars (married couples)

– 12% on income between 10,276 and 41,775 US dollars (single persons) or 20,551 and 83,550 US dollars (married couples)

– 22% on incomes between 41,776 and 89,075 US dollars (single persons) or 83,551 and 178,150 US dollars (married couples)

– 24% on incomes between 89,076 and 170,050 US dollars (single persons) or 178,151 and 340,100 US dollars (married couples)

– 32% on incomes between 170,051 and 215,950 US dollars (single persons) or 340,101 and 431,900 US dollars (married couples)

– 35% on income between 215,951 and 539,900 US dollars (single persons) or 431,901 and 647,850 US dollars (married couples)

– 37% on income over 539,900 US dollars (single persons) or 647,850 US dollars (married couples)

The property tax varies greatly depending on the state and can be between 0.2% and 2% of the property value.

The Social Security tax is 6.2% for employees and 12.4% for the self-employed on income up to USD 147,000 (as at 2023). The Medicare tax is 1.45% for employees and 2.9% for the self-employed, with no income limit.

The sales tax varies from state to state and can be between 0% and 10%.

Excise taxes are levied on certain goods such as gasoline, tobacco and alcohol and also vary from state to state.

Green card holders and US citizens must report foreign bank accounts if their total annual value exceeds 10,000 US dollars. This reporting obligation is known as the FBAR (Foreign Bank Account Report) and must be submitted by April 15 of the following year.

The submission of tax returns can be facilitated by software or tax preparation services. An extension of the deadline until October 15 is possible. If there are difficulties with payments, an installment payment can be requested. The IRS offers various support services and information for taxpayers.

Retirees and persons with dual citizenship must also file US tax returns if their income limits are exceeded. Income from abroad can be exempt or credited against US tax under certain conditions.

For a successful emigration to the USA and compliance with all tax obligations, we recommend that you obtain comprehensive information at an early stage and, if necessary, seek professional help.