Industry:Accounting, Payroll and Taxation Added By:247Compliance Posted On:July 15, 2019
With every commodity being explicitly tax-governed, be it your grocery or your property tax, it is difficult for anyone to think and understand the complexity with tax estimation when we move from a resident state to a non-resident state. The reason could be anything like for a new job or probably because of a temporary project from work. It is quite a known fact that the tax returns differ from state to state in the U.S., but there are certain misconceptions about the way the multistate taxation rule works in the U.S. and the major areas that it targets. This article presents the myth around multistate taxation, other forms of taxations and the ignored reality. The concept of multistate taxation generally revolves around two terms: Resident of the state and the non-resident of the state. Take a look.
Myth ^1: The permanent residents don't have to pay taxes when they do not live in the state.
Reality: The permanent residents of the state have to pay taxes even when they don't live there.
It is one of the prevailing myths that everyone thinks to be utterly true. Every state has its own policies that it implements on the person paying tax returns as a permanent or temporary (project-based) resident. If you are staying in Connecticut and working in New York, then you are liable to pay taxes to Connecticut as per the norms it defines, as well as to New York, where you work. This will be according to the tax bracket on the income that New York follows. However, the tax that you pay to your resident state will deduct the tax that you owe to your working state, meaning, Connecticut cannot tax you on the income that you earn in New York, again.
Myth ^2: The non-residents of the states are liable to different aspects of taxes other than their income.
Reality: The non-residents pay taxes on the income they "earn" than any other sources.
The non-residents of the state who only stay to earn or are residing due to a temporary project, are liable to pay taxes that they earn, rather than any investment. This means if you are a resident of California and had gone to work in New York City, you are liable to file a tax return that will only be more applicable on your income than any other investment that you own in the state, which is not the case for the permanent residents residing in New York City. But, you are liable to file a tax return, when you are selling a property, being a non-resident.
Myth ^3: Students don’t pay taxes.
Reality: Students are liable to pay taxes whether they earn or not.
It really does not matter if you are a student or a working professional, tax is liable to be paid by anyone who earns, irrespective of the age group or the designation they have, and that includes the students earning and studying in more than one state. Form 8843 and Form 1040NR-EZ, is specifically for students, who do part-time to earn their pocket money. Under the category of J-1 or F-1, the students are considered non-resident to the country and are required to file their taxes. For students who wish to reside as international nonimmigrants for 5 years and less, cannot file their taxes electronically, as they are not considered as equal as the citizen of the U.S. However, the ISS had granted the access of software called "Sprintax", which will resolve any tax issue and will generate the exact documents needed to file your taxes. This can be later be printed and mailed to the ISS with the required information that the form demands.
Myth ^4: There is no particular time to file the taxes, even when you live and work in just one place.
Reality: The tax filing deadline, each year is April 15th. Any due after the date might cost you a fortune.
This goes for both non-resident as well as the resident of the state who works for a living. The beginning date of the tax year is 1st of January every year with the ending date as the 15th of April. It is not a good practice to file a tax before you get your hands on all the forms, relevant for your income tax returns. Among other forms that are mandatory for taxable incomes, Form W-2 is issued by the employer latest by January 31st and Form 1042-S by March 31st. The IRS has made it mandatory to stick to the dates to file the taxes.
Myth ^5: Form W-4 is for filing tax returns.
Reality: Form W-4 is just used by your employer to know your tax details.
It is a very common myth that revolves around the Form W-4 that it is the final form for filing tax returns. Well, apart from grasping necessary details of the amount that is needed to withhold from your monthly paycheck for your tax requirements, Form W-4 is no good help that you must be hoping for it to be the only form to file your tax returns. But yes, it will reduce a lot of overhead to your employer by giving him the exact numbers that must be liable to be named as "tax".
Myth ^6: Filing tax does not cause any problem.
Reality: Not filing taxes timely can cost you penalties and huge fine.
It is a common belief that it is fine to not pay taxes at all. However, the Internal Revenue Services do not think the same way. With your tax not being filed timely, you are prone to huge penalties and interest charges that can be drastically expensive. This can also be followed by a rigorous audit by the IRS and could affect your Visa requests in the country. Sprintax helps you file your tax returns correctly and keeps a track to your old tax returns if you have not filed your previous taxes.
Paying taxes on time can save a lot of penalties and extra charges that you might never have imagined paying in the first place. Following proper regulation, as per the IRS and Income Tax department, can help save you from paying extra money that is not liable to be considered to be paid as taxes. There are several changes and revised updates by the federal law governing taxation in multi-states and in the Country as a whole. For more information on the latest updates on multistate taxation and issues related to tax documents and Forms, attend one of our webinars today.