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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My wife and I are both British. She works at the World Bank

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My wife and I are both British. She works at the World Bank on a G4 visa. She is exempt from all US taxes. I hold a G4 visa as her spouse and have a permit to work (EAC). I am recently employed part time at a US company and have completed the necessary forms for withholding tax. My question is two fold: what should I be using for my tax return (1040EZ) at the year end; and more importantly with my status, can I claim any exemptions at all (I read somewhere that my status disallowed any exemptions - for info we have one child and another on the way; and we have significant child care costs)? I would rather include the correct number of exemptions on the relevant form I submitted to my employers (W4?) and have my employers withhold the correct amount of tax so at year end I do not owe a large amount. Thanks.

Lev :

Hi and welcome to our site!
Since you are in the US under G4 visa, you are considered a Non Resident Alien for tax purposes.
An employee present on a G4 visa is exempt from US income taxation on the compensation received from that employment.
However all other income from US sources is taxable.
You may file a joint tax return and may claim your children as dependent if they physically stay in the US for more than six months and are treated as resident aliens. In this case you may claim a credit for childcare expenses - but the deduction is limited by $6000 for two children.
As a nonresident alien - you will not have a standard deduction - but should itemize. Still - you may claim personal exemptions for yourself, your spouse and your dependents.

Lev :

As you most likely already know - nonresident aliens are subject of US taxes ONLY if that is income from US sources. There are some complex rules to determine the source of income. You may take a look - page 12 IRS publication 519 - http://www.irs.gov/pub/irs-pdf/p519.pdf - Table 2-1. Summary of Source Rules for Income of Nonresident Aliens.
There are two types of income - effectively connected income and not effectively connected income.
Wages you will be paid for your work - are classified as effectively connected income (ECI) - and are taxes at regular tax rates as for US persons.
In general - you need to prepare your W4 form as "Married, but withhold at higher Single rate" in box 3 and select zero allowances in box 5.

Customer:

So in essence your last statement means I won't be able to claim any deductions on either my federal or state tax liability? If so I think that answers my question.

Lev :

You MAY claim deductions and credits - but not as US person because you are a nonresident alien.
In additional - only income that is considered from US sourced will be taxable for you.
You still may itemize your deductions and claim your children as dependents if certain conditions are met.

Customer:

Thanks Lev. But I am still a little confused - looking for the more straightforward/binary system we have in the UK tax system! On the W4 I have claimed a deduction for myself, for my spouse and for my child (not counting the one on the way) and also for child care costs. My worry was with 6 deductions in total on the W4, I would be hit with a big bill at the end of the year.

Customer:

A big bill for unpaid taxes I meant.

Customer:

But your advice to select zero allowances in Box 5 (I had included 6) suggests I should correct that.

Lev :

Generally, you cannot file as married filing jointly if either spouse was a nonresident alien at any time during the tax year. You cannot file as head of household if you are a nonresident alien at any time during the tax year.
W4 form is not determined your tax liability. Your tax liability will be determined when you will file your tax return.
The purpose of W4 form - to inform your employer about your situation and your employer will withhold income taxes from your wages. When you will file your tax return - and if withholding are more than your tax liability - you will claim a refund. So - W4 form is not so important..

Lev :

Each allowance in the box 5 represents $3900 in deductions. The issue might be - if withholding will be a little less than your tax liability - you will have to pay with your tax return. many taxpayers are not happy when they need to pay...

Lev :

Nonresident aliens can deduct certain itemized deductions if they receive income effectively connected with their U.S. trade or business. These deductions include:
•State and local income taxes,
Charitable contributions to U.S. non-profit organizations,
•Casualty and theft losses,
Miscellaneous itemized deductions, and
•The ordinary and necessary expenses related to a U.S. trade or business.


Use Schedule A of Form 1040NR (PDF) to claim itemized deductions. If you are filing Form 1040NR-EZ, you can only claim a deduction for state or local income taxes. If you are claiming any other deduction, you must file Form 1040NR.

Lev :

If you are a nonresident alien for any part of the year, you generally cannot claim the Earned Income Tax Credit, the Hope Credit, or the Lifetime Learning Credit. However, you may claim an adjustment for the student loan interest deduction.

Customer:

A related question - my ADP Earning Statement for the last half monthly period says on it, under the Additional Withholding Information section, that my Taxable Marital Status is single for both federal and state (which I think is correct based on what you have advised), but also that my Exemptions/Allowances are 0 for DC and 0 for MD, which suggests they are withholding on the basis of no exemptions, which suggests they have ignored what I put on the W4.

Customer:

I guess I need to confirm with them.

Lev :

Yes - that is correct - Single filing status for withholding purposes. Because your wife income is excluded - you may not claim any deductions for your spouse.
You are also correct to use zero withholding. - if you find out that you are eligible for any listed adjustments - you will update your W4 form any time. But with all uncertainty - it is better to use zero.

Customer:

Thanks Lev. Much appreciated.

Lev and 4 other Tax Specialists are ready to help you
When you will prepare your tax return and calculate your tax liability - if your withholding will be more than your tax liability - you will be sent a refund - so withheld money are not "lost" - that amount will be credited against your tax liability.
That is why W4 form is not so important...

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