Friday, April 10, 2015

US taxes : the come back ! (or how to fill a tax return form for Federal, Californian and Texan taxes)

Pour lire cet article en français, cliquez ici.

I already wrote an article on the same subject last year, but this year, we have changed our visa status so I take this opportunity to update it.

If you are in the same situation than us last year (married without children, J1 as a post-doc in California, directly paid by the University and a J2 unemployed spouse), let's visit the last year article here (only the deductibles changed since last year, the other things are still valid).

This year, here are our situation :

Our J visa expired in August and Jibouille got a new job in Texas with a H1B visa. We are also waiting our green card. I am now H4, still unemployed. If your situation is similar, I suggest to go on with the following!
Before starting, as a reminder, I am not an expert in tax refund and if you wish certified information, I recommend to ask advices to a specialist in tax refund like H&R Block. What I will present below is only the summary adapted for my situation from the long IRS reports, magazines, and discussions with other expatriates (such as Melo from the Further West blog who I thank by the way !). Because some information are not always super precise, it happens that one may interpret differently the articles. The information presented here are thus only my own interpretation ! (you can put a comment by the way if you disagree, the aim is to be successful together ! ^^).

How work the taxes in the US, in California and in Texas ? 

What you need to know is that taxes do not work like in France. First, there are two types of income tax: the federal tax (for the US government basically) and the State tax (for the government of the state or states in which you lived this year, namely California and Texas for me). Contrary to France, taxes are directly taken from your salary. So, the tax refund is only used to get back the money you paid in extra, but you will still have to pay if you didn't pay enough.

How to declare your tax return in the US, in California and in Texas? 

Most of the time, post-docs have a tax-exempt status for the federal taxes (for the French people, there is 2 years of exemption with the J1 visa). Nevertheless, you have to send your tax return ! Morover, the exemption does not include State taxes, so you have to fill in the tax return for your State and to pay the possible State taxes.

For us who just moved in a new State and changed our visa status, the procedure is not more complex, except that we have to fill in the tax return for California and for Texas... Luckily, we don't have to pay any taxes in Texas, we have then one step less to do ! In the contrary, if you move in a State where you have to pay taxes, you have to fill in the two tax returns.

I wrote down below what you have to do step by step in chronological order (I precise in chronological order because you need to have the federal tax return in order to fill in the State one):

Step 0 : Receive the different forms from the University

This is the easiest step, but essential however ! Before filling your tax return, you will need several forms: in our case (and I imagine for all post-docs), we received the following documents from Caltech: W2, 1042S,and W4 as well as a W2 and a W4 from Texas A&M. If you didn't receive any documents by the end of January, contact your boss.

In addition to these essential documents, some other statements are added this year :

- the form 1099-G (proof of the last-year tax return)
- the form 1099-INT (proof of the financial interests)

These documents do not have to be sent to IRS, but they will be useful to fill in your tax return (for us, only the 1099-G was used in fact, since our financial interests were not high enough). 

Step 1 : Fill in your US Income Tax Return (forms 1040NR or 1040NR-EZ)

  • For us, this step was very easy, since Caltech and Texas A&M provide a software. You just had to answer to questions and the software automatically produces the tax return. For those who don't have this luck, you have to fill the form by yourself (this is what I finally did this year to check if there were not any problems). If I well understood, you have to fill the form 1040NR if you have dependants (the spouse does not count as a dependant) or the 1040NR-EZ otherwise. You may find more details in the IRS instructions (I put the link of the 1040R-EZ, but you can find the same for the 1040NR).   Instructions IRS
For more clarity, here is an example with some explanations:

Let's have some fun !

Before filling the form, first check that this is the one adapted to your case. To do that :
- Don't have neither any dependants, nor be yourself dependant of someone.
- Have incomes issuing from salaries, tips, refunds, scholarships or untaxable financial interests.
- Have a taxable income below $100 000.
- Verify the other small details listed in the instructions (I am lazy, I put only the most important ones !).

Once you check that you are eligible, you have to do a last test: the substantial presence test for 2014 (explained in more details in the instructions, but basically you are considered non-resident if you can apply the franco-american treaty. After 2 years, you will have to think a little bit more about it). If you are considered as non-resident, you have no choice, you will have to fill the form. Nonetheless, if you are considered as resident, it might be interesting for you to fill the normal tax return.

If the picture is too blury, click on it, you will better see the details.
Box n°3 : Your unexempted american salary. In our case, we are still within the 2 years of the treaty and an H&R Block consultant told us that we still can claim the 2 years treaty and then have a tax refund despite the changing in the visa status. (Nevertheless, if you have already experienced this situation and you could confirm this, I will be reassured!)
Box n°4 : Your refund from the past year (you can find it in the 1099-G form)
Box n°6 : Your american salary (the same that you will find in the box n°16 of your W2 forms given by the Universities - for us that was what was written in the box n°16 of the W2 from Caltech and in the box n°1 of the W2 from TAMU)
Box n°7 : Boxes n°3 + n°4 + n° 5
Box n°10 : Box n°7 - (n°8+n°9)
Box n°11 : What portion of your salary was retained for State tax purposes (amount that you will find in the box n°17 of your W2 forms given by the University), except if the amount is above $150,000 (see instructions in that case)
Box n°12 : Box n°10 - n°11 (0 if n°11>n°5)
Box n°13 : $3,950 except if the box n°10>n°4
Box n°14 : Box n°12 - n°13 (0 if n°13>n°12)
Box n°15 : Report here the amount from the tax table corresponding to your salary and your status
Box n°17 : Total amount of your income tax  (Boxes n°15 + n°16)
Box n°18a : Federal tax declared in your W2 and your 1099-R
Box n°18b : Federal tax declared in your 1042-S
Box n°21 : Federal tax already paid (Boxes n°18a + n°18b + n°19 + n°20)

If you paid more taxes that you should, directly go to the box n°22, otherwise go to the box n°25. In these two cases, fill in the appropriate box by |box n°17-box n°20| and fill in the modality in order to be reimbursed or to pay for what you owe.
If the picture is too blury, click on it, you will see the details better.
Line  A and B : Even if France does not consider us as residents anymore, you must answer France each time (if you are French of course !) and are not in a particular case.
Line C : No, if you didn't fill the form I-485 to get a green card (for instance, we started the process to get one, but we are just at the beginning of the application and then we answered no)
Line D : No, if you are neither a US citizen nor a permanent resident.
Line E : Enter here the visa that you had the 31st of December 2014.
Line F : If you change your status during the year (for instance, we moved from a J1 to a H1b), write here the reason and the date of this modification.
Line G : Enter here all the arrival and departure dates of the territory.
Line H : Enter here the number of days you were physically in the US. Are excluded, the days of less than 24 hours being present in the US (in transit for example), as well as the days for which you are exempted.
Notice that exempted does not mean tax return exemption and does not apply to post-docs with a J1 who are research scholar and not teachers and trainee, apparently.
However, this Information has to be verified since the software Glacier considered last year that Jibouille was research scholar without exemption for the 1040NR-EZ and teacher and trainee with exemption for the 8843. I will then redo the same thing this year even if that seems to be illogical! (if you have more information on that particular subject, do not hesitate to post comments!)
Other cases exist for Canadian and Mexican residents, for foreign crews, as well as people who can't leave the territory due to a disease.
Line I : Yes, if you already filled a tax return last year (2013 form 1040NR-EZ for us)
Box n°J1b : If you are French, that will be always 20
Box n°J1c : Number of months for which you already asked the exemption (11 for us since we arrived at the end of February 2013)
Box n°J1d : For us, both our salary from Caltech and Texas A&M. Nevertheless, the amount may vary for those who are a high income due to a maximum amount for the exemption (to be checked)
Box n°J1e : Sum of the J1d Boxes
Box n°J2 : We filled "no", since, except if I made a mistake, we are not taxed in France on our American incomes... But I found this question confusing...(Is that a way to find reasons to cancel the treaty ??)

Yippee, the first form is finished!!!
  • Then, you have to fill in the form 8843 (that you will find here) for each members of your family. For the people in the same situation than us, you just need to fill the parts I and II by entering your personal information (name, address, passport number, number of days in the US, etc...). Here again, the exemption issue is still open, I then considered the same thing than the software Glacier, i.e. Jibouille was a teacher.

  • In an envelop 1, put in order :
    • Copy C of 1042S
    • Copy B of W2
    • 1040NR-EZ
    • 8843 of J1
    • 8843 of the other members of your familly
  • In an envelop 2, send the 8843 of the spouse (don't ask why we have to send this form in double...).
  • Keep as long as you can a copy of these forms!!!
  • Send these 2 envelops to the following address:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215

Step 2 : Fill the Californian tax return

For a non-resident (like us), there are two tax returns to fill in: the Schedule CA(540NR) and the  form 540NR (Apparently, we have the choice between the Long Form and the Short Form. The consultant told us to take the Long form).
What is great when you are non-resident is that moving is not a problem since that changes nothing in your tax return. In contrary, if you were a Californian resident and you changed of State in 2014, you have to fill these forms instead of the usual ones.
I won't detail everything (you may find the information here), but here is the way to fill the form.
The column A is used for reporting the federal amounts from your 1040NR-EZ.
The column B is used for reporting the federal amounts exempted in California, such as lottery or social income.
The column C is used for reporting the amounts that are not taxed at the federal level, but are in California such as foreign incomes  (A priori for the full year 2013, since we were in California as "full year resident", but I will be more than happy to learn that this is not the case !) for instance
The column D = column A - column B + column C
The column E concerns only the incomes coming from California.

For the part I :

Line 1a : As we are not considered to be resident for the federal income tax, we are not considered as resident in California. You have then to enter your country of origin.

Line 4 : Again, enter your country of origin.
Line 5 : Number of days you stayed in California (included holidays, sick days, etc.).
Line 6 : Put "No", if you do not owe a housing in California.
Line 7 à 9 : We were in California last year, so I entered the arrival date in 2013 and the departure date in 2014 (but I should have entered 12/31/2013 for the departure?). In contrary, I still consider us as non-resident.

For the part II :

For the column A :

Box 7A (CA(540NR) = line 3 (1040NR-EZ)
Boxes 8 and 9A  = If you have financial interests to declare, put them here.
Box 10A  = line 4 (1040NR-EZ)
Box 21f  = line 5 (1040NR-EZ)
Box 21A  = Sum of 21B (= 0 most of the time if you're non-resident)
Box 22aA  = Sum of boxes 7A to 21A
Box 22b A/B/C/D/E  = Box 22a A/B/C/D/E
Box 33 A and C : I didn't succeed to know if my French student loan was deductible. If someone knows that, let me know !
Box 36 A/B/C/D/E  = Sum of 23 to 31 and 32 to 35 A/B/C/D/E (Box 36 A  = line 8 (1040NR-EZ))
Box 37 A/B/C/D/E  = Box 22b A/B/C/D/E - Box 36 A/B/C/D/E (Box 37 A  = line 10 (1040NR-EZ))

For the colum B :

For us, nothing, except the tax return from last year to report line 10 and in the sums.

For the column C :

Box 7C  = Exempt American income + foreign income
In an other way, you put the amoung of line 6 (1040 NR-EZ) and you had everything you earn in France (convert in $ with the annual exchange rate).
Box 22b A/B/C/D/E  = Box 22a A/B/C/D/E
Boxes 33 A and C : I didn't succeed to know if my French student loan was deductible. If someone knows that, let me know !
Boxes 36 A/B/C/D/E  = Sum of 23 to 31 and 32 to 35 A/B/C/D/E (Box 36 A  = line 8 (1040NR-EZ))
Box 37 A/B/C/D/E  = Box 22b A/B/C/D/E - Box 36 A/B/C/D/E (Box 37 A  = line 10 (1040NR-EZ))

For the column D :

Add columns A and C and substract B !

For the column E :

Box 7E (CA(540NR) =  only your Californian income (and even if it was exempt)(=line 6 1040NR EZ if you didn't leave California)
Box 22b A/B/C/D/E  = Box 22a A/B/C/D/E
Box 36 A/B/C/D/E  = Sum of 23 to 31 and 32 to 35 A/B/C/D/E (Box 36 A  = line 8 (1040NR-EZ))
Box 37 A/B/C/D/E  = Box 22b A/B/C/D/E - Box 36 A/B/C/D/E (Box 37 A  = line 10 (1040NR-EZ))
For the part III :

Line 38 (CA(540NR) = line 11  (1040NR-EZ)
Line 39 (CA(540NR) = Put here the amount of States taxes and Federal taxes you paid in 2014 as well as the amount of foreign taxes you will have to pay for 2014.
Line 40 (CA(540NR) = line 38 - line 39
Line 42 (CA(540NR) = line 40 + line 41
Line 43 (CA(540NR) = If you don't earn more that the specified amount, report line 42.
Line 44 (CA(540NR) = Report the standard reduction ($3992 for a 3 status (married non resident))
Line 45 (CA(540NR) = Box 37E
Line 46 (CA(540NR) = line 44
Line 47 (CA(540NR) = Box 37E / Box 37D (with 4 decimales)
Line 48 (CA(540NR) = line 46 * line 47
Line 49 (CA(540NR) = line 45 - line 48
For the first lines, put your name and adress. Regarding the status, if you're married and both non-resident, put 3 ("filling separately"), because it's the only option non-resident are allowed to check.

Line 7 (540NR Long Form) = 1* $108 = $106
Line 11 (540NR Long Form) = Sum of the lines 7 to 10
Line 12 (540NR Long Form) = Box 16 of the Californian W2
Line 13 (540NR Long Form) = Line 10 (1040NR-EZ)
Line 14 (540NR Long Form) = Box 37B (CA(540NR))
Line 15 (540NR Long Form) = Line 13 - Line 14
Line 16 (540NR Long Form) = Box 37C (CA(540NR))
Line 17 (540NR Long Form) = Line 15 + Line 16
Line 18 (540NR Long Form) = If you don't want to give anything for charities, put the $3992 deduction.
Line 19 (540NR Long Form) = Line 17 - Line 18

Line 31 (540NR Long Form) = If you earn less than $100 000, check "Tax Table" and put the associated number to your filling status" and your income declared line 19.
Line 32 (540NR Long Form) = Box 37E (CA(540NR)) = line 45 (CA(540NR))
Line 35 (540NR Long Form) = Line 49 (CA(540NR))
Line 36 (540NR Long Form) = Line 31 / Line 19
Line 37 (540NR Long Form) = Line 35 * Line 36
Line 38 (540NR Long Form) = Line 35 / Line 19
Line 39 (540NR Long Form) = Line 38 * Line 11
Line 40 (540NR Long Form) = Line 37 - Line 39
Line 42 (540NR Long Form) = Line 40 + Line 41
Line 63 (540NR Long Form) = Line 42 unless you have to put something on lines 50 to 62.
Line 74 (540NR Long Form) = Line 42 unless you have to put something on lines 71 to 73
Line 81 (540NR Long Form) = Line 38 (CA(540NR)) or box 17 from W2
Line 85 (540NR Long Form) = Line 81 unless you have to put something on lines 82 to 84
Line 101 (540NR Long Form) = Line 85 - Line 74 if you overpaid (report this amount on line 103)
Line 104 (540NR Long Form) = Line 74 - Line 85 otherwise.
Then you add the informations to pay or receive you're refund and you're all set !
    • After so much effort, don't stop right now and put all the papers in order in the envelope
      • The form W2
      • The long Form 540NR
      • The schedule CA540NR
      • A copy of 1040NR-EZ
    • And send everything to the adress below :
    If you have a refund :
    PO BOX 942840
    SACRAMENTO CA 94240-0001
    Or if you owe money :
    PO BOX 942867
    SACRAMENTO CA 94267-0001

    Step 3 : Fill the Texan tax return form

    That's the first time I like better Texas than California, but for once, God bless Texas ! There is no income taxes in Texas ! Less work to do and more money, that's enough to make me happy !

    Step 4 : Close the Tax return file and celebrate !

    Here you are ! You can open a bottle of sparkling wine and enjoy !

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