Income tax in USA for foreigners: How it works (UK guide)

Planning to move to the US from the UK? Perhaps you’re there regularly for work or business trips, or have investment interests over in the States.

If you plan to earn money in the US, you’ll need to know about the country’s income tax system - and how it applies to you.

In this helpful guide for UK expats, we’ll cover how income tax in the US works for foreigners. This includes who has to pay it, bands, rates and everything else you need to know.

We’ll also show you how to save on fees when making tax or other multi-currency payments abroad - with the Wise account.

Learn more about the Wise account

Tax basics for foreigners living in the US

Foreign nationals living in the US permanently must pay tax on all income earned in the country.

Under the country’s tax laws, foreign permanent residents with a valid visa or Green Card are treated the same as US nationals. You’ll need to submit an annual tax return and pay taxes to the Internal Revenue Service (IRS).

The tax year runs from 1st January to 31st December, and tax returns are due on 15th April.¹

In most cases, you’ll only have to pay federal (national) income taxes. However, some states, cities and municipalities in the US also have their own income taxes, although the rates are usually low.¹

Overview: Income tax for expats living in the US

Here’s some handy at-a-glance info on income tax for UK expats living in the US:

Who has to pay income tax in the US?

Anyone who is a permanent resident of the US for tax purposes needs to pay income tax, as do non-residents who earn income in the country.

Non-residents may be people who are in the country temporarily on short-term business, tourist or student visas, or who live in the UK but have income-earning business interests in the US.

Income tax for residents vs non-residents

The US tax system treats permanent residents (foreign or US citizens) differently to non-residents, who are known as ‘non resident aliens’.

Permanent residents need to pay US tax on all of their worldwide income while living in the US. But for non-residents, only income derived from the US (i.e. through a US job, business, property or investment) is taxable.²

Residents and non-residents are taxed at the same rates, which varies depending on whether you’re single, married (and whether you file singly or jointly).¹

How does income tax work for foreigners in the US?

For foreign residents, income tax is calculated in the same way as for US nationals. It’s also done in much the same way as other countries.

Any deductible expenses and losses are deducted from assessable income, which includes salary, wages, allowances and cash compensation. It may also include investment income, bank account interest and other forms of income.

From this amount, the person’s taxable income is determined and the appropriate rate of tax is applied. Tax is paid as a percentage of income in layers called tax brackets.

Most people living and working in the US will need to submit an annual tax return if their income is over a certain threshold. For a single person under 65 years old, this is $14,600 USD a year. The threshold is higher if you’re married (and filing jointly), the head of a household or over 65 years old.³

Self-employed people, freelancers and businesses also need to file tax returns and pay income taxes.

If you’re self-employed, you must file a tax return and pay self-employment tax (SE) if your annual income is over $400 USD.⁴

📚 US tax codes

Income tax for businesses in the US

Businesses classed as corporations which are resident in the US need to pay corporate income tax on their revenue. It’s set at a flat rate of 21%.⁵

However, there are different forms and rates of income tax depending on the type and size of the business.

Income bands and tax rates in the US

Now, let’s take a look at income bands and tax rates in the US for the 2024 tax year. Below are the bands and rates for a single (unmarried taxpayer) - as these are different for married and jointly filing individuals.

Bear in mind that you’ll only pay the given rate of tax on the portion of income that falls into each tax bracket.

So if your taxable income (minus deductions) is $15,000, you’ll pay 10% on the first $11,600 and then 12% on the remaining $3,400.

Non-residents pay tax at the rates above for income deriving from the US.

And don’t forget that there may also be local income taxes to pay, levied by the state, city or region.

Manage your money internationally with the Wise account

After reading this, you should have a better idea of how income tax in the US works for foreigners.

We’ve looked at who pays it, rates, income bands and more. All of this information should be helpful if you’re moving to the US, whether you’re working, studying or perhaps even retiring in the country.

If you do have a tax bill or other payment to make between countries, you’ll need a cost-effective way to make the transfer.

Open a Wise account online and you can manage your money in 40+ currencies all in one place.

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Sources used:

1. HSBC Expat - Tax in the United States
2. PwC - United States - Individual taxes on personal income
3. IRS - Check if you need to file a tax return
4. IRS - Business taxes
5. PwC - United States - Corporate - Taxes on corporate income
6. IRS - Federal income tax rates and brackets

Sources last checked on date: 17-Mar-2024