Taxes: the full picture behind every deduction
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Key takeaways
Taxes fund government services at the federal, state, and local level, each collecting different types of tax for different purposes.
Most people encounter income tax, payroll tax, sales tax, and property tax in some combination, depending on their situation.
Whether filing a tax return is required depends on income level, filing status, and tax residency status.
IRS Publication 519 is the dedicated starting point for immigrants determining their specific filing obligations.
Filing accurately and on time, even with a modest or complex income situation, protects against unnecessary penalties.
Taxes touch nearly every part of financial life in the U.S. Here’s the full picture, especially when navigating the system for the first time.
What are taxes, and why are there so many kinds?
Taxes fund government services at the federal, state, and local level, and different levels of government collect different types of tax for different purposes. Income tax funds general government operations based on what’s earned. Payroll tax specifically funds Social Security and Medicare. Sales tax is collected on purchases. Property tax funds local services based on real estate ownership. Understanding which specific taxes apply to a given situation, rather than treating “taxes” as one single thing, makes the whole system considerably easier to navigate.
How to figure out your filing obligation step by step
Determine tax residency status. According to IRS Publication 519(opens in new window), this determines whether someone is taxed on worldwide income as a resident alien, or only U.S.-source income as a nonresident alien.
Check whether income level requires filing. Filing thresholds vary based on filing status and income, and even below the threshold, filing can sometimes benefit someone owed a refund.
Gather income documents. This includes a W-2 from an employer and any relevant 1099 forms for other income.
File using the correct form for status. A resident alien generally files Form 1040, while a nonresident alien generally files Form 1040-NR.
Why the U.S. tax system can feel especially confusing for newcomers
Someone moving to the U.S. for the first time is navigating an entirely new tax system on top of everything else involved in relocating, and the concepts don’t always map directly onto a system from another country. Terms like withholding, deductions, and credits, along with the specific question of tax residency versus immigration status, can genuinely take time to understand fully, which is exactly why dedicated resources like Publication 519 exist specifically for this situation. According to this step-by-step guide to filing taxes as an immigrant(opens in new window), the process is manageable once the underlying concepts, including the SSN versus ITIN distinction, become clear.
What taxes mean for people sending money internationally
Accurately understanding and meeting U.S. tax obligations is foundational to confidently managing broader finances, including how much can be reliably sent to family abroad once actual after-tax income is clear, rather than working from an estimate that might not hold up once the real tax obligation is calculated.
When to consult a tax professional
Consult a tax professional for a first U.S. tax filing when the situation involves any cross-border element, foreign income, assets abroad, or a change in residency status during the year, since these add genuine complexity beyond a standard filing. It’s also worth guidance any time income or family situation changes significantly, since a filing approach should reflect current circumstances accurately.
Why keeping past tax returns matters
Keeping copies of filed tax returns for several years, generally at least three, provides support if ever audited, needing to verify past income for a loan or visa application, or simply needing to reference a prior year’s specific figures for an amended return or new filing.
Why a tax professional’s fee is often worth the cost for a complex situation
While many straightforward tax situations can reasonably be handled without professional help, a genuinely complex situation, cross-border income, a first-time residency determination, or a significant life change, often makes a tax professional’s fee a worthwhile investment against the cost of an error or a missed deduction.
Why some U.S. territories follow different tax rules entirely
Residents of certain U.S. territories, like Puerto Rico or Guam, follow distinct tax filing rules that differ from the standard federal system applicable in the 50 states, making it worth checking territory-specific guidance directly rather than assuming standard federal rules apply uniformly.
Why a mid-year residency change creates a dual-status year
Someone who becomes a resident alien partway through the year, after previously being a nonresident, files what’s called a dual-status return for that specific transition year, applying different rules to each portion of the year, a genuinely more complex filing than a standard full-year return.
Common questions about taxes
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Do I have to file U.S. taxes if I don’t send money internationally?
Yes, filing requirements are based on income and residency status, not on whether or how money is spent or transferred afterward, so sending money internationally has no bearing on whether filing is required.
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What happens if I don’t file taxes when I am required to?
Failing to file when required generally results in penalties and interest accruing over time, and the situation doesn’t resolve itself, making it worth addressing promptly, ideally with professional help when more than one filing year has been missed.
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Is there a simple way to know which taxes apply to my specific situation?
Starting with tax residency status matters most, since this shapes the entire federal filing approach, then separately checking a specific state’s income tax rules and any local taxes that apply to a given city or county, since these layers combine to create the full picture.
In Summary
Taxes in the U.S. operate in layers, federal, state, and local, each collecting different types for different purposes, and understanding which layers actually apply to a given situation makes the whole system considerably more approachable.
This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.