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United States of America (USA) - Taxation

The US has a reputation for charging tax on nearly everything. There are federal, state, and local taxes. State tax rates vary; they tend to be lower in less densely populated regions. Sometimes Republican areas really do have lower local and state tax rates, but this is not always the case.

Income tax

You will pay federal and state taxes on any US-earned income, including any dividends or interest earned. If you are a Permanent Resident or Citizen you are taxed on income earned anywhere in the world, and this should be considered when selecting the appropriate visa for your stay in the USA. A few states do not have a state income tax. These states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming.

Even though income tax is deducted from one's paycheck each pay period, everyone working in the US is required to file taxes each year. (Even US citizens living and working abroad are still required to report their earnings each year.) This is to ensure that you have not paid too much – or too little – in taxes throughout the year, and you will likely end up with a tax refund or have to pay extra taxes. The deadline to file taxes each year is April 15. Most people will have an account or a tax attorney do their taxes for them, but there are also computer programs that allow you to do your own taxes. If you are filing US taxes for the first time, however, it is not advisable to attempt to do your own taxes; an accountant or tax attorney will make sure you have reported everything correctly and taken the appropriate deductions.

If you are required to report your US-earned income to your country of origin this will be your responsibility.

Payroll taxes

In addition to federal and state income taxes, US employees pay Social Security tax (this will appear on your pay stub as FICA, which stands for the Federal Insurance and Contributions Act), Medicare tax, and unemployment tax. If you are self-employed, you will pay self-employment tax; this can be paid yearly or quarterly, but it will be your responsibility to make payments as the government will not automatically deduct taxes from your paycheck each month because you will technically be “paying yourself.”

Property tax

In most states you will have to pay property tax. These are annual taxes on personal property, such as vehicles or valuable art.

City and county taxes

Cities and counties also levy taxes. These taxes are used to pay for roads, schools, parks, and other services.

Sales tax

Sales tax (similar to V.A.T.) varies from state to state and ranges from around 3% to over 7%. Unlike in the UK and Europe, goods in the U.S.A. are not labeled with the sales tax already factored into the price. Instead, sales tax is added at the tills. This can often be confusing for expats (and even longtime residents). Some states do not have sales tax. These states are Alaska, Delaware, Montana, New Hampshire, and Oregon. Food and prescription and non-prescription drugs are exempt from sales tax in most states, and those states that do tax these goods impose a lower rate than the general sales tax. Virtually everything is taxed, but luxuries and “unhealthy” items tend to be taxed much more severely. Gasoline, tobacco, and alcohol are all taxed to a level that many feel is “brutal, yet justifiable.”

Other taxes

Other taxes include corporate income tax, transfer taxes, excise taxes. Information about these, and other taxes, can be found at the website for The Internal Revenue Service, a division of the Department of the Treasury (www.irs.gov).

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