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US

As discussed above, tax jurisdiction in the US is divided among the federal government, the 50 states plus the District of Columbia, and local counties and municipalities.

The principal federal taxes for individuals are the individual income tax and the social security tax, which is imposed on wages of US employees regardless of where they are employed and on wages of non-US employees employed in the US. In addition to the regular income tax, individuals may be subject to the alternative minimum tax (AMT), which is triggered where an individual's AMT liability exceeds that individual's regular income tax liability.

Most states and some municipalities impose individual income tax. State and local income taxes generally follow the federal income tax in the way income is calculated but they may use apportionment in some cases.

The tax year for individuals is generally the calendar year, although a fiscal year or a 52-53 week year may be used in certain circumstances (if the taxpayer regularly keeps books on that basis). Individuals generally must file a tax return by 15 April after the end of the tax year. Extensions of time to file are available, but all tax payments must be made by 15 April. Penalties and interest can apply for failure to file or for late filing.

Residency
All US citizens and residents, including resident aliens, pay federal tax on their worldwide income and are allowed a foreign tax credit for foreign taxes paid or accrued.

Aliens who have entered the US as permanent residents and who have not officially surrendered or lost the right to permanent US residence are taxed as US residents. Also taxed as residents are aliens who meet a "substantial presence test," which requires (1) physical presence in the US for at least 31 days during the current calendar year; and (2) presence in the US for 183 days or more, based on a weighted number of days during the current calendar year and the two immediately preceding calendar years.

Non-resident aliens pay US personal taxes on all income from US sources "effectively connected" with a trade or business in the US on a net basis at graduated rates. Investment and other fixed or determinable income not "effectively connected" with a US trade or business is taxed at a flat rate of 30% or a lower treaty rate, regardless of the amount.

Taxable income and rates
The tax burden on individuals is low in the US compared with that of other industrialised nations. For higher-income individuals, the US tax code phases out personal exemptions and imposes a ceiling on itemised deductions.

There are six tax rate brackets for individual income tax purposes: 10%, 15%, 25%, 28%, 33% and 35%. The brackets are applied at different levels of income to each of the four categories of taxpayers (married filing jointly, married filing separately, single and head of household). Brackets are indexed annually to reflect inflation.

The states also actively collect income tax from nonresidents as well as individuals who reside in their territory. Nonresidents must have gross income sourced from that state (for example, nonresident partners and S Corporation shareholders or nonresidents performing services in the state).

Determination of taxable income
Individuals must include in their taxable income all forms of remuneration and allowances (salaries, wages, etc.), all interest (except interest from state and municipal bonds) and the value of other perquisites (for example automobiles and free or subsidised housing). Certain dividends and long-term capital gains are considered separately, and assessed a flat tax of 15% (temporarily 0% for lower-income recipients on qualifying capital assets disposed of after 31 December 2007).

Individual taxpayers are entitled to a standard deduction from gross income in calculating taxable income or they may "itemise" deductions. For 2008, a standard deduction is available in the following amounts: USD 10,900 for married persons filing jointly; USD 5,450 for married persons filing separately; USD 8,000 for heads of households; and USD 5,450 for single taxpayers. Taxpayers are also allowed to take personal and dependent exemptions of USD 3,500 per person in 2008.

Taxpayers with documented deductible expenses exceeding these amounts must itemise them to deduct the higher amount. The following expenses are eligible for itemised deduction: certain taxes paid (state and local taxes on income, sales and property); interest paid on borrowings to make investments (limited to the amount of investment income, with a carry forward for any excess); home mortgage interest (including second-mortgage interest within certain limits); charitable contributions; medical expenses exceeding 7.5% of adjusted gross income; theft and casualty losses exceeding certain amounts; and tuition for education necessary for one's job, union dues and other job-related expenses, and expenses for producing income, to the extent they exceed 2% of adjusted gross income. The deduction for business meals and entertainment is generally 50%.

Except for investment interest, theft and casualty losses, and medical expenses, itemised deductions for higher-income taxpayers are reduced by 3% of the amount by which their adjusted gross income exceeds certain thresholds. This reduction, however, may not exceed 80% of the deductions subject to the limitation.

The applicable tax rate will depend on the amount of taxable income and the return filing status of the taxpayer.

Special expatriate tax regime
There are no special tax breaks for expatriates working in the US

Capital taxes
Inheritance (estate) tax and a gift tax are imposed by the federal government. For US citizens and residents, the estate tax is assessed based on all of the assets of the deceased. For nonresident aliens, the tax is imposed on US-based property only.

A separate gift tax is imposed on gifts made during a person's life. In most cases, the gift tax only applies for aggregate gifts in excess of USD 12,000 to anyone person in a year.

In addition, many states impose their own inheritance or gift tax, and many localities impose property taxes of various kinds.

 

Source: Deloitte

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