Thursday, May 12, 2016

Taxes in the US

This time, I thought would just write about tax paying in the US for my fellow residents or new residents starting this year. First off the basics, a tax year is counted from January 1 to December 31, and you are required to file federal income tax returns by April 15.

There are multiple ways to pay taxes

  • Online - Turbo tax etc which are really simple and free, at least the basic outline
  • Through an agent for a fee
I personally did mine through an agent since I am new to the States and I did not have much free time as an intern. In the first year of residency, you get a decent amount of money back and hence I recommend going with an agent. So, as usual, I asked my senior on who to contact and he gave me the contact details of his tax agent and she kinda ran me through the entire process. There were some colleagues and seniors of mine who have stated that one can get the same amount of refund via online software's (Turbo-tax), but I personally did not have much time or luck to go through the same.

To file taxes you need the following documents 
  1. W2 from your employer
  2. 1099-INT if you had any miscellaneous incomes (see below for more details)
  3. Moving expenses (a rough estimate)
Once you get those details you send the same to your tax agent who gives you an estimate of how much refund you get and then you are set.

Note
If I am not mistaken there are 3 taxes in total
- Federal (USA)
- State (Ohio)
- City - The general consensus is that one does not owe city tax if you live and work in the same city. 
Elaborating on some terms

Form W4
When you join a company, your employer will ask you to fill Form W4. That form gives information to the employer regarding how many deductions an employee can make. For every deduction claimed, the employee is able to deduct a certain amount of income from the income tax. The number of deductions claimed in the W4 form is just an estimate regarding how much tax you may owe. 

1099
There are several types of 1099 forms:
  • 1099INT: For interest paid by a bank.
  • 1099DIV: For dividends and distributions paid by financial institutions.
  • 1099R:Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
  • If you paid interest on a mortgage or real estate taxes, you will receive 1098 with that information.

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