Understanding U.S. Taxation for NRIs

The U.S. follows a citizenship-based taxation system, meaning all U.S. citizens, Green Card holders, and certain U.S.-connected individuals must pay taxes on their global income, even if they live abroad.

 

1. Applicability - Do NRIs Need to File a U.S. Tax Return?

You must file a U.S. tax return if:

1. Your total income exceeds the minimum filing threshold (see below).
2. You are a U.S. citizen, Green Card holder, or NRI with U.S. business ties.

 

U.S. Income Tax Filing Thresholds for 2025:

• Single: $15,000
• Head of Household (HOH): $22,500
• Married Filing Jointly (MFJ): $30,000
• Married Filing Separately (MFS): $5
• Qualifying Widow/Widower: $30,000
• Self-employed individuals: $400

 

If your income exceeds these amounts, you must file a U.S. tax return.

 

2. How to File Taxes as an NRI Expat

 

Understanding Income Types

• Earned Income: Wages, salaries, or business income.
• Unearned Income: Passive income from investments, interest, rental properties, pensions, etc.
• Currency Conversion: All income must be converted to U.S. dollars using IRS exchange rates.

 

Self-Employment Taxes

NRIs working as self-employed individuals must pay U.S. Social Security & Medicare taxes (15.3%). However, if you contribute to your resident country’s social security system, you may be exempt under a Totalization Agreement (check the SSA website for details).

 

U.S. Tax Filing Deadlines for NRIs (2025)

• April 15 – Regular tax deadline (also last day to pay taxes to avoid penalties)
• June 16 – Automatic extension for U.S. expats
• October 15 – Extended deadline (file IRS Form 4868)
• December 15 – Final deadline (requires a written request to the IRS)

 

3. Important U.S. Tax Forms for NRIs

IRS Form 2555 - Foreign Earned Income Exclusion (FEIE)

• Allows NRIs to exclude up to $130,000 (2025) of foreign-earned income from U.S. taxation.
• Best for NRIs paying lower foreign taxes.

IRS Form 1116 - Foreign Tax Credit (FTC)

• Provides a dollar-for-dollar tax credit for foreign taxes paid.
• Best for NRIs paying higher foreign taxes.

FBAR (FinCEN Form 114)

• If you have $10,000 or more in foreign bank accounts (combined), you must file an FBAR.
• This is for reporting purposes only—no taxes are due.

FATCA (Form 8938)

• Required if your foreign financial assets exceed:
• $200,000 (Single Filers)
• $400,000 (Married Filing Jointly)
• Ensures global tax compliance.

IRS Form 8621 - Passive Foreign Investment Company (PFIC)

• Required for NRIs investing in foreign mutual funds, ETFs, or offshore accounts.
• These investments can have higher tax burdens in the U.S.

 

       4.Do NRIs Need to File U.S. State Taxes?

Some states, known as "sticky states", continue to tax you even after you move abroad. If your last state of residence was California, New York, Virginia, New Mexico, or South Carolina, you may still have state tax obligations.

Additional Expat Tax Benefits for NRIs

Child Tax Credit (CTC)

• NRIs with children may qualify for a $2,000 tax credit per child.
• Not available if you use the Foreign Earned Income Exclusion (FEIE).

Student Loan Interest Deduction

• Deduct up to $2,500 in student loan interest.
• Not available for Married Filing Separately (MFS) filers.

Foreign Housing Exclusion

• Reduces taxable income by deducting foreign housing expenses (rent, utilities, insurance, etc.).
• Filed with IRS Form 2555.

IRA Contributions & Deductions

• NRIs without a U.S. employer-sponsored retirement plan can contribute to Traditional IRAs regardless of income.
• Roth IRA contributions depend on Modified Adjusted Gross Income (MAGI) limits.

 

Choosing the Right NRI Tax Professional

Since U.S. expatriate taxation is complex, NRIs should work with cross-border tax experts who understand both U.S. and Indian tax laws. If you live in Europe, Australia, or other countries, a tax professional with expertise in those jurisdictions is essential.

 

INDIA FOR NRI, is a US CPA & Indian CA firm providing solutions for NRI around the world in filing their tax returns for India and US, keeping in mind the cross border taxation, DTAA and International tax forms.

Also Read: DTAA India-USA: How NRIs Can Avoid Double Taxation