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Taxes for Individuals Who are Not U.s. Citizens

  1. Expatriate
  2. Tax Treaty
  3. IRS Publication 519
  4. Worldwide Income
  5. Backup Withholding
  6. Nonresident Alien
  7. Non-Resident

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Worldwide Income: Definition & Overview

Updated: January 17, 2023

The U.S. tax system can be complicated. In the United States, citizens are taxed on both the income they make domestically and the income that they earn abroad. 

This is what is known as their worldwide income. 

But what exactly is worldwide income? And how are they taxed in different countries around the world?

Read on as we take a closer look at this system and the tax obligations. 

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    KEY TAKEAWAYS

    • Worldwide income in the United States is the total amount of income a tax-paying entity is liable for. 
    • This is both on international and domestic income. 
    • Very few countries tax nonresident citizens’ foreign income – United States, Myanmar, Eritrea, Hungary.

    What Is Worldwide Income?

    Worldwide income in the US refers to the sum of a taxpayer’s domestic and international income. Worldwide income, which is used to calculate taxable income, is income earned anywhere in the world. Both citizens and resident aliens in the United States must pay tax on their worldwide income.

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    How to Measure Worldwide Income

    Worldwide income is measured by adding all of your taxable income from your domestic and foreign earned income. The income may include your wages, business income, and income from investments. You will need to report all of your worldwide income on your tax return. 

    How Is Worldwide Income Distributed?

    Worldwide income is distributed via an aggregation of the taxpayer’s income, both domestic and foreign. However, there are some exceptions for any U.S. citizen that is living abroad. 

    A percentage of the income earned by Americans who have worked overseas may be excluded from taxes or eligible for a foreign tax credit by the Internal Revenue Service. The tax credit is available to American citizens and resident aliens who pay income taxes levied by another nation or American territory. The tax credit can lower your tax obligation in the United States and is designed to prevent double taxation on the same income. 

    Lawyers and accountants who specialize in international taxation are frequently used by multinational corporations and individuals to reduce or otherwise shelter their global tax bills. Delaying tax payments through these tax planning techniques can result in compound growth and significant increases in capital bases.

    How Is Tax Calculated on Worldwide Income?

    All of a taxpayer’s international income, whether taxable or not, must be disclosed to the IRS.

    The IRS may levy taxes on funds given to US citizens or permanent residents in the form of salary, payments to independent contractors, pensions, rent, royalties, and investment income. The tax for worldwide income is calculated in the same way their domestic income is calculated. 

    Worldwide income can be split into three separate classifications:

    • Earned income: Including wages and salaries, tips, bonuses, commissions, and professional fees.
    • Unearned income: Including dividends, interest, winnings from gambling, capital gains, and pensions.

    Variable income: Including rents, royalties, business profits, and scholarships and fellowships.

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    List of Countries Levying Taxes on Worldwide Income

    The vast majority of nations treat citizenship as having no bearing whatsoever on taxation. In general, very few nations impose taxes on nonresident citizens’ foreign income. In those countries, you would either pay no individual income taxes at all or pay taxes only if you reside in that country.

    There are 5 countries that levy taxes on their citizens, regardless of their residency. Those countries are: 

    • The United States
    • Myanmar
    • Hungary
    • Eritrea
    • Tajikistan 

    There are differences in how worldwide income is treated for individuals vs corporations, so make sure to research all the rules or consult a professional. 

    Summary

    Worldwide income is a term that is used to describe a tax-paying entities sum of income from domestic and international sources. By knowing what rules the Internal Revenue Service adheres to,  you can make sure that you are meeting your worldwide tax liabilities on any earnings generated domestically or abroad.

     
    If you are wondering what your tax obligations are for any foreign earned income, it would be best to check with the Internal Revenue Service (IRS) or consult with a tax professional.  

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    FAQS on Worldwide Income

    Will I Be Taxed if I Receive Money From Overseas?

    If you receive money from overseas, you may be taxed in the United States. You can however file for a foreign earned income exclusion. This can be claimed through filing a tax return.

    Can You Pay Tax in Two Countries?

    If you have income and gains from another country and are a resident of two countries at the same time or live in a country that taxes your worldwide income, you may be subject to tax on that same income in both separate countries.

    How Much Overseas Income Is Tax-Free?

    However, you can be eligible to have your overseas earnings excluded from your income up to a certain limit, which is $105,900 for 2019, $107,600 for 2020, $108,700 for 2021, and $112,000 for 2022. You can also exclude or deduct a specified sum related to international housing.

    Taxes for Individuals Who are Not U.s. Citizens

    1. Expatriate
    2. Tax Treaty
    3. IRS Publication 519
    4. Worldwide Income
    5. Backup Withholding
    6. Nonresident Alien
    7. Non-Resident

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