Hi, I'm a foreign citizen that will work in US as a freelancer with a non-immigrant visa, that means that is effectively connected income.
My country of citizenship has tax treaties with US.
Originally I was going to receive an international transfer and make all the proper tax filling in my country of citizenship, but the company wants to pay me in a US base bank account so I open a Wise account.
According to another question answer by an expert here in turbo tax :
"Your Transferwise account is a borderless account which is regulated by the Financila Coduct Authority in the UK, and as such is considered as a foreign account for US residents and citizens."
So my question here is, receiving payments in that account implies tax obligation within US?
If so, how can I submit the proper documentation to avoid doble taxation?
@Leviuxe , Need more info:
1. which country are you from ( resident / citizen)
2. what visa are you entering US with and when -- exact date is helpful
3, which state are you going to stay in
4. do you other assets here ( house, bank accounts etc. etc. )
5. How long do you plan to stay ( this may be limited by the type visa anyways )
My answers will get more specific once you answer my questions:
Generally , you are no allowed to work without DHS authorization / work visa etc.. However, even with these permits and if you work "remotely", this may become US sourced income and be taxable by the USA. This applies till you pass the Substantial Presence Test--SPT ( 183 days of presence counting all days present during the current tax / Calendar year + 1/3rd of the days present during the previous year + 1/6th the days present in 2nd. prior year ). Once you pass the SPT though you are taxed on world income.
If the work is done in the USA, whether the income is paid in US$ or otherwise, it will still be counted as sourced in the USA.
Please answer my questions and I will circle back
2. TN Visa
4. No other assets, besides several 0 balance bank accounts mostly fintech like CHIME, CASHAPP, or that kind of neobanks.
5. 3 years, or as long as I can renew the visa
I have pass the substantial presence test, and I'm aware that I'm taxable in US, but I'm also taxable in Mexico, that's why want know how to use the US-Mex tax treaty to avoid potential doble taxation.
According to IRS definition of non-resident alien
A nonresident alien is an individual who is not a U.S. citizen or a resident alien. A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding.
and base on the residence article of UNITED STATES - MEXICO INCOME TAX CONVENTION:
Article 4 subitem 2: Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting
States, then his residence shall be determined as follows:
a) he shall be deemed to be a resident of the State in which he has a permanent home.
Then I'm a resident of Mexico according to this treaty, and by extension a nonresident alien individual for purposes of withholding.
cant find the specific info for the TN Status, but I'm thinking it might apply same rules of the H1B Status.
H-1B aliens who are nonresident aliens on the last day of the taxable year generally must report their U.S.-source fixed, determinable, annual, or periodical (FDAP) income (e.g., compensation earned from working in the United States) and income effectively connected with a U.S. trade or business (ECI) on Form 1040-NR, U.S. Nonresident Alien Income Tax Return. For details on these rules, refer to Taxation of Nonresident Aliens.
If claiming treaty benefits, H-1B aliens must report both the income and the treaty benefit on Form 1040-NR, with Form 8833 (if required). Please refer to Claiming Tax Treaty Benefits.
I'm understanding it correctly?
@Leviuxe , I think you are making the situation more complicated than it needs to be. The treaty, the protocol of 2003 and the technical explanations 2003 etc. cover a whole bunch of conditions, complicated situations etc. -- only because they are trying to cover all possible scenarios in generalities , being specific would limit their options downstream.
In your particular case , I see it this way and without giving any weight to TN or L or H etc. type of work visa:
1. you a Mexican citizen, have entered US with a work visa
2. You live in California and will be here as long as your visa is valid ( 3 yrs).
3. You have home etc. in Mexico
4. Your employer in the USA has a permanent establishment in the USA ( i.e. it is an US entity).
For US purposes,
1. you are Non-Resident Alien till you pass the SPT -- 183 days presence in the USA ( counting current year, previous year and 2nd previous year presences for any purposes )--- and taxed ONLY on US sourced income ( i.e. for work performed in the USA and/or US connected income). You report this income, itemized deduction etc. on form 1040-NR.( Not supported by TurboTax)
2. Once you pass the SPT, you are a Resident Alien for Tax purposes ( immigration status is still Alien with work visa ), you are taxed on your world income and you file your return on form 1040.
For Mexico purposes what I understand from PriceWaterHouseCoopersLybrand ( PWC :(
"Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality. Non-residents, including Mexican citizens who can prove residence for tax purposes in a foreign country, are taxed only on their Mexican-source income. "
Thus there appears to be a way for you to avoid double taxation. Else, you can always use Foreign Tax Credit mechanism ( but it would mean that in your specific case you would have to use Treaty conditions to resource your US income to Mexico --- complicated but often done).
Does this help ?
Is there more I can do for you ?