# Valim: the full text of every page > Ex-Big Four CPA led, AI-enabled tax services for modern businesses & individuals. Valim is a US tax firm. Licensed CPAs prepare, review and sign every return, and our deep, proprietary AI removes the busywork that makes traditional tax slow and expensive. The short index is https://valim.tax/llms.txt. Each page below gives its URL, the date its facts were last checked where it has one, and its sources. --- URL: https://valim.tax/quote Title: Instant quote generator Answer a few questions and get a fixed fee for your tax return, quoted upfront and locked. --- URL: https://valim.tax/ Title: Your Home For Taxes Ex-Big 4 CPA led, AI-enabled tax services for modern businesses and individuals. --- URL: https://valim.tax/equity-compensation Title: Equity compensation tax: CPAs for RSUs, stock options and ESPPs Updated: 2026-09-25 # Valim’s CPAs handle equity compensation tax for employees and founders. Valim is a CPA firm for people paid in RSUs, stock options and ESPPs, in all 50 states. We plan exercises, 83(b) elections and sales, and file returns with RSU, ISO, NSO and ESPP income. Individual returns start at $195, quoted upfront. Valim for equity compensation: - $195: is where an individual return starts. - 50: states, with your federal and state returns filed by one firm. - <1 week: is how long most returns take to file once your documents are in. A quote is locked for 7 days once you get it. ## Our CPAs handle every kind of equity pay. ### RSU vests and sales We calculate the tax on each vest, and add that income to your cost basis when you sell. ### ISO exercises and the AMT We run the AMT numbers before you exercise ISOs, so you know what holding the shares will cost. ### NSO exercises We plan the size and timing of each exercise around your tax brackets and any liquidity event. ### ESPP purchases and sales We time your sales around the two holding periods (two years from the grant date, one year from purchase). We also make sure the discount is taxed only once. ### Restricted stock and early exercise We weigh whether an 83(b) election suits your grant or early exercise, and prepare it before the deadline. ### Selling startup stock We test your shares for QSBS under Section 1202, and time a sale around its holding periods. We also check if your state taxes the gain that the federal rule excludes. ## From a fixed fee to a filed return, in three steps. ### 1. Know your fee first Book a call or answer a few questions online, and you get the fee before work starts. There is no hourly billing. ### 2. A licensed CPA does the work Automation pulls the figures from your documents. A licensed US CPA then prepares, reviews and signs your return, and Valim files it. ### 3. Notices are covered If the IRS or a state writes about a return we prepared, we handle the response. It is included in your fee, with no new engagement to open. ## What does a CPA for your equity cost? ### Individual return filing From $195 Equity income of any kind fits this plan. The fee includes year-round access to your CPA. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as exercising options or selling shares. ## Six rules decide the tax on your equity. ### Restricted stock units (RSUs) (https://valim.tax/equity-compensation/rsu-taxes) RSUs are taxed as wages on their value when the shares are delivered, usually the day they vest. ### Incentive stock options (ISOs) (https://valim.tax/equity-compensation/iso-taxes) Regular tax on ISOs waits until you sell, though exercising and holding the shares past year end can trigger the AMT. ### Non-qualified stock options (NSOs) (https://valim.tax/equity-compensation/nso-taxes) NSOs are usually taxed at exercise, on the spread between the shares’ value and your exercise price. ### Employee stock purchase plans (ESPPs) (https://valim.tax/equity-compensation/espp-taxes) A Section 423 plan taxes nothing at purchase, and how long you hold the shares decides how much of the sale is ordinary income. ### The 83(b) election (https://valim.tax/equity-compensation/83b-election) An 83(b) election taxes restricted stock when you receive it instead of as it vests, and it is due within 30 days. ### Qualified small business stock (QSBS) (https://valim.tax/equity-compensation/qsbs) Section 1202 can exclude the gain on qualified small business stock from federal income tax, once the shares are held long enough. "RSUs and crypto holdings made my tax situation super complicated. Valim handled all of it with me hardly having to explain anything." (Software engineer in San Francisco) ## Talk to a CPA before your next exercise or sale. ## What should you know about stock options and tax? ### How is equity compensation taxed? Most equity compensation is taxed first as pay, and then on any gain when you sell. Stock grants such as RSUs are taxed like wages when delivered, and NSOs on the spread at exercise. Any later rise is a capital gain: 0%, 15% or 20% if held more than a year, and ordinary rates if not. The 3.8% net investment income tax can also apply to the gain once modified AGI passes $200,000, or $250,000 joint. ISOs and Section 423 ESPPs are the exceptions, since their regular tax waits until you sell. ### What are examples of equity compensation? Common examples of equity compensation are restricted stock units (RSUs), restricted stock, stock options and employee stock purchase plans (ESPPs). Stock options from an employee stock option plan are either incentive stock options (ISOs) or non-qualified stock options (NSOs). Some companies also grant stock appreciation rights (SARs) or phantom stock, which pay out based on the share price. The IRS’s equity compensation audit guide also lists stock warrants and direct transfers of stock. ### RSUs, ISOs or NSOs: which is better? No one type is better for everyone. For employees, the difference is when you pay tax and at what rate. RSUs usually cost nothing, and their full value is taxed as wages when the shares are delivered. With NSOs, you pay the exercise price, and tax comes at exercise, as wages on the spread. ISOs delay regular tax until you sell, and a long enough hold makes the whole gain long-term, though exercising can bring the AMT. ### How do I know if I have to pay AMT? You owe the AMT when your tentative minimum tax, figured on Form 6251, comes out higher than your regular tax. If you exercised vested ISOs and kept the shares past year end, the spread goes on Form 6251, line 2i. For 2026, the first $90,100 of AMT income is exempt for a single filer, or $140,200 on a joint return. In 2026, above $500,000 of AMT income, or $1,000,000 joint, each extra dollar cuts the exemption by 50 cents. ### Do I have to report stock sales under $600? Yes, every stock sale goes on your return, however small. Tax is due only on a gain over your cost basis. Brokers file a Form 1099-B for each sale, whatever the amount, with narrow exceptions such as fractional shares under $20. The $600 figure comes from Forms 1099-NEC and 1099-MISC, and it never applied to stock sales. For most payments made in 2026, that threshold is $2,000, and it is indexed for inflation from 2027. ### Is equity compensation good? Equity compensation can be valuable, but its value rises and falls with one company’s stock. For RSUs and NSOs, the income is fixed at vesting or exercise, and a later drop does not reduce it. A loss when you sell offsets capital gains. Against other income, it offsets only $3,000 a year ($1,500 if married filing separately), and the rest carries forward. After an IPO, a lockup, most often 180 days, can also keep you from selling. ### When should I hire a CPA for my equity? Hire a CPA before any decision that sets your tax, since the return can only report what already happened. An 83(b) election is due within 30 days after you get restricted stock or exercise early, so call a CPA before then. With RSUs and an ESPP, the decisions a CPA helps with are when to sell and how much tax to set aside. A CPA who works with stock options can model the tax on an exercise or a sale before you act. Valim’s CPAs plan exercises and sales with you, and file the return that follows. ## Sources - 26 U.S.C. § 55, Alternative minimum tax imposed: https://www.law.cornell.edu/uscode/text/26/55 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.83-7, Taxation of nonqualified stock options: https://www.law.cornell.edu/cfr/text/26/1.83-7 - 26 U.S.C. § 421, General rules for statutory stock options: https://www.law.cornell.edu/uscode/text/26/421 - 26 U.S.C. § 422, Incentive stock options: https://www.law.cornell.edu/uscode/text/26/422 - 26 U.S.C. § 423, Employee stock purchase plans: https://www.law.cornell.edu/uscode/text/26/423 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 - 26 U.S.C. § 1211, Limitation on capital losses: https://www.law.cornell.edu/uscode/text/26/1211 - 26 U.S.C. § 1222, Other terms relating to capital gains and losses: https://www.law.cornell.edu/uscode/text/26/1222 - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Instructions for Form 6251 (2025): https://www.irs.gov/pub/irs-pdf/i6251.pdf - IRS, Instructions for Form 8949: https://www.irs.gov/instructions/i8949 - IRS, Publication 5992, audit guide to equity-based compensation: https://www.irs.gov/pub/irs-pdf/p5992.pdf - SEC, Investor.gov: IPO lockup agreements: https://www.investor.gov/introduction-investing/investing-basics/glossary/initial-public-offerings-lockup-agreements --- URL: https://valim.tax/equity-compensation/qsbs Title: QSBS exemption (Section 1202 exclusion): 2026 rules and limits Updated: 2026-09-24 # The QSBS exemption can take the federal tax on your startup gain to zero. Section 1202 excludes the gain on qualified small business stock (QSBS) from federal income tax. Hold it five years and the exclusion is 100%, on up to $15 million per company or 10 times what you paid, whichever is more. Stock acquired after July 4, 2025: - 100%: of the gain is excluded at 5 years, 50% at 3 years and 75% at 4. - $15M: is the lifetime cap per company, or 10 times your basis if that is more. - $75M: is the company’s gross asset limit, before and right after it issues your stock. Stock acquired earlier needs more than 5 years for 100%, with a $10M cap. Stock issued earlier has a $50M asset limit. ## Does your stock qualify? Your stock must pass all five tests. If it fails one, none of the gain is excluded. ### 1. A US C corporation The company must be a US C corporation when it issues your stock and for substantially all of your holding period. Stock issued while the company was an S corp never qualifies. An LLC can convert and issue QSBS, but gain from before the conversion stays taxable. ### 2. Stock from the company itself The company must issue the stock to you directly for cash, property or services. Stock bought from another shareholder does not qualify. ### 3. $75 million or less in gross assets Under the gross asset test, the company’s gross assets must stay at $75 million or less until right after it issues your stock. That includes the money it just raised. Gross assets means cash plus tax basis, not valuation. The limit is $50 million for stock issued before July 5, 2025. ### 4. An active business in a qualifying field The company must use at least 80% of its assets in an active business, for substantially all of your holding period. Some business types are excluded, including law, health, engineering, consulting, finance and hospitality. ### 5. A long enough holding period You must hold the stock three years for a partial exclusion and five for a full one. Stock acquired before July 5, 2025 needs more than five years for any exclusion. Individuals, trusts and estates can claim the exclusion. So can partners and S corp shareholders who owned their stake when the entity acquired the stock. A C corporation cannot. ## What the QSBS exclusion is worth. The federal tax on a $10 million gain from stock issued in 2026 falls the longer you hold it. - 1 to 3 years: $2,380,000. Nothing is excluded. The whole gain is taxed as long-term capital gain at 20% plus 3.8%. - 3 years: $1,590,000. Half the gain is excluded. The other half is taxed at 28% plus 3.8%. - 4 years: $795,000. Three quarters of the gain is excluded. The other quarter is taxed at 28% plus 3.8%. - 5 years: $0. The whole gain is excluded. These figures use top federal rates, plus the 3.8% net investment income tax on the part not excluded. The new tiers carry no AMT preference. The gain is within the $15 million cap. State tax is separate, and California taxes the full gain. ## The QSBS exclusion chart: before and after July 4, 2025. The One Big Beautiful Bill Act changed Section 1202 for stock acquired after July 4, 2025. Older stock keeps the old rules. | | Old rules | New rules | | --- | --- | --- | | Held 3 years | Nothing excluded | 50% excluded | | Held 4 years | Nothing excluded | 75% excluded | | Held 5 years | 100% excluded (Over 5 years, if acquired after Sept. 27, 2010) | 100% excluded | | Cap per company | $10M or 10x basis | $15M or 10x basis (Shared with older stock. Indexed for inflation from 2027.) | | Gross assets | $50M or less | $75M or less | The acquisition date is the day you first held the stock. A gift, an inheritance or a Section 1045 rollover keeps the original date. Old and new stock in the same company share one $15 million lifetime cap. Stock acquired before September 28, 2010 gets less: 50% if acquired by February 17, 2009, and 75% after that. ## Where QSBS claims fail. ### The company bought back stock A significant buyback within a year either side of your issue date can disqualify your shares, even if yours were never bought back. A buyback from you or a related person within two years either side can too. ### Your state does not follow QSBS Many states tax the gain anyway. California, Pennsylvania, Alabama and Mississippi do not allow the exclusion. Oregon, Vermont and Illinois stopped allowing it in 2026, and Rhode Island stops in 2027. Maine taxes gain on stock acquired after July 3, 2025, and Hawaii excludes only half. What counts is where you live when you sell. ### A partial exclusion spends the whole cap The $15 million cap counts the full gain, including the part that is still taxed. Sell $15 million of gain at three years and half is excluded, but the whole cap is used up. ### You sold too early Sell before the holding period ends and nothing is excluded. If you held the shares more than six months, a Section 1045 rollover can defer the gain. You must buy new QSBS within 60 days. ### The clock started later than you think (https://valim.tax/equity-compensation/83b-election) The holding period starts at exercise for options, delivery for RSUs and vesting for restricted stock. An 83(b) election moves the start for restricted stock to the transfer date. For options, the gross asset test also applies at exercise, not at grant. ### You have nothing on file The burden of proof is on you. Ask the company for a QSBS letter covering the gross asset and active business tests. Keep your purchase records too. ## QSBS planning before you sell. Valim’s CPAs help founders and early employees with QSBS planning before a sale, and file the return after it. - We test your shares against every Section 1202 requirement and document the result. - We help you plan your sale around the three, four and five-year marks and your state of residence. - We weigh stacking: gifts of shares to family or a non-grantor trust, each of which may get its own cap. - We plan and report a Section 1045 rollover to defer the gain on an early sale. - We report the exclusion correctly on Form 8949 with code Q and on your state return. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle equity compensation: https://valim.tax/equity-compensation ## QSBS questions. ### What qualifies as QSBS? Qualified small business stock (QSBS) is stock a US C corporation issues to you directly for cash, property or services. The company’s gross assets must stay at $75 million or less until right after it issues the stock. The limit is $50 million for stock issued before July 5, 2025. The company must use at least 80% of its assets in an active business, not in services like law, health, engineering, consulting or finance. ### What is the 80% rule for QSBS? The 80% rule requires the company to use at least 80% of its assets, by value, in an active qualified business. This must hold for substantially all of your holding period. Cash kept for working capital, or expected to fund research within two years, counts as used, within limits. Other investments do not. ### What are the QSBS requirements for 2026? For 2026, QSBS acquired after July 4, 2025 gets a 50% exclusion at three years, 75% at four and 100% at five. The cap is $15 million per company, or 10 times your basis if that is more. The company’s gross assets must be $75 million or less when it issues the stock. Stock from before July 5, 2025 keeps the old rules: more than five years, a $10 million cap and a $50 million asset limit. ### Which states don’t recognize QSBS? California, Pennsylvania, Alabama and Mississippi tax the full QSBS gain. Oregon, Vermont and Illinois also tax it from 2026, and Rhode Island from 2027. Maine taxes gain on stock acquired after July 3, 2025, and Hawaii excludes only 50%. Massachusetts, Arkansas and South Carolina follow older federal rules. New Jersey allows the exclusion from 2026, and most other states follow the federal rules. What counts is the state you live in when you sell. ### How do I report the Section 1202 exclusion on my return? To report the Section 1202 exclusion, list the QSBS sale on Form 8949 and enter code Q in column (f). Enter the excluded gain as a negative number in column (g). The result carries to Schedule D. For a partial exclusion, the part not excluded goes on the 28% Rate Gain Worksheet. ### What is the maximum tax rate on Section 1202 gains? Section 1202 gain that is not excluded is taxed at up to 28%, plus the 3.8% net investment income tax. With a 50% exclusion, that works out to 15.9% of the whole gain. With a 75% exclusion, it is 7.95%. Gain above the per-company cap is taxed as a regular long-term capital gain, at up to 20% plus 3.8%. ## Sources - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 - Public Law 119-21 (One Big Beautiful Bill Act), § 70431: https://www.congress.gov/bill/119th-congress/house-bill/1/text - IRS, Instructions for Form 8949: https://www.irs.gov/instructions/i8949 - IRS, Instructions for Schedule D (Form 1040): https://www.irs.gov/instructions/i1040sd - 26 U.S.C. § 1045, Rollover of gain from qualified small business stock: https://www.law.cornell.edu/uscode/text/26/1045 - California FTB, 2025 Instructions for Schedule D (540): https://www.ftb.ca.gov/forms/2025/2025-540-d-instructions.html - Pennsylvania Department of Revenue, answer 3885 (IRC 1202): https://revenue-pa.custhelp.com/app/answers/detail/a_id/3885 - Alabama Department of Revenue, 2025 Form 40 booklet (Schedule D): https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf - Mississippi Department of Revenue, individual income tax FAQ: https://www.dor.ms.gov/individual/individual-income-tax-frequently-asked-questions - Hawaii HB 2329 CD1 (Act 35, 2026), HRS 235-2.45: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf - Massachusetts DOR, 2025 Form 1 instructions: https://www.mass.gov/doc/2025-form-1-instructions/download - New Jersey Division of Taxation, new laws (P.L. 2025, c.67): https://www.nj.gov/treasury/taxation/newlegislation.shtml --- URL: https://valim.tax/equity-compensation/rsu-taxes Title: RSU taxes: how restricted stock units are taxed at vest and sale Updated: 2026-09-25 # You owe RSU taxes when your shares vest and are delivered, because their value counts as wages. Restricted stock units (RSUs) are taxed when the company delivers the shares, which is usually when they vest. Their fair market value that day is taxed at income tax rates of 10% to 37% for 2026. When you sell, only the change in price since delivery is taxed. Federal RSU tax rates for 2026: - 37%: is the top income tax rate on the shares’ value when you receive them. - 22%: is the flat rate your employer can withhold for income tax, whatever your bracket. - 20%: is the top long-term gain rate, before the 3.8% NIIT, on shares sold more than a year after delivery. Supplemental wages from one employer above $1 million in a year, such as RSU income and bonuses, are withheld at 37%. ## How are RSUs taxed at vest and at sale? Tax on RSU stock comes at three points after the grant: vesting, delivery and sale. The same federal RSU tax rules apply at a private startup and at Amazon. Some private companies add a double trigger or allow an 83(i) election. ### 1. No tax at grant For the IRS, an RSU is only a promise to pay you shares, or sometimes cash, in the future. So an RSU grant is not income, and you cannot make an 83(b) election on it. ### 2. Payroll tax at vesting Social Security and Medicare tax are usually due when the units vest, even if the shares arrive in a later year. Social Security is 6.2% of 2026 wages up to $184,500, and Medicare is 1.45% of all wages. Medicare adds 0.9% on wages over $200,000, or $250,000 on a joint return. ### 3. Income tax at delivery Section 83 of the tax code taxes the shares as wages on the day you receive them, at their value then. Your Form W-2 puts that value in the same tax category as your salary, even though no cash reached your paycheck. If your plan delivers the shares after they vest, this tax waits until delivery. ### 4. Tax on the gain when you sell Your cost basis is the value you were taxed on, so the vest is not taxed again. A gain within a year of delivery is short-term, taxed at income tax rates. A gain after more than a year is long-term, taxed at 0%, 15% or 20%. Above $200,000 of modified AGI, or $250,000 joint, you may also owe the 3.8% net investment income tax on it. ## An RSU tax example: why the vest is taxed so high. The vest is taxed at your top rates, because it lands on top of your salary. To calculate RSU tax, apply each bracket the vest reaches, then add Social Security and Medicare where they apply. You are single, with $250,000 of taxable income before $100,000 of RSUs vest. - Tax on the vest: $37,163. That is $34,813 of income tax plus $2,350 of Medicare tax, or 37.2% of the vest. - Withheld at vest: $24,350. This assumes your employer uses the optional flat 22% for income tax, and withholds all of the Medicare tax. - Due when you file: $12,813. This is the income tax that the flat 22% did not cover. These are 2026 federal figures. The vest adds $100,000 to your taxable income. The first $6,225 is taxed at 32%, because that bracket ends at $256,225, and the other $93,775 at 35%. Your wages from this employer already top $200,000 and the $184,500 Social Security limit. So Medicare is 1.45% plus the 0.9% Additional Medicare Tax, and no Social Security tax is due. Shares sold or kept to pay the tax still count as part of the $100,000. State tax is separate. ## How does RSU tax treatment differ from a restricted stock award? A restricted stock award gives you the shares at grant, subject to vesting. Unlike a stock option, an RSU has nothing to exercise and usually nothing to pay. | | RSU | Restricted stock | | --- | --- | --- | | At grant | A promise of shares | The shares themselves (You can forfeit them until they vest) | | Taxed on | Value at delivery | Value at vesting (Minus anything you paid) | | Tax at grant | Never (No 83(b) election is allowed) | With an 83(b) election (Filed within 30 days of the grant) | | Holding period starts | At delivery | At vesting (Or at grant, with an 83(b) election) | | If forfeited | Nothing was taxed | No deduction for tax paid (With an 83(b) election; without one, nothing was taxed) | For employees, both are taxed as wages, with Social Security and Medicare tax. ## RSU tax implications that are easy to miss. ### Your 1099-B shows too little basis For RSUs granted after 2013, the broker’s Form 1099-B leaves the vest’s value out of your basis. On your tax return, add it back on Form 8949 with code B, or the vest is taxed twice. If you file with software such as FreeTaxUSA, enter the corrected basis the same way. ### A shortfall at filing can bring a penalty Tax withheld at vest is a credit against what you owe, and any excess comes back as a refund. If withholding leaves $1,000 or more unpaid, a penalty can apply. You avoid it if timely payments cover 90% of this year’s tax, or 100% of last year’s (110% if last year’s AGI was over $150,000). ### The tax stays if the price falls The income from the vest is fixed at the shares’ value on delivery, even if the price later drops. Selling below that value gives you a capital loss. Each year it offsets capital gains plus up to $3,000 of other income ($1,500 if married filing separately), and the rest carries forward. ### Moving away may not end state tax (https://valim.tax/multi-state-tax/moving-from-california-to-texas) California may tax RSUs that vest after you move to Texas, on the part earned while you worked there. FTB Publication 1004 taxes the share of the income earned by work in California between grant and vesting. If you still live in California when a unit vests, all of it is taxed there. ### Years of units can be taxed in one year (https://valim.tax/glossary/double-trigger-rsu) Double-trigger RSUs vest only after a time condition and a liquidity event, such as an IPO or acquisition. Units that met the time condition over several years can then all be taxed in one year. An IPO lockup does not delay that tax, even though you cannot sell the shares yet. ## RSU tax planning before your next vest. Valim’s CPAs help tech employees with RSUs plan for each vest and sale, and file the returns that report them. - We project the tax on your coming vests. We also set the estimated payments or extra withholding that cover the gap. - We plan the timing of sales around the one-year mark and any liquidity event, such as an IPO. - We report each sale with the basis corrected on Form 8949, so your vest is not taxed twice. - We split RSU income between states after a move, and handle the US tax on foreign RSU income that another country taxed too. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle equity compensation: https://valim.tax/equity-compensation ## RSU tax questions. ### Do RSUs get taxed twice? No, RSUs are not taxed twice on the same dollars. The shares’ value when you receive them is taxed as wages, and that amount becomes your cost basis. When you sell, only the change in price since then is taxed. The usual double tax is a reporting error: for RSUs granted after 2013, the broker’s Form 1099-B leaves that amount out of your basis. Correct it on Form 8949 with code B. ### How much do you get taxed on RSUs? RSUs are taxed like a cash bonus: at your own income tax rate, plus Social Security and Medicare. For 2026 the federal income tax rate is 10% to 37%, on the shares’ value when you receive them. Social Security takes 6.2% of wages up to $184,500, and Medicare takes 1.45%, plus 0.9% on wages over $200,000 ($250,000 joint). RSU income counts as supplemental wages, so your employer may withhold only a flat 22% for income tax, or 37% above $1 million. State income tax, where it applies, is on top. ### Are RSUs taxed at 40%? No tax law sets a 40% rate on RSUs, though the real rate can pass it. The top federal rates add up to 39.35%: 37% income tax, 1.45% Medicare tax and the 0.9% Additional Medicare Tax. The 37% rate starts above $640,600 of taxable income for a single filer, or $768,700 joint, in 2026. In the 24% bracket, with wages under the Social Security limit, the rate is 31.65%. State tax can push the top rate past 40%, and so can a SALT deduction that shrinks above $505,000 of income. ### Should I sell RSUs as soon as they vest? Selling RSUs as soon as they vest adds no tax, because the vest is taxed the same if you sell or hold. A sale right away shows almost no gain or loss, because your basis is the shares’ fair market value at delivery. If you hold, a gain within a year of delivery is short-term, taxed at your income tax rate. After more than a year, it is long-term, taxed at 0%, 15% or 20%. ### Is there a way to avoid taxes on RSUs? Usually not, because the shares’ value is wages, though income earned while working abroad can sometimes be excluded. Some private companies allow a Section 83(i) election, which delays the income tax, though not payroll tax, for up to five years. Holding the shares more than a year gets long-term rates on any later growth. Giving shares held that long to charity avoids tax on the growth, and can bring a deduction for their full value, within limits. At a qualifying startup, the growth may also be excluded as QSBS. ### What are the disadvantages of RSUs? RSUs are taxed on their full value when you receive the shares, even if you keep them. If the price then falls, that tax stays, and the drop is only a capital loss. Withholding at a flat 22% often falls short, so you can owe more at filing. RSUs also cannot use an 83(b) election, which lets restricted stock be taxed at grant instead. ## Sources - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.83-3, Meaning and use of certain terms: https://www.ecfr.gov/current/title-26/section-1.83-3 - 26 C.F.R. § 1.83-4, Special rules: https://www.ecfr.gov/current/title-26/section-1.83-4 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - 26 U.S.C. § 3102, Deduction of tax from wages: https://www.law.cornell.edu/uscode/text/26/3102 - 26 U.S.C. § 3121, Definitions (Social Security and Medicare wages): https://www.law.cornell.edu/uscode/text/26/3121 - 26 C.F.R. § 31.3402(g)-1, Supplemental wage payments: https://www.ecfr.gov/current/title-26/section-31.3402(g)-1 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.ecfr.gov/current/title-26/section-1.6045-1 - IRS, Instructions for Form 1099-B: https://www.irs.gov/instructions/i1099b - IRS, Instructions for Form 8949: https://www.irs.gov/instructions/i8949 - 26 U.S.C. § 1222, Other terms relating to capital gains and losses: https://www.law.cornell.edu/uscode/text/26/1222 - 26 U.S.C. § 1211, Limitation on capital losses: https://www.law.cornell.edu/uscode/text/26/1211 - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 164, Taxes (the SALT deduction limit): https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 170, Charitable contributions: https://www.law.cornell.edu/uscode/text/26/170 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - California FTB, Publication 1004 (revised 01/2015): https://www.ftb.ca.gov/forms/misc/1004.html --- URL: https://valim.tax/equity-compensation/iso-taxes Title: ISO taxes: how incentive stock options are taxed in 2026 Updated: 2026-09-25 # ISO taxes wait until you sell, but exercising can trigger the AMT. You owe no regular income tax when you receive or exercise an incentive stock option (ISO) under Section 422. Hold the shares 2 years from grant and 1 year from exercise, and the whole gain is long-term capital gain. If you exercise vested shares and hold them past that year’s end, the spread counts as income for the alternative minimum tax (AMT). The spread is what the shares were worth at exercise, minus what you paid. Federal ISO rules for 2026: - 2 years: must pass from the grant date before the whole gain can be long-term capital gain. - 1 year: must also pass from exercise, or the spread is taxed as wages, usually up to your gain on the sale. - $100K: of stock, valued at grant, can first become exercisable under ISOs in a calendar year. For 2026 the AMT exemption is $90,100 for single filers and $140,200 for joint filers. It phases out above $500,000 of AMT income, or $1,000,000 for joint filers. ## Do your options get ISO tax treatment? You get the full ISO tax benefits only if these five tests hold, along with the plan rules below. Options that fail one of the first four are generally taxed as non-qualified stock options (NSOs). ### 1. An employee on the grant date ISO tax treatment is only for employees. On the grant date, you must be an employee of the company that grants the option, or of its parent or subsidiary. Contractors, advisors and non-employee directors cannot receive ISOs. ### 2. An exercise price at fair market value The exercise price must be at least the stock’s fair market value on the grant date. If you own more than 10% of the voting power, the price must be at least 110% of that value. A more-than-10% owner’s options must also expire within 5 years of grant. ### 3. Within the $100,000 limit If options on more than $100,000 of stock first become exercisable in one calendar year, the options over that amount are taxed as NSOs. The stock is valued on the grant date. The limit counts every plan of your employer and its parent and subsidiaries. It does not cap how much you can be granted or exercise. ### 4. Exercised within 3 months of leaving You must exercise while employed, or within 3 months after you leave. Exercise later, if your plan allows it, and the option is taxed as an NSO. The window is 1 year if you left because of a permanent and total disability. If you die while employed, or within 3 months of leaving, your estate or heirs can exercise without this deadline. ### 5. Held 2 years from grant and 1 year from exercise Selling or giving away the shares before both dates have passed is a disqualifying disposition. The spread at exercise then counts as wages in the year you sell, capped at your gain on an arm’s-length sale. A transfer to your spouse, or to a former spouse in a divorce, is not a disposition. The plan itself must also meet Section 422’s rules, such as stockholder approval within 12 months and a 10-year limit on each option. ## An ISO taxation example: when you sell decides the tax. You pay $20,000 to exercise ISOs for shares worth $120,000, then sell them for $200,000. - Sold within 1 year of exercise: $69,640. A disqualifying sale. The $100,000 spread is taxed as wages at 37%, and the other $80,000 as short-term gain at 37% plus 3.8%. - Sold after 1 year, within 2 years of grant: $56,040. A disqualifying sale, because 2 years have not passed since grant. The spread is taxed as wages at 37%, and the other $80,000 as long-term gain at 20% plus 3.8%. - Sold after both holding periods: $42,840. A qualifying sale. The whole $180,000 is long-term gain, taxed at 20% plus 3.8%. These figures use top federal rates: 37% on wages and short-term gain, and 20% on long-term gain. At these income levels, you also owe the 3.8% net investment income tax on the capital gain. That tax applies only when modified AGI is above $200,000, or $250,000 for joint filers. No Social Security or Medicare tax is due on the wage part. Holding past year end can also add AMT for the exercise year. State tax is separate. To use this as a rough ISO tax calculator, swap in your own amounts and rates. ## ISO and NSO stock options are taxed at different times. An NSO’s spread is taxed as wages the day you exercise. An ISO’s spread owes no regular tax until you sell, though it can count for the AMT. | | NSO | ISO | | --- | --- | --- | | At exercise | Spread taxed as wages | No regular tax | | Payroll tax | Social Security and Medicare | None (Even after an early sale) | | AMT | No adjustment | Spread counts (If you hold the shares past year end) | | At sale | Capital gain above the exercise-date value (Long-term if held more than 1 year) | All long-term capital gain (If held long enough) | | Reported on | Form W-2, code V in box 12 (For employees) | Form 3921 (And W-2 box 1 after an early sale) | ## The ISO tax implications people miss. ### The AMT is due before you sell If you exercise vested shares and hold them past year end, you can owe AMT for that year before selling a single share. Cover it with estimated tax payments or extra withholding that year, or an underpayment penalty can apply. ### The price falls after you exercise The AMT counts the shares’ value on the exercise date, even if the price later falls. If you sell before that year ends, the AMT adjustment goes away and your wage income is capped at your actual gain. A wash sale (buying the shares back within 30 days) or a sale to a related person loses that cap. If you hold longer, AMT you paid returns only as a credit, capped each year at your regular tax minus your tentative minimum tax. ### The 1099-B basis is too low (https://valim.tax/glossary/cost-basis) Your ISO cost basis is the exercise price you paid. After a disqualifying sale, your basis also includes the income taxed as wages. For options granted after 2013, the 1099-B leaves that income out, so you fix the basis on Form 8949. Otherwise the same income is taxed twice. ### No withholding is required on an early sale The wages from a disqualifying sale belong in box 1 of your W-2, but your employer does not have to withhold tax on them. If the W-2 leaves them out, you report them yourself on Schedule 1. Set the tax aside when you sell. ### The AMT basis is left out Shares you exercise and hold have a second, higher basis for the AMT: the exercise price plus the spread. Use it on Form 6251, line 2k, in the year you sell, or the AMT counts the spread again. ### You exercised before the shares vested (https://valim.tax/equity-compensation/83b-election) If you exercise unvested shares, the AMT waits until they vest and uses their value then. An 83(b) election filed within 30 days of exercise counts the spread at exercise, which is zero if you paid fair market value. The election has no effect on your regular tax. ## ISO planning before you exercise. Valim’s CPAs help startup employees plan ISO exercises around the AMT, and file the returns that follow. - We model the AMT before you exercise, and find how many shares you can exercise before it starts. - We weigh an early exercise with an 83(b) election, which can keep the AMT spread at zero. - We time your sale around the holding periods and any liquidity event, such as a tender offer or IPO. - We handle the ISO tax reporting: the AMT on Form 6251, and your basis on Form 8949 when you sell. - We claim your AMT credit on Form 8801 in the later years you can use it. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle equity compensation: https://valim.tax/equity-compensation ## ISO tax questions. ### What does ISO mean on taxes? ISO stands for incentive stock option, an employee stock option that meets the rules of Section 422. You owe no regular income tax when you receive or exercise one. Keep the shares 2 years from grant and 1 year from exercise, and your whole gain is long-term capital gain. If you exercise vested shares and hold them past year end, the alternative minimum tax counts the spread at exercise as income. ### What is the $100,000 ISO limit? The $100,000 ISO limit caps the stock, valued at grant, that can first become exercisable as ISOs in one calendar year. That is usually the year the options vest. Every plan of your employer, its parent and its subsidiaries counts toward it. Options over it still work, but they are taxed as non-qualified stock options. If options on $150,000 of stock, valued at grant, first vest in one year, $100,000 of them are ISOs and $50,000 are NSOs. ### How do I calculate ISO tax? To calculate ISO tax, start with the spread: fair market value at exercise, minus the exercise price, times the shares. If you exercised vested shares and still hold them at year end, the spread goes on Form 6251, line 2i. You owe AMT only if your tentative minimum tax (your tax figured under the AMT rules) comes out above your regular tax. After a qualifying sale, your whole gain above the exercise price is long-term capital gain. After an early sale, the spread (usually capped at your gain) is taxed as wages, and the rest is capital gain. ### Do ISOs trigger the AMT? ISOs can trigger the AMT when you exercise vested shares and still hold them at year end. The spread then counts as AMT income, and you owe AMT if your tax under the AMT rules exceeds your regular tax. For 2026 the AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly. It shrinks by 50 cents for each dollar of AMT income above $500,000, or $1,000,000 for joint filers. If you exercise vested shares and sell them in the same year, there is no AMT adjustment. ### What is Form 3921? Form 3921 is the information return your company files for each ISO exercise, with a copy to you. It shows the grant and exercise dates, the exercise price and fair market value per share, and the shares transferred. You should get it by January 31 after the year you exercise, or the next business day if that falls on a weekend. You keep it with your records rather than file it with your return. You enter its figures in TurboTax, or give them to your CPA, to work out any AMT adjustment and, later, your gain. ## Sources - 26 U.S.C. § 422, Incentive stock options: https://www.law.cornell.edu/uscode/text/26/422 - 26 U.S.C. § 421, General rules for statutory stock options: https://www.law.cornell.edu/uscode/text/26/421 - 26 U.S.C. § 56, Adjustments in computing alternative minimum taxable income: https://www.law.cornell.edu/uscode/text/26/56 - 26 U.S.C. § 55, Alternative minimum tax imposed: https://www.law.cornell.edu/uscode/text/26/55 - 26 U.S.C. § 53, Credit for prior year minimum tax liability: https://www.law.cornell.edu/uscode/text/26/53 - 26 U.S.C. § 424, Definitions and special rules: https://www.law.cornell.edu/uscode/text/26/424 - 26 U.S.C. § 3121, Definitions (FICA wages): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - Treas. Reg. § 1.422-1, Incentive stock options, general rules: https://www.law.cornell.edu/cfr/text/26/1.422-1 - Treas. Reg. § 1.422-4, $100,000 limitation for incentive stock options: https://www.law.cornell.edu/cfr/text/26/1.422-4 - Treas. Reg. § 1.83-2, Election to include in gross income in year of transfer: https://www.law.cornell.edu/cfr/text/26/1.83-2 - Rev. Proc. 2025-32, inflation adjustments for 2026: https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Instructions for Form 6251 (2025): https://www.irs.gov/pub/irs-pdf/i6251.pdf - IRS, Instructions for Form 3921 and 3922: https://www.irs.gov/pub/irs-pdf/i3921.pdf - IRS, Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-pdf/i8949.pdf - IRS, General Instructions for Forms W-2 and W-3 (2026): https://www.irs.gov/pub/irs-pdf/iw2w3.pdf - IRS Pub. 525 (2025), Taxable and Nontaxable Income: https://www.irs.gov/pub/irs-pdf/p525.pdf --- URL: https://valim.tax/equity-compensation/nso-taxes Title: Non-qualified stock options tax: how NSOs are taxed in 2026 Updated: 2026-09-25 # With non-qualified stock options, tax is due on the spread when you exercise. The spread is the shares’ fair market value when you exercise, minus the exercise price you pay. For vested non-qualified stock options (NSOs or NQSOs), the spread is ordinary income in the year you exercise, even if you keep the shares. Any later rise or fall is a capital gain or loss, long-term after you hold the shares over a year. Employee NSO taxation in 2026: - 37%: is the top federal income tax rate on the spread, which counts as wages. - 22%: is the flat federal rate your employer may withhold, even if your bracket is higher. - 7.65%: is Social Security and Medicare on the spread. Social Security stops at $184,500 of wages, and Medicare adds 0.9% on wages above $200,000. Supplemental wages above $1 million a year are withheld at 37%, whatever your Form W-4 says. Pay from businesses under common control with your employer counts toward that total. ## Four facts decide your NSO tax treatment. The IRS calls non-qualified stock options nonstatutory stock options. Most grants match all four facts below. If yours differs on one, its tax changes in timing or in kind. ### 1. An option with no market value at grant Most NSOs are not taxed when granted, because the option has no readily ascertainable fair market value. An option has one only if it trades on an established market, or meets the four strict conditions in Treasury Regulation 1.83-7. That rare option is taxed at grant instead. ### 2. No discount on the exercise price Your exercise price should be at least the stock’s fair market value on the grant date. A lower price generally makes the option deferred compensation under Section 409A. If the option then fails 409A’s rules, you can owe income tax once it vests, plus a 20% tax and interest. You pay that extra tax, not the company. ### 3. Shares that are vested when you exercise If your shares are vested at exercise, the spread is income that year. If you exercise early into unvested shares, the spread is measured and taxed when they vest. An 83(b) election filed within 30 days of exercise moves the tax back to exercise. ### 4. Options received as an employee For employees, the spread is wages on Form W-2, with income tax, Social Security and Medicare withheld. Directors and contractors owe the same income tax, but normally nothing is withheld. They get Form 1099-NEC instead and pay self-employment tax. A Section 83(i) election lets some private-company employees delay the income tax on the spread for up to five years. The company’s plan must grant options or RSUs to at least 80% of its US employees. Social Security and Medicare are not delayed. ## An NSO tax example: what one exercise costs. You exercise 10,000 vested NSOs at $5 when the shares are worth $25, so the spread is $200,000. - Income tax: $70,000. The whole spread is taxed at 35%, on top of your salary. - Withheld: $44,000. At the flat rate, 22% of the spread is withheld at exercise. - Still to pay: $26,000. This is the income tax that withholding did not cover. - Medicare: $4,700. This is 1.45% plus the 0.9% Additional Medicare Tax, all withheld. The spread is 10,000 shares times $20, the gap between $25 and $5. These are 2026 federal figures for a single filer with a $300,000 salary and the $16,100 standard deduction. That salary already reaches the 35% bracket. Adding the spread still leaves taxable income under $640,600, where the 37% bracket starts. The salary is past the Social Security wage base, so the spread adds no Social Security tax. Because the salary alone is over $200,000, the 0.9% applies to the whole spread. ## For NSOs granted after 2013, the 1099-B basis leaves out the spread. Your broker’s Form 1099-B usually shows just the exercise price you paid as the basis. Unless you correct it on your return, the spread is taxed a second time as capital gain. | | On the 1099-B | Corrected | | --- | --- | --- | | Sale proceeds | $300,000 | $300,000 | | Cost basis | $50,000 (Exercise price only) | $250,000 (Plus the spread) | | Capital gain | $250,000 | $50,000 | | Federal tax on the gain | $47,000 | $9,400 | | On Form 8949 | No adjustment | Code B in column (f) | This is the exercise from the example above, with the shares sold at $30 each more than a year later. The long-term gain is taxed at 15% plus the 3.8% net investment income tax. Those are 2026 rates for a single filer with a $300,000 salary, used here for the year of sale. When the 1099-B shows basis reported to the IRS, keep its $50,000 in column (e) and enter −$200,000 in column (g). The gain comes out to the same $50,000. ## The NSO mistakes that cost the most. ### Counting code V twice The code V amount in box 12 of your W-2 is already inside your box 1 wages. Adding it to your income again taxes the spread twice. Schedule 1, line 8k, is only for stock option income that is not reported anywhere else on your return. ### A falling stock price does not undo the tax The tax on the spread is fixed at exercise and stays, even if the price drops. The drop becomes a capital loss when you sell. Capital losses first offset your capital gains. Up to $3,000 more a year ($1,500 if married filing separately) can offset other income. Any loss left over carries forward to later years. ### A same-day sale is still taxed Exercising and selling at once, a cashless exercise, does not avoid the income. The spread is still ordinary income on your W-2 or Form 1099-NEC. The sale itself shows only a small short-term gain or loss, usually fees and price moves. ### A lockup does not delay the tax (https://valim.tax/glossary/lockup-period) Options you exercise during an IPO lockup are taxed at exercise, even though you cannot sell yet. You may owe the tax before you can sell any shares to pay it. For officers and directors exposed to Section 16(b) suits, tax can wait up to six months. ### The spread can raise the 3.8% tax on investments The spread itself is not subject to the 3.8% net investment income tax. It does raise your modified AGI, which can bring more of your dividends and other gains under that tax. The tax applies above $200,000 of modified AGI for a single filer, or $250,000 on a joint return. ## Plan the NSO exercise before the tax is fixed. Valim’s CPAs help employees and directors with NSO tax planning before an exercise, and file the return after it. - We model the tax on an exercise before you make it, using your own income and brackets. - We check your NSO tax withholding against what you will owe. We also plan estimated payments for the gap. - We time exercises and sales around your brackets and any liquidity event, such as an IPO. - We weigh an early exercise and an 83(b) election when your plan allows it. - We report the spread and the sale on your return, with the basis corrected on Form 8949. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle equity compensation: https://valim.tax/equity-compensation ## NSO tax questions. ### How do NSOs get taxed? NSOs get taxed when you exercise them, on the spread between the shares’ fair market value and your exercise price. The spread is ordinary income, and for employees it is W-2 wages with income tax and payroll taxes withheld. Directors and contractors get Form 1099-NEC instead. When you sell, any change in value since exercise is a capital gain or loss. If you exercise before your shares vest, the tax waits for vesting unless you file an 83(b) election within 30 days. ### Are NSOs taxed twice? No, the spread on an NSO is taxed once, as ordinary income in the year you exercise. That income becomes part of your cost basis, so the sale taxes only the change in value after exercise. A double tax happens only through a reporting mistake. For options granted after 2013, your broker’s Form 1099-B leaves the spread out of the basis. Add it back on Form 8949 with code B, or the spread is taxed again as a capital gain. ### What is the difference between ISO and NSO taxes? An NSO’s spread is taxed as ordinary income when you exercise, but an ISO exercise creates no regular income tax. For employees, the NSO spread also carries Social Security and Medicare, while the ISO spread counts only toward the alternative minimum tax (AMT). Under the ISO rules, you must exercise while employed or within three months of leaving. Hold the shares two years from grant and one year from exercise, and your whole gain over the exercise price is long-term. NSOs have no holding rule, can go to directors and contractors, and have no $100,000 limit on options first exercisable each year. ### What does code V in box 12 of my W-2 mean? Code V shows the income from exercising non-qualified stock options during the year, and not from ISOs or a Section 423 ESPP. That income is the spread, or bargain element: the shares’ fair market value at exercise minus the exercise price. It is already in boxes 1 and 5 of your W-2, and in box 3 up to the Social Security wage base. Do not add it to your income again. You need the figure when you sell, because the broker’s 1099-B basis leaves it out for options granted after 2013. ## Sources - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.83-7, Taxation of nonqualified stock options: https://www.law.cornell.edu/cfr/text/26/1.83-7 - 26 C.F.R. § 31.3402(g)-1, Supplemental wage payments: https://www.law.cornell.edu/cfr/text/26/31.3402(g)-1 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, General Instructions for Forms W-2 and W-3 (2026): https://www.irs.gov/instructions/iw2w3 - IRS, Instructions for Form 8949: https://www.irs.gov/instructions/i8949 - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - IRS, Rev. Proc. 2002-50 (Internal Revenue Bulletin 2002-29): https://www.irs.gov/pub/irs-irbs/irb02-29.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Topic no. 427, Stock options: https://www.irs.gov/taxtopics/tc427 - 26 U.S.C. § 409A, Deferred compensation under nonqualified plans: https://www.law.cornell.edu/uscode/text/26/409A - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 1211, Limitation on capital losses: https://www.law.cornell.edu/uscode/text/26/1211 - IRS, Instructions for Forms 1099-MISC and 1099-NEC: https://www.irs.gov/instructions/i1099mec --- URL: https://valim.tax/equity-compensation/espp-taxes Title: ESPP taxes: how employee stock purchase plans are taxed Updated: 2026-09-24 # You pay ESPP taxes when you sell, and holding longer can lower them. A Section 423 employee stock purchase plan (ESPP) lets you buy your employer’s stock at up to 15% off. When you sell, the discount is taxed as ordinary income and any further gain as capital gain. A sale more than 2 years after the grant date and 1 year after purchase is a qualifying disposition. Its ordinary part is then capped at the discount measured on the grant-date price. Qualified plans under Section 423: - 15%: is the largest discount a plan can give, off the lower of the grant-date and purchase-date prices. - 2: years must fully pass after the grant date, and 1 year after purchase, before a sale qualifies. - $25K: of stock a year, valued at the grant-date price, is the most you can buy across your employer’s plans. None of these rules apply to a non-qualified ESPP. Its discount is taxed as wages when you buy, with Social Security and Medicare tax. ## Does your sale meet the ESPP tax rules? Five tests decide the tax consequences of an ESPP sale. It is a qualifying disposition only if it passes all of them. ### 1. A Section 423 plan The plan must meet Section 423 of the tax code for these rules to apply. If your company sends you Form 3922 for a purchase, it treats the plan as a Section 423 plan. ### 2. Employed until 3 months before the purchase You must work for the company, its parent or a subsidiary from the grant date until 3 months before the purchase. A leave counts as work for up to 3 months, or longer if law or a contract guarantees your return. ### 3. More than 2 years after the grant date You must sell more than 2 years after the grant date, which is in box 1 of Form 3922. The grant date is the offering’s first day if a number or formula fixes your share limit that day. Otherwise, the grant date is the purchase date. ### 4. More than 1 year after the purchase date You must also sell more than 1 year after the purchase date, which is in box 2 of Form 3922. A sale on either anniversary is still too early. ### 5. No gift or transfer before both dates You must keep the shares until both periods end. A sale, a gift and most other transfers count as an ESPP disposition. A transfer to your spouse or in a divorce, or a pledge as loan collateral, does not. Fail either of the first two tests and the discount is taxed in the year you buy. Selling or giving away ESPP shares before both holding periods end is a disqualifying disposition. The full discount at purchase is then ordinary income. ## What waiting to sell is worth. Here is one purchase, sold at three different times. The offering starts on January 2, 2025, and fixes your share limit that day, so that is the grant date. You buy 100 shares on June 30, 2025, for $34 each, and later sell them at $60. The plan has a lookback, so you paid 85% of the lower of the two prices: $40 at the grant date, not $50 at purchase. The federal tax on the same $2,600 ESPP gain falls the longer you hold the shares. - 10 months: $624. The sale is disqualifying, so the $1,600 discount at purchase is ordinary income. The other $1,000 is short-term gain. - 13 months: $534. The sale is still disqualifying, because 2 years have not passed since the grant date. The $1,000 gain is now long-term. - 19 months: $444. The sale is past both holding periods, so it qualifies. Only the $600 grant-date discount is ordinary income, and $2,000 is long-term gain. The discount at purchase is $16 a share ($50 minus $34), and the grant-date discount is $6 ($40 minus $34). Ordinary income and short-term gain are taxed at 24%, and long-term gain at 15%. Those are the 2026 rates for a single filer with $105,700 to $201,775 of taxable income. The 2027 sale is assumed to face the same rates, since 2027 brackets are not yet published. Modified AGI stays under $200,000, so there is no 3.8% net investment income tax. There are no commissions, and state tax is separate. ## ESPP tax treatment: disqualifying and qualifying sales. The IRS taxes employee stock purchase plan shares in one of two ways, depending on when you sell. Your ESPP tax rate on the ordinary part is your income tax rate, 10% to 37% for 2026. Capital gain on shares held more than a year is taxed at 0%, 15% or 20%. | | Disqualifying | Qualifying | | --- | --- | --- | | When you sell | Inside either holding period | After both holding periods | | Ordinary income | The full discount at purchase (The purchase-date price minus what you paid) | Your gain, up to the grant-date discount (At most 15% of the grant-date price in a 15% plan) | | Capital gain | Short-term if held a year or less | Always long-term | | If the price falls | The full discount is still ordinary income (The drop is a capital loss) | Ordinary income shrinks with your gain (None if you sell below what you paid) | Either way, your ESPP income is taxable in the year of the sale. Its ordinary part is taxed like wages, with no Social Security or Medicare tax. ## Where ESPP tax reporting goes wrong. Reporting ESPP on your tax return means checking your W-2 and Form 1099-B against the dates and prices on Form 3922. ### Your 1099-B basis is too low For options granted after 2013, your broker’s Form 1099-B leaves the ordinary income out of your basis. Report that basis as it is and the ordinary income is taxed twice, as wages and again as capital gain. You fix it with an adjustment on Form 8949, the same way in TurboTax, FreeTaxUSA or any other software. ### No tax is withheld Your employer does not have to withhold income tax on ESPP income. To avoid the underpayment penalty, pay at least 90% of this year’s tax, or 100% of last year’s, through withholding and quarterly estimates. If last year’s AGI was over $150,000 ($75,000 married filing separately), you need 110% of last year’s tax instead. ### The income is missing from your W-2 The ordinary part of your ESPP income should be reported on your W-2, in box 1, for the year you sell. Some employers also note it in box 14, an optional box that becomes 14a on 2026 forms. If it is missing, you report it yourself on Schedule 1 (Form 1040). ### A loss sale near a purchase date Sell employer stock at a loss within 30 days before or after an ESPP purchase, and the loss can be disallowed. Under the wash sale rule, it is added to the basis of the new shares. ### The wrong shares get sold Each purchase is a separate lot with its own dates and basis, so which shares you sell changes the tax. Unless you name the lot with your broker by settlement, the oldest shares count as sold first. Your choice counts only if the broker confirms it in writing. ## Your ESPP tax strategy, set before you sell. Valim’s CPAs help employees with ESPP shares plan their sales, and file returns with the cost basis corrected. - We work out the ordinary income on each sale from your Form 3922 and your plan’s terms. - We correct the cost basis on Form 8949, so the same income is not taxed twice. - We plan when to sell around the two holding periods and your tax bracket. - We size estimated payments for sales that have no tax withheld. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle equity compensation: https://valim.tax/equity-compensation ## ESPP tax questions. ### How do I avoid double tax on ESPP? Raise your cost basis on Form 8949 by the ESPP ordinary income, which is already taxed as wages. Your broker’s Form 1099-B leaves that income out of the basis. Keep the broker’s basis in column (e) and enter code B in column (f). Then enter the ordinary income as a negative number in column (g), so only the capital part is taxed as gain. Form 3922 gives the dates and prices that set the ordinary income. ### How much tax will I pay on ESPP? In a Section 423 plan, you pay tax on ESPP shares in the year you sell. Part of that income is ordinary income, taxed at 10% to 37% for 2026 with no Social Security or Medicare tax. That part is the full discount at purchase in a disqualifying sale, and at most the grant-date discount in a qualifying one. The rest is capital gain, taxed at 0%, 15% or 20% if you held the shares more than a year. The 3.8% net investment income tax (NIIT) can apply to that gain once modified AGI passes $200,000, or $250,000 for joint filers. ### Should I sell ESPP shares right away? Selling right away is the lower-risk choice, and holding saves tax mainly when the stock rose between the grant date and your purchase. A sale right away locks in the discount, but the whole discount at purchase is taxed as ordinary income. Holding more than 2 years from the grant date and 1 year from purchase caps that part at the grant-date discount. If the stock fell between those two dates instead, holding can add ordinary income. The cost of waiting is holding one stock, whose price can fall below what you paid. ### What are the disadvantages of an ESPP? An ESPP buys only your employer’s stock, so your pay and your savings depend on one company. Your contributions come out of after-tax pay, so they give you no pre-tax deduction. The better tax treatment means carrying that risk for more than 2 years from the grant date and 1 year from purchase. If the price falls after purchase, a disqualifying sale still taxes the full discount as ordinary income. The drop is a capital loss, which offsets capital gains in full but only $3,000 of other income a year ($1,500 married filing separately). ### What is Form 3922? Form 3922 is the ESPP tax form for discounted shares bought through a Section 423 plan. Your company sends it by January 31 of the year after the shares first move into your name. In a broker’s consolidated statement, the date is February 15. It shows the grant and purchase dates, the fair market value on each, the price you paid and the number of shares. You don’t file it with your return, but its dates and prices set your ordinary income and cost basis when you sell. ## Sources - 26 U.S.C. § 423, Employee stock purchase plans: https://www.law.cornell.edu/uscode/text/26/423 - 26 U.S.C. § 421, General rules for statutory stock options: https://www.law.cornell.edu/uscode/text/26/421 - 26 CFR 1.421-1, Meaning and use of certain terms: https://www.ecfr.gov/current/title-26/section-1.421-1 - 26 CFR 1.423-2, Employee stock purchase plan defined: https://www.ecfr.gov/current/title-26/section-1.423-2 - 26 U.S.C. § 424, Definitions and special rules: https://www.law.cornell.edu/uscode/text/26/424 - 26 U.S.C. § 3121, Definitions of Social Security and Medicare wages: https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 1091, Loss from wash sales of stock or securities: https://www.law.cornell.edu/uscode/text/26/1091 - 26 CFR 1.1012-1, Basis of property: https://www.ecfr.gov/current/title-26/section-1.1012-1 - 26 U.S.C. § 1211, Limitation on capital losses: https://www.law.cornell.edu/uscode/text/26/1211 - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - IRS, Form 3922 (Rev. April 2025): https://www.irs.gov/pub/irs-pdf/f3922.pdf - IRS, 2026 Instructions for Form 1099-B: https://www.irs.gov/instructions/i1099b - IRS, Instructions for Form 8949: https://www.irs.gov/instructions/i8949 - IRS, Publication 525, Taxable and Nontaxable Income: https://www.irs.gov/publications/p525 - IRS, 2026 General Instructions for Forms W-2 and W-3: https://www.irs.gov/instructions/iw2w3 - IRS, Rev. Proc. 2025-32 (2026 tax rates): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/equity-compensation/83b-election Title: 83(b) election: what it is, who should file, and how to file Updated: 2026-09-24 # An 83(b) election taxes restricted stock up front, so later growth is taxed as capital gain. With a Section 83(b) election, your ordinary income is the restricted shares’ fair market value when you receive them, minus what you paid. Without the election, each block of shares is taxed when it vests, on its value then minus what you paid. You must file within 30 days of receiving the shares. Federal 83(b) rules for 2026: - 30 days: is the whole window, with no extensions. If day 30 is a weekend or legal holiday, the next business day counts. - $0: is your income at the transfer if you paid the shares’ full fair market value. - 1 year: and a day from the transfer makes your gain on a sale long-term with an 83(b). Without the election, the clock starts at vesting. The One Big Beautiful Bill Act did not change Section 83. No 83(b) rule is indexed for inflation, so these rules are the same as in 2025. ## Can you file an 83(b) election? Your stock must pass the first three tests, or there is nothing to elect. The last two cover how you file, and a late election does not count. ### 1. Stock you receive for your work The election covers stock you get in connection with your work, as an employee, founder or contractor. It applies even when you pay full value for the shares. ### 2. Shares that have not vested The shares must carry a substantial risk of forfeiture. That means you can lose them until you meet a condition, such as staying a set time. For example, the company can buy them back at cost if you leave early. Shares that are already vested are taxed when you receive them, so there is nothing to elect. ### 3. Shares, not RSUs or an option An RSU is only a promise of shares later, and the tax code bars an 83(b) election on it. An option grant does not transfer any shares either. If your plan allows early exercise, you can elect on the unvested shares you receive. ### 4. Filed within 30 days of the transfer Day 1 is the day after the shares are transferred to you. For an early exercise, the transfer is the exercise itself. For shares transferred on March 2, 2026, the last day is April 1, 2026. ### 5. Sent to the IRS, with a copy to your company You can file Form 15620 online, or mail the form or a signed statement to the IRS office where you file your return. Either one must include what the regulations list, such as your taxpayer ID, the transfer date, the shares’ value and your price. Give your company a copy. A Section 83(i) election is a different choice, for some private-company employees with options or RSUs. It defers income tax on their shares, and it cannot be made on shares covered by an 83(b). ## What an 83(b) election saves on restricted stock. An 83(b) pays off when the tax at the transfer is small and the shares grow before they vest. You pay $10,000, their full value, for restricted shares that are worth $510,000 at vesting and $1,010,000 when you sell. - No 83(b) election: $315,750. The $500,000 rise before vesting is taxed as wages, even if you cannot sell yet. The $500,000 gain after vesting is long-term. - 83(b) election filed: $238,000. Nothing is taxed at the transfer, since you paid full value. The whole $1,000,000 gain is long-term. - Election filed, then you leave: $0. You forfeit the shares before they vest, and the company buys them back for the $10,000 you paid. You have no gain or loss. These figures use top 2026 federal rates, for a single filer whose salary alone already puts them past $640,600 of taxable income. Wages are taxed at 37%, plus 1.45% Medicare and the 0.9% Additional Medicare Tax. At that salary, no Social Security tax is added. Long-term gain is taxed at 20% plus the 3.8% net investment income tax. You sell more than a year after vesting, so the later gain is long-term either way. Without the election, $196,750 is due in the vesting year and $119,000 at sale. State tax is separate. ## An 83(b) for ISOs changes only your AMT. The spread is the shares’ value minus your exercise price. An 83(b) on NSO shares moves the tax on the spread from each vesting date to the exercise. On ISO shares, it moves only the alternative minimum tax (AMT), and your regular tax is the same with or without it. | | NSO shares | ISO shares | | --- | --- | --- | | With an 83(b) | Spread taxed as ordinary income at exercise | Spread counts for the AMT at exercise | | Without one | Spread taxed as ordinary income at each vesting | Spread counts for the AMT at each vesting | | Payroll tax on the spread | Yes, for employees | None | | Holding period starts | At exercise, with an 83(b) (At vesting without one) | At exercise, for the 1-year ISO test (With or without an 83(b)) | With an 83(b), the spread is zero if your exercise price equals the shares’ fair market value. If you sell ISO shares within two years of grant or one year of exercise, the election does not change your regular tax. Your ordinary income is measured at vesting, and your capital gain clock starts then. ## The 83(b) traps founders and early employees fall into. ### Forfeiting does not refund the tax If you leave and forfeit unvested shares, there is no deduction for the income you already reported. Your only loss is what you paid minus what you get back, as a capital loss. ### The election is hard to undo Within the 30 days, the IRS generally grants a request to revoke. After that, it consents only for a mistake of fact about the transaction, requested within 60 days of finding it. A drop in the stock’s value is not one. Each request carries a 2026 IRS user fee of $3,450 to $43,700, depending on your income. ### One election covers one transfer Each transfer of shares starts its own 30 days. If you early exercise in three batches, you need three elections. ### The value ignores the vesting schedule You report the shares at their full fair market value on the transfer date. Vesting conditions are ignored, because they will lapse. Only a restriction that never lapses, such as a permanent formula price, can set a different value. ### No proof the IRS received it A mailed election counts as filed on its postmark date, but only if it arrives. Certified or registered mail, or an IRS-designated delivery service, is your proof. Keep a copy, since you no longer attach one to your return. ### Skipping it delays the QSBS clock (https://valim.tax/equity-compensation/qsbs) For restricted stock, the QSBS holding period starts at vesting unless you file an 83(b). With the election it starts at the transfer, so the five years for a full exclusion begin sooner. ## 83(b) planning before the 30 days run out. Valim’s CPAs help founders and early employees with 83(b) elections, and file the returns that follow. Send us your stock agreement early in the 30 days, so there is time to decide. - We confirm your shares can take an 83(b) election. - We model the tax now and later, with and without the election, from your price, today’s value and your vesting schedule. - We draft the statement or Form 15620 for you to sign, and check its dates and values. - We plan early exercises around the AMT on ISOs and the ordinary income on NSOs. - We track your basis and holding period, including for QSBS, and report the sale on Form 8949. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle equity compensation: https://valim.tax/equity-compensation ## 83(b) election questions. ### What is an 83(b) election? An 83(b) election lets you pay tax on restricted stock when you receive it, instead of when it vests. You report the shares’ fair market value on the transfer date, minus what you paid, as ordinary income. If you paid full value, that income is zero. Growth after that is capital gain when you sell, and your holding period starts at the transfer. If you later forfeit the shares, you cannot deduct the income you reported. ### When is the 83(b) deadline? The 83(b) deadline is 30 days after the shares are transferred to you. For restricted stock, the transfer is usually the grant or purchase date. For an early exercise, it is the exercise date, never the option grant date. If the 30th day is a Saturday, Sunday or legal holiday, the next business day counts. The IRS cannot extend the deadline. ### Is there a new IRS form for the 83(b) election? Yes, the IRS form for an 83(b) election is Form 15620, Section 83(b) Election, which first appeared in late 2024. Its current revision is dated April 2025. Using it is optional, because a signed statement with the details the regulations require still works. Since mid-2025, you can also submit Form 15620 online through an IRS Online Account instead of mailing it. ### Should I file an 83(b) if I early exercise? Usually yes, because an 83(b) filed after an early exercise costs little or no tax when the spread at exercise is small. The spread is the shares’ fair market value minus your exercise price. With NSOs, an 83(b) filed within 30 days taxes the spread at exercise instead of at each vesting date. With ISOs, it affects only the alternative minimum tax (AMT), which then measures the spread at exercise. Any tax you pay up front is not refunded if you leave and forfeit the shares. ### What happens if I miss the 83(b) deadline? If you miss the 83(b) deadline, you cannot file late, and the IRS cannot extend the 30 days set by the tax code. Instead, each block of shares is taxed as ordinary income when it vests, on its value then minus what you paid. Its capital gain holding period also starts at vesting. For ISO shares, the alternative minimum tax adjustment moves to each vesting date. Cancelling and reissuing the shares may start a new 30 days, but have a CPA review that first. ## Sources - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.83-2, Election to include in gross income in year of transfer: https://www.law.cornell.edu/cfr/text/26/1.83-2 - 26 C.F.R. § 1.83-3, Meaning and use of certain terms: https://www.law.cornell.edu/cfr/text/26/1.83-3 - IRS, Form 15620, Section 83(b) Election (Rev. April 2025): https://www.irs.gov/pub/irs-pdf/f15620.pdf - IRS, Mobile-friendly forms (Form 15620 online): https://www.irs.gov/forms-pubs/mobile-friendly-forms?find=15620 - IRS, Rev. Proc. 2012-29 (Internal Revenue Bulletin 2012-28): https://www.irs.gov/irb/2012-28_IRB - T.D. 9779, Section 83(b) elections (81 FR 48707, July 26, 2016): https://www.govinfo.gov/content/pkg/FR-2016-07-26/pdf/2016-17591.pdf - IRS, Rev. Proc. 2006-31 (Internal Revenue Bulletin 2006-27): https://www.irs.gov/irb/2006-27_IRB - IRS, Rev. Proc. 2026-1 (Internal Revenue Bulletin 2026-1), user fees: https://www.irs.gov/irb/2026-01_IRB - 26 C.F.R. § 1.422-1, Incentive stock options, general rules: https://www.law.cornell.edu/cfr/text/26/1.422-1 - IRS, Instructions for Form 6251 (2025): https://www.irs.gov/pub/irs-pdf/i6251.pdf - 26 U.S.C. § 7502, Timely mailing treated as timely filing and paying: https://www.law.cornell.edu/uscode/text/26/7502 - 26 U.S.C. § 7503, Time for performance when the last day falls on a weekend or holiday: https://www.law.cornell.edu/uscode/text/26/7503 - 26 C.F.R. § 1.83-4, Special rules (holding period and basis): https://www.law.cornell.edu/cfr/text/26/1.83-4 - 26 C.F.R. § 1.83-7, Taxation of nonqualified stock options: https://www.law.cornell.edu/cfr/text/26/1.83-7 - 26 U.S.C. § 1222, Short-term and long-term capital gains: https://www.law.cornell.edu/uscode/text/26/1222 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 - IRS, Rev. Proc. 2025-32, 2026 inflation adjustments: https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 3101, Social Security and Medicare tax on employees: https://www.law.cornell.edu/uscode/text/26/3101 - IRS, Publication 15 (2026): https://www.irs.gov/pub/irs-pdf/p15.pdf --- URL: https://valim.tax/business Title: Business tax services: CPA tax prep for every entity type Updated: 2026-09-24 # Valim’s CPAs provide business tax services for LLCs, partnerships, S corps and C corps. Valim is a virtual CPA firm, run by ex-Big Four CPAs, that quotes each business a fixed fee upfront. We handle the tax accounting for your business: its federal and state returns, and tax advice all year. Business returns start at $495. Valim for business: - $495: is the lowest fee for a partnership, S corp or C corp return. - 50: states are in scope for every entity type we prepare, from partnerships to C corps. - <1 week: is how soon we file most returns once you have sent the documents they need. ## Business tax preparation at Valim starts with the form your entity files. Trusts, estates and non-profits file their own returns, and we prepare those too. ### Partnerships and multi-member LLCs We prepare Form 1065 and the Schedule K-1 each partner or member needs for their own return. ### S corporations We file Form 1120-S and a K-1 for every shareholder. We check whether an S election would lower your tax before you make it. ### C corporations and startups Form 1120 is a C corporation’s federal company tax return, and we prepare it with the state returns. For startups, we also file Delaware’s annual report and claim the R&D credit. ### Sole proprietors As a sole proprietor, you file no separate business income tax return, so small business tax filing centers on your own Form 1040. We prepare it with Schedule C and, where needed, Schedule SE. ### Business tax planning Tax advisory includes planning your estimated payments, and you can also add that planning to a filing quote. Your CPA answers other planning questions as they come up, such as expanding into a new state. ### Bookkeeping as an add-on to filing Bookkeeping and a clean-up of the year’s books can be added to your filing, priced in your quote. For tax and accounting services together, your bookkeeper can handle the day-to-day accounting while your CPA files from the ledger they close. Bookkeepers who want a tax partner for their own clients can work with us too. ## Online business tax filing with Valim starts with a fixed fee. ### 1. Get a locked quote The fee on your quote holds for 7 days. If your documents show something your answers missed, we re-quote with the same calculator before any work begins. ### 2. Share it all in one portal One portal holds every entity’s documents and messages, so your remote accountant can work with you from any state. Your CPA prepares each federal and state return from what you upload. ### 3. Letters go to our team Your fee already covers our answers to IRS and state notices about the returns we prepared. ## What does tax preparation for a small business or a corporation cost at Valim? ### Business return filing From $495 Business return filing prepares your partnership or corporate return, and you can reach your CPA all year. A trust or estate is quoted once a CPA has read the trust document. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as bringing in a new owner or opening in another state. Sole proprietors, and one-owner LLCs with no election, pay individual return prices, from $195. ## Which rules decide what a business files and pays? ### An LLC’s federal return depends on its members (https://valim.tax/small-business/llc-taxes) Without an election, a one-member LLC reports its profit on its owner’s return, and a multi-member LLC files Form 1065 as a partnership. ### An S corp passes its profit to its shareholders (https://valim.tax/small-business/s-corp-taxes) Each shareholder pays tax on their share of an S corporation’s profit at their own rates, whether or not it is paid out. ### A sole proprietor must file at $400 of net earnings (https://valim.tax/small-business/sole-proprietorship-taxes) The rule covers US citizens and residents at any age, even when total income is below the usual filing threshold. ### A C corporation files a return even with no income (https://valim.tax/startups/form-1120) A domestic C corporation generally files Form 1120 every year it exists, and pays a flat 21% on any taxable income. ### Incorporating in Delaware alone brings no Delaware income tax (https://valim.tax/startups/delaware-franchise-tax) Delaware taxes corporate income only on business done in the state, but its franchise tax generally applies to every corporation formed there. ### The research credit can cut payroll tax (https://valim.tax/startups/r-and-d-tax-credit) A young company with payroll but no income tax to pay can use up to $500,000 a year of its research credit against payroll tax. "My old CPA charged twice as much and I had to chase them for weeks. Valim filed my business returns in days." (E-commerce owner in Denver) ## Ask a business tax professional how your next return should be filed. If you are comparing virtual accounting firms and online tax companies, ask whether the fee is fixed before work starts, and who answers IRS notices. At Valim, both are settled upfront: a fixed fee, and notices on returns we prepared handled within it. ## Five questions come up before a business hires a tax CPA. ### How much does a CPA charge for business taxes? At Valim, CPA tax preparation fees for a business return start at $495. The fee rises with the larger of revenue and expenses, and with the number of owners and states. A year with a fundraise, or your first year in business, can add to it. The instant quote prices a partnership, S corp or C corp return on the spot, with nothing billed by the hour. ### Do I need a bookkeeper, an accountant or a CPA? You may need both a bookkeeper and a CPA: the bookkeeper records day-to-day transactions, and the CPA does the tax work. Bookkeeping needs no IRS credential. A CPA is an accountant licensed by a state board, who can represent you before the IRS in any matter. An accountant without a CPA license can still prepare federal returns for pay with a PTIN. Unless they are also an enrolled agent, they can represent you before the IRS only in limited cases, if at all. ### What’s the 1099-NEC threshold for 2026? The Form 1099-NEC threshold is $2,000 for payments made in 2026, up from $600 for payments in 2025. A business generally files one for each nonemployee it paid at least $2,000 that year for services. Payments to a sole proprietor count, but most payments to corporations do not, except for legal services. Payments made by card or payment app are reported on Form 1099-K instead. The One Big Beautiful Bill Act also ties the $2,000 to inflation from 2027. ### Can AI accounting replace an accountant? No. At Valim, AI accounting does the data entry, and a CPA makes every judgment call. Our own automation reads your documents and extracts the figures, so nobody types them in. A licensed US CPA at Valim reviews and signs each return before it is filed. None of your data is used to train or fine-tune any AI model. ### How do I switch accountants mid-year? Ask your old accountant for the records you need to meet your federal tax obligations. Circular 230 requires a CPA, enrolled agent or attorney to return them promptly, even in most fee disputes. Your new CPA will want last year’s returns, the depreciation schedules, any carryovers and the books for the year so far. Keep your accounting method through the switch, because a change needs IRS consent first. Once recorded, a Form 2848 naming your new CPA generally revokes earlier powers of attorney for the same matters, but not a Form 8821. ## Sources - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, Instructions for Form 1065 (2025): https://www.irs.gov/instructions/i1065 - 26 U.S.C. § 1363, Effect of election on corporation: https://www.law.cornell.edu/uscode/text/26/1363 - 26 U.S.C. § 1366, Pass-thru of items to shareholders: https://www.law.cornell.edu/uscode/text/26/1366 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - IRS, Instructions for Form 1120 (2025): https://www.irs.gov/pub/irs-pdf/i1120.pdf - 26 C.F.R. § 1.6012-2, Corporations required to make returns of income: https://www.ecfr.gov/current/title-26/section-1.6012-2 - 26 U.S.C. § 11, Tax imposed (corporations): https://www.law.cornell.edu/uscode/text/26/11 - 30 Del. C. § 1902, Imposition of tax on corporations; exemptions: https://delcode.delaware.gov/title30/c019/index.html - 26 U.S.C. § 41, Credit for increasing research activities: https://www.law.cornell.edu/uscode/text/26/41 - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications - IRS, PTIN requirements for tax return preparers: https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers - Public Law 119-21 (One Big Beautiful Bill Act), § 70433: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/instructions/i1099mec - IRS, General Instructions for Certain Information Returns: https://www.irs.gov/instructions/i1099gi - 31 C.F.R. § 10.28, Return of client’s records (Circular 230): https://www.ecfr.gov/current/title-31/subtitle-A/part-10 - 26 U.S.C. § 446, General rule for methods of accounting: https://www.law.cornell.edu/uscode/text/26/446 - 26 C.F.R. § 1.446-1, General rule for methods of accounting: https://www.ecfr.gov/current/title-26/section-1.446-1 - IRS, Instructions for Form 2848 (Rev. September 2021): https://www.irs.gov/instructions/i2848 --- URL: https://valim.tax/small-business Title: Small business CPA: tax prep and advice, with fees upfront Updated: 2026-09-24 # Valim’s small business CPAs do the taxes for LLCs, S corps and sole proprietors. Valim is a US CPA firm for small business owners, led by ex-Big Four CPAs, with every fee quoted before work starts. We prepare the returns for your business and for you. A business return starts at $495. Valim for small business: - $495: is the least a business return costs at Valim. - 50: states are covered, for your business returns and your own. - <1 week: is what most returns take to file, counted from the day your documents arrive. ## Valim prepares your small business tax returns and advises you on tax all year. ### Your LLC’s return Whatever your LLC’s tax status, we prepare the federal and state returns it calls for. ### Your own Form 1040 Business profit often reaches your personal return, so we prepare that return as well. ### The S corp decision We compare the tax on your profit with and without an S corp election, payroll costs included, before you file Form 2553. Once you elect, we prepare Form 1120-S each year. ### Quarterly estimated tax We size four estimated payments to the IRS safe harbor. Paying each one on time avoids the federal underpayment penalty. ### A review of last year’s return We review a return another preparer filed and show you any deductions and credits it missed. A review starts at $49, with no obligation to file with us. ### Bookkeeping as an add-on, or from your bookkeeper If your small business needs accounting and bookkeeping, we can add bookkeeping and a clean-up to your filing. If you have a bookkeeper, in-house or outsourced, we prepare your returns from their year-end numbers. Bookkeepers can also partner with us on their clients’ taxes. ## How does small business tax prep work with Valim? ### 1. Get a fixed fee The instant quote asks about your entity, revenue and expenses, owners, states and how clean your books are. It then gives a fixed fee for each plan. The fee holds for 7 days, and nothing is charged by the hour. ### 2. Your CPA prepares and signs A licensed US CPA prepares, reviews and signs each return. Valim works online, so you upload documents and message your CPA in one portal from any state. ### 3. Forward any tax notice If the IRS or a state writes about a return we prepared, forward the letter. We handle the reply, and the work is part of your fee. ## Two plans cover a small business: the return, or the return with planning for next year. ### Business return filing From $495 This plan covers LLC, partnership, S corp and C corp returns, with a CPA to answer questions all year. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as electing S corp status or setting your own salary. The instant quote prices a sole proprietorship, or a one-owner LLC with no election, as an individual return, from $195. ## Small business taxes start with how your business is set up for tax purposes. ### The IRS has no tax category called LLC (https://valim.tax/small-business/llc-taxes) For federal tax, an LLC is a disregarded entity, a partnership or a corporation, depending on its members and any election. ### An S corp’s profit is taxed on its owners’ returns (https://valim.tax/small-business/s-corp-taxes) An S corporation usually pays no federal income tax itself, because its profit and losses pass through to its shareholders’ own returns. ### A sole proprietor pays two taxes on the same profit (https://valim.tax/small-business/sole-proprietorship-taxes) A sole proprietor pays income tax and self-employment tax on the same profit, both on Form 1040. ### A California LLC owes $800 a year, even with no income (https://valim.tax/small-business/california-llc-tax) After its first year, a California LLC owes at least $800 a year, plus a fee once its California total income reaches $250,000. ### A Texas LLC files a report even when it owes no tax (https://valim.tax/small-business/texas-franchise-tax) A Texas LLC or corporation owes no franchise tax on revenue of $2,650,000 or less, but it still files a report each year. "Their planning advice has saved me so much more than the filing fee itself. Wish I had found them sooner." (Practice owner) ## Talk to a CPA about your business before the year ends. ## What should you check before a CPA does your business taxes? ### Is a CPA worth it for a small business? A CPA is usually worth it once your business files its own return or weighs an S corp election. A CPA can represent you before the IRS without limit, including in audits and appeals. Only CPAs, enrolled agents and attorneys have that right. A state board of accountancy licenses each CPA after the Uniform CPA Examination and sets education and experience requirements. Continuing education keeps the license active. ### How much does an accountant cost for a small business? At Valim, a small business tax return costs from $495. A sole proprietor files the business on their own Form 1040, and an individual return starts at $195. Each fee is fixed before work starts, with no hourly rates. The instant quote sets the fee from your entity, revenue and expenses, owners, states and how clean your books are. ### What are red flags when hiring a CPA? A paid preparer who will not sign your return is a red flag, because federal rules require a signature. A preparer with no preparer tax identification number (PTIN) is another red flag. Every paid preparer must have one, and the signing preparer enters theirs on the return. Ask a CPA which state licensed them, and be wary of one who cannot say. ### Do self-employed people pay 30% tax? No single 30% rate applies to the self-employed. You pay self-employment tax of 15.3% on 92.35% of your profit, plus income tax at your bracket rates. The 12.4% Social Security part of that tax stops at $184,500 of net earnings in 2026. In the 22% bracket, each extra dollar of profit costs about 30.5% federal, before any state income tax. ### Which entity should my business be? The right entity depends on your profit and your plans, because the entity sets how that profit is taxed. An LLC taxed by default puts its profit on the owners’ own returns, where an active owner’s share generally bears self-employment tax. With an S corp election, payroll tax falls only on the salary you pay yourself, which must be reasonable. The election can pay off once profit is well above that salary and the saving outweighs payroll and return costs. A C corporation pays a flat 21% itself, and its dividends are taxed again. ## Sources - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, Instructions for Form 1065 (2025): https://www.irs.gov/instructions/i1065 - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - 26 U.S.C. § 1363, Effect of election on corporation: https://www.law.cornell.edu/uscode/text/26/1363 - 26 U.S.C. § 1366, Pass-thru of items to shareholders: https://www.law.cornell.edu/uscode/text/26/1366 - Cal. Rev. & Tax. Code § 23802, S corporations: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23802 - Cal. Rev. & Tax. Code § 23153, Minimum franchise tax: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23153 - IRS, S corporation compensation and medical insurance issues: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - Social Security Administration, Contribution and benefit base: https://www.ssa.gov/oact/cola/cbb.html - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 11, Tax imposed (corporations): https://www.law.cornell.edu/uscode/text/26/11 - 26 U.S.C. § 301, Distributions of property: https://www.law.cornell.edu/uscode/text/26/301 - Cal. Rev. & Tax. Code § 17941, LLC annual tax: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17941 - Cal. Rev. & Tax. Code § 17942, LLC fee: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17942 - Texas Tax Code ch. 171, Franchise tax: https://statutes.capitol.texas.gov/Docs/TX/htm/TX.171.htm - Texas Comptroller, 2026 Texas Franchise Tax Report instructions (Form 05-915): https://comptroller.texas.gov/forms/05-915.pdf - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications - IRS, PTIN requirements for tax return preparers: https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers - 26 U.S.C. § 6109, Identifying numbers: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap61-subchapB-sec6109.htm - 26 C.F.R. § 1.6695-1, Other assessable penalties with respect to the preparation of tax returns for other persons: https://www.law.cornell.edu/cfr/text/26/1.6695-1 --- URL: https://valim.tax/small-business/llc-taxes Title: LLC taxes: how your LLC is taxed, and what to file Updated: 2026-09-24 # For federal income tax, you pay your LLC taxes on your own return, unless the LLC is taxed as a C corporation. The IRS has no separate tax category for LLCs. By default, it taxes a single-member LLC like a sole proprietorship and a multi-member LLC like a partnership. Either way, the owners pay the tax on the profit, whether or not they take it out. An LLC can elect to be taxed as a corporation instead. LLCs taxed by default, 2026: - 15.3%: is the self-employment tax on 92.35% of an owner’s business profit, generally charged on top of income tax. - 20%: of qualified business income is generally deductible, within a cap set by the owner’s taxable income. - March 15: is the due date for a calendar-year multi-member LLC’s Form 1065, a month before its owners’ returns. The 12.4% Social Security part of the 15.3% stops at the year’s wage base. Wages from a job use up that base first. The 2.9% Medicare part has no cap. ## Which of the four LLC tax classifications is yours? Your LLC’s first tax filing follows its default classification, unless the LLC elects another. Without an election, adding or losing members can switch it between disregarded and partnership status. ### 1. One member, no election: a disregarded entity By default, the IRS treats a single-member LLC (SMLLC) as its owner’s own business. The owner reports it on Schedule C of Form 1040, or on Schedule E for a rental. Business profit generally carries self-employment tax, though rent from real estate is usually exempt. ### 2. Two or more members, no election An LLC with two or more members is taxed as a partnership by default. The LLC pays no federal income tax itself. It files Form 1065, reporting the profit to the IRS, and gives each member a K-1 with their share. ### 3. An election to be taxed as a C corporation An LLC can file Form 8832 to be taxed as a corporation. It then files Form 1120 and pays federal income tax on its own profit. Profit it pays out as dividends is taxed again on the owners’ returns, which is called double taxation. ### 4. An election to be taxed as an S corporation An LLC with eligible owners elects S corporation tax on Form 2553 alone, with no Form 8832. It then files Form 1120-S, and its profit passes through to the owners. The form needs every member’s consent and is due no later than 2 months and 15 days into the first tax year it covers. An LLC whose only member is a corporation or a partnership is disregarded too. Its business then goes on that owner’s return. ## On $60,000 to $150,000 of profit, a single-member LLC’s owner pays about 20% to 25% in federal tax. These three cases estimate the federal tax on a single-member LLC’s profit. The owner files as single for 2026, with no other income, and takes the standard deduction. - $60,000 of profit: $12,037. Self-employment tax is $8,478, and income tax is $3,559. - $100,000 of profit: $22,365. Self-employment tax is $14,130, and income tax is $8,235. - $150,000 of profit: $37,607. Self-employment tax is $21,194, and income tax is $16,413. Self-employment tax uses the rate and base shown at the top of the page. No case reaches the wage base. Half of that tax is deducted in figuring income tax. In all three cases, the qualified business income deduction is limited to 20% of taxable income, figured before the deduction. Income tax then follows the 2026 brackets of 10%, 12% and 22%, after the $16,100 standard deduction. Figures use the rate schedule and are rounded to the dollar, so the IRS Tax Table may differ by a few dollars. State tax is extra. ## When are single-member and multi-member LLC taxes due for 2026? Owners who expect to owe $1,000 or more must generally pay during the year, in four estimated payments, or owe a penalty. For 2026 they are due April 15, June 15 and September 15, 2026, and January 15, 2027. | | Single-member LLC | Multi-member LLC | | --- | --- | --- | | Federal return | Schedule C (Part of the owner’s Form 1040) | Form 1065 (The LLC’s own return) | | Return due | April 15, 2027 | March 15, 2027 | | K-1s to members | None | By the return’s due date | | Late-filing penalty | A percentage of unpaid tax (Nothing if no tax is due) | $260 per member a month (For each month or part, up to 12, even if the LLC owes no tax) | An LLC taxed as a corporation files on corporate dates instead. For 2026, Form 1120-S is due March 15, 2027, and Form 1120 is due April 15, 2027. Either late-filing penalty is excused for reasonable cause. ## What do owners get wrong about LLC tax filing? ### An LLC with no income may still have to file (https://valim.tax/small-business/california-llc-tax) A multi-member LLC must file Form 1065 in any year with income or a deductible expense. An LLC taxed as a corporation files every year, whatever it earns. Some states also charge an LLC every year, with or without income, as California does. ### Forming an LLC saves no federal tax by itself (https://valim.tax/small-business/sole-proprietorship-taxes) Without an election, a single-member LLC’s owner pays the same federal tax a sole proprietor would on the same profit. The write-offs are the same as well, including the qualified business income deduction, which Congress made permanent in 2025. ### A single-member LLC with no election cannot put its owner on payroll (https://valim.tax/small-business/s-corp-taxes) A disregarded LLC is not its owner’s employer, so it cannot pay the owner W-2 wages. The owner takes draws instead, and self-employment tax generally falls on the whole profit, drawn or not. Under an S corporation election, the owner is paid a reasonable salary, and the rest of the profit carries no payroll tax. ### A foreign-owned single-member LLC must file Form 5472 (https://valim.tax/glossary/reportable-transaction-form-5472) A single-member LLC with one foreign owner files Form 5472 and a pro forma Form 1120 for any year with a reportable transaction. Even the owner putting money in counts as one. Failing to file costs $25,000 a year. If it is still missing 90 days after an IRS notice, each further 30 days, or part of 30 days, adds $25,000. ### The state creates your LLC, and the IRS only issues its EIN (https://valim.tax/glossary/ein) An LLC is created under state law, by a filing with your state. The IRS issues its EIN, the LLC’s federal tax number, free of charge. For federal tax, a US-owned single-member LLC with no election needs one only if it has employees or owes excise tax. ### A change of classification generally stands for 60 months A Form 8832 election can take effect as early as 75 days before the form is filed. After an election that changes its classification, the LLC generally cannot change again for 60 months. The IRS can allow an earlier change, for example once new owners hold more than half the LLC. ## Valim’s CPAs confirm your LLC’s tax status, then prepare your LLC tax return. Valim is a CPA firm for LLCs and their owners, with federal and state returns in all 50 states. - Your accountant is a licensed US CPA, who prepares the LLC’s Schedule C, Form 1065, Form 1120 or Form 1120-S. - We compare your tax under the default rules with an S or C corporation election, before the election deadline. - We set each owner’s four estimated payments from the LLC’s profit. - Your bookkeeper’s year-end books give us the LLC’s profit, and each member’s share of it. - If the IRS or a state sends a notice on a return we prepared, we handle the response as part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle small business: https://valim.tax/small-business ## LLC tax questions. ### How is an LLC taxed by the IRS? The tax code has no LLC category, so the IRS taxes an LLC under one of four classifications. By default, a single-member LLC is disregarded, and its owner reports it on Schedule C (Schedule E for rentals, F for farms). A multi-member LLC is a partnership by default, a pass-through entity that files Form 1065 and gives each member a K-1. Either kind can elect C corporation tax on Form 8832, or S corporation tax on Form 2553 if its owners are eligible. ### How much should an LLC put away for taxes? Each owner of a default LLC owes tax on their share of its profit, whether or not the LLC pays it out. So in a multi-member LLC, each member makes their own estimated payments. Each extra dollar of profit costs about 23 cents of federal tax in the 12% bracket, or 30.5 cents in the 22% bracket. Those rates hold below the Social Security wage base, and state tax is extra. Paying the safe harbor amount on time avoids the federal penalty. ### How much does an LLC have to earn to file taxes? Multi-member LLCs and LLCs taxed as corporations must file at any income. A multi-member LLC is excused only in a year with no income and no deductible expenses. A single-member LLC with no election files no federal income tax return of its own, and its owner files under the sole proprietor rules. ### What is the downside of having an LLC? For tax, the main downside is that the owners generally pay self-employment tax on their share of the LLC’s profit. A single-member LLC with no election cannot pay its owner wages, though an S corporation election can put the owner on payroll. A multi-member LLC files Form 1065 each year it has income or expenses. A late 2026 return costs $260 per member for each month or part, unless there is reasonable cause. Some states tax the LLC itself, even when the IRS disregards it, and Texas does so above a revenue threshold. ## Sources - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.ecfr.gov/current/title-26/section-301.7701-3 - 26 C.F.R. § 301.7701-2, Business entities; definitions: https://www.ecfr.gov/current/title-26/section-301.7701-2 - IRS, Single member limited liability companies: https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies - IRS, Instructions for Form 1065 (2025): https://www.irs.gov/instructions/i1065 - 26 U.S.C. § 6072, Time for filing income tax returns: https://www.law.cornell.edu/uscode/text/26/6072 - IRS, Schedule SE (Form 1040) (2025), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf - 26 U.S.C. § 6012, Persons required to make returns of income: https://www.law.cornell.edu/uscode/text/26/6012 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - IRS, Instructions for Form 2553 (Rev. December 2020): https://www.irs.gov/pub/irs-pdf/i2553.pdf - IRS, Instructions for Form 5472 (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/i5472.pdf --- URL: https://valim.tax/small-business/s-corp-taxes Title: S corp tax rate in 2026: how S corporations are taxed Updated: 2026-09-24 # The federal S corp tax rate is usually zero, because the owners are taxed on the profit. An S corporation’s profit passes through to its shareholders, who pay tax on their share whether or not it is paid out. In 2026, their federal rates run from 10% to 37%. S corporations, tax year 2026: - 0%: is the federal income tax most S corps pay on their own profit. - 15.3%: is the Social Security and Medicare tax on an owner’s salary up to $184,500, split with the company. Above that, only the 2.9% Medicare part applies. No payroll tax is due on distributions. - March 15: is the usual Form 1120-S due date for a calendar year. The 2026 return is due March 15, 2027. ## Can your LLC be taxed as an S corp? An LLC or a corporation can be taxed as an S corp if it passes all five tests. To change an LLC to an S corp, you file one IRS form and keep the same company. ### 1. A US corporation or LLC The business must be a domestic corporation, or an LLC that elects to be taxed as one. Both single-member and multi-member LLCs can elect. Banks that use the reserve method for bad debts, insurance companies and DISCs cannot. ### 2. No more than 100 shareholders The company can have up to 100 shareholders, and a family counts as one. A family here means a common ancestor, descendants up to six generations down, and their spouses or former spouses. ### 3. Owners the rules allow Every shareholder must be a US citizen or resident, an estate, or one of certain trusts and tax-exempt organizations. A partnership, a corporation or a nonresident alien cannot hold shares. ### 4. One class of stock Every share must carry the same rights to distributions and liquidation proceeds, though voting rights can differ. In an LLC, the operating agreement must give every member’s interest the same rights. ### 5. A timely election to convert your LLC to an S corp The company files Form 2553, and every shareholder must consent. It counts for a tax year if filed during the year before, or within 2 months and 15 days after that year starts. An existing calendar-year company has until March 15, and a later election counts from the next year unless the IRS grants relief. An LLC that files Form 2553 needs no Form 8832, because electing S status also makes it a corporation for tax. The LLC is taxed as an S corp once the IRS accepts the election. Its S status starts on the date the election names and lasts while the election does. ## On $150,000 of profit, an S election cuts federal tax by $7,031 at a $70,000 salary. Whether your LLC should be taxed as an S corp depends on its profit and the salary you would take. The estimate here compares one owner’s federal tax with and without the election, at two salaries. The higher the salary, the smaller the saving. One owner, filing single, has $150,000 of profit in 2026 before any salary, and no other income. - Taxed as a sole proprietor: $37,607. Self-employment tax is $21,194, and income tax is $16,413. - S corp, $100,000 salary: $36,165. Payroll tax on the salary is $15,300, and income tax is $20,865. The saving is $1,442. - S corp, $70,000 salary: $30,576. Payroll tax on the salary is $10,710, and income tax is $19,866. The owner takes the $16,100 standard deduction. Self-employment tax is 15.3% of 92.35% of the profit, and half of it is deductible. The profit stays under the Social Security wage base, so the full 15.3% applies. Payroll tax is 7.65% each for the owner and the company, which deducts its share. The qualified business income (QBI) deduction is 20% of the business profit, capped at 20% of taxable income before the deduction. For the S corp, that profit is counted after salary and the company’s half of payroll tax. For the sole proprietor, it is counted after half the self-employment tax. Taxable income stays under the $201,750 QBI threshold, so no wage limit applies. Income tax uses the 2026 brackets, with each line rounded to the dollar. State tax and the cost of running payroll, including federal unemployment tax, are left out. The salaries are examples only, and say nothing about what the IRS would call reasonable. ## What changes on your returns when your LLC files as an S corp? The election changes how the LLC is taxed, not what it is under state law. These are the changes for a one-owner LLC, which is taxed like a sole proprietorship until it elects. | | By default | As an S corp | | --- | --- | --- | | Federal return | Schedule C (Part of your Form 1040) | Form 1120-S (Your share then goes on your Form 1040) | | Due date | April 15 (With your Form 1040) | March 15 (A month before your Form 1040) | | Your pay | No salary (The LLC cannot employ its owner) | A reasonable salary (Paid through payroll, with a W-2) | | Tax on your work | Self-employment tax (On the whole profit) | Payroll tax (On the salary alone) | | Payroll returns | None (Unless the LLC has staff) | Form 941 each quarter (Or Form 944 if the IRS says so, plus Form 940 and W-2s each year) | A multi-member LLC files Form 1065 by default, due the same day as an S corp’s return. As an S corp, it files Form 1120-S instead, with a K-1 for each member. ## Which S corp mistakes cost owners money? ### Paying yourself too little salary Take distributions with too little salary, and the IRS can treat them as wages, with payroll tax due. It weighs factors such as your duties and what comparable businesses pay for similar work. No IRS rule sets a ratio of salary to distributions. ### Nothing is withheld from your share (https://valim.tax/glossary/safe-harbor-estimated-tax) Tax is withheld from your salary, but not from your share of the profit. You can cover it with quarterly estimated payments, or with extra withholding from your salary. By default, withholding counts as paid evenly through the year, so extra withholding late in the year still counts toward the earlier quarters. ### Payouts and losses past your basis If the company has no earnings left from C corporation years, its distributions are not dividends, so no dividend tax rate applies. Those distributions are tax-free up to your stock basis, and anything above it is taxed as gain. Losses are deductible only up to your stock basis plus your loans to the company, figured on Form 7203, and other limits can apply. ### Gains from C corporation years (https://valim.tax/glossary/c-corporation) Built-in gains are the growth in a C corporation’s assets before it switched to S status. If the company sells those assets within five years of the switch, it can owe 21% on that growth. ### Passive income on old C corporation earnings An S corp that still holds earnings from C corporation years can owe 21% tax on passive investment income above 25% of its receipts. That income is mainly royalties, rents, dividends, interest and annuities. If passive income tops 25% three years in a row, the election ends. ### Undoing the election An LLC that revokes the election becomes a C corporation paying 21%, until a Form 8832 election changes its classification. Revoking needs consent from shareholders holding more than half the shares, and the revocation can set a future start date. Otherwise, a calendar-year company’s revocation made by March 15 takes effect that year, and one made later takes effect the next year. ## Have a CPA check what an S corp saves you before you elect. Valim’s CPAs advise LLC owners on the S corp election, then prepare and file the company’s Form 1120-S each year. - We model your tax with and without an S election, and time the election if it saves you money. - As part of that advice, we weigh your salary against the IRS’s reasonable compensation factors, and plan your distributions around it. - We prepare Form 1120-S, each shareholder’s K-1 and your state returns from your bookkeeper’s year-end books. - We size the estimated payments or extra withholding that cover the tax on your K-1. - We handle any IRS or state notice on a return we prepared, and the work is part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle small business: https://valim.tax/small-business ## S corp tax questions. ### How much tax does an S corp pay? Most S corps pay no federal income tax of their own, while a C corporation pays 21% on its profit. An S corp is a pass-through entity, so its shareholders pay tax on its profit at their own 2026 rates of 10% to 37%. The company does pay its half of Social Security and Medicare tax on owners’ salaries. A former C corporation can owe 21% on built-in gains too. In California, most S corporations pay 1.5% of net income, with an $800 minimum. ### What are the tax advantages of an S corp? An S corp’s main tax advantage is lower payroll tax for an owner who works in the business. Only the salary owes Social Security and Medicare tax, so profit above a reasonable salary owes none. The main disadvantages are payroll costs, extra tax in some states and, for a one-owner LLC, a return of its own. The salary also earns no 20% qualified business income (QBI) deduction, though the rest of the profit can. An S corp beats a sole proprietorship or default LLC only when the payroll tax it saves exceeds these costs. ### What is the 5-year rule for S corps? The 5-year rule stops a corporation whose S election was revoked or terminated from electing again right away. It must wait until its fifth tax year after the termination takes effect, unless the IRS consents. The IRS tends to consent when new owners hold more than half the stock. A second 5-year rule applies to a former C corporation. For its first five years as an S corp, it can owe 21% on built-in gains it recognizes, such as by selling assets. ### Does an S corp need to file a tax return? Yes, every S corp files Form 1120-S for each year its election is in effect, whatever its income. It is due on the 15th day of the third month after the tax year ends. A calendar-year 2026 return is due March 15, 2027, and Form 7004 extends the filing deadline to September 15, 2027. For a return due in 2027, filing late costs $260 per shareholder for each month or part of one, up to 12 months. The penalty applies even with no tax due, unless the delay had reasonable cause. ### Can an S corp own 100% of an LLC? Yes, an S corp can own 100% of an LLC, and by default that LLC is a disregarded entity. The S corp reports the LLC’s income and expenses on its own Form 1120-S, as a division of its business. The LLC still counts as a separate employer for payroll taxes. An S corp can also own all of another corporation, and treat it as a qualified subchapter S subsidiary (QSub). It makes that election on Form 8869. ## Sources - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - 26 U.S.C. § 1362, Election; revocation; termination: https://www.law.cornell.edu/uscode/text/26/1362 - 26 U.S.C. § 1363, Effect of election on corporation: https://www.law.cornell.edu/uscode/text/26/1363 - 26 U.S.C. § 1366, Pass-thru of items to shareholders: https://www.law.cornell.edu/uscode/text/26/1366 - 26 U.S.C. § 1368, Distributions: https://www.law.cornell.edu/uscode/text/26/1368 - 26 U.S.C. § 1374, Tax imposed on certain built-in gains: https://www.law.cornell.edu/uscode/text/26/1374 - 26 U.S.C. § 1375, Tax on passive investment income above 25% of gross receipts: https://www.law.cornell.edu/uscode/text/26/1375 - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 6699, Failure to file S corporation return: https://www.law.cornell.edu/uscode/text/26/6699 - 26 C.F.R. § 1.1361-1, S corporation defined: https://www.ecfr.gov/current/title-26/section-1.1361-1 - 26 C.F.R. § 1.1362-5, Election after termination: https://www.law.cornell.edu/cfr/text/26/1.1362-5 - 26 C.F.R. § 301.7701-2, Business entities; definitions: https://www.ecfr.gov/current/title-26/section-301.7701-2 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.ecfr.gov/current/title-26/section-301.7701-3 - IRS, Instructions for Form 2553: https://www.irs.gov/pub/irs-pdf/i2553.pdf - IRS, Instructions for Form 1120-S (2025): https://www.irs.gov/pub/irs-pdf/i1120s.pdf - IRS, Instructions for Form 7203: https://www.irs.gov/pub/irs-pdf/i7203.pdf - IRS, About Form 8869, Qualified Subchapter S Subsidiary Election: https://www.irs.gov/forms-pubs/about-form-8869 - IRS, S corporation compensation and medical insurance issues: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues - IRS, Schedule SE (Form 1040) (2025), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - SSA, Contribution and benefit base: https://www.ssa.gov/oact/cola/cbb.html - Cal. Rev. & Tax. Code § 23802, S corporations: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23802 --- URL: https://valim.tax/small-business/sole-proprietorship-taxes Title: Sole proprietorship taxes: Schedule C and self-employment tax Updated: 2026-09-24 # Sole proprietorship taxes are income tax plus self-employment tax, both charged on your profit. To the IRS, you and your sole proprietorship are one taxpayer. You file your business and personal taxes together: the profit goes on Schedule C, with your Form 1040. That profit is taxed at your own income tax brackets, from 10% to 37% in 2026. You also owe self-employment tax of 15.3% on 92.35% of it, with the 12.4% Social Security part capped at $184,500. Sole proprietors, tax year 2026: - 15.3%: is the self-employment tax rate, which funds Social Security (12.4%) and Medicare (2.9%). - $400: of net earnings from self-employment means you must file a return, even if you owe no income tax. - $1,000: of tax due after withholding generally means you must pay estimated tax each quarter. State and local taxes are separate, and so are any business licenses and fees your state or city charges. ## Which tax forms does a sole proprietor file? Schedule C goes with every sole proprietor’s return. The other forms apply only once you pass a threshold, such as $400 of net earnings or a first employee. ### 1. Schedule C, for the business Schedule C reports what the business took in and spent, and the net profit or loss left over. Its expense lines include office expenses, such as supplies and postage, plus travel and depreciation. Costs with no line of their own go under other expenses. An activity is a business only if you run it for profit, with continuity and regularity. A hobby or an occasional activity does not count. ### 2. Schedule SE, once net earnings reach $400 Schedule SE figures your self-employment tax from the Schedule C profit. At $400 or more of net earnings, the tax applies to all of them, not only the part over $400. ### 3. Form 1040, the return itself Your Schedule C profit reaches Form 1040 through Schedule 1, where it is taxed with your other income. Below $400 of net earnings, you must still file once your gross income reaches $16,100 in 2026, if you are single and under 65. For a business, gross income means receipts minus the cost of goods sold. ### 4. Form 8995, for the QBI deduction Sole proprietors can generally deduct up to 20% of their qualified business income (QBI), on Form 8995 or Form 8995-A. The cap is 20% of your taxable income, figured before this deduction and minus any net capital gain. From 2026, the deduction is at least $400 if you have $1,000 or more of QBI from a business you materially participate in. ### 5. Forms 941 and 940, once you hire Once you pay wages, you generally file Form 941 every quarter, starting with the quarter of your first payday. Form 940 is due for a year if, in that year or the one before, you paid $1,500 of wages in any quarter. It is also due if, in either year, you employed someone in 20 different weeks. These payroll returns are one of the few filings that need an employer identification number (EIN). These forms are for a business with one owner. The owner of a single-member LLC files them too, unless the LLC elects to be taxed as a corporation. The LLC files its own payroll returns, under its own name and EIN. A business with two or more owners is generally a partnership, which files Form 1065. ## What is the tax rate for a sole proprietorship? A sole proprietorship has no rate of its own. Self-employment tax takes about 14.1% of profit, and income tax adds your bracket rate on roughly three quarters of it. For a single filer in 2026, the federal tax on an extra $10,000 of Schedule C profit rises with the bracket it lands in. - Below the standard deduction: $1,413. If the standard deduction still covers all your income, only self-employment tax applies, before any earned income credit. - 12% bracket: $2,305. Income tax adds $892, for 23.1% of the $10,000 in all. - 22% bracket: $3,049. Income tax adds $1,636, for 30.5% in all. - 24% bracket: $3,197. Income tax adds $1,784, for 32.0% in all. Self-employment tax is 15.3% of the 92.35% of profit that counts as net earnings. Two deductions cut the income tax. Half the self-employment tax is deducted, and the QBI deduction takes 20% of what remains. The figures assume your net earnings stay under the $184,500 Social Security wage base, and your taxable income under the $201,750 QBI threshold. To estimate the tax on your own extra profit, take the row for your bracket and add state tax. ## What changes in your first year as a sole proprietor? Your own payroll tax nearly doubles, because no employer pays half of it. The figures and dates below are for 2026. | | On a salary | On your own | | --- | --- | --- | | Payroll tax | 7.65% of your pay (Your employer pays another 7.65%) | All 15.3% (Both halves, paid by you) | | Income tax during the year | Withheld from each paycheck | Four estimated payments (Due in April, June, September and January) | | Work expenses | Usually not deductible (When your employer does not repay them) | Deducted on Schedule C (When ordinary and necessary for the business) | | Social Security cap | $184,500 of wages | $184,500 of earnings (Less any wages you also earn) | For 2026, the estimated payments are due April 15, June 15 and September 15, 2026, and January 15, 2027. If you also have a salary, you can give your employer a new Form W-4 to raise its withholding. The extra withholding can cover the tax on your profit, in place of estimated payments. ## What trips people up when filing taxes as a sole proprietor? ### Waiting for a 1099 before you report income Every payment goes on Schedule C, whether or not a Form 1099 arrives. For 2026 payments, a business client files Form 1099-NEC only once it pays you $2,000 or more, up from $600. A client who pays you for something personal files none. ### Paying all the tax in April (https://valim.tax/glossary/safe-harbor-estimated-tax) The IRS can charge a penalty for any quarter you underpay, even if you pay in full when you file. Paying 100% of last year’s tax on time avoids it, as long as you filed last year’s return and it covered 12 months. Use 110% if last year’s adjusted gross income topped $150,000, or $75,000 married filing separately. The 100% rule works for a new business too, since last year’s tax counts even if it all came from a salary. ### Deducting equipment you later use less for work (https://valim.tax/glossary/depreciation-recapture) Section 179 lets you deduct the cost of equipment in the year you start using it. If business use drops to 50% or less within its recovery period, part of the deduction comes back as income. The recovery period is the span of years the equipment would otherwise be depreciated over. On Schedule C, that income is also subject to self-employment tax. ### Counting on the full QBI deduction at a high income Above $201,750 of 2026 taxable income, or $403,500 on a joint return, the QBI deduction can shrink. A limit then applies, based on the wages your business pays and the property it owns. It phases in over the next $75,000 of taxable income, or $150,000 on a joint return. Over the same range, a specified service trade or business phases out of the deduction entirely. Other businesses you materially participate in keep the $400 minimum. ## A CPA handles your business and personal taxes on one return. Valim’s CPAs prepare tax returns for sole proprietors and freelancers, and can plan their quarterly estimated tax. We start from your own records, or work with your bookkeeper from the year-end numbers they send. - We prepare your federal and state returns, Schedules C and SE included. - We set your four estimated payments to meet a safe harbor. - We match your Forms 1099-NEC and 1099-K to your income, so every payment is reported once. - We compare your tax as a sole proprietor with an LLC taxed as an S corp, and say whether switching pays. - We reply to IRS and state letters about a return we prepared, and your fee already covers it. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle small business: https://valim.tax/small-business ## Sole proprietorship tax questions. ### How much does a sole proprietor have to make to file taxes? A sole proprietor who is a US citizen or resident must file once net earnings from self-employment reach $400, which takes about $433 of profit. That rule applies whatever your age or total income. Otherwise, the test is gross income: $16,100 or more in 2026 for a single filer under 65. For a sole proprietor, that counts business receipts minus the cost of goods sold, not profit after expenses. The owner of a single-member LLC taxed by default files under the same rules. ### How much should I set aside for taxes as a sole proprietor? Set aside about 23% of each extra dollar of profit for federal tax in the 12% bracket, or 30.5% in the 22% bracket. Add your state’s income tax on top. The IRS itself sets no percentage. Paying the safe harbor amount in four on-time estimated payments avoids the penalty. ### How much tax will I pay if I earn $30,000 self-employed? On $30,000 of self-employment profit, you would owe about $5,181 in federal tax for 2026. That assumes you file single, are under 65, have no other income and take the standard deduction. Most of it, $4,239, is self-employment tax. Income tax is only $942: the standard deduction, half the self-employment tax and the QBI deduction leave about $9,424 taxable, all at 10%. The total is 17.3% of the profit, and state tax comes on top. ### What are the disadvantages of a sole proprietorship? A sole proprietorship’s biggest tax disadvantage is self-employment tax on nearly all of its profit (92.35%), on top of income tax. An S corp owner pays payroll tax only on a reasonable salary, and a sole proprietor has no such split. Nothing is withheld from the profit, so you usually pay the tax through quarterly estimated payments, or through extra withholding from a salary. The upside is simplicity, because the business files no income tax return of its own. ## Sources - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, Schedule SE (Form 1040) (2025), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - 26 U.S.C. § 6012, Persons required to make returns of income: https://www.law.cornell.edu/uscode/text/26/6012 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - Social Security Administration, Contribution and benefit base: https://www.ssa.gov/oact/cola/cbb.html - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - 26 U.S.C. § 179, Election to expense certain depreciable business assets: https://www.law.cornell.edu/uscode/text/26/179 - 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions: https://www.law.cornell.edu/uscode/text/26/67 - IRS, 2025 Instructions for Form 4797: https://www.irs.gov/pub/irs-pdf/i4797.pdf - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 3306, Definitions (FUTA employer): https://www.law.cornell.edu/uscode/text/26/3306 --- URL: https://valim.tax/small-business/california-llc-tax Title: California LLC fee in 2026: the $800 tax, Form 568 and due dates Updated: 2026-09-24 # California LLC fees are at least $800 a year after the first year, even when the LLC earns nothing. The $800 is the annual LLC tax, owed each year by an LLC formed, registered or doing business in California. Once an LLC’s California total income reaches $250,000, a second charge, the LLC fee, adds $900 to $11,790. California’s annual LLC tax, 2026 and 2027: - $800: is due in full for each tax year, even a short one, unless that year lasts 15 days or less with no business. - April 15: is the yearly deadline for a calendar-year LLC’s tax. The tax is paid in the year it covers, so the 2027 tax is due April 15, 2027. - $400: replaces the $800 for an LLC’s first tax year, if that year begins in 2027, 2028 or 2029. Neither the $800 nor the LLC fee is indexed for inflation. ## Does your LLC owe the $800 California LLC tax? An LLC owes the annual tax for any year in which even one of these is true. Where its members live does not matter. ### 1. Formed in California An LLC owes the tax once it files its articles of organization with the California Secretary of State. Its first tax year starts that day, and the tax is due by the 15th day of the fourth month. An LLC formed on June 18, 2026 owed its first $800 to the Franchise Tax Board (FTB) by September 15, 2026. ### 2. Registered in California An LLC formed in another state owes the tax once it registers with the Secretary of State. If that year’s due date has passed, it pays right away. Its first tax year began when it was formed in its home state, so one formed before 2027 generally cannot get the $400. ### 3. Doing business in California Actively engaging in any transaction for profit in California counts as doing business there. An LLC managed from California is doing business there too. The FTB also counts work that a member, manager or agent does in the state for the LLC. ### 4. Sales, property or payroll in California An LLC also does business in California once its California sales, property or payroll pass a threshold. For 2025, the thresholds are $757,070 of sales and $75,707 each of property and payroll. If 25% of the LLC’s total sales, property or payroll is less, that 25% is the threshold instead. The dollar amounts are adjusted every year, and the 2026 amounts were not yet out in September 2026. The annual LLC tax applies only to an LLC that is not taxed as a corporation. An LLC taxed as a corporation files Form 100 or Form 100S and pays the corporate franchise tax instead. A C corporation usually pays 8.84% of net income, with an $800 minimum. Banks and financial corporations pay higher rates. ## After its first year, a California LLC costs $800 to $12,590 a year in tax and fees to the FTB. The LLC fee is set by California total income, which is close to gross receipts and counted before any expenses. The fee is a flat amount for each tier of income, not a rate. Going from $499,999 to $500,000 of income raises it from $900 to $2,500. These totals are for a calendar-year LLC past its first year, at five levels of California total income. - $200,000 of income: $800. Below $250,000, the annual tax is the whole bill. - $400,000 of income: $1,700. The $900 fee applies from $250,000. - $750,000 of income: $3,300. The fee is $2,500 from $500,000 to just under $1 million. - $2 million of income: $6,800. The fee is $6,000 from $1 million. - $6 million of income: $12,590. The top fee, $11,790, applies from $5 million. Each total is the $800 annual tax plus the LLC fee for that tier of income. Filing articles of organization, or registering an LLC from another state, costs $70 with the Secretary of State. The LLC then files a $20 Statement of Information within 90 days, and every two years after that. Neither Secretary of State fee is in these totals. The members’ income tax on their shares of the profit is separate. ## When are the California LLC fee and the $800 tax due, and on which forms? The $800 tax, often called the California franchise tax, and the LLC fee are separate payments, each with its own form and date. The dates are for a calendar-year LLC’s 2027 tax year. | | $800 annual tax | LLC fee | | --- | --- | --- | | Amount | $800 (The same at any income) | $900 to $11,790 (None below $250,000) | | Based on | A flat amount | California total income (Only receipts assigned to California) | | First tax year | $400 (For a first year beginning in 2027 to 2029) | No change (The same tiers apply) | | Due for 2027 | April 15, 2027 (15th day of the 4th month) | June 15, 2027 (An estimate, by the 15th day of the 6th month) | | Form | FTB 3522 (LLC Tax Voucher) | FTB 3536 (Estimated Fee for LLCs) | | Penalty | 5% plus 0.5% a month (Up to 25%, if paid late) | 10% of any shortfall (Not if the estimate covered last year’s fee) | Form 568, the Limited Liability Company Return of Income, reports both charges. The $800 is paid on its own voucher, never with the return. You can pay either one online through the FTB’s Web Pay or by credit card. If you do, you send no voucher. ## Why do California LLCs end up owing more than they planned? ### A single-member LLC files its own return (https://valim.tax/small-business/llc-taxes) California charges a single-member LLC the $800 tax and any LLC fee. The LLC files its own Form 568 each year, separate from the owner’s return. ### An unused LLC keeps owing The $800 keeps coming due until the LLC files a certificate of cancellation with the Secretary of State. Marking its last Form 568 as final does not stop the tax. ### An out-of-state LLC run from California owes the $800 too A Delaware or Nevada LLC that transacts business in California usually has to register there as a foreign LLC. It owes the $800 for each year it does business in the state, registered or not. An unregistered LLC that does not file within 60 days of an FTB demand owes $2,000 a year, unless it has reasonable cause. ### Forming the LLC in late 2026 can cost a second $800 A calendar-year LLC formed before December 17, 2026 owes $800 for 2026 and $800 again for 2027. One formed in 2027 instead owes $400 for its first year. An LLC formed December 17 to 31 has a 2026 tax year of 15 days or less. If it does no business until January, it owes nothing for 2026. For 2027 it then owes $800 or $400, and the law does not yet say which. ### The extension moves the return, not the payment An automatic extension moves the 2026 Form 568 to October 15, 2027, but not for a suspended or forfeited LLC. Any fee or nonresident members’ tax still owed is due by the original date. For an LLC taxed as a partnership, that is March 15, 2027. For a single-member LLC owned by an individual, it is April 15, 2027. ### An S corp election still carries an $800 minimum (https://valim.tax/small-business/s-corp-taxes) An LLC taxed as an S corporation pays no LLC fee. California charges most S corporations 1.5% of net income instead, with an $800 minimum. A new corporation owes no minimum in its first year, but an LLC that elects S status may not get that break. Unlike the LLC fee, which stops at $11,790, the 1.5% has no ceiling. ### Splitting one business into several LLCs can backfire The FTB can add up the income of LLCs formed mainly to cut the fee. It can do so when the same people own more than half of each LLC. Each LLC in the group is then liable for the whole fee. ## Valim sets your June 15 fee estimate so the 10% penalty does not apply. Valim’s CPAs prepare California LLC returns on Form 568 and plan the FTB 3522 and FTB 3536 payments that go with them. - We project your California total income before June 15, so you know which fee tier to plan for. - We compare what California charges your LLC with what it would pay as an S corp. - Your bookkeeper’s year-end books give us the total income the fee is based on, and we check which receipts belong to California. - We file each nonresident member’s consent to pay California tax, or work out the tax the LLC pays for that member. - We answer any FTB or IRS notice about a return we prepared, with no new engagement to open. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle small business: https://valim.tax/small-business ## California LLC fee and franchise tax questions. ### Do you have to pay the $800 California LLC fee? An LLC formed, registered or doing business in California owes the $800 annual LLC tax, unless it is taxed as a corporation. The tax is due every year, with or without income, until the LLC files a certificate of cancellation. A first tax year beginning in 2027 to 2029 costs $400 instead. The $800 matches the minimum franchise tax California corporations pay, so it is often called the California franchise tax. The LLC fee is a second charge, owed from $250,000 of California total income. ### Why is the California LLC fee so high? The California LLC fee is high because neither of its two parts depends on profit. The $800 annual tax is flat, so an LLC with no income pays the same $800 as one earning millions. From $250,000 of California total income, the LLC fee itself adds $900 to $11,790. That income is counted before expenses, so a low-margin LLC can owe the fee in a year it loses money. Texas, by contrast, has no minimum franchise tax. ### What are the LLC fees in California in 2026? In 2026, the annual LLC tax in California is $800. A calendar-year LLC that existed on January 1 paid it by April 15, 2026, with Form FTB 3522. An LLC formed later in 2026 owes it by the 15th day of its fourth month. The LLC fee is $900 from $250,000 of California total income, $2,500 from $500,000, $6,000 from $1 million and $11,790 from $5 million. The fee is estimated by June 15, 2026 on Form FTB 3536, and any balance is due by the return’s original due date. ### Do new California LLCs pay the $800 in their first year? Yes, a new California LLC pays the full $800 for a first tax year beginning in 2024, 2025 or 2026. Under a 2026 law, a first tax year beginning in 2027, 2028 or 2029 costs $400 instead. An LLC owes nothing for a tax year of 15 days or less in which it does no business. A California LLC that never does business and files a short-form cancellation within 12 months of forming owes nothing for its first year. Any tax it already paid is not refunded. ## Sources - Cal. Rev. & Tax. Code § 17941, LLC annual tax: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17941 - Cal. Rev. & Tax. Code § 17942, LLC fee: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17942 - Cal. Rev. & Tax. Code § 17946, LLCs with a short tax year and no business: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17946 - Cal. Rev. & Tax. Code § 19135, Penalty for doing business while unregistered or suspended: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=19135 - Cal. Rev. & Tax. Code § 23101, Doing business: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23101 - Cal. Rev. & Tax. Code § 23151, Franchise tax rate: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23151 - Cal. Rev. & Tax. Code § 23186, Rate for banks and financial corporations: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23186 - Cal. Rev. & Tax. Code § 23153, Minimum franchise tax: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23153 - Cal. Rev. & Tax. Code § 23802, S corporations: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23802 - SB 122 (Stats. 2026, ch. 23), the $400 first-year LLC tax: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260SB122 - SB 180 (Stats. 2026, ch. 85), applying the $400 to LLCs filing under § 18633.5: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260SB180 - Cal. Corp. Code § 17707.02, Short-form cancellation: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP§ionNum=17707.02 - Cal. Corp. Code § 17702.09, Statement of Information: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP§ionNum=17702.09 - Cal. Gov. Code § 12190, LLC filing fees: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV§ionNum=12190 - California FTB, 2026 Instructions for Form FTB 3522, LLC Tax Voucher: https://www.ftb.ca.gov/forms/2026/2026-3522.pdf - California FTB, 2026 Instructions for Form FTB 3536, Estimated Fee for LLCs: https://www.ftb.ca.gov/forms/2026/2026-3536.pdf - California FTB, 2025 Form 568 Limited Liability Company Tax Booklet: https://www.ftb.ca.gov/forms/2025/2025-568-booklet.html --- URL: https://valim.tax/small-business/texas-franchise-tax Title: Texas franchise tax report: who owes and the no-tax-due threshold Updated: 2026-09-24 # Texas franchise tax is zero at $2.65 million of revenue or less for 2026 and 2027 reports, but your LLC still files a report. Texas charges franchise tax to LLCs, corporations and most other business entities formed or doing business there. The no-tax-due threshold of $2,650,000 in total revenue applies to reports due in 2026 and 2027. Above it, the tax is figured on margin, meaning revenue after one of four deductions, or on revenue alone under the EZ computation. Reports due in 2026 and 2027: - 0.75%: of taxable margin is the standard rate once tax is due. Businesses primarily engaged in retail or wholesale trade pay 0.375%. - 0.331%: of the Texas share of revenue is the EZ computation rate, for businesses with up to $20 million in revenue. - May 15: is the due date each year for the annual franchise tax report and the information report. A weekend or holiday moves it to the next business day. Texas requires no estimated payments during the year. The threshold is adjusted every two years, next for reports due in 2028. ## Does your business have to pay franchise tax in Texas? A business pays Texas franchise tax only if all four of these are true. The first two tests decide whether it must file at all. Passive entities and new veteran-owned businesses have their own rules. ### 1. An LLC, corporation or other taxable entity Corporations, LLCs, limited partnerships, limited liability partnerships and professional associations are taxable entities, and so are business trusts. A sole proprietorship is not, and neither is a general partnership owned directly by individuals. ### 2. Formed in Texas, or doing business there An entity formed in Texas is subject to the tax wherever its owners live. One formed elsewhere is subject once it does business in Texas, such as through employees or property there. It also counts as doing business there once it has $500,000 or more of Texas gross receipts in a tax year. ### 3. More than $2,650,000 in total revenue The threshold is measured on total revenue from the entire business, including revenue earned outside Texas. Profit does not matter, so a business that loses money can still be over it. ### 4. A tax of $1,000 or more If the tax works out to less than $1,000, the business owes nothing, and Texas has no minimum tax. It still files its franchise tax report and its information report. A new Texas business owned entirely by honorably discharged veterans owes no tax and files no reports for up to five years. Each owner must provide verification of their veteran status. The business must have started doing business in Texas on or after January 1, 2022. A 2025 law removed the program’s end date. ## Calculated five ways, a service LLC’s Texas franchise tax on $3 million of revenue is lowest under EZ, at $9,930. A service LLC’s 2027 report shows $3,000,000 of total revenue, all from Texas, $1,200,000 of compensation and no cost of goods sold. - Revenue minus cost of goods sold: $22,500. With no cost of goods sold, the margin is the full $3,000,000. - 70% of revenue: $15,750. The margin is $2,100,000. - Revenue minus $1 million: $15,000. The margin is $2,000,000. - Revenue minus compensation: $13,500. The margin is $1,800,000, the lowest of the four. - EZ computation: $9,930. The EZ computation taxes all $3,000,000 of revenue, with no deductions. The long form taxes the lowest margin at 0.75%. The EZ computation taxes revenue at 0.331%. All receipts are from Texas, so the whole margin and all revenue are apportioned to Texas. Compensation counts each person’s wages up to $480,000, plus benefits. No one here earns more. The LLC elects EZ and pays $9,930 with its report by May 17, 2027. ## Which Texas franchise tax report do you file, and when? Texas calls the franchise tax return a report. In 2027, May 15 falls on a Saturday, so reports are due Monday, May 17. | | $2.65M or less | Above $2.65M | | --- | --- | --- | | Franchise tax report | None (The No Tax Due Report was discontinued in 2024) | EZ or long form (The EZ report is Form 05-169) | | Information report | Required (Form 05-102 or 05-167) | Required (Filed with the franchise tax report) | | Tax | None | Paid with the report | | Late filing | $50 per report | $50 per report (Plus 5% of any tax paid late, or 10% after 30 days) | Corporations, LLCs, limited partnerships and professional associations file the Public Information Report, Form 05-102. Other taxable entities, such as a general partnership with a company as a partner, file the Ownership Information Report, Form 05-167. A passive entity, or one with no Texas gross receipts, still files an EZ or long form report, even under the threshold. You can file every one of these reports, and request an extension, online through the Comptroller’s Webfile system. Webfile asks for your 11-digit Texas taxpayer number and the 6-digit Webfile number on your franchise tax notice. On paper, the extension request is Form 05-164. The Comptroller’s 2026 instructions for these reports are Form 05-915. ## What can a late or wrong Texas franchise tax filing cost you? ### A missed report can cost the right to transact business in Texas If a report is still missing 45 days after the Comptroller’s notice, the Comptroller can forfeit the entity’s right to transact business in Texas. Its officers and directors can then be personally liable for Texas debts it incurs from the missed due date until the right is restored. After another 120 days, the Texas Secretary of State can forfeit its charter or registration. ### A single-member LLC is still a taxable entity (https://valim.tax/small-business/llc-taxes) Texas taxes an LLC by how it was formed, so a single-member LLC files its own franchise tax report. The exception is an LLC in a combined group, which the group lists on its Affiliate Schedule. ### A short first year can push you over the threshold For a report covering less than 12 months, revenue is annualized: divided by the days in the period, then multiplied by 365. In the Comptroller’s example, $800,000 of revenue over 108 days annualizes to about $2.7 million, which is over the threshold. The tax itself is then figured on the $800,000. ### An extension needs a payment by the due date To extend to November 15, pay at least 90% of this year’s tax by the original due date. Paying 100% of last year’s tax also works if last year’s report was filed by May 14, but not for a first annual report. A business paying by electronic funds transfer first extends to August 15. It reaches November 15 by paying the rest of its tax by August 15. ### The EZ computation is not always cheaper For a retailer or wholesaler at the 0.375% rate, the EZ computation always costs more than the long form. A retailer with $5,000,000 of Texas revenue and $4,000,000 of cost of goods sold owes $3,750 on the long form, or $16,550 under EZ. Other businesses pay more under EZ when cost of goods sold or pay is a large share of revenue. ### Closing the business can take a final report A Texas entity generally cannot end its legal existence until its franchise tax is settled. Above the threshold, a business that stops doing business in Texas files a final report and pays any tax within 60 days. A business at or below the threshold files none, but confirms it is under the threshold when requesting a certificate of account status. ## Valim works out your Texas franchise tax both ways and files the report that costs less. Valim’s CPAs prepare your Texas franchise tax reports along with your federal return. - We check your revenue against the threshold each year, then prepare your information report and any franchise tax report due. - Above the threshold, we compare the EZ computation with each margin option, counting any credits EZ would give up. - We take your revenue, cost of goods sold and compensation from the year-end figures your bookkeeper sends. - If you need more time, we calculate the payment that keeps a November 15 extension valid. - If the Comptroller or the IRS sends a notice on a return we prepared, we handle it as part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle small business: https://valim.tax/small-business ## Texas franchise tax questions. ### What is the franchise tax in Texas? The Texas franchise tax is a privilege tax on LLCs, corporations and other taxable entities formed in Texas or doing business there. Its base is usually margin, the lowest of four figures worked out from revenue. A business with up to $20 million of revenue can instead elect the EZ computation, which taxes revenue alone. For reports due in 2026 and 2027, no tax is due on total revenue of $2,650,000 or less. An LLC or corporation that owes nothing generally still files an information report with the Texas Comptroller by May 15. ### Who is required to pay Texas franchise tax? Taxable entities formed in Texas or doing business there pay Texas franchise tax once their total revenue passes $2,650,000 for 2026 and 2027 reports. Taxable entities include corporations, LLCs, limited partnerships, limited liability partnerships and professional associations. Sole proprietors and general partnerships owned directly by individuals are not taxable entities. Passive entities under Tax Code § 171.0003 owe no tax, and neither do new veteran-owned businesses in their first five years. ### How much is the Texas LLC franchise tax? A Texas LLC owes no franchise tax on total revenue of $2,650,000 or less, for reports due in 2026 and 2027. Above that, it owes 0.75% of its taxable margin, or 0.375% if it is primarily engaged in retail or wholesale trade. Margin is the lowest of 70% of revenue, revenue minus $1 million, revenue minus cost of goods sold, or revenue minus compensation. With up to $20 million of revenue, an LLC can elect the EZ computation instead: 0.331% of its revenue apportioned to Texas. An LLC whose tax comes to less than $1,000 pays nothing, while California charges its annual LLC tax at any level of revenue. ### Do LLCs pay franchise tax in Texas? Yes. LLCs, including single-member and series LLCs, pay Texas franchise tax once their total revenue passes $2,650,000 for 2026 and 2027 reports. At or below that, an LLC owes nothing but still files a Public Information Report by May 15. A single-member LLC is taxed the same way as any other LLC. A late report costs $50, even with no tax due. ### What is the no-tax-due threshold? The no-tax-due threshold is the most annualized total revenue a Texas taxable entity can have and still owe no franchise tax. For reports due in 2026 and 2027, it is $2,650,000, counting revenue from the entire business. It was $2,470,000 for 2024 and 2025 reports, and $1,230,000 for 2022 and 2023. An entity at or below the threshold generally files only a Public Information Report or an Ownership Information Report. ## Sources - Texas Tax Code ch. 171, Franchise tax: https://statutes.capitol.texas.gov/Docs/TX/htm/TX.171.htm - Texas Comptroller, 2026 Texas Franchise Tax Report instructions (Form 05-915): https://comptroller.texas.gov/forms/05-915.pdf - Texas Comptroller of Public Accounts, Franchise tax: https://comptroller.texas.gov/taxes/franchise/ - Texas Comptroller, No tax due reporting for report year 2024 and later: https://comptroller.texas.gov/taxes/franchise/ntd-rpt-updates-2024.php - Texas Comptroller, Requirements for reporting and paying franchise tax: https://comptroller.texas.gov/taxes/franchise/filing-requirements.php - Texas Comptroller, Franchise tax extensions of time to file: https://comptroller.texas.gov/taxes/franchise/filing-extensions.php - Texas Comptroller, Franchise tax FAQs: taxable entities: https://comptroller.texas.gov/taxes/franchise/faq/taxable-entities.php - Texas Comptroller, Publication 98-806, Franchise Tax Overview: https://comptroller.texas.gov/taxes/publications/98-806.php - 34 Tex. Admin. Code § 3.586, Margin: Nexus: https://www.law.cornell.edu/regulations/texas/34-Tex-Admin-Code-SS-3-586 - Texas H.B. 346 (2025), franchise tax exemption for veteran-owned businesses: https://capitol.texas.gov/tlodocs/89R/billtext/html/HB00346F.htm --- URL: https://valim.tax/startups Title: Startup accountant: CPA tax returns and advice for founders Updated: 2026-09-24 # Valim’s CPAs are startup accountants for your taxes, from founding to exit. Valim is a CPA firm for venture-backed startups and their founders, with every fee fixed before work starts. We prepare your company’s federal and state returns, and its Delaware annual report. We also advise you and your co-founders on 83(b) elections and QSBS. Business returns start at $495. Valim for startups: - $495: is the starting fee for a C-corp, S-corp or LLC return. - 50: states are covered, so one firm files every state return your company owes. - <1 week: is the usual time from complete documents to a filed return. ## Which startup accounting services does Valim handle? Accounting in startups is mostly two jobs: keeping the books and doing the taxes. We do the taxes, for your company and for each founder. ### Your company’s returns We prepare your C-corp’s Form 1120 and every state return it owes, and plan ahead for its first profitable year. ### Delaware’s March 1 filing We file the annual report by March 1 on the method that gives the lower tax, using your year-end balance sheet. ### QSBS for founders We check that your stock can qualify as QSBS. We keep the records a founder needs to claim it on a sale. ### Founder stock We can act as each founder’s CPA too. If your founder stock vests over time, the first job is an 83(b) election, which taxes the shares now, while they are worth little. It is due within 30 days of receiving the shares. ### Planning an exit Founder shares may be qualified small business stock (QSBS), which can exclude part or all of a sale’s gain from federal tax. We check your shares and plan the sale around the five-year mark and the per-company cap. ### Working with your bookkeeper We prepare your returns from your bookkeeper’s books, or add bookkeeping and a clean-up to your filing. Bookkeepers can also partner with us on their clients’ taxes. ## How does Valim take on your company’s taxes? ### 1. Get your quote The instant quote gives you a fixed fee, or a CPA can give you one on a call. We never bill by the hour. ### 2. Work with a CPA online We are a remote accounting firm, so you share documents and message your CPA in one portal. A licensed US CPA prepares and signs every return. ### 3. Forward us any notice Our team handles the response to an IRS or state notice on any return we prepared. There is no new engagement to open. ## What do Valim’s startup tax services cost? ### Business return filing From $495 Your company’s federal and state returns, prepared and signed by a CPA, with your questions answered all year. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big step, such as a funding round or your first profitable year. A founder’s personal return is an individual return, from $195. ## Which tax rules matter most in a startup’s first years? ### Delaware’s notice usually overstates the tax (https://valim.tax/startups/delaware-franchise-tax) A Delaware corporation pays franchise tax by March 1 each year, and reporting its assets and issued shares usually cuts the bill. ### The C-corp return is due in April (https://valim.tax/startups/form-1120) A calendar-year C corporation files Form 1120 by April 15 and pays a flat 21% on its taxable income. ### SAFEs have no settled tax treatment (https://valim.tax/glossary/safe-simple-agreement-for-future-equity) No statute, regulation or IRS ruling addresses SAFEs, though Y Combinator’s standard form says a SAFE is meant to be treated as common stock. "I've had three CPAs in five years. Valim I'm sticking with. Clear communication, no surprises on the bill." (Startup founder in Austin) ## Compare accounting firms for startups by asking each how it would do your taxes. Book a 30-minute call to ask one of our CPAs how we would handle your company’s taxes. ## What do founders ask before choosing a startup CPA? ### How much does startup accounting and tax cost a year? At Valim, your company’s federal and state returns start at $495 a year. The fee rises with the company’s size, its shareholders, the states it files in, a funding round and any cleanup of its books. For most companies, the instant quote gives you the fee before any work starts, and a CPA prices larger or more complex ones. We can also clean up your books during your tax filing, and offer bookkeeping services for startups alongside the return. ### Delaware says we owe $85,000 in franchise tax. Is that right? Usually not. Delaware’s notice uses the authorized shares method, which comes to $85,165 for 10,000,000 authorized shares. The law charges the lower of that and the assumed par value capital method. For a startup with millions of shares and modest assets, that method gives far less. With 8,000,000 shares issued at a tiny par value, it is $400 on up to $800,000 of assets. ### Does a C-corp with no revenue still file Form 1120? Yes, a startup C corporation files Form 1120 every year, with or without revenue, until it stops business, dissolves and holds no assets. With no tax due, a late return carries no federal late-filing penalty, because that penalty is a percentage of the unpaid tax. A company at least 25% owned by one foreign person also files Form 5472 for its dealings with that owner and other related parties. ### Can a startup deduct its startup costs? Yes, within limits. In the year it begins business, a startup can deduct up to $5,000 of start-up costs. It can also deduct a separate $5,000 of organizational costs, such as the legal fees to form the company. Each $5,000 shrinks by every dollar that category passes $50,000. The rest is deducted evenly over 180 months, from the month the business begins. ### Should we be a C corp, S corp or LLC if we plan to raise? Choose a C corporation if you plan to raise from venture funds. A venture round usually ends an S election, since preferred stock is a second class and partnership or LLC funds cannot hold S shares. An LLC taxed as a partnership passes its business income through to investors, so even tax-exempt and foreign investors owe tax on it. Only stock of a domestic C corporation can be qualified small business stock (QSBS), so LLC units and S corporation shares never qualify. ### Do startups file BOI reports in 2026? No, not if the company was formed in the US. Under FinCEN’s rules, any company created by a filing with a US state is exempt from beneficial ownership information (BOI) reporting, whoever owns it. FinCEN made that exemption final on August 14, 2026. Only a company formed under foreign law and registered to do business in a state still files, unless an exemption applies. It files within 30 days after being notified that its registration is effective, and does not report US owners. ### Pilot, Kruze or a traditional CPA firm? Pick by the work you need: the books, the tax returns, or both. Three kinds of firm sell outsourced accounting for startups: bookkeeping-led platforms, startup-focused accounting firms and traditional CPA firms. Whichever you pick, ask who prepares and signs the company’s tax return. Valim is a CPA firm. Its licensed CPAs sign every return, prepared from the books your bookkeeper keeps. ## Sources - 26 U.S.C. § 195, Start-up expenditures: https://www.law.cornell.edu/uscode/text/26/195 - 26 U.S.C. § 248, Organizational expenditures: https://www.law.cornell.edu/uscode/text/26/248 - IRS, Publication 583, Starting a Business and Keeping Records (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/p583.pdf - Y Combinator, Safe financing documents: https://www.ycombinator.com/safe - 8 Del. C. ch. 5, Corporation franchise tax: https://delcode.delaware.gov/title8/c005/index.html - 8 Del. C. § 391, Amounts and payment of fees: https://delcode.delaware.gov/title8/c001/sc18/index.html - IRS, Instructions for Form 1120 (2025): https://www.irs.gov/pub/irs-pdf/i1120.pdf - 26 C.F.R. § 1.6012-2, Corporations required to make returns of income: https://www.ecfr.gov/current/title-26/section-1.6012-2 - 26 U.S.C. § 6072, Time for filing income tax returns: https://www.law.cornell.edu/uscode/text/26/6072 - 26 U.S.C. § 11, Tax imposed (corporations): https://www.law.cornell.edu/uscode/text/26/11 - 26 U.S.C. § 6651, Failure to file tax return or to pay tax: https://www.law.cornell.edu/uscode/text/26/6651 - 26 U.S.C. § 6038A, Information with respect to certain foreign-owned corporations: https://www.law.cornell.edu/uscode/text/26/6038A - IRS, Notice 2017-23, payroll tax credit for qualified small businesses: https://www.irs.gov/pub/irs-drop/n-17-23.pdf - 26 U.S.C. § 39, Carryback and carryforward of unused credits: https://www.law.cornell.edu/uscode/text/26/39 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - 26 U.S.C. § 512, Unrelated business taxable income: https://www.law.cornell.edu/uscode/text/26/512 - 26 U.S.C. § 875, Partnerships; beneficiaries of estates and trusts: https://www.law.cornell.edu/uscode/text/26/875 - 31 C.F.R. § 1010.380, Reports of beneficial ownership information: https://www.ecfr.gov/current/title-31/section-1010.380 - FinCEN, final rule on beneficial ownership reporting (91 FR 52508, August 14, 2026): https://www.federalregister.gov/d/2026-16576 --- URL: https://valim.tax/startups/delaware-franchise-tax Title: Delaware franchise tax: the $85,000 bill and what you really owe Updated: 2026-09-24 # Your Delaware franchise tax is usually far less than the $85,000 on your notice. Delaware’s notice figures the tax by the authorized shares method, which counts only your authorized shares. The law charges the lower of that method and the assumed par value capital method, which starts from your gross assets. Delaware uses the second method only if your annual report lists your issued shares and gross assets. Delaware corporations, tax year 2026: - $85,165: is the authorized shares method’s tax on 10,000,000 shares, however few you have issued. - $400: is the tax on each $1,000,000 of assumed par value capital, or part of one. It is also that method’s minimum. - March 1: is the deadline each year, so March 1, 2027 for tax year 2026. Missing it adds a $200 penalty, plus 1.5% interest for each month or part of a month until paid. The corporate rates are fixed in the statute and are not indexed for inflation. Delaware LLCs and LPs pay a flat annual tax instead. ## What goes on the Delaware annual report? Every Delaware corporation files an annual corporate report, the annual franchise tax report, even an S corp or a company with no revenue. Unless exempt, a corporation also pays the franchise tax and a $50 filing fee. ### 1. Your registered agent and main office The report names your registered agent in Delaware, which receives the tax notice each December. It also gives your principal place of business, which generally cannot be a registered agent’s address. ### 2. Your business and its directors The report must state the nature of your business. It also lists each director’s name and address, and the officer or director who signs it. ### 3. Each class of stock The report gives the number of authorized shares and the par value of each class. If your stock has no par value, the authorized shares method always gives the lower tax. ### 4. Issued shares and gross assets Gross assets are the total assets on your year-end balance sheet, as reported on Form 1120 Schedule L. Nothing is taken off for debts. Issued shares include treasury shares and unvested restricted stock, but not options, SAFEs or convertible notes until they are exercised or converted. ### 5. You file the report and pay the tax online You file the annual report and pay the franchise tax online, in the Division of Corporations’ eCorp system. There is no paper form. Payments over $5,000 must go by ACH debit. Exempt corporations, such as nonprofits, owe no franchise tax and file the report for a $25 fee. A foreign corporation, one formed in another state and registered in Delaware, owes none either. It files its own annual report by June 30, for a $250 fee. ## The lower calculation method cuts a seed startup’s tax to $1,200. A startup has 10,000,000 authorized shares at $0.00001 par, 8,000,000 of them issued, and $2,000,000 in gross assets. - Authorized shares method: $85,165. This method takes no account of assets. - Assumed par value capital method: $1,200. Dividing $2,000,000 of assets by 8,000,000 issued shares gives an assumed par of $0.25. At that par, the 10,000,000 authorized shares come to $2,500,000 of assumed par value capital. - With $800,000 in assets: $400. The assumed par falls to $0.10, so the capital is exactly $1,000,000. That is taxed at the $400 minimum. At Delaware’s rates for 2026, the authorized shares method charges $250 for the first 10,000 shares. Each further block of 10,000 adds $85, and 10,000,000 shares have 999 such blocks. The $2,500,000 of assumed par value capital rounds up to $3,000,000, taxed at $400 per $1,000,000. With this share count, each $800,000 of gross assets, or part of it, adds $400. ## The Delaware LLC tax is flat, and due three months later. Delaware LLCs, LPs and general partnerships pay what the state calls an alternative entity tax. It is the same whatever the company’s size, assets or income. | | Corporation | LLC, LP or GP | | --- | --- | --- | | Tax for 2026 | $175 to $200,000 (The lower of two methods. Large corporate filers pay a flat $250,000.) | $400 (Up from $300 for 2025) | | Due | March 1, 2027 | June 1, 2027 | | Annual report | Required | None | | Formed mid-year | Tax is prorated | Full year’s tax | | Left unpaid | Charter void after 1 year | Canceled after 3 years | A general partnership owes the tax only if it has filed a statement of partnership existence. Delaware LLCs, LPs and GPs pay their annual tax online, in the same eCorp system as corporations. ## Paying the notice as billed is the costliest Delaware franchise tax filing mistake. ### You already paid the full notice File a $50 amended annual report with your issued shares and gross assets, then petition Delaware for a refund. The deadline is March 1 of the second year after the tax year, so March 1, 2027 for tax year 2025. ### Last year’s tax sets this year’s quarterly payments After you pay the $85,165 notice for 2025, Delaware expects $68,132 in estimated payments for 2026, starting June 1, 2026. That is 80% of the 2025 tax. Filing the 2026 report on the lower method turns the excess into a credit, which Delaware refunds on request. ### Closing down without dissolving A corporation that stops operating still owes the tax every year until it formally dissolves, merges or converts. It cannot dissolve until every franchise tax is paid and a final report is filed. ### Your income tax is a separate return (https://valim.tax/startups/form-1120) A Delaware C corp also files a federal return on Form 1120, where profit is taxed at 21%. Delaware’s own corporation income tax, at 8.7%, reaches only income from business done in the state. A startup whose only tie to Delaware is its registered office owes none of it. ### Some franchise tax letters do not come from Delaware You pay the tax only to the Delaware Secretary of State, through its Division of Corporations. The Franchise Tax Board is California’s tax agency, so a Delaware tax letter using that name is suspect. To check a letter, call the Division’s Franchise Tax section at (302) 739-3073, option 3. ## Valim files your Delaware report on the lower method before March 1. Valim’s CPAs prepare and file Delaware franchise tax reports for startups, together with their federal returns. - We figure the tax under both methods every year, because the lower one changes as your assets and shares do. - We prepare your Form 1120 and check that the total assets on your annual report match its balance sheet. - Delaware’s report is due six weeks before your Form 1120, so we ask your bookkeeper for the year-end balance sheet early. - We plan the estimated payments Delaware expects once your tax reaches $5,000. - If Delaware, the IRS or another state questions a filing we prepared, our team handles the response. - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle startups: https://valim.tax/startups ## Delaware franchise tax questions. ### What is the minimum Delaware franchise tax for a corporation? The minimum Delaware franchise tax is $175 for a full year, for a corporation with 5,000 or fewer authorized shares. Under the assumed par value capital method, the minimum is $400. Above 20,000 authorized shares, the authorized shares method passes $400, so $400 is the lowest tax possible. A corporation that is not exempt also pays the $50 report fee, so the smallest full-year total is $225. A first partial year is prorated and can cost less. ### What happens if I don’t pay Delaware franchise tax? If you don’t pay Delaware franchise tax by March 1, you owe a $200 penalty plus 1.5% interest a month. Your corporation also loses its good standing, and the state can sue for the debt. After a year without paying or filing, its charter becomes void. Reviving it means paying all back taxes, penalties and interest. A corporation void more than five years can instead pay three times the current year’s tax, plus that year’s tax. ### When is Delaware franchise tax due? Delaware franchise tax is due March 1 each year, with the annual franchise tax report that serves as its return. The tax for 2026 is due March 1, 2027. A corporation whose tax is $5,000 or more also makes estimated payments during the year. It pays 40% by June 1, then 20% by September 1 and 20% by December 1. Delaware LLCs and LPs pay their annual tax by June 1 instead. ### How does the assumed par value method work? The assumed par value method figures the tax from gross assets and issued shares, and applies only if your report lists both. Divide the assets, taken from your Form 1120 balance sheet, by the issued shares to get the assumed par. Multiply it by your authorized shares to get the assumed par value capital. A class whose own par is above the assumed par counts at its own par. The tax is $400 for each $1,000,000 of that capital, or part of one, and never less than $400. ### Does a Delaware LLC pay franchise tax? A Delaware LLC pays a flat annual tax instead of the corporate franchise tax, and files no annual report. The tax rose from $300 to $400 on January 1, 2026, so $400 first applies to tax year 2026, due June 1, 2027. It is never prorated, so an LLC formed in December still owes the full year. Paying late adds a $200 penalty and 1.5% interest a month. After three years unpaid, the LLC’s certificate of formation is canceled. ## Sources - 8 Del. C. §§ 501 to 518, Corporation franchise tax: https://delcode.delaware.gov/title8/c005/index.html - 8 Del. C. § 277, Payment of franchise taxes before dissolution, merger, transfer or conversion: https://delcode.delaware.gov/title8/c001/sc10/index.html - 8 Del. C. § 312, Revival of certificate of incorporation: https://delcode.delaware.gov/title8/c001/sc12/index.html - 8 Del. C. § 391, Amounts and payment of fees: https://delcode.delaware.gov/title8/c001/sc18/index.html - 6 Del. C. §§ 18-1107 and 18-1108, Taxation of limited liability companies and registered series; cancellation for failure to pay taxes: https://delcode.delaware.gov/title6/c018/sc11/index.html - 6 Del. C. §§ 17-1109 and 17-1110, Taxation of limited partnerships; cancellation for failure to pay taxes: https://delcode.delaware.gov/title6/c017/sc11/index.html - 6 Del. C. §§ 15-1208 and 15-1209, Annual tax of partnership; cancellation for failure to pay taxes: https://delcode.delaware.gov/title6/c015/sc12/index.html - 85 Del. Laws c. 273 (HB 400, 2026), fees and taxes administered by the Secretary of State: https://legis.delaware.gov/legacy/SessionLaws/ga153/chp273.shtml - 30 Del. C. § 1902, Imposition of tax on corporations; exemptions: https://delcode.delaware.gov/title30/c019/index.html - Delaware Division of Corporations, How to calculate franchise taxes: https://corp.delaware.gov/frtaxcalc/ - Delaware Division of Corporations, Annual report and tax information: https://corp.delaware.gov/frtax/ - Delaware Division of Corporations, Annual report and tax instructions: https://corp.delaware.gov/paytaxes/ - Delaware Division of Corporations, LLC/LP/GP franchise tax instructions: https://corp.delaware.gov/alt-entitytaxinstructions/ - Delaware Division of Corporations, Franchise tax FAQs: https://corp.delaware.gov/taxfaq/ - IRS, Form 1120 (2025), U.S. Corporation Income Tax Return: https://www.irs.gov/pub/irs-pdf/f1120.pdf --- URL: https://valim.tax/startups/r-and-d-tax-credit Title: R&D tax credit for startups: up to $500,000 against payroll tax Updated: 2026-09-24 # A qualifying startup can use up to $500,000 a year of its R&D tax credit against payroll tax. The federal research and development (R&D) tax credit, under Section 41, is 20% of your qualified research expenses (QREs) above a base amount. A startup that owes no income tax yet can elect to take it off the employer’s Social Security and Medicare tax instead. It must be a qualified small business: under $5 million of gross receipts this year, and none before the last five tax years. Federal research credit for 2026: - 10%: of QREs is the regular credit for a startup with little revenue, since its base is half its QREs. - $500K: is the most a qualified small business can put against payroll tax each year, in up to five years. - $5M: or more of gross receipts in the election year rules a company out. So do any receipts before the five years ending with it. This tax incentive has been permanent since 2015. The One Big Beautiful Bill Act left these figures alone, and none is indexed for inflation. ## Does your work qualify for the R&D tax credit? Your work must pass the IRS’s four-part test, the first four items below, and stay off the excluded list. Each product, process or piece of software is tested on its own. ### 1. Research that removes uncertainty The work must aim to remove uncertainty about whether you can build the product, how to build it, or which design will work. It does not need to succeed, or to break new ground in your field. The costs of that work must also qualify as US research costs under Section 174A. ### 2. Technological in nature The work must rely on engineering, computer science, or the physical or biological sciences. Research in the social sciences, arts or humanities does not count. ### 3. A new or improved business component The aim must be better function, performance, reliability or quality in a product, process, piece of software, formula or invention. Style and cosmetic design do not count. A manufacturing process is a separate component, with its own tests. ### 4. A process of experimentation At least 80% of the research on the component must test alternatives, by modeling, simulation or systematic trial and error. If a whole product fails the four tests, you apply them to its most significant part, then smaller parts, until one passes. ### 5. Not on the excluded list Work after a product is ready for commercial sale does not count. Adapting a product for one customer, copying one, market research and routine quality testing are excluded too. Software for your own back office counts only if it passes a stricter innovation test. C corporations, S corporations, partnerships and sole proprietors can all claim the credit. Individual owners of an S corporation or partnership can use a passed-through credit only against their tax on that business’s income. The rest carries over. ## A startup with $1 million of QREs and no sales can claim a $100,000 credit. The credit is calculated on your QREs. They are wages for doing, directly supervising or directly supporting the research, plus supplies, rented computer time and 65% of US contractor fees. A Delaware C corporation formed in 2024 has $1 million of QREs in 2025, all in-house wages and supplies, and no sales. - Alternative simplified credit: $60,000. The alternative simplified credit is 14% of QREs above half the average of the three prior years. With no QREs in 2022 or 2023, this startup gets 6% of QREs instead. - Reduced regular credit: $79,000. The reduced credit under Section 280C is 79% of the regular credit. In return, you keep the full research deduction. - Regular credit: $100,000. The regular credit is 20% of the $500,000 of QREs above the base amount. A new company’s base amount is 3% of its average gross receipts, or half its QREs if that is more. This company had no receipts before 2025, so its base is $500,000. Its only 2025 receipts are $15,000 of bank interest, so it is a qualified small business. It makes the payroll tax election on a return filed March 20, 2026. It pays $240,000 of wages a quarter, and no employee earns more than the Social Security wage base. From April 2026, the employer’s 6.2% Social Security and 1.45% Medicare tax absorb $18,360 of credit a quarter. The last $8,200 is used in the third quarter of 2027. Taking the full credit cuts the 2025 Section 174A deduction by $100,000. For a company with a loss, that only shrinks its net operating loss. State research credits are separate. ## From 2025, you can write off US research costs in the year you pay them. The One Big Beautiful Bill Act added Section 174A, a full R&D deduction for domestic research costs in tax years beginning after 2024. For this deduction, all software development costs count as research costs, even for work that fails the credit’s four-part test. | | 2022 to 2024 | From 2025 | | --- | --- | --- | | US research costs | Amortized over 5 years (10% in the first year) | Deducted in the year paid (Or over at least 60 months, if you elect) | | Year-one deduction on $1M | $100,000 | $1,000,000 (Less the credit, unless the reduced credit is elected) | | Costs left from 2022 to 2024 | Amortized on schedule | Deductible in full on the 2025 return (Or split over 2025 and 2026) | | Research outside the US | Amortized over 15 years | Amortized over 15 years | You choose how to deduct costs left from 2022 to 2024 on the original return for your first tax year beginning after 2024. For a calendar-year C corporation on extension, that return is due October 15, 2026. Small businesses could also amend 2022 to 2024 returns to deduct those costs, but that option closed on July 6, 2026. Research costs before a business opens are deducted under Section 174A too, not amortized as start-up costs. ## What can cost you the R&D credit, or delay it? ### Bank interest can start the five-year clock Gross receipts include interest on the company’s bank balance, however small, so they can start before your first sale. Once a company has gross receipts, it can make the payroll tax election only in that year and the next four. Each of those years also needs receipts under $5 million. ### The election must be on the original return Make the payroll tax election on Form 6765 with a return filed by its due date, including extensions. An amended return cannot make it. The same rule applies to the reduced credit under Section 280C. ### Filing later delays the offset The offset starts in the first calendar quarter that begins after you file the return with the election. If you file a calendar-year return on March 31, the offset starts in April. If you file on April 1, it starts in July. ### Contract and foreign research have extra limits (https://valim.tax/glossary/qualified-research-expenses) Contractor fees count only if you agreed on the work in advance and pay whether or not it succeeds. You must also have the right to use the results. Research done outside the US and its territories earns no credit, even by your own staff. ### Funded research does not count Research paid for by a grant, a customer or anyone else is excluded, to the extent it is funded. Payment due only if the research succeeds is not funding. If you keep no substantial rights to the results, none of the research counts, even the part you paid for. ### Claims need records by project from 2026 Current IRS instructions require Section G of Form 6765 from 2026 returns, listing wages, supplies, computer rental and contract research by business component. A qualified small business making the payroll tax election is exempt. So is an original-return claim with QREs of $1.5 million or less, if average gross receipts are $50 million or less. ## One CPA firm handles your startup’s taxes, all year. Startups hire Valim’s CPAs for their business returns, at a fee fixed before any work starts. - We prepare the company’s federal and state returns, and a licensed CPA signs each one. - We can clean up the company’s books during the filing, if they need it. - We file the company’s federal extension on Form 7004 for free, whether or not we prepare its return. - We advise founders on 83(b) elections and QSBS, and prepare their personal returns too. - If the IRS or a state writes about a return we prepared, we reply within your fee. - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle startups: https://valim.tax/startups ## R&D tax credit questions. ### How does the payroll tax offset work? The payroll tax offset lets a qualified small business use up to $500,000 a year of its R&D credit against payroll tax. A qualified small business has under $5 million of gross receipts for the year, and none before the last five tax years. It elects on Form 6765 with a timely return, then claims the credit on Form 8974 with its Form 941 from the next quarter. Each quarter, the credit reduces the employer’s 6.2% Social Security tax first, then its 1.45% Medicare tax. The credit is not refundable, so any amount left carries to the next quarter. ### How much can a startup offset in 2026? A qualifying startup can offset up to $500,000 of R&D credit for each tax year it elects, in up to five years. In 2026 quarters, a calendar-year startup uses leftovers from earlier elections, plus its 2025 election if that return was filed by September 30, 2026. Each quarter’s offset is capped at the employer’s Social Security and Medicare tax for that quarter. Using $500,000 within four quarters takes about $6.54 million of wages below the Social Security wage base. The Inflation Reduction Act raised the cap to $500,000 for tax years beginning after 2022, and it is not indexed. ### Can a startup with no revenue claim it? Yes, a startup with no revenue can claim the R&D credit, and elect to use it against payroll tax if it has employees. Bank interest counts as gross receipts, though, and can start the five-year window for that election before the first sale. Credit the company cannot use yet carries back one year and forward 20 years. After a change in ownership, Section 383 can limit those carryforwards. Before the business starts, in-house research costs can count if the company plans to use the results in its own business. ### What is Form 6765 used for? Form 6765 is the IRS form for figuring and claiming the federal R&D tax credit, filed with your income tax return. There is no separate application. You also use it to elect the Section 280C reduced credit, the alternative simplified credit and the payroll tax offset. The IRS’s current instructions require its Section G from 2026 returns, listing QREs by business component, with exemptions for smaller claims. A C corporation attaches it to its Form 1120. ### What is the 80% rule for R&D credit? The 80% rule says that substantially all of the research on a business component must be a process of experimentation. Substantially all means 80% or more of the research activities, measured by cost or another consistent method. A second 80% rule covers wages. If 80% or more of an employee’s time goes to doing, directly supervising or directly supporting qualified research, all their wages count as QREs. ## Sources - 26 U.S.C. § 41, Credit for increasing research activities: https://www.law.cornell.edu/uscode/text/26/41 - 26 U.S.C. § 174A, Domestic research or experimental expenditures: https://www.law.cornell.edu/uscode/text/26/174A - 26 U.S.C. § 280C, Certain expenses for which credits are allowable: https://www.law.cornell.edu/uscode/text/26/280C - 26 U.S.C. § 3111, Rate of tax (employer payroll taxes): https://www.law.cornell.edu/uscode/text/26/3111 - 26 U.S.C. § 39, Carryback and carryforward of unused credits: https://www.law.cornell.edu/uscode/text/26/39 - 26 U.S.C. § 383, Special limitations on certain excess credits: https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapC-partV-sec383.htm - 26 U.S.C. § 195, Start-up expenditures: https://www.law.cornell.edu/uscode/text/26/195 - 26 C.F.R. § 1.41-2, Qualified research expenses: https://www.law.cornell.edu/cfr/text/26/1.41-2 - 26 C.F.R. § 1.41-3, Base amount: https://www.law.cornell.edu/cfr/text/26/1.41-3 - 26 C.F.R. § 1.41-4, Qualified research: https://www.law.cornell.edu/cfr/text/26/1.41-4 - 26 C.F.R. § 1.41-4A, Qualified research for earlier years (funded research): https://www.law.cornell.edu/cfr/text/26/1.41-4A - 26 C.F.R. § 1.41-9, Alternative simplified credit: https://www.law.cornell.edu/cfr/text/26/1.41-9 - IRS, Instructions for Form 6765 (Rev. December 2025): https://www.irs.gov/pub/irs-pdf/i6765.pdf - IRS, Instructions for Form 8974 (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/i8974.pdf - IRS, Notice 2017-23 (qualified small business payroll tax election): https://www.irs.gov/pub/irs-drop/n-17-23.pdf - Public Law 119-21 (One Big Beautiful Bill Act), § 70302: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf - IRS, Rev. Proc. 2025-28 (Section 174A guidance): https://www.irs.gov/pub/irs-drop/rp-25-28.pdf --- URL: https://valim.tax/startups/form-1120 Title: IRS Form 1120: the C corp tax return, due even with no revenue Updated: 2026-09-24 # Your C corporation must file Form 1120 every year, even with no revenue. Form 1120, the U.S. Corporation Income Tax Return, is the federal return a C corporation files with the IRS. A C corporation’s duty to file Form 1120 lasts until it dissolves, whether or not it has taxable income. The return is due on the 15th day of the fourth month after the tax year ends. Calendar-year C corporations, tax year 2026: - April 15: is the due date, which puts the 2026 return on April 15, 2027. - 21%: is the federal tax on every dollar of taxable income, with no brackets. - 6 months: is the extra time to file that Form 7004 gives, to October 15, 2027. The tax is still due in April. Fiscal years use the same fourth-month rule. A June 30 year that began before 2026 was due a month sooner, in the third month. The year from July 2025 to June 2026 was due September 15, 2026. ## What do the Form 1120 instructions ask you to report? The 2025 Form 1120 and its instructions cover 2025 returns, filed in 2026. The IRS has not yet published the 2026 form or its instructions. ### 1. Taxable income, on page 1 Page 1 subtracts the company’s deductions from its income to reach taxable income, on line 30. For tax years beginning after 2024, those deductions include US research costs, software development among them, in the year paid or incurred. Research done outside the US, software included, is still spread over 15 years. ### 2. The tax, on Schedule J Schedule J figures the tax by multiplying taxable income by 21%. The rate is flat, with no brackets, so the first dollar of taxable income is taxed like the last. ### 3. Yes-or-no questions, on Schedule K Schedule K asks questions about the company, most of them yes or no. Question 7 asks if one foreign person held 25% or more of the vote or value during the year, which can bring Form 5472. ### 4. The balance sheet, on Schedule L Schedule L is the company’s balance sheet. A company whose total receipts and year-end total assets are both under $250,000 can skip it. A Delaware corporation may still want to fill it in, because Delaware’s lower franchise tax method starts from its line 15 total assets. ### 5. Filed and paid electronically A corporation required to file 10 or more returns in a year, counting information returns such as W-2s and 1099s, must e-file Form 1120. Corporations pay estimated tax by electronic funds transfer, so there is no voucher to mail. Form 1120-W, the worksheet for figuring those payments, was only ever kept with the company’s records and is now retired. An LLC files Form 1120 as its income tax return only if it elected on Form 8832 to be taxed as a corporation. For the election year, it attaches a copy of Form 8832. ## A late Form 1120 costs $3,150 in penalties on $21,000 of tax, and $0 with no tax due. A late return with unpaid tax draws a penalty for filing late and one for paying late. A company that skipped estimated tax can owe a third. For example, a calendar-year corporation files its 2025 Form 1120 and pays its tax on July 10, 2026, with no extension. It owes no estimated tax penalty. - $21,000 of tax due: $3,150. That is $2,835 for filing late and $315 for paying late, plus interest. - $400 of tax due: $406. For a return over 60 days late, a minimum penalty takes the filing penalty to the full $400. Paying late adds $6. - No tax due: $0. Both penalties are a share of the tax, so neither applies. Other forms and state returns carry penalties of their own. July 10 is 86 days after the April 15 due date. That falls in the third month, so each penalty runs for three months. Filing late costs 5% of the unpaid tax for each month or part of a month, up to 25%. Paying late costs 0.5% a month, also up to 25%. For months when both apply, the filing penalty is cut by the payment penalty. After 60 days, the filing penalty is at least $525, or the whole tax if that is less. The $525 is the minimum for returns due in 2026, and it is adjusted for inflation each year. ## How does Form 1120 differ from the S corporation return? A corporation files Form 1120 unless it made an S election on Form 2553 that covers the year. The dates are for a calendar year. | | Form 1120 | Form 1120-S | | --- | --- | --- | | Who pays the income tax | The corporation (On its taxable income, at 21%) | The shareholders (On their share of the profit, paid out or not. The S corp itself can owe a few taxes) | | Shareholders | No limit | Up to 100 (Mostly individuals. No partnerships, corporations or nonresident aliens. One class of stock) | | Due date | April 15 | March 15 | | With Form 7004 | October 15 | September 15 | | QSBS | Stock can qualify | Stock never qualifies | A venture round usually ends an S election. Funds set up as partnerships or LLCs cannot hold S corporation stock, and preferred stock counts as a second class. The company then files Form 1120. ## Where do startups go wrong with C corp tax filing? ### A dormant company still owes returns (https://valim.tax/startups/delaware-franchise-tax) Stopping operations does not end the duty to file. The company keeps filing Form 1120 until it has formally dissolved and holds no assets. A Delaware corporation also owes franchise tax each March 1. It must pay through the month it dissolves before it can file the certificate of dissolution. The IRS can excuse a company from filing only if it never finished organizing, did no business and had no income. ### A 25% foreign owner means an extra form (https://valim.tax/glossary/25-foreign-owned-corporation) A company at least 25% owned by one foreign person files Form 5472 for each related party, such as that owner. A form is needed only for a party it had reportable transactions with, such as a loan or a payment. Each missing form costs $25,000 for the year, even when no tax is due. If it stays missing 90 days after an IRS notice, $25,000 more is due for each 30 days or part of that. A single-member US LLC with a foreign owner files Form 5472 with a pro forma Form 1120. ### A Form 1120 extension is not time to pay Tax paid after the original due date carries interest and the late payment penalty, even on an extended return. With Form 7004 filed, paying at least 90% of the tax on time and the rest by the extended date avoids the penalty. Interest still runs. ### Deducting every start-up cost in year one In the year it begins business, a company can deduct only $5,000 of start-up costs and $5,000 of organizational costs. Each limit shrinks by the amount those costs pass $50,000. The rest is amortized over 180 months on Form 4562. ### The first profitable year needs estimated tax (https://valim.tax/glossary/safe-harbor-estimated-tax) A corporation that expects to owe $500 or more must pay estimated tax in four installments, or face a penalty. For a calendar year they are due April 15, June 15, September 15 and December 15. Paying 100% of last year’s tax in four equal installments normally avoids the penalty. That shortcut does not work if last year was shorter than 12 months or its return showed no tax. ### Old losses cannot cancel all new profit A C corporation’s loss stays with the company as a net operating loss. Losses from years beginning after 2017 carry forward with no time limit. In a later year, they can offset only 80% of taxable income. So a startup with years of losses can still owe tax the first year it turns a profit. Funding rounds can add up to an ownership change under Section 382, which caps the old losses each later year can use. ## A CPA prepares and signs your C corp tax return. Valim’s CPAs prepare and file Form 1120 for startup C corporations, including in years with no revenue. - We file your state returns alongside Form 1120, in all 50 states. - We work out the estimated payments for your company’s first profitable year. - We prepare Form 5472 with your return for each related party with reportable transactions, when one foreign person owns 25% or more. - We work from your bookkeeper’s year-end books, which give the return its income, deductions and balance sheet. - Responding to an IRS or state notice on a return we prepared is included. - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle startups: https://valim.tax/startups ## Form 1120 questions. ### Who is required to file Form 1120? Every US corporation that is not tax-exempt must file Form 1120 each year, even with no taxable income. The exceptions are a corporation with an S election in effect and a type that files a special return. A limited liability company files Form 1120 as its income tax return only after electing, on Form 8832, to be taxed as a corporation. A single-member LLC owned by a foreign person files a pro forma Form 1120 with Form 5472 in any year with reportable transactions. ### When is Form 1120 due? Form 1120 is due on the 15th day of the fourth month after the tax year ends. A calendar-year C corporation’s Form 1120 is due April 15, so its 2026 return is due April 15, 2027. Form 7004, filed by then, extends the time to file by six months, to October 15, 2027. The tax itself is still due in April. June 30 fiscal years that began before 2026 had an earlier date, the 15th day of the third month. ### Is Form 1120 for an S corp or a C corp? Form 1120 is for C corporations. An S corporation files Form 1120-S instead, due a month earlier, on March 15 for a calendar year. Any corporation without an S election in effect for the year is a C corporation. A C corporation pays its own income tax, so its shareholders get no Schedule K-1 from it. ### How much corporate tax do I pay on $100,000? A C corporation pays $21,000 of federal income tax on $100,000 of taxable income, at the flat 21% rate. State tax comes on top: California taxes most C corporations at 8.84%, or $8,840 on $100,000 of California profit. That state tax is deductible federally, so taxable income falls to $91,160 and federal tax to $19,143.60. A California company with $100,000 of profit pays $27,983.60 in all. Profit paid out as dividends is taxed again on the shareholders’ own returns. ## Sources - 26 U.S.C. § 195, Start-up expenditures: https://www.law.cornell.edu/uscode/text/26/195 - 26 U.S.C. § 248, Organizational expenditures: https://www.law.cornell.edu/uscode/text/26/248 - IRS, Instructions for Form 4562 (2025): https://www.irs.gov/pub/irs-pdf/i4562.pdf - IRS, Instructions for Form 1120 (2025): https://www.irs.gov/pub/irs-pdf/i1120.pdf - IRS, Form 1120 (2025), U.S. Corporation Income Tax Return: https://www.irs.gov/pub/irs-pdf/f1120.pdf - 26 C.F.R. § 1.6012-2, Corporations required to make returns of income: https://www.ecfr.gov/current/title-26/section-1.6012-2 - 26 U.S.C. § 6072, Time for filing income tax returns: https://www.law.cornell.edu/uscode/text/26/6072 - 26 C.F.R. § 1.6081-3, Automatic extension of time for filing corporation income tax returns: https://www.ecfr.gov/current/title-26/section-1.6081-3 - 26 U.S.C. § 11, Tax imposed (corporations): https://www.law.cornell.edu/uscode/text/26/11 - 26 U.S.C. § 6651, Failure to file tax return or to pay tax: https://www.law.cornell.edu/uscode/text/26/6651 - 26 U.S.C. § 6655, Failure by corporation to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6655 - 26 C.F.R. § 301.6011-5, Required use of electronic form for corporate income tax returns: https://www.ecfr.gov/current/title-26/section-301.6011-5 - 26 U.S.C. § 6038A, Information with respect to certain foreign-owned corporations: https://www.law.cornell.edu/uscode/text/26/6038A - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - California Franchise Tax Board, Corporation tax rates: https://www.ftb.ca.gov/file/business/tax-rates.html - IRS, Prior-year forms and instructions: https://www.irs.gov/prior-year-forms-and-instructions - IRS, Instructions for Form 1120-S (2025): https://www.irs.gov/pub/irs-pdf/i1120s.pdf - IRS, Instructions for Form 7004: https://www.irs.gov/pub/irs-pdf/i7004.pdf - IRS, Instructions for Form 5472 (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/i5472.pdf - IRS, Rev. Proc. 2024-40 (the $525 minimum penalty): https://www.irs.gov/pub/irs-drop/rp-24-40.pdf - P.L. 114-41, § 2006(a)(3), June 30 fiscal years (note under 26 U.S.C. § 170): https://www.law.cornell.edu/uscode/text/26/170 - 26 C.F.R. § 301.6651-1, Failure to file or to pay (reasonable cause on extension): https://www.ecfr.gov/current/title-26/section-301.6651-1 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.ecfr.gov/current/title-26/section-301.7701-3 - 26 U.S.C. § 174A, Domestic research or experimental expenditures: https://www.law.cornell.edu/uscode/text/26/174A - 26 U.S.C. § 174, Foreign research or experimental expenditures: https://www.law.cornell.edu/uscode/text/26/174 - 26 U.S.C. § 172, Net operating loss deduction: https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partVI-sec172.htm - 26 U.S.C. § 382, Limitation on losses after an ownership change: https://www.law.cornell.edu/uscode/text/26/382 - 26 U.S.C. § 164, Deduction for taxes: https://www.law.cornell.edu/uscode/text/26/164 - 8 Del. C. § 503, Rates and computation of franchise tax: https://delcode.delaware.gov/title8/c005/index.html - 8 Del. C. § 277, Payment of franchise taxes before dissolution, merger, transfer or conversion: https://delcode.delaware.gov/title8/c001/sc10/index.html --- URL: https://valim.tax/high-earners Title: Tax strategist for high earners: CPA tax planning, fixed fees Updated: 2026-09-24 # Valim’s tax strategists are licensed CPAs who plan taxes for high earners all year. Valim is a CPA firm led by ex-Big Four CPAs, and it serves high earners in all 50 states on fees quoted upfront. Its Tax advisory plan adds a year of planning to your returns. Valim for high earners: - $195: is the starting fee for an individual return filed on its own, without planning. - 50: states, so a move or a second state return stays with one firm. - <1 week: is how soon most returns are filed once your documents arrive, extended returns included. The fee stays fixed for 7 days after you get the quote, with no hourly billing. ## What do Valim’s tax planning services for high earners include? A year of tax planning at Valim covers the decisions that set a high earner’s tax, and the returns that follow them. ### Planning through the year On the Tax advisory plan, a licensed CPA answers planning questions as they arise, from a stock sale to a job change. Financial planning for high income earners has a tax side, and your CPA handles it. ### RSUs and stock options Valim’s CPAs plan the tax on each RSU vest, and size option exercises around your brackets and the AMT. We also time share sales around a liquidity event, like an IPO. ### Quarterly estimated payments We work out your four federal estimated payments. Paying a safe harbor amount on schedule avoids the federal penalty. ### Returns in more than one state After a move, we file a return for each state that taxes part of your year. When another state taxes your wages, we claim your home state’s credit. ### Gift and trust returns We prepare Form 709, the gift tax return, when you make a large gift. We also prepare Form 1041, the income tax return, for a trust or an estate that has to file one. Your estate attorney drafts the documents, and we work alongside them. ### Your practice’s return If you own a medical, dental or law practice, we prepare its return along with yours, from your bookkeeper’s year-end figures. ## Tax planning for high income earners at Valim starts with your quote and runs all year in one portal. ### 1. Your fee, fixed upfront The instant quote asks what you earn and what changed this year. It returns two fixed fees, one for filing alone and one for Tax advisory. A CPA prices a complex case, like a business sale, before any work starts. ### 2. A CPA plans, then files Your CPA plans with you in the portal as a vest or sale comes up. A licensed US CPA then signs the return that reports it. ### 3. Notices are part of the fee Send us any IRS or state letter about a return we prepared, including one about your estimated payments. We handle the reply at no extra charge. ## Tax planning for high net worth individuals is priced by what your return includes. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as selling a business or a large block of stock. ### Individual return filing From $195 Individual return filing covers complex returns, from K-1s to foreign accounts. A CPA answers questions about your return year-round. A practice’s own return starts at $495. ## Tax strategies for high income earners start from these nine rules. Each rule below has its own page, and most tax saving strategies for high income earners work around one of them. ### A second tax calculation can raise your bill (https://valim.tax/high-earners/alternative-minimum-tax) The alternative minimum tax refigures your tax under a second set of rules, and you pay the extra if that figure is higher. ### Investment income has its own surtax (https://valim.tax/high-earners/net-investment-income-tax) Above a set income, the net investment income tax generally falls on gains, dividends, interest and passive rents, but not on wages. ### The estate exemption is no longer set to fall (https://valim.tax/high-earners/estate-tax-exemption) The One Big Beautiful Bill Act removed the scheduled cut to the estate tax exemption, which rises with inflation from 2027. ### Gift tax waits for the lifetime exemption (https://valim.tax/high-earners/gift-tax) Gifts above the annual exclusion generally go on a gift tax return, but tax is due only once your lifetime taxable gifts pass the exemption. ### Doctors who own a practice can lose the QBI deduction (https://valim.tax/high-earners/tax-planning-for-doctors) Health is a specified service business, so the qualified business income (QBI) deduction phases out above a taxable income threshold set each year. ### A practice purchase is deducted in two ways (https://valim.tax/high-earners/tax-planning-for-dentists) When you buy a dental practice’s assets, the equipment can be deducted at once, while goodwill is amortized over 15 years. ### Partners are taxed on profit left in the firm (https://valim.tax/high-earners/tax-planning-for-lawyers) A law firm partner generally pays income and self-employment tax on their share of firm profit, whether or not it is paid out. ### Bonus withholding can fall short (https://valim.tax/high-earners/tax-planning-for-executives) A flat 22% withheld from a bonus falls short in the 37% bracket, leaving more tax to pay at filing. ### A pilot’s crew base does not set the state tax (https://valim.tax/high-earners/tax-planning-for-pilots) Federal law lets only a pilot’s home state, and a state with more than half their scheduled flight time, tax their airline pay. "First time I've felt my tax preparer actually understood my situation. They caught depreciation strategies that saved me thousands." (Real estate investor in Miami) ## Ask a CPA how to reduce your tax while this year’s choices are still open. ## High earners ask a tax strategist these seven questions first. ### Can I do a backdoor Roth if I earn $500,000? Yes. A backdoor Roth works at any income, because neither a nondeductible traditional IRA contribution nor a Roth conversion has an income limit. You contribute to a traditional IRA, then convert it to a Roth. A direct Roth IRA contribution is closed at $500,000. For 2026 it phases out between $153,000 and $168,000 for single filers, or $242,000 and $252,000 joint. The pro-rata rule can make part of the conversion taxable if you hold other pre-tax IRA money at year end. ### What is the estate tax exemption in 2026? The federal estate tax exemption is $15,000,000 per person for deaths in 2026. Taxable gifts you make during life use up the same exemption. At death, the estate pays 40% only on what exceeds the exemption you have left. Bequests to a US citizen spouse or to charity are deducted first. Our guide to the estate tax exemption covers portability and the states with their own estate tax. ### What is the SALT cap for 2026? The federal deduction for state and local taxes (SALT) is capped at $40,400 for 2026, or $20,200 if married filing separately. Above $505,000 of modified AGI, the cap shrinks by 30 cents for each extra dollar, but never below $10,000. For separate filers, those figures are $252,500 and $5,000. It rises 1% a year through 2029, then drops back to $10,000 in 2030. ### How much does proactive tax planning cost? At Valim, proactive tax planning comes under the Tax advisory plan, with your federal and state returns included, for a fee fixed before work starts. It rises with your income and with events such as RSUs or a move. The instant quote sets it from your answers, or passes a complex case to a CPA to price. A CPA can also review last year’s return first and show you what it missed, with no obligation. ### Is a tax strategist worth it for a high earner? A tax strategist is usually worth it when this year’s decisions, like an option exercise or a move, will set your tax. Most of those choices close when the year ends, so a return filed in April can only record them. Exercising ISOs, for example, can bring the alternative minimum tax in a year when you sell nothing. At Valim, the tax strategist is a licensed CPA. ### How can a high W-2 earner reduce taxable income? A high W-2 earner reduces taxable income mainly with pre-tax accounts. They are the usual tax shelters for high income earners on a salary. For 2026 you can defer $24,500 of your pay into a 401(k). Itemized deductions for high income earners are worth less from 2026, since each dollar saves at most 35 cents in the 37% bracket. An executive can generally defer part of a bonus through an employer plan, by electing before the year it is earned. At Valim, a licensed CPA plans tax strategies for high income W-2 earners under the Tax advisory plan. ### How do rich people legally avoid taxes? Wealthy people often hold assets instead of selling them, because a gain is usually taxed only when the asset is sold. When the owner dies, heirs get a step-up in basis on most assets, to their value at death. The gain built up during life then escapes income tax. Traditional IRAs, 401(k)s and deferred pay get no step-up. To pay living costs without selling, many borrow against the assets. A loan is not income, because it has to be repaid. ## Sources - 26 U.S.C. § 408A, Roth IRAs: https://www.law.cornell.edu/uscode/text/26/408A - 26 U.S.C. § 408, Individual retirement accounts: https://www.law.cornell.edu/uscode/text/26/408 - IRS, IR-2025-111 (2026 401(k) and IRA limits, Roth IRA phase-out ranges): https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500 - IRS, Notice 2025-67 (2026 retirement plan limits): https://www.irs.gov/pub/irs-drop/n-25-67.pdf - 26 U.S.C. § 2010, Unified credit against estate tax: https://www.law.cornell.edu/uscode/text/26/2010 - 26 U.S.C. § 2001, Imposition and rate of tax (estate tax): https://www.law.cornell.edu/uscode/text/26/2001 - 26 U.S.C. § 2055, Transfers for public, charitable, and religious uses: https://www.law.cornell.edu/uscode/text/26/2055 - 26 U.S.C. § 2056, Bequests, etc., to surviving spouse: https://www.law.cornell.edu/uscode/text/26/2056 - Public Law 119-21 (One Big Beautiful Bill Act), § 70106: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 2503, Taxable gifts (annual exclusion): https://www.law.cornell.edu/uscode/text/26/2503 - 26 U.S.C. § 2505, Unified credit against gift tax: https://www.law.cornell.edu/uscode/text/26/2505 - 26 U.S.C. § 6019, Gift tax returns: https://www.law.cornell.edu/uscode/text/26/6019 - 26 U.S.C. § 164, Taxes (the SALT cap): https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 68, Overall limitation on itemized deductions: https://www.law.cornell.edu/uscode/text/26/68 - 26 U.S.C. § 1001, Determination of amount of and recognition of gain or loss: https://www.law.cornell.edu/uscode/text/26/1001 - 26 U.S.C. § 1014, Basis of property acquired from a decedent: https://www.law.cornell.edu/uscode/text/26/1014 - Commissioner v. Tufts, 461 U.S. 300 (1983): https://tile.loc.gov/storage-services/service/ll/usrep/usrep461/usrep461300/usrep461300.pdf - 26 U.S.C. § 55, Alternative minimum tax imposed: https://www.law.cornell.edu/uscode/text/26/55 - 26 U.S.C. § 56, Adjustments in computing alternative minimum taxable income: https://www.law.cornell.edu/uscode/text/26/56 - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 3101, Rate of tax (Additional Medicare Tax): https://www.law.cornell.edu/uscode/text/26/3101 - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 C.F.R. § 1.199A-5, Specified service trades or businesses: https://www.law.cornell.edu/cfr/text/26/1.199A-5 - 26 U.S.C. § 168, Accelerated cost recovery system (bonus depreciation): https://www.law.cornell.edu/uscode/text/26/168 - 26 U.S.C. § 197, Amortization of goodwill and certain other intangibles: https://www.law.cornell.edu/uscode/text/26/197 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - 26 U.S.C. § 409A, Deferred compensation under nonqualified plans: https://www.law.cornell.edu/uscode/text/26/409A - 49 U.S.C. § 40116, State taxation (air carrier employees): https://www.law.cornell.edu/uscode/text/49/40116 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 --- URL: https://valim.tax/high-earners/estate-tax-exemption Title: Estate tax exemption 2026: $15 million per person, no sunset Updated: 2026-09-24 # The 2026 estate tax exemption lets each person leave $15 million free of federal tax. Public Law 119-21, the One Big Beautiful Bill Act, set that amount from January 1, 2026. It has no end date, and it rises with inflation from 2027. For a married couple, portability can pass the first spouse’s unused exemption to the survivor. Federal estate tax, 2026: - $15M: is the basic exclusion amount for a death in 2026, and for gifts made that year. - 40%: is the tax on each dollar of taxable estate above the exemption. - $30M: is what a married couple can shelter at 2026 amounts, when both spouses’ exemptions are used. The IRS had not yet published the 2027 estate tax exemption as of September 24, 2026. ## Will your estate owe federal estate tax? ### 1. Your gross estate is over $15 million The executor must file Form 706 for a 2026 death when the gross estate is over $15 million. The gross estate is everything you owned worldwide, including real estate, investments and business interests, plus some property you gave away. Tax is due only if the taxable estate, after deductions, is still over the exemption. ### 2. Your lifetime gifts count against it The $15 million is a lifetime exemption, shared by your estate and the taxable gifts you make while alive. In 2026, the first $19,000 you give each person outright is excluded, and gifts to a U.S.-citizen spouse are fully deducted. Other taxable gifts since 1976 are added to your estate when the tax is figured and when deciding if a return is due. ### 3. What you leave your spouse is deducted Property you leave to a U.S.-citizen spouse, outright or in a qualifying trust, is deducted with no limit: the unlimited marital deduction. For a spouse who is not a citizen, the deduction needs a qualified domestic trust (QDOT). The exception is a spouse who becomes a citizen before the return is filed and has lived in the U.S. since the death. These tests are for U.S. citizens and residents. The estate of a nonresident who is not a U.S. citizen follows other rules, and it cannot elect portability. ## What is the 2026 estate tax exemption for a married couple? A married couple has $30 million of exemptions at 2026 amounts, but the first spouse’s $15 million is easy to waste. Because a bequest to the survivor is deducted, that exemption covers only what passes to others, such as children. Whatever it does not cover is lost unless the executor elects portability. Each spouse owns $15 million, and the first dies in 2026, leaving $3 million to the children and the rest to the survivor. - First death: $0. The $3 million to the children uses $3 million of the exemption, and the $12 million to the survivor is deducted. - Second death, no election: $4,800,000. The survivor dies with $27 million, which is $12 million more than their own exemption. - Second death, with portability: $0. The unused $12 million is added to the survivor’s own $15 million, which covers all $27 million. Both deaths are figured at 2026 amounts. The unified credit, $5,945,800 for 2026, cancels the tax on the first $15 million, so only the excess is taxed, at 40%. Without the election, 40% of the $12 million excess is $4,800,000. The assets do not grow, both spouses are U.S. citizens and neither made taxable gifts. ## What happens to the federal estate tax exemption in 2026? In 2026 the federal estate tax exemption rose to $15 million, though it was projected to fall to about half its 2025 level. The 2017 Tax Cuts and Jobs Act had doubled it only for 2018 to 2025. Public Law 119-21, signed July 4, 2025, stopped the drop before it took effect. | | Old law | Current law | | --- | --- | --- | | 2026 exemption | About half (The $5 million base, plus inflation) | $15 million (Up from $13.99 million in 2025) | | End date | December 31, 2025 (The doubled amount ran out) | None (Only a new law can change it) | | Inflation | Yearly, on the lower amount | From 2027 (In steps of $10,000) | | GST exemption | The same lower amount | $15 million (Same as the estate tax) | An IRS FAQ page still says the exemption reverts in 2026. The statute and the IRS’s 2026 Form 706 instructions both put the 2026 federal estate tax exemption at $15 million. ## Where estate plans still go wrong under the new law. ### Portability needs a Form 706 on time Portability is not automatic: the executor must elect it on a complete Form 706. The return is due 9 months after the death, or 15 months with an extension, even when no tax is owed. An estate that did not have to file can still elect within 5 years, under Rev. Proc. 2022-32. ### The ported amount never grows The unused exemption a survivor receives is fixed at the first death, while the survivor’s own exemption keeps rising with inflation. If the survivor remarries and outlives the new spouse too, that spouse’s unused amount replaces the first. ### A rushed gift gives up the step-up in basis (https://valim.tax/glossary/step-up-in-basis) For an estate under the exemption, holding an appreciated asset until death can spare your heirs capital gains tax. Heirs generally take an asset at its value on the day of death, while a gift carries your original cost to the recipient. Advice written before July 2025 often urged gifts to beat a 2026 drop that never came. ### Your state may tax a smaller estate Twelve states and DC have their own estate tax, and most exempt far less than $15 million. Massachusetts exempts $2 million in 2026, Minnesota $3 million and Illinois $4 million. None of the three rises with inflation. ### New York’s exemption ends in a cliff A New York taxable estate over $7,717,500 gets no exemption at all, and the whole estate is taxed. That cliff is 105% of the New York estate tax exemption, which is $7.35 million for 2026. The state has no portability, and for deaths before 2032 it adds back most taxable gifts made within 3 years of death. ## Valim’s CPAs plan the tax side of your estate while your attorney drafts the will and trusts. Valim is a CPA firm, not a law firm, so we work with the estate attorney you already have. - We prepare your Form 709 when a gift needs one, and track how much of your exemption you have used. - As part of Tax advisory, we compare giving an asset away now with holding it for the step-up in basis at death. - We plan estimated payments for grantor trust income taxed on your own return. - We prepare the income tax returns for your trusts, and for your estate after a death. - If the IRS or a state writes about a return we prepared, we handle the reply as part of the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## Estate tax exemption questions. ### What is the federal estate tax exemption in 2026? The federal estate tax exemption in 2026 is $15 million per person. That $15 million is shared with the taxable gifts you make during your life. Each dollar of taxable estate above it is taxed at 40%. A married couple can shelter $30 million when both exemptions are used. Portability carries an unused one to the survivor if the executor elects it on a timely Form 706. ### Did the estate tax exemption sunset in 2026? No, the estate tax exemption did not sunset in 2026. Public Law 119-21 set it at $15 million for deaths and gifts from January 1, 2026. It also deleted the TCJA rule that limited the higher amount to 2018 through 2025, so the drop to about half never happened. The tax code now gives it no end date, though a later Congress could still change it. If the exemption ever falls, a Treasury regulation known as the anti-clawback rule protects gifts already made under the higher amount. ### What is portability? Portability lets a surviving spouse add the deceased spouse’s unused federal exemption to their own. The unused part is called the deceased spousal unused exclusion (DSUE) amount. The executor elects portability on a complete Form 706 filed on time, even when the estate owes no tax. Estates that were not required to file get up to 5 years under Rev. Proc. 2022-32. The amount is fixed at the first death and does not grow with inflation. ### How do GRATs and SLATs reduce estate tax? GRATs and SLATs move the future growth of your assets out of your taxable estate. A grantor retained annuity trust (GRAT) pays you a fixed annuity for a set number of years. If you outlive the term, growth above the IRS Section 7520 rate passes to your heirs free of gift and estate tax. You fund a spousal lifetime access trust (SLAT) with a gift that uses your exemption now, and the trust can still pay your spouse. Both are usually grantor trusts, and assets that have left your estate get no step-up in basis at your death. ### How much can I inherit without paying federal taxes? There is no federal inheritance tax, so you owe none on any amount you inherit. The estate pays any estate tax, and only above its exemption: $15 million for 2026, less taxable gifts made during life. An inheritance is usually not income to you, but money you take out of an inherited traditional IRA or 401(k) is. Pennsylvania, New Jersey, Kentucky, Nebraska and Maryland tax some heirs, though close family pay less or nothing. ## Sources - 26 U.S.C. § 2010, Unified credit against estate tax: https://www.law.cornell.edu/uscode/text/26/2010 - Public Law 119-21 (One Big Beautiful Bill Act), § 70106: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - 26 U.S.C. § 2001, Imposition and rate of tax: https://www.law.cornell.edu/uscode/text/26/2001 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Instructions for Form 706 (Rev. July 2026): https://www.irs.gov/pub/irs-pdf/i706.pdf - IRS, Estate and gift tax FAQs (not yet updated for P.L. 119-21): https://www.irs.gov/newsroom/estate-and-gift-tax-faqs - IRS, Rev. Proc. 2022-32 (late portability election): https://www.irs.gov/pub/irs-drop/rp-22-32.pdf - 26 C.F.R. § 20.2010-2, Portability provisions applicable to estate of a decedent survived by a spouse: https://www.ecfr.gov/current/title-26/chapter-I/subchapter-B/part-20/section-20.2010-2 - 26 U.S.C. § 2056, Bequests to surviving spouse (marital deduction and QDOT): https://www.law.cornell.edu/uscode/text/26/2056 - 26 U.S.C. § 1014, Basis of property acquired from a decedent: https://www.law.cornell.edu/uscode/text/26/1014 - 26 U.S.C. § 1015, Basis of property acquired by gift: https://www.law.cornell.edu/uscode/text/26/1015 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 691, Income in respect of decedents: https://www.law.cornell.edu/uscode/text/26/691 - N.Y. Tax Law § 952, Tax imposed: https://www.nysenate.gov/legislation/laws/TAX/952 - New York State Department of Taxation and Finance, Estate tax: https://www.tax.ny.gov/pit/estate/etidx.htm - New York State, Instructions for Form ET-706 (9/25): https://www.tax.ny.gov/pdf/current_forms/et/et706i.pdf - Mass. Gen. Laws ch. 65C, § 2A, Transfer of estate and real property; tax: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter65C/Section2A - Minn. Stat. § 291.016, Minnesota taxable estate: https://www.revisor.mn.gov/statutes/cite/291.016 - Illinois Attorney General, Estate Tax Instruction Fact Sheet: https://illinoisattorneygeneral.gov/Page-Attachments/EstateTaxInstructionFactSheet.pdf - Pennsylvania Department of Revenue, Inheritance tax: https://www.pa.gov/agencies/revenue/resources/tax-types-and-information/inheritance-tax - New Jersey Division of Taxation, Inheritance tax rates: https://www.nj.gov/treasury/taxation/inheritance-estate/tax-rates.shtml - Kentucky Department of Revenue, Inheritance and estate tax: https://revenue.ky.gov/Individual/Inheritance-Estate-Tax/Pages/default.aspx - Neb. Rev. Stat. § 77-2004, Inheritance tax rates for immediate relatives: https://nebraskalegislature.gov/laws/statutes.php?statute=77-2004 - Md. Code, Tax-General § 7-203, Inheritance tax exemptions: https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gtg§ion=7-203 --- URL: https://valim.tax/high-earners/gift-tax Title: Gift tax limit 2026: $19,000 per person, $15M lifetime exemption Updated: 2026-09-24 # The 2026 gift tax limit lets you give $19,000 to each person without filing a return. That $19,000 is the annual gift tax exclusion for 2026. Give one person more, and you report the excess on Form 709 as a taxable gift. No tax is due until your taxable gifts, added up over your life, pass the $15 million lifetime exemption. Gifts made in 2026: - $19,000: per person is excluded, or $38,000 when you and your spouse split a gift. - $15M: is the lifetime exemption, which your taxable gifts share with your estate. - 40%: is the tax on taxable gifts above the exemption, and the giver pays it. The annual exclusion resets each calendar year, so complete 2026 gifts by December 31. A gift by check should be deposited by then. Form 709 for 2026 gifts is due April 15, 2027, and an income tax extension extends it too. ## Do you need to file a gift tax return for 2026? You file Form 709 if any one of these applies, whether or not any tax is due. ### 1. More than $19,000 to one person If your 2026 gifts to one person total more than $19,000, they go on the return. Stock and other property count at fair market value on the day you give them. For listed stock, that is the average of the day’s high and low prices. ### 2. A gift the person cannot use yet A gift the person can use only later is a future interest, so it gets no annual exclusion. Many gifts to a trust are future interests, and they go on Form 709 at any size. Section 2503(c) lets a minor’s trust get the exclusion if it can spend the gift on them and pays out the rest at 21. ### 3. A gift split with your spouse If you and your spouse are both US citizens or residents, a gift from one of you can count as made half by each. Splitting always takes a Form 709, even when each half is under $19,000. You must both agree, and the choice then covers every gift either of you makes to others that year. ### 4. A 529 contribution spread over five years A 529 plan contribution above the annual exclusion can count as made evenly over five years. For 2026, that covers up to $95,000 per beneficiary, or $190,000 if you and your spouse split it. It uses your annual exclusion for that person in each of the five years. You make the choice on Form 709. Some transfers let you avoid gift tax and the return at any size. Outright gifts to a spouse who is a US citizen are fully deductible. Tuition paid straight to a school, and medical bills paid straight to the provider, are not gifts. Only tuition qualifies, so room and board, and 529 contributions, still count as gifts. ## You owe no gift tax on $75,000 toward a down payment. Splitting a $75,000 gift with your spouse uses $19,000 less lifetime exemption, though each of you then files a return. You give your son $75,000 in cash toward a down payment in 2026, with no taxable gifts in earlier years. - The gift: $75,000. Cash he can use now is a present interest, so the annual exclusion applies. - Taxable if you give alone: $56,000. The exclusion covers $19,000, and you report the rest on Form 709. - Taxable if your spouse splits it: $37,000. Each of you is treated as giving $37,500, so each has a taxable gift of $18,500. - Gift tax to pay: $0. Your lifetime exemption covers the tax either way. These are 2026 figures for US citizens. Giving alone leaves $14,944,000 of the $15,000,000 exemption. When you split the gift, both returns are needed because the gift to one person is over $38,000. ## How did the lifetime gift tax exemption change from 2025 to 2026? From 2018 through 2025, the lifetime gift tax exemption started from a $10 million base and rose with inflation each year. The One Big Beautiful Bill Act raised it to $15 million for 2026. | | 2025 | 2026 | | --- | --- | --- | | Lifetime exemption | $13,990,000 | $15,000,000 (Indexed for inflation from 2027) | | Annual exclusion | $19,000 | $19,000 | | With gift splitting | $38,000 | $38,000 | | Spouse not a US citizen | $190,000 | $194,000 (Unlimited for a US citizen) | | Scheduled end | A cut to about half in 2026 | None (Congress can still change it) | As of September 2026, the IRS has not published the 2027 gift tax limits. It usually does so in the fall, and the annual exclusion can rise only in whole steps of $1,000. Gifts to grandchildren can also bring the generation-skipping transfer (GST) tax, which has its own $15 million exemption for 2026. ## Where a tax-free gift can still cost you. ### You skip Form 709 because no tax is due Leave a required gift off Form 709, and the IRS can assess gift tax on it at any time. The usual three-year limit starts only once the gift is adequately disclosed on a return. ### You give stock with a large gain (https://valim.tax/glossary/step-up-in-basis) Stock you bought for $100,000 and give away at $1 million hands the recipient your $900,000 gain. Left to them at death, the same shares carry none. ### You give ISO or ESPP shares too soon (https://valim.tax/equity-compensation/iso-taxes) Giving away ISO or ESPP shares before their holding periods end counts as a disposition, the same as a sale. You then owe income tax on the full spread at exercise or purchase, even if the price has fallen. A gift of ESPP shares after the holding periods still gives you ordinary income, up to the plan’s discount. ### You lend the down payment instead An interest-free or below-market loan can be a gift, under the Form 709 instructions. So can selling your child something for less than it is worth, even if no one calls it a gift. ### You live in Connecticut Connecticut is the only state with a gift tax, and its 2026 exemption is also $15 million. A resident who makes a taxable gift files a state gift tax return too, even with no tax due. ## A CPA plans a large gift before you make it, and files the Form 709 after. Valim is a CPA firm: your estate attorney drafts any trust, and we handle the tax side. - We prepare and file your Form 709 and carry forward your earlier gifts, so you know how much exemption is left. - We compare ways to give, such as splitting a gift or spreading it over several years. - We check shares before you give them, for the gain they carry and any ISO or ESPP holding period. - When a gift goes to a trust, we prepare the trust’s own income tax returns. - If the IRS questions a Form 709 we prepared, our reply is included in your fee. - Individual return: from $195 - Business return: from $495 We quote Form 709 as a flat fee before work starts. A CPA quotes a trust’s return after reading the trust document. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## Gift tax questions. ### How much can I give each child tax-free in 2026? You can give each child $19,000 in 2026 with no gift tax return to file. You and your spouse can give $38,000 per child with no return if each of you gives $19,000 of your own money. If one of you gives it all, splitting the gift takes a Form 709. Larger gifts go on Form 709 and use part of your $15 million lifetime exemption. No tax is due until that exemption runs out. Tuition or medical bills you pay straight to the school or provider are not gifts, so they do not use the $19,000. ### Do I owe gift tax if I give my son $75,000 toward a down payment? You owe no gift tax on $75,000 to your son unless earlier taxable gifts used up nearly all of your $15 million exemption. The first $19,000 is excluded, and you report the other $56,000 on Form 709 by April 15, 2027. That $56,000 comes off your remaining exemption. If your spouse splits the gift, each of you has a taxable gift of $18,500. You cannot deduct the gift on your income tax return. ### Can you gift someone $100,000 tax-free? Yes, you can gift someone $100,000 without paying tax, as long as your lifetime exemption is not used up. For 2026, $19,000 is excluded, and the other $81,000 goes on Form 709. If you have made no earlier taxable gifts, that leaves $14,919,000 of your $15 million exemption. If your spouse splits the gift, each of you has a taxable gift of $31,000, and you both file. If you give stock, the recipient also takes over your cost basis. ### Can I give my daughter $50,000 tax-free? Yes, you can give your daughter $50,000 without owing gift tax. If you give it on your own, $31,000 of it is a taxable gift that you report on Form 709. Your unused lifetime exemption covers the tax. If your spouse splits the gift, each of you has a taxable gift of $6,000, and you both file. Paying $50,000 of her tuition straight to her college is not a gift, so nothing is filed. ### What is the lifetime gift exemption? The lifetime gift exemption is how much you can give in taxable gifts before any federal gift tax is due. For 2026 it is $15,000,000 per person. The part of each gift above the annual exclusion uses up some of it. The estate tax draws on the same exemption, so what your gifts use is no longer there for your estate. It rises with inflation from 2027, and the law sets no end date. ### How does the IRS know if you give a gift? The IRS mostly learns of a gift because the law makes the giver report it on Form 709. After your death, your estate’s tax return adds back every taxable gift you made after 1976. If a required gift is never reported, the IRS can assess gift tax on it with no time limit. A US person who receives a large gift from a foreign person must report it too. ## Sources - 26 U.S.C. § 2503, Taxable gifts: https://www.law.cornell.edu/uscode/text/26/2503 - 26 U.S.C. § 2505, Unified credit against gift tax: https://www.law.cornell.edu/uscode/text/26/2505 - 26 U.S.C. § 2502, Rate of tax: https://www.law.cornell.edu/uscode/text/26/2502 - 26 U.S.C. § 2001, Imposition and rate of tax: https://www.law.cornell.edu/uscode/text/26/2001 - 26 U.S.C. § 2513, Gift by husband or wife to third party: https://www.law.cornell.edu/uscode/text/26/2513 - 26 U.S.C. § 2523, Gift to spouse: https://www.law.cornell.edu/uscode/text/26/2523 - 26 U.S.C. § 6501, Limitations on assessment and collection: https://www.law.cornell.edu/uscode/text/26/6501 - 26 U.S.C. § 529, Qualified tuition programs: https://www.law.cornell.edu/uscode/text/26/529 - 26 U.S.C. § 1014, Basis of property acquired from a decedent: https://www.law.cornell.edu/uscode/text/26/1014 - 26 U.S.C. § 1015, Basis of property acquired by gifts: https://www.law.cornell.edu/uscode/text/26/1015 - 26 U.S.C. § 424, Definitions and special rules: https://www.law.cornell.edu/uscode/text/26/424 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, About Form 709: https://www.irs.gov/forms-pubs/about-form-709 - IRS, Instructions for Form 709 (2025): https://www.irs.gov/pub/irs-pdf/i709.pdf - IRS, Rev. Rul. 96-56 (gifts by check), Internal Revenue Bulletin 1996-50: https://www.irs.gov/pub/irs-irbs/irb96-50.pdf - Public Law 119-21 (One Big Beautiful Bill Act), § 70106: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - IRS, Frequently asked questions on gift taxes: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes - Connecticut DRS, Estate and gift tax information: https://portal.ct.gov/drs/individuals/individual-income-tax-portal/estate-and-gift-taxes/tax-information --- URL: https://valim.tax/high-earners/alternative-minimum-tax Title: Alternative minimum tax (AMT): the 2026 exemption and phase-out Updated: 2026-09-24 # You owe the alternative minimum tax when a second calculation of your tax comes out higher. The alternative minimum tax (AMT) is a federal tax on your income with some deductions and tax breaks added back. You figure it on Form 6251, where an exemption covers part of that income. For 2026, the income above the exemption is taxed at 26% on the first $244,500 and 28% on the rest. Federal AMT for tax year 2026: - $90,100: is a single filer’s exemption, and a joint return gets $140,200. - $500K: of AMT income is where the exemption starts to shrink, or $1M for joint filers. - 50%: of your AMT income above that line comes off the exemption. You use them on the return you file in 2027. ## What triggers the alternative minimum tax? Form 6251 starts from your taxable income and adds back certain adjustments and preference items. The total is your AMT income, formally alternative minimum taxable income (AMTI). The AMT exists to limit how far those tax breaks can cut your tax. ### 1. State and local taxes you deduct The AMT allows no deduction for state and local income, sales or property taxes, so line 2a adds back what you deducted. If you take the standard deduction instead, line 2a adds that back. Taxes you deduct on a business or rental schedule stay deducted. ### 2. ISOs you exercise and keep When you exercise incentive stock options (ISOs) and keep vested shares past year end, the spread is an AMT adjustment on line 2i. The spread is the shares’ value at exercise minus the price you paid. Among stock options, only ISOs create an AMT adjustment. An NSO’s spread is already ordinary income for the regular tax, so it needs none. ### 3. Interest on private activity bonds Interest on specified private activity bonds is a preference item, added back on line 2g. Other municipal bond interest stays tax-free under the AMT. Form 1099-INT shows this interest in box 9, and a municipal bond fund reports it in box 13 of Form 1099-DIV. ### 4. Depreciation and other business items Depreciation on property placed in service after 1986 can differ under the AMT, and line 2l takes the difference. Passive activities, net operating losses, investment interest and depletion can also differ under the AMT, each on its own Form 6251 line. ### 5. A large capital gain Long-term capital gains and qualified dividends keep their 0%, 15% and 20% rates under the AMT. They still count in your AMT income, though. A large gain can push that income into the phase-out, where your exemption shrinks. Trusts and estates can owe the AMT too. For 2026, their exemption is $31,400, and it shrinks above $104,800 of AMT income. ## In this AMT calculation example, a $200,000 spread adds $51,026 of tax. A single filer with $300,000 of wages itemizes $60,000 in 2026. They exercise ISOs on vested shares with a $200,000 spread and keep the shares. - Regular tax: $53,256. Taxable income is $240,000, the wages minus the $60,000 of deductions. - Tentative minimum tax: $104,282. AMT income is $480,000, with $40,000 of state and local taxes and the $200,000 spread added back. - AMT due: $51,026. The AMT is the gap between the two. The tentative minimum tax works as a floor, so your federal income tax is the higher figure, $104,282. - Same year, no exercise: $0. AMT income would be $280,000. Its tentative minimum tax of $49,374 is below the regular tax, so no AMT is due. The regular tax uses the 2026 single brackets. The $60,000 of deductions is $40,000 of state and local tax, within the $40,400 cap, and $20,000 of mortgage interest. The full $90,100 exemption applies because $480,000 is under the $500,000 phase-out line, leaving $389,900 of taxable excess. That is taxed at 26% on the first $244,500 and 28% on the other $145,400. To estimate your own AMT, follow the same steps with your wages, deductions and spread. ## The 2026 AMT exemption and tax rates: a bigger exemption that phases out sooner than in 2025. The One Big Beautiful Bill Act made the higher exemptions permanent. For 2026, it also moved the phase-out back to its 2018 starting points and doubled its rate. | | 2025 | 2026 | | --- | --- | --- | | Exemption, single | $88,100 | $90,100 | | Exemption, joint | $137,000 | $140,200 | | Phase-out starts | $626,350 ($1,252,700 joint) | $500,000 ($1,000,000 joint) | | Phase-out rate | 25 cents a dollar | 50 cents a dollar | | Exemption gone at | $978,750 ($1,800,700 joint) | $680,200 ($1,280,400 joint) | | 28% rate above | $239,100 | $244,500 | Heads of household use the single figures. Married couples filing separately get half the joint amounts. For 2026, their $70,100 exemption is gone at $640,200, and their 28% rate starts above $122,250. The 28% line is measured on taxable excess, your AMT income minus the exemption. The 2025 column applies to returns filed in 2026, and earlier years use that year’s Form 6251 instructions. For 2027, the $500,000 and $1,000,000 thresholds are indexed for inflation for the first time. ## Which AMT rules are easy to miss? ### The phase-out taxes some income at 42% Inside the phase-out, each extra dollar of ordinary income also takes 50 cents off your exemption. That adds $1.50 to the income taxed at 28%. In a year you owe the AMT, that dollar costs 42 cents. ### Your estimated payments must cover it (https://valim.tax/glossary/safe-harbor-estimated-tax) The AMT counts toward the tax your withholding and estimated payments must cover. A safe harbor based on last year’s tax still protects you, however large this year’s AMT. ### Only some AMT comes back as a credit The credit for prior year minimum tax, on Form 8801, returns only AMT caused by deferral items. Deferral items only shift when income is taxed, as an ISO spread and depreciation do. AMT from state and local taxes, the standard deduction or private activity bond interest never comes back. ### The credit can take years to use up (https://valim.tax/equity-compensation/iso-taxes) In a later year, the credit can bring your regular tax down only to that year’s tentative minimum tax. Whatever is left carries forward with no expiry date. Selling shares from an earlier ISO exercise can speed it up. Their AMT basis includes the spread, so the AMT gain is smaller, and more of the credit can be used that year. ### A separate AMT foreign tax credit applies If you paid income tax abroad, Form 6251 gives a separate AMT foreign tax credit, on line 8. It comes off your tentative minimum tax before that is compared with your regular tax. ### California has an AMT of its own (https://valim.tax/multi-state-tax) The figures on this page are federal. California charges its own alternative minimum tax, and its credit for tax paid to other states cannot reduce it. ## AMT planning has to happen before December 31, when the tax year closes. Valim’s CPAs run your regular tax and the AMT side by side during the year, then file Form 6251 with your return. - We compare your regular tax and tentative minimum tax during the year, while you can still act. - We model your ISO exercises to show where the AMT begins, and split larger ones across years when that costs less. - We build the AMT into your quarterly payments. - We prepare Form 6251 with your return, and track any credit on Form 8801 until it is used up. - When the IRS writes about the AMT on a return we prepared, our reply is covered by your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## Alternative minimum tax questions. ### What is the AMT exemption for 2026? The AMT exemption for 2026 covers the first $90,100 of AMT income for single filers and heads of household. Married couples get $140,200 on a joint return, or $70,100 each if they file separately. You lose $1 of exemption for every $2 of AMT income above $500,000, or above $1,000,000 on a joint return. It is gone at $680,200 for single filers and heads of household, $1,280,400 joint and $640,200 for each spouse filing separately. These are the IRS’s figures in Rev. Proc. 2025-32, for returns filed in 2027. ### Who needs to pay alternative minimum taxes? You pay the alternative minimum tax in any year your tentative minimum tax, figured under the AMT rules, comes out above your regular tax. The common triggers are ISO exercises, large state and local tax deductions, private activity bond interest and depreciation differences. From 2026, the exemption starts to phase out at $500,000 of AMT income, or $1,000,000 joint, lower than in 2025. It also phases out twice as fast, so it disappears at lower incomes than before. ### Who is eligible for the alternative minimum tax? Every individual taxpayer is subject to the alternative minimum tax. So are estates and trusts that pay their own income tax. You owe it only in a year when your tax under the AMT rules is higher than your regular tax. In that year you attach Form 6251 to your return, and the AMT goes on Schedule 2, line 2. You also attach Form 6251 to claim some credits, including the credit for prior year minimum tax on Form 8801. ### How do I calculate my AMT for 2026? To calculate your AMT for 2026, take your taxable income and add back items such as state and local taxes. Subtract your exemption, which is $90,100 single or $140,200 joint, reduced by any phase-out. The first $244,500 of what remains is taxed at 26% and the rest at 28%, while capital gains and qualified dividends keep their own rates. If the result is higher than your regular tax, the difference is your AMT. ### How do I avoid the alternative minimum tax? You avoid the alternative minimum tax by limiting what raises your AMT income, most often the ISO spread you take in one year. Split large ISO exercises across tax years to reduce the AMT in any one year. A disqualifying sale in the year you exercise trades the AMT for ordinary income tax on the spread. Choose municipal bonds other than specified private activity bonds, whose interest counts for the AMT. AMT you do pay on ISOs can come back in later years as a credit. ## Sources - 26 U.S.C. § 55, Alternative minimum tax imposed: https://www.law.cornell.edu/uscode/text/26/55 - 26 U.S.C. § 56, Adjustments in computing alternative minimum taxable income: https://www.law.cornell.edu/uscode/text/26/56 - 26 U.S.C. § 57, Items of tax preference: https://www.law.cornell.edu/uscode/text/26/57 - 26 U.S.C. § 53, Credit for prior year minimum tax liability: https://www.law.cornell.edu/uscode/text/26/53 - Public Law 119-21 (One Big Beautiful Bill Act), § 70107: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Instructions for Form 6251 (2025): https://www.irs.gov/pub/irs-pdf/i6251.pdf - IRS, Instructions for Form 8801 (2025): https://www.irs.gov/pub/irs-pdf/i8801.pdf - 26 U.S.C. § 164, Taxes (the SALT cap): https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - Cal. Rev. & Tax. Code § 18001, Credit for taxes paid: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=18001 --- URL: https://valim.tax/high-earners/net-investment-income-tax Title: Net investment income tax (NIIT): the 3.8% rate and who owes it Updated: 2026-09-24 # The net investment income tax is a 3.8% federal tax on the investment income of high earners. Under Section 1411, the tax applies once your modified AGI passes the threshold for your filing status. It equals 3.8% of your net investment income or of your modified AGI above that threshold, whichever is smaller. Individuals, 2026: - 3.8%: is the NIIT rate, added on top of income tax, so an investment gain taxed at 20% can pay 23.8%. - $200,000: of modified AGI is the threshold for single and head of household filers. - $250,000: is the threshold for joint filers and surviving spouses, and $125,000 if married filing separately. The net investment income tax thresholds have stayed the same since the tax began, because Section 1411 does not index them for inflation. ## Do you owe the net investment income tax? You owe the tax only if you meet all three tests. ### 1. Your modified AGI is over your threshold For this tax, modified AGI is your adjusted gross income plus any foreign earned income you excluded. Your wages count toward it, including bonuses and RSU income. So a large vest can push your modified AGI over the threshold, and the 3.8% then falls on your investment income. ### 2. You have net investment income Net investment income is your investment income minus the expenses that go with it. On Form 8960, the deductions include investment interest and the share of state income tax that falls on investment income. If the result is zero, you owe none of this tax, however high your income. ### 3. You are a US citizen or resident Only US citizens and resident aliens owe the tax. Nonresident aliens do not, even on investment income from US sources. The net investment income tax for most estates and nongrantor trusts starts at a much lower income. For 2026, their threshold is $16,000 of AGI, where their top tax bracket begins. They pay 3.8% of their undistributed net investment income or of their AGI above that amount, whichever is less. Grantor trusts and charitable trusts do not pay it, and a grantor trust’s income counts on the grantor’s own return. ## How do you calculate the net investment income tax on Form 8960? On IRS Form 8960, line 16 takes the smaller of net investment income and modified AGI over the threshold. Line 17, the net investment income tax for individuals, is 3.8% of that amount. A married couple with $300,000 of 2026 wages and RSU income could sell a house at a $700,000 gain. - No sale: $0. Their $300,000 is over the threshold, but with no net investment income there is nothing to tax. - Main home sold: $7,600. Section 121 excludes $500,000 of the gain, and the other $200,000 is net investment income. That is the smaller amount, since their modified AGI is $250,000 over the threshold. - Second home sold: $26,600. No exclusion applies to a second home, so all $700,000 is net investment income. Their modified AGI is $750,000 over the threshold, so the $700,000 is the amount taxed. The couple files jointly, so their threshold is $250,000, and they qualify for the full $500,000 exclusion on a main home. Modified AGI is the $300,000 of pay plus the taxable gain, since they have no other income or adjustments. Regular income tax on the gain comes on top and is not shown. ## The 3.8% tax falls on investment income and leaves out pay and retirement payouts. | | Counts | Does not count | | --- | --- | --- | | Investments | Interest, dividends and capital gains (Including capital gain distributions from funds) | Interest on tax-exempt bonds | | Your main home | Gain above the exclusion | Gain you exclude (Up to $250,000, or $500,000 for a couple) | | Other real estate | Rents, and gains on a second home or rental | Rentals of a qualifying real estate professional | | Equity pay | Gain when you sell the shares | RSU and NSO income (It is taxed as pay instead) | | Business income | A passive business or a trading business (Trading securities or commodities counts even if you work in it) | A business you materially participate in | | Retirement | Annuities bought outside a plan | 401(k), IRA and pension payouts (Social Security is left out too) | Above about the same income levels, your wages face the 0.9% Additional Medicare Tax instead. You figure it on Form 8959. The two taxes never fall on the same dollar. ## How can you avoid the net investment income tax? You can avoid or reduce the net investment income tax by lowering your net investment income, your modified AGI, or both. Cutting modified AGI saves tax only when your modified AGI above the threshold is the smaller amount. ### Materially participate in the business Material participation takes a business’s operating income out of the tax. One of the seven tests is more than 500 hours of work in the business in the year. It does not help a business that trades securities or commodities. A rental stays passive however many hours you work, unless you qualify as a real estate professional. That status takes over 750 hours a year in real estate work, and more than half of your working time. A real estate professional with over 500 hours in a rental can then leave out its rents and gains. ### Hold tax-exempt bonds Interest on tax-exempt municipal bonds is left out of both net investment income and modified AGI. Interest on private activity bonds can still count toward the alternative minimum tax. ### Spread a large gain over several years With an installment sale, you report the gain as the payments arrive. Each year’s share is tested against that year’s modified AGI, which can leave less of your income above the threshold. The method is not available for publicly traded stock, such as shares from RSUs or options in a public company. ### Defer more of your pay Pre-tax 401(k) deferrals lower your AGI, and with it your modified AGI. For 2026, the deferral limit is $24,500. If your 2025 wages from your employer topped $150,000, catch-ups from age 50 must go in as Roth and do not lower AGI. Taxable payouts in retirement raise modified AGI in the years you take them. ### Give through a charitable remainder trust A charitable remainder trust pays no income tax when it sells an asset, and it pays you over time. Investment income in those payments is still net investment income to you, so the tax is spread over years. An estate attorney drafts the trust, and we model the payments and the tax. ## A CPA can estimate your NIIT before a large sale or vest. Valim’s CPAs plan for the net investment income tax before the income arrives, for high earners and the trusts they set up. - Our Tax advisory projects your 3.8% for the year and tests each way to shrink it. - We plan the estimated payments that cover this tax. - For a business or rentals you own, we sort passive from non-passive income on Form 8960, based on the hours you put into each. - We prepare Form 8960 with your federal return, or with the return of a trust that owes the tax. - If the IRS asks about Form 8960 on a return we prepared, your fee covers our reply. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## Net investment income tax questions. ### Who pays the 3.8% net investment income tax? People with net investment income pay the 3.8% net investment income tax once their modified AGI passes $200,000, or $250,000 on a joint return. The threshold is also $250,000 for a surviving spouse, $200,000 for head of household and $125,000 for a married person filing separately. The tax is 3.8% of the smaller of your net investment income and your modified AGI above the threshold. Most estates and nongrantor trusts pay it too, above $16,000 of AGI for 2026. ### What counts as net investment income? Net investment income is interest, dividends, capital gains, rents, royalties and annuities, minus the expenses that go with them. It includes gains on a second home or on most rentals, and income from a pass-through business you do not materially participate in. It also covers income from a business trading securities or commodities. Wages, self-employment income, Social Security and payouts from a 401(k) or IRA do not count. Nor do tax-exempt interest and the home-sale gain you exclude. ### Does NIIT apply to RSUs or a home sale? NIIT does not apply to RSU income, because it is taxed as wages. That income still raises your modified AGI, which decides whether the tax reaches your other investment income. A later gain on selling the shares is net investment income. On a home sale, gain within the exclusion is exempt: up to $250,000, or $500,000 for a married couple who file jointly and qualify. Gain above that amount is net investment income, and so is all the gain on a second home. ### How do I reduce NIIT? You can reduce NIIT by keeping income out of its reach or by spreading a large gain over several years. Material participation in a business, such as working in it over 500 hours a year, takes its operating income out of the tax. Rentals and securities or commodities trading follow different rules. Tax-exempt bond interest is left out of both net investment income and modified AGI, though private activity bonds can raise the alternative minimum tax. Deferring pay into a pre-tax 401(k) lowers your modified AGI. To spread a gain, you can use an installment sale or a charitable remainder trust. ### Why am I being charged a net investment income tax? You owe the net investment income tax because your modified AGI passed your threshold while you had investment income. A single large event, such as a home sale or an RSU vest, can push you over. The thresholds are not indexed for inflation, so a rising salary can do the same. No employer withholds this tax, so it often shows up as a balance due when you file. You can cover it with estimated payments, or by asking your employer to withhold more income tax. ### What is the 3.8% tax on net investment income? The 3.8% tax on net investment income is a federal surtax under Section 1411, added to your regular income tax. On long-term gains and qualified dividends, it comes on top of the 0%, 15% or 20% rate. At the 20% rate, the total federal rate is 23.8%. It is often called the 3.8% Medicare surtax, but it is separate from the 0.9% Additional Medicare Tax on earnings. You figure it on Form 8960 and attach it to your tax return. ## Sources - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - 26 C.F.R. § 1.1411-1, General rules: https://www.law.cornell.edu/cfr/text/26/1.1411-1 - 26 C.F.R. § 1.1411-3, Application to estates and trusts: https://www.law.cornell.edu/cfr/text/26/1.1411-3 - 26 C.F.R. § 1.1411-4, Definition of net investment income: https://www.law.cornell.edu/cfr/text/26/1.1411-4 - IRS, Questions and Answers on the Net Investment Income Tax: https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax - IRS, Instructions for Form 8960 (2025): https://www.irs.gov/instructions/i8960 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 57, Items of tax preference: https://www.law.cornell.edu/uscode/text/26/57 - 26 U.S.C. § 453, Installment method: https://www.law.cornell.edu/uscode/text/26/453 - 26 U.S.C. § 469, Passive activity losses and credits limited: https://www.law.cornell.edu/uscode/text/26/469 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 C.F.R. § 1.469-5T, Material participation (temporary): https://www.law.cornell.edu/cfr/text/26/1.469-5T - 26 U.S.C. § 664, Charitable remainder trusts: https://www.law.cornell.edu/uscode/text/26/664 - 26 U.S.C. § 3101, Rate of tax (Additional Medicare Tax): https://www.law.cornell.edu/uscode/text/26/3101 - IRS, Notice 2025-67 (2026 retirement plan limits): https://www.irs.gov/pub/irs-drop/n-25-67.pdf --- URL: https://valim.tax/high-earners/tax-planning-for-doctors Title: Tax planning for doctors in 2026: retirement plans and QBI limits Updated: 2026-09-24 # Tax planning for doctors centers on retirement plans and, for practice owners, the limits on the QBI deduction. Section 199A treats health as a specified service, so a medical practice’s 20% qualified business income (QBI) deduction phases out as income rises. In 2026, the deduction is gone at $553,500 of joint taxable income. Doctors paid on a W-2 get none on their wages. Retirement plans are the main shelter for owners and employees alike. A doctor at a nonprofit or public hospital may have both a 403(b) and a 457(b). Doctors, tax year 2026: - $403,500: of joint taxable income is where a medical practice’s QBI deduction starts to phase out. - $24,500: is the most you can defer from your pay into a 401(k) or 403(b), before catch-ups. - $290,000: is the cap on the yearly pension a cash balance plan can pay you, for a pension starting between 62 and 65. None of the 2027 amounts had been published as of September 24, 2026. ## Does your practice income get the QBI deduction? ### 1. You earn it as an owner QBI comes only from a business you own, or from your share of one. Wages you earn as an employee never count, so pay on a hospital or group practice W-2 gets no deduction. An S corporation owner’s salary and a partner’s guaranteed payments are left out too. ### 2. Your taxable income sets how much QBI counts Above the 2026 joint threshold, the share of QBI that counts falls evenly across a $150,000 range until none is left. For single filers, the range runs from $201,750 to $276,750. ### 3. Medical care is what triggers the phase-out The phase-out reaches any business where physicians, nurses, pharmacists, dentists, physical therapists or similar professionals provide medical services. Research, testing, and making or selling drugs or medical devices fall outside the field of health. A surgical center that bills only for the facility, with no clinicians on staff, is not a health business. ### 4. A separate business is tested on its own A business with its own books, invoices and staff is tested apart from your practice, so it can qualify when the practice cannot. If its gross receipts are $25 million or less, it is a health business only when 10% or more come from health. If the same owners, family included, hold 50% or more of both, the part that serves your practice counts as a health business. The One Big Beautiful Bill Act (P.L. 119-21) made the deduction permanent. The same law widened the joint phase-out range from $100,000 to $150,000, starting in 2026. ## What the QBI phase-out costs a practice owner in 2026. The thresholds use taxable income for the whole return, so a spouse’s pay can push a practice into the phase-out. A physician filing jointly has $300,000 of QBI from her practice. Her share of the W-2 wages it pays is $200,000. - $400,000 taxable income: $60,000. Below the threshold, all of her QBI counts. In the 24% bracket, the deduction saves $14,400 of federal tax. - $478,500 taxable income: $30,000. Halfway through the range, half of her QBI counts. In the 32% bracket, the deduction saves $9,600. - $553,500 taxable income: $0. At the top of the range, none of her QBI counts. The deduction is 20% of the QBI that counts, with taxable income measured before the deduction. At $478,500, which is $75,000 into the $150,000 phase-out range, half of her QBI and half of her wages count. The wage limit is then 50% of $100,000, or $50,000, so it does not cut the deduction. The overall cap of 20% of taxable income does not cut it either. The tax saved uses the 2026 joint brackets: 24% up to $403,550 (the bracket edge, not the QBI threshold), then 32% up to $512,450. The case assumes no capital gains and no qualified property (the depreciable assets that can raise the wage limit), and it ignores state tax. ## A 401(k) caps what goes in, and a cash balance plan caps what comes out. A practice can run a cash balance plan alongside its 401(k). A cash balance plan has no fixed dollar cap on contributions, because an actuary sets them each year to fund its pension. | | 401(k) plan | Cash balance plan | | --- | --- | --- | | What is capped | Contributions (Yours and the practice’s, each year) | The pension (The yearly benefit it pays you) | | 2026 limit | $72,000 (Or 100% of your pay, if less) | $290,000 a year (Or 100% of your average pay over your three highest-paid consecutive years, if less) | | Who sets the amount | You and the practice (Within the $72,000) | An actuary (Each year, from the pension the plan must fund) | | Starting before 62 or after 65 | The same limit | Adjusted (Lower before 62, higher after 65) | | First years in the plan | The full limit | Phased in (Over your first 10 years in it) | The limits are for 2026, from IRS Notice 2025-67. Catch-ups sit on top of the $72,000: $8,000 at 50 or older, or $11,250 if you turn 60 to 63 in 2026. Both plans count only the first $360,000 of your pay. A practice that runs both plans has a combined deduction cap, which can hold its own 401(k) contribution to 6% of pay. ## Most of a physician’s tax surprises come from how the pay arrives. ### As an employee, you cannot deduct license or CME costs (https://valim.tax/glossary/accountable-plan) An employed doctor cannot deduct job costs paid out of pocket on a federal return, such as licenses, dues or continuing medical education (CME). The 2025 One Big Beautiful Bill Act made that rule permanent. If your employer reimburses them under an accountable plan, the money stays off your W-2 and is not taxed. ### Catch-ups turn Roth above $150,000 of wages From 2026, catch-up contributions must be Roth if your 2025 wages from the employer that sponsors your plan topped $150,000. They are taxed now instead of at withdrawal, so they no longer lower this year’s taxable income. The rule does not reach owners paid only through self-employment income, such as partners. ### Moonlighting pay has no tax withheld (https://valim.tax/glossary/safe-harbor-estimated-tax) No one withholds tax from shifts paid on a Form 1099-NEC, so you must pay it yourself. Extra withholding at your W-2 job can cover moonlighting pay in place of estimated payments, even if it starts late in the year. You owe self-employment tax on that pay too, though only the Medicare part once your W-2 wages pass the Social Security wage base. ### Partners owe tax on profit the practice keeps (https://valim.tax/high-earners/tax-planning-for-lawyers) In a group practice taxed as a partnership, you owe tax on your share of profit, paid out or not. That share and any guaranteed payments are generally self-employment income as well. Our guide for lawyers works through the self-employment tax on a $500,000 partner share. ### A C corporation can tax the same profit twice (https://valim.tax/glossary/c-corporation) Profit a C corporation pays you as a dividend is taxed twice: at 21% in the corporation, then again on your own return. A professional corporation pays the same 21%, since the old 35% rate for personal service corporations ended after 2017. ## We plan your practice and your retirement savings before the year ends. Valim is a CPA firm that helps doctors in all 50 states plan their retirement contributions and practice structure, and file their returns. - We model a cash balance plan against your 401(k) alone, including its effect on your QBI deduction. - Under Tax advisory, we also compare S and C corporation status for your practice. - We prepare your practice’s Form 1120-S or 1065 and your Form 1040 together, so the QBI figures match. - We set your four estimated payments, moonlighting income included. - If the IRS or a state writes about a return we prepared, we handle the reply within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## What doctors ask about their taxes. ### What are 7 legal tax loopholes that doctors can exploit to reduce their tax bills? Doctors have seven main legal ways to cut their tax, and three of them are retirement plans. For 2026, you can defer $24,500 of pay into a 401(k) or 403(b), plus catch-ups from age 50. A doctor at a tax-exempt or government employer may defer another $24,500 into a 457(b). A practice owner can add a cash balance plan, with a pension of up to $290,000 a year starting between 62 and 65. A health savings account takes pre-tax money too, up to $4,400, or $8,750 for a family, in 2026. To contribute, you need a high-deductible health plan and, in general, no other health coverage. An owner taxed as an S corporation pays payroll tax only on a reasonable salary, and none on the rest of the profit. An owner below the income limits also gets the 20% qualified business income (QBI) deduction. An employer’s accountable plan can reimburse your license and continuing medical education costs tax-free. ### What can a doctor write off on taxes? Most tax deductions for doctors belong to practice owners, who write off the practice’s ordinary and necessary costs. These include staff pay, malpractice insurance, dues and continuing medical education. An employed doctor cannot deduct job costs paid out of pocket on a federal return, though California still allows them on its own. Pre-tax 401(k), 403(b) and HSA contributions still lower an employee’s taxable income. Buying a practice brings its own rules for equipment and goodwill, which our guide for dentists covers. ### Who gets the new $6000 tax break? The new $6,000 tax break, often called the senior deduction, goes to each taxpayer or spouse aged 65 or older by year end. It applies from 2025 through 2028, and the return must show that person’s Social Security number. A married couple must file jointly to claim it. Each $6,000 shrinks by 6% of modified AGI above $75,000 ($150,000 joint), and it is gone at $175,000 ($250,000 joint). Most working doctors are under 65 or earn too much to claim it. ### Can doctors take the QBI deduction? Yes, doctors who own their practice can take the 20% QBI deduction, but in full only below $403,500 of joint taxable income in 2026. Because health is a specified service, the deduction then phases out and is gone at $553,500. For single filers, it phases out between $201,750 and $276,750. An employed doctor gets none, since wages are not business income. If your practice is an S corporation, the salary it pays you does not count as QBI. ### Can a doctor contribute to both a 403(b) and a 457(b)? Yes, a doctor can contribute to both a 403(b) and a 457(b) when a tax-exempt or government employer offers both plans. A 457(b) is a deferred compensation plan those employers can run, and its $24,500 limit for 2026 is separate from the 403(b)’s. Together, the two plans let you defer up to $49,000 of pay before any catch-up, less any employer money put in the 457(b). At a tax-exempt hospital, 457(b) money belongs to the employer until it is paid, so the employer’s creditors can reach it. A government plan holds it in trust for you. ## Sources - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 C.F.R. § 1.199A-5, Specified service trades or businesses: https://www.law.cornell.edu/cfr/text/26/1.199A-5 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Notice 2025-67 (2026 retirement plan limits): https://www.irs.gov/pub/irs-drop/n-25-67.pdf - IRS, Rev. Proc. 2025-19 (2026 HSA limits): https://www.irs.gov/pub/irs-drop/rp-25-19.pdf - 26 U.S.C. § 415, Limitations on benefits and contribution under qualified plans: https://www.law.cornell.edu/uscode/text/26/415 - 26 U.S.C. § 404, Deduction for contributions of an employer to an employees’ trust: https://www.law.cornell.edu/uscode/text/26/404 - 26 U.S.C. § 414, Definitions and special rules (catch-up contributions): https://www.law.cornell.edu/uscode/text/26/414 - 26 U.S.C. § 457, Deferred compensation plans of State and local governments and tax-exempt organizations: https://www.law.cornell.edu/uscode/text/26/457 - IRS, How much salary can you defer if you’re eligible for more than one retirement plan?: https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan - 26 U.S.C. § 223, Health savings accounts: https://www.law.cornell.edu/uscode/text/26/223 - 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions: https://www.law.cornell.edu/uscode/text/26/67 - FTB, 2025 Instructions for Schedule CA (540): https://www.ftb.ca.gov/forms/2025/2025-540-ca-instructions.html - 26 C.F.R. § 1.62-2, Reimbursements and other expense allowance arrangements: https://www.law.cornell.edu/cfr/text/26/1.62-2 - 26 U.S.C. § 162, Trade or business expenses: https://www.law.cornell.edu/uscode/text/26/162 - 26 U.S.C. § 1401, Rate of tax (self-employment income): https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 11, Tax imposed (corporations): https://www.law.cornell.edu/uscode/text/26/11 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 - 26 U.S.C. § 151, Allowance of deductions for personal exemptions: https://www.law.cornell.edu/uscode/text/26/151 --- URL: https://valim.tax/high-earners/tax-planning-for-dentists Title: Tax planning for dentists: buying a practice and your deductions Updated: 2026-09-24 # Tax planning for dentists starts before you buy a practice, because the price allocation sets your deductions for 15 years. When you buy a dental practice’s assets, the price is split among them, and the tax rules differ by asset. Equipment acquired after January 19, 2025 can be deducted in full in the year you start using it, with 100% bonus depreciation. Goodwill, the patient base and the seller’s noncompete are Section 197 intangibles, amortized evenly over 15 years. Dental practices, tax year 2026: - 100%: of the cost of qualifying equipment is deductible on your federal return in its first year, used equipment included. - 15 years: is the schedule for goodwill and a noncompete, counted from the month you buy. - $2,560,000: is the most you can expense under Section 179 in 2026, if your business income and wages cover it. Any Section 179 amount your income cannot cover carries forward to the next year. ## Can you deduct a dental chair in the year you start using it? ### 1. Acquired after January 19, 2025 The 2025 tax law, P.L. 119-21, made 100% bonus depreciation permanent for property acquired after January 19, 2025. If you signed a written binding contract for equipment on or before that date, it counts as acquired on the contract date. That equipment does not get the 100% rate. ### 2. New to you, even if used Used equipment, such as the chairs and imaging you buy from a retiring dentist, qualifies for bonus depreciation. It qualifies only if you never used it before the purchase. ### 3. Bought from an unrelated seller Used equipment bought from a related party gets no bonus depreciation. Neither does used equipment you take on at the seller’s tax basis, rather than at the price you paid. ### 4. A recovery period of 20 years or less Bonus depreciation covers equipment and other property depreciated over 20 years or less, plus certain software. Goodwill and the other Section 197 intangibles never qualify. These tests are federal. California’s income tax allows no bonus depreciation. ## How much of a $1.2 million practice purchase can you deduct in 2026? In an asset purchase, Section 1060 makes buyer and seller split the price by the residual method. Each class of assets gets up to its fair market value, and whatever is left goes to goodwill. A written allocation you both sign binds each of you, unless the IRS finds it inappropriate. You each report it on Form 8594. A calendar-year dentist buys a practice’s assets for $1,200,000 on July 1, 2026: $300,000 for used equipment, $900,000 for goodwill and other intangibles. - Equipment in 2026: $300,000. Bonus depreciation deducts all of it. - Goodwill in 2026: $30,000. Only six months of amortization fall in 2026. - First-year total: $330,000. That is 27.5% of the price. - Each year from 2027: $60,000. The goodwill is amortized at this rate until mid-2041. The $900,000 covers goodwill, the patient base and a five-year noncompete. Section 197 spreads it evenly over 180 months, which is $5,000 a month, or $60,000 in each full year. The equipment passes all four bonus depreciation tests above, so it gets the full 100%. Electing Section 179 instead would give the same $300,000, subject to its income limit. All figures are federal deductions from taxable income. ## A 1099 associate can deduct job costs a W-2 associate cannot, but pays both halves of Social Security and Medicare. Tax deductions for dentists who work as associates depend on whether the practice pays you on a W-2 or a 1099. A 1099 associate who is truly an independent contractor is self-employed for tax. As a sole proprietor, you deduct costs such as continuing education and malpractice insurance on Schedule C. | | W-2 associate | 1099 associate | | --- | --- | --- | | Your own costs | Not deductible (Your practice may repay them) | Deductible (On Schedule C, against your 1099 pay) | | Payroll tax | 7.65% (Your share, withheld from pay) | 15.3% (Self-employment tax on 92.35% of profit) | | QBI deduction | None (Wages do not count) | Up to 20% of profit (Phased out at the top) | | Tax during the year | Withheld by the practice | Estimated tax (Four installments, the first due April 15) | The Social Security part, 6.2% for employees and 12.4% for the self-employed, stops at $184,500 of 2026 earnings. An extra 0.9% Medicare tax applies above $200,000 of earnings, or $250,000 on a joint return. Hygienists and assistants on a W-2 cannot deduct unreimbursed job costs, the same as a W-2 associate. P.L. 119-21 made that rule permanent. ## Owning a practice brings six tax rules dentists often miss. ### A short noncompete still takes 15 years The seller’s covenant not to compete is amortized over 15 years, even if it lasts only three. Nothing is written off when it expires. The Code keeps it on the schedule until you dispose of the whole practice. ### Dentistry counts as health for the QBI deduction (https://valim.tax/high-earners/tax-planning-for-doctors) The QBI regulations name dentists in the field of health, so a dental practice is a specified service business. Its 20% QBI deduction phases out at the same 2026 thresholds as a medical practice. ### A low S corporation salary has two costs (https://valim.tax/small-business/s-corp-taxes) If your S corporation pays you below a reasonable salary, the IRS can reclassify distributions as wages and collect payroll tax on them. A low salary also limits profit sharing, because the practice can deduct contributions only up to 25% of participants’ pay. If you are the only participant, a $150,000 salary caps the deduction at $37,500. ### A partner’s guaranteed payments are not QBI (https://valim.tax/high-earners/tax-planning-for-lawyers) If your group practice files as a partnership, a guaranteed payment for your work is not QBI. An S corporation salary is excluded the same way. The payment is still self-employment income, and the practice deducts it. ### Last year’s tax can set this year’s payments (https://valim.tax/glossary/safe-harbor-estimated-tax) When income jumps after you buy a practice, base your estimated payments on last year’s return. Paying 100% of last year’s tax avoids the federal penalty, or 110% if that year’s AGI was over $150,000 ($75,000 married filing separately). Pay it in four equal installments, on time. ### A dental corporation’s stock gets no gain exclusion when you sell (https://valim.tax/equity-compensation/qsbs) The QSBS exclusion never applies to stock in your dental corporation, however long you hold it. Section 1202 excludes businesses in the field of health. ## Plan the purchase with a CPA before you sign, and file with the same team every year after. Valim’s CPAs plan the tax side of practice purchases and equipment deductions for dentists. We file dentists’ federal and state returns in all 50 states. - We review the price allocation before you sign, and plan the practice’s profit sharing each year, as part of Tax advisory. - We compare an S corporation with your current setup, payroll costs included. - We set your quarterly payments once you own the practice. - We file the practice’s return and yours from your bookkeeper’s year-end books, plus Form 8594 in the year you buy. - We answer any IRS or state notice on a return we prepared, within your fee. - Business return: from $495 - Individual return: from $195 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## Dentists’ tax planning questions. ### What are some tax loopholes for dentists? The main tax strategies for dentists are written rules, and several come with buying a practice. Equipment bought with the practice can be expensed in its first year, and purchased goodwill is amortized over 15 years. A 401(k) with profit sharing lets the practice add to your own deferrals. Your share of practice profit can also get the 20% QBI deduction. At or below $403,500 of joint taxable income in 2026, the limit for health businesses does not reduce it. ### How do you deduct the cost of buying a dental practice? When you buy a practice’s assets, you deduct the price asset by asset, following the allocation you and the seller sign. The share allocated to equipment can be written off in its first year, with 100% bonus depreciation or Section 179. The share allocated to goodwill, the patient base, the staff you keep on and the seller’s noncompete is amortized over 15 years. Buyer and seller each report the allocation to the IRS on Form 8594. ### How much can a dentist put into a 401(k) in 2026? In 2026, a dentist’s 401(k) can take up to $72,000 from all sources before catch-ups, or 100% of pay if less. At 45, an owner paid $300,000 by an S corporation can defer $24,500, leaving $47,500 for the practice to add. The same owner at 61 gets the larger catch-up for ages 60 to 63, $11,250, which raises the total to $83,250. That catch-up must be Roth if the owner’s 2025 wages from the practice topped $150,000. A cash balance plan can add more, because the law caps the pension it pays and an actuary sets the contribution. ## Sources - 26 U.S.C. § 197, Amortization of goodwill and certain other intangibles: https://www.law.cornell.edu/uscode/text/26/197 - 26 U.S.C. § 168, Accelerated cost recovery system (bonus depreciation): https://www.law.cornell.edu/uscode/text/26/168 - 26 C.F.R. § 1.197-2, Amortization of goodwill and certain other intangibles: https://www.law.cornell.edu/cfr/text/26/1.197-2 - 26 U.S.C. § 179, Election to expense certain depreciable business assets: https://www.law.cornell.edu/uscode/text/26/179 - 26 C.F.R. § 1.179-2, Limitations on amount subject to section 179 election: https://www.law.cornell.edu/cfr/text/26/1.179-2 - Cal. Rev. & Tax. Code § 17250 (bonus depreciation does not apply): https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17250 - 26 U.S.C. § 1060, Special allocation rules for certain asset acquisitions: https://www.law.cornell.edu/uscode/text/26/1060 - IRS, Instructions for Form 8594: https://www.irs.gov/instructions/i8594 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 C.F.R. § 1.199A-5, Specified service trades or businesses: https://www.law.cornell.edu/cfr/text/26/1.199A-5 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 - 26 U.S.C. § 707, Transactions between partner and partnership: https://www.law.cornell.edu/uscode/text/26/707 - IRS, S corporation compensation and medical insurance issues: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions: https://www.law.cornell.edu/uscode/text/26/67 - 26 C.F.R. § 1.62-2, Reimbursements and other expense allowance arrangements: https://www.law.cornell.edu/cfr/text/26/1.62-2 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 404, Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan: https://www.law.cornell.edu/uscode/text/26/404 - 26 U.S.C. § 414, Definitions and special rules (catch-up contributions): https://www.law.cornell.edu/uscode/text/26/414 - 26 U.S.C. § 415, Limitations on benefits and contribution under qualified plans: https://www.law.cornell.edu/uscode/text/26/415 - IRS, Notice 2025-67 (2026 retirement plan limits): https://www.irs.gov/pub/irs-drop/n-25-67.pdf --- URL: https://valim.tax/high-earners/tax-planning-for-lawyers Title: Tax deductions for lawyers in 2026: K-1s, QBI and state returns Updated: 2026-09-24 # Tax deductions for lawyers come with owning the practice, as a partner or on your own. A practice you own deducts its ordinary and necessary costs under Section 162. If the practice is a partnership, S corporation or sole proprietorship, you can also take the 20% QBI deduction. Law is a specified service, so that deduction phases out as your taxable income rises. A lawyer on a W-2 gets neither. Law practice owners, 2026: - $403,500: is the joint taxable income where the QBI deduction for a law practice starts to shrink. It is gone at $553,500. - 15.3%: is the self-employment tax rate on 92.35% of practice earnings, up to the $184,500 Social Security wage base. - 110%: of last year’s tax, paid on schedule, avoids the underpayment penalty once last year’s AGI tops $150,000. For single filers, the phase-out starts at $201,750 and ends at $276,750. For married people filing separately, the 110% rule starts above $75,000 of AGI. The 2027 amounts are expected in October or November 2026. ## A lawyer’s cost must pass four tests to be deductible. ### 1. You own the practice Practice costs are deductible when the practice is yours, alone or as a partner. A partner who pays a firm cost personally can deduct it only when two things hold. The partnership agreement must require the payment, and the firm must not repay it. If you are on a W-2, bar dues or continuing legal education (CLE) you pay yourself are not deductible. That deduction was suspended starting in 2018, and the suspension is now permanent. An accountable plan lets the firm repay those costs without adding the money to your taxable wages. ### 2. The cost is ordinary and necessary Staff pay, rent, research services and malpractice insurance are ordinary and necessary costs of a law practice. Section 162 lets the practice deduct each of them. Bar association dues qualify too, except any part the association tells you goes to lobbying or political campaigns. ### 3. The course keeps your skills current CLE is deductible because it maintains skills your practice already requires. Law school and a bar review course are not, since they meet the minimum education needed to practice at all. ### 4. The cost is not personal Personal, living and family costs are not business deductions, even when you own the practice. Suits and other clothes you could wear outside work generally count as personal. When the firm pays these costs, it deducts them itself, so your share of profit on the K-1 is already lower. ## How much self-employment tax does a partner owe on $500,000? A law firm partner with $500,000 of practice earnings owes about $38,175 of self-employment tax for 2026. She deducts $18,134 of it. The partner files jointly, all $500,000 comes from her firm, and no one in the household has wages. - Social Security, 12.4%: $22,878. It applies only to the first $184,500 of her $461,750 of net earnings. - Medicare, 2.9%: $13,391. Medicare has no cap, so it applies to all $461,750. - Additional Medicare, 0.9%: $1,906. It applies to the $211,750 above the $250,000 joint threshold. - Total self-employment tax: $38,175. She pays it through her estimated payments, on top of her income tax. - Deduction for half: $18,134. She deducts half of the Social Security and 2.9% Medicare parts. The 0.9% part is not deductible. Self-employment tax falls on 92.35% of her $500,000, which is $461,750 of net earnings from self-employment. The example treats all $500,000 as earned from self-employment, as a partner’s share generally is. Amounts are rounded to the dollar, and income tax is not shown. ## What changes when a lawyer makes partner? These rules apply to a partner in a firm taxed as a partnership. | | On a W-2 | On a K-1 | | --- | --- | --- | | When pay is taxed | In the year you are paid | In the year the firm earns it (Even if the firm keeps the cash) | | Income tax withheld | From each paycheck | None (You pay as you go) | | Payroll tax | Half paid by the firm | All paid by you (As self-employment tax) | | QBI deduction | None on wages | On your profit share | Guaranteed payments are what the firm pays you for your work, whatever its profit. The firm deducts them and you are taxed on them, but they never count as QBI. ## Five tax rules that catch lawyers off guard. ### Your spouse’s wages use up the 0.9% threshold The 0.9% Additional Medicare Tax starts at $250,000 of joint earnings, and wages count first. If your spouse earns $200,000 in wages, only $50,000 of your self-employment income stays under the line. No one withholds this tax on a K-1, so build it into your estimated payments. ### Withholding counts toward every quarter (https://valim.tax/glossary/safe-harbor-estimated-tax) On a joint return, extra withholding from a spouse’s W-2 pay can make up for a quarter you underpaid, even late in the year. ### Other states tax your share of firm income (https://valim.tax/multi-state-tax/new-york-nonresident) Each state where the firm earns income can tax a nonresident partner on the share of income earned in that state. New York, for example, taxes your distributive share of New York partnership income. Your home state usually credits that tax, but only up to its own tax on the same income. ### A lump-sum buyout can stay taxable in your old state (https://valim.tax/multi-state-tax) Federal law bars a state from taxing certain retirement income of a nonresident. That includes a written plan paying a retired partner for past service, if it was in effect before retirement began. The payments must come at least yearly, in substantially equal amounts, for your life, your life expectancy or at least 10 years. A lump-sum buyout fails that test, so the state you left may still tax it. ### A flat 22% on a bonus can leave tax owing (https://valim.tax/high-earners/tax-planning-for-executives) Employers may withhold federal tax on a bonus at a flat 22%. The 37% rate is required only on supplemental pay above $1 million in a year. An associate or in-house lawyer in the 32% or 35% bracket can owe the difference at filing. ## Our tax planning for lawyers starts with the income your practice expects this year. Valim’s CPAs help law firm partners and solo lawyers plan the tax on their practice income, and file their federal and state returns. - We size each quarterly payment from the guaranteed payments and profit share you expect. - We project your taxable income before year end, so you know how much of the QBI deduction the phase-out leaves you. - We compare filing your own nonresident returns with joining the firm’s composite (group) return. Then we file what you need and claim your home state’s credit. - We prepare a small firm’s Form 1065 and its partners’ K-1s, or a solo lawyer’s Schedule C, once your bookkeeper closes the year. - If a state or the IRS sends a notice on a return we prepared, we respond, and the work is included in your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## What do lawyers ask about their taxes? ### What can lawyers write off on taxes? An owner can write off the practice’s ordinary and necessary costs, such as bar dues, malpractice insurance and staff pay. Continuing legal education (CLE) is deductible too. Partners and sole proprietors also deduct half of their self-employment tax, not counting the 0.9% Additional Medicare Tax. Owners of a pass-through practice may qualify for the QBI deduction as well. Law school and a bar review course are not deductible, and everyday suits generally are not either. A lawyer on a W-2 cannot write off job costs paid personally, so ask the firm to repay them through an accountable plan. ### What are the 10 most overlooked tax deductions? There is no official list, and the deductions most often missed depend on how you earn. A partner or solo lawyer can deduct half of self-employment tax. Below the income threshold, law’s status as a specified service does not reduce the QBI deduction. Retirement plan contributions lower taxable income as well, and a practice can add its own contributions on top of your deferrals. A solo practitioner claims the practice’s costs on Schedule C. ### Can you deduct lawyer fees off your taxes? You can deduct lawyer fees that are a cost of running your business. Fees paid to buy a business asset are added to its cost basis instead. Personal legal fees, such as fees for a divorce, separation or support, are not deductible. Legal fees for producing taxable income are no longer deductible on Schedule A, since that deduction’s suspension from 2018 is now permanent. Fees in unlawful discrimination and certain whistleblower cases are deductible above the line, so you need not itemize. The deduction is capped at the settlement or award you include in income. ### How are law firm partners taxed? A law firm partner owes tax on a share of the firm’s profit, paid out or kept in the firm, plus any guaranteed payments. Both generally count as self-employment income, so the partner pays all of the Social Security and Medicare tax. No income tax is withheld, and estimated payments are due April 15, June 15, September 15 and January 15 of the next year. Paying the safe harbor amount on time avoids the underpayment penalty. ### Do lawyers qualify for the QBI deduction? Yes, a lawyer who owns a pass-through practice can claim the 20% QBI deduction. Law is a specified service, though, so the deduction has an income limit. For 2026, the deduction shrinks once joint taxable income passes $403,500 ($201,750 for single filers) and is gone at $553,500 ($276,750). Wages never count, and neither do the guaranteed payments on a partner’s K-1. The field of law includes paralegals, arbitrators and mediators, but not work that needs no legal skill, such as printing or delivery. A worked example on the doctors page shows the same phase-out in dollars. ## Sources - 26 U.S.C. § 162, Trade or business expenses: https://www.law.cornell.edu/uscode/text/26/162 - 26 C.F.R. § 1.162-5, Expenses for education: https://www.law.cornell.edu/cfr/text/26/1.162-5 - 26 C.F.R. § 1.162-15, Contributions, dues, etc.: https://www.law.cornell.edu/cfr/text/26/1.162-15 - 26 C.F.R. § 1.62-2, Reimbursements and other expense allowance arrangements: https://www.law.cornell.edu/cfr/text/26/1.62-2 - 26 U.S.C. § 262, Personal, living, and family expenses: https://www.law.cornell.edu/uscode/text/26/262 - 26 C.F.R. § 1.262-1, Personal, living, and family expenses: https://www.law.cornell.edu/cfr/text/26/1.262-1 - 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions: https://www.law.cornell.edu/uscode/text/26/67 - 26 U.S.C. § 62, Adjusted gross income defined: https://www.law.cornell.edu/uscode/text/26/62 - IRS, Publication 334 (2025), Tax Guide for Small Business: https://www.irs.gov/publications/p334 - IRS, 2025 Instructions for Schedule E (Form 1040): https://www.irs.gov/instructions/i1040se - 26 U.S.C. § 707, Transactions between partner and partnership: https://www.law.cornell.edu/uscode/text/26/707 - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 C.F.R. § 1.199A-5, Specified service trades or businesses: https://www.law.cornell.edu/cfr/text/26/1.199A-5 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 164, Taxes (deduction for half of self-employment tax): https://www.law.cornell.edu/uscode/text/26/164 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - New York State DTF, 2025 Instructions for Form IT-203: https://www.tax.ny.gov/pdf/2025/inc/it203i_2025.pdf - 4 U.S.C. § 114, Limitation on State income taxation of certain pension income: https://www.law.cornell.edu/uscode/text/4/114 --- URL: https://valim.tax/high-earners/tax-planning-for-executives Title: Executive tax planning in 2026: deferred pay, bonuses and equity Updated: 2026-09-24 # Executive tax planning is mostly about when your pay is taxed, and whether enough tax is withheld on it. Bonuses and RSU income are wages, taxed at federal rates of up to 37% for 2026. Your employer may still withhold only 22% on them, and the gap comes due with your return. Executive pay, federal rules for 2026: - Dec. 31: is the usual last day to elect to defer salary or a bonus for work you do next year, under Section 409A. - $1M: of supplemental wages in a calendar year is where your employer must start withholding 37%. - 3x: your base amount is where change-in-control pay starts to carry a 20% excise tax. The One Big Beautiful Bill Act (P.L. 119-21) made the individual tax rates permanent, so the 22% and 37% withholding rates stay. The $1 million line is not indexed for inflation. ## Can you defer next year’s pay? Section 409A sets the rules for nonqualified deferred compensation. If your plan meets them, income tax on deferred pay usually waits until you are paid. Four of the rules govern your own elections and payouts. ### 1. You elect before you earn the pay For salary and an annual bonus, the election is due by the end of the year before you do the work. When you first become eligible for a plan of this type, you get 30 days to elect. That election covers only work done after it. For performance pay over at least 12 months, a plan can allow elections until six months before the period ends. The amount must still be uncertain when you elect. ### 2. The plan pays only on set events A plan can pay you only on a date or schedule set when you deferred, or on one of five events. The events are separation from service (leaving the company), disability, death, a change in control and an unforeseeable emergency. Neither you nor the company can bring a payment forward, outside a few exceptions in the regulations. ### 3. Public company key employees wait six months If you are a specified employee, meaning a key employee of a public company, pay due on leaving waits six months after you go. It can be paid sooner only on your death. ### 4. A later change adds five years You can push a payment back, but the new election takes effect only after 12 months. It must delay the payment by at least five years, unless the payment is for death, disability or an emergency. For a payment on a fixed date, you must make the change at least 12 months before that date. If a plan fails Section 409A, your vested deferrals under it for this year and earlier years become taxable at once, unless already taxed. You also owe an extra 20% of that amount. Interest is added at the IRS underpayment rate plus one percentage point, as if the pay had been taxed when deferred or vested. ## A $700,000 bonus can still leave $60,000 to pay at filing. RSU income counts as supplemental wages too, so your vests use up part of the $1 million before a bonus arrives. Your RSU vests this year come to $600,000, and a $700,000 bonus follows in December. - Tax on the bonus: $259,000. All of the bonus is taxed at 37%. - Withheld at 22%: $88,000. That is 22% of the first $400,000, if your employer uses the flat rate. - Withheld at 37%: $111,000. That is 37% of the $300,000 that takes your year past $1 million. - Left to pay: $60,000. You owe this at filing, unless more withholding or estimated payments cover it first. These are 2026 federal figures for a joint return. Your taxable income passes $768,700 before the bonus, so the whole bonus falls in the 37% bracket. The $1 million counts supplemental wages from your employer and any business under common control. With your wages past the $184,500 Social Security limit, the bonus adds only Medicare tax: 1.45%, plus the 0.9% Additional Medicare Tax. Your employer withholds both. State income tax is separate. ## One dollar can decide the golden parachute tax. The golden parachute excise tax is 20% of change-in-control payments above your base amount, owed once those payments reach 3 times that base amount. Your base amount is your average taxable pay from the company over the five tax years before the change. If you joined later, only your years there count. If you prove, by clear and convincing evidence, that some of the pay is reasonable compensation for your work, the amount taxed can fall. Here the base amount is $500,000, so the line falls at $1.5 million. | | Under 3 times | 3 times or more | | --- | --- | --- | | Payments tied to the change | $1,499,999 (Present value) | $1,500,000 (Present value) | | Excess parachute payment | $0 | $1,000,000 (The payments minus one times the base amount) | | Your 20% excise tax | $0 | $200,000 (On top of income tax) | | The company’s deduction | Kept | Lost on $1,000,000 | The rule covers officers, owners of more than 1% of the stock by value and the most highly paid individuals. Payments from a company that could elect S corporation status are exempt. Payments from a private company are also exempt when owners of more than 75% of its voting power approve them after adequate disclosure. That vote must decide if you receive them, so an advisory vote does not count. ## Five rules executives tend to miss. ### Two incomes can leave Medicare tax underwithheld A joint return owes the 0.9% Additional Medicare Tax on combined wages above $250,000. Your employer withholds it only on what it pays you above $200,000, whatever your spouse earns. If you earn $400,000 and your spouse $100,000, $1,800 is withheld against $2,250 due. You pay the other $450 with your return, on Form 8959. ### Payroll tax on deferred pay comes years early Social Security and Medicare tax on deferred pay is generally due once the work is done and the pay has vested. That is usually years before the payout. If your employer taxed it then, the payout is not taxed for payroll again. ### A trading plan leaves the tax on each sale unchanged (https://valim.tax/glossary/10b5-1-plan) Sales under a Rule 10b5-1 plan are taxed like any other sale, with the gain still the price minus your cost basis. The plan fixes your sales in advance, which gives you a defense against insider trading claims. As an officer or director, your first sale must wait 90 to 120 days after you adopt the plan. ### Section 83(i) is closed to top officers (https://valim.tax/equity-compensation/nso-taxes) At an eligible private company, Section 83(i) can put off income tax on option or RSU shares for up to five years. Anyone who is or was the CEO or CFO cannot use it, and neither can their relatives. The rule also shuts out 1% owners and the four highest-paid officers, now or in the past 10 years. ### Withholding can stand in for quarterly estimates (https://valim.tax/high-earners/tax-planning-for-lawyers) The IRS treats your withholding as paid in four equal parts on the estimated tax due dates, even if most came out in December. That lets extra December withholding cover a spring shortfall without quarterly estimated payments. Two safe harbors avoid the underpayment penalty: paying 90% of this year’s tax, or 110% of last year’s. The 110% applies once last year’s AGI passed $150,000, or $75,000 if married filing separately. ## Have a CPA plan your pay before it is taxed. Our CPAs help executives plan when their pay and stock are taxed, and file the federal and state returns that follow. - We weigh a deferral election against taking the pay now, before your plan’s deadline. - We compare what your employer withholds on each bonus and vest with the tax it will cost. We also work out the December withholding or estimated payments that close the gap. - We time option exercises and share sales around your brackets, and plan the tax on the sales your 10b5-1 plan makes. - We plan the tax on change-in-control pay before a deal closes. - If the IRS writes about your withholding on a return we prepared, the reply is part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## What do executives ask about deferred pay and bonus tax? ### Can you give me an example of tax planning? One example is deferring the bonus you will earn next year, if your company offers a plan for it. If you elect by December 31 and the plan meets Section 409A, income tax usually waits until you are paid. Another is selling shares after more than a year, which cuts the top federal income tax rate on the gain from 37% to 20%. Above $200,000 of modified AGI, or $250,000 on a joint return, the 3.8% net investment income tax is added, for 23.8%. ### Is a bonus taxed at 22% or 37%? Both 22% and 37% are withholding rates, and neither one sets the tax on a bonus. A bonus is wages, taxed at your own federal rate, which runs from 10% to 37% for 2026. Your employer may withhold a flat 22% on supplemental wages up to $1 million a year, and must use 37% above that. Your return then settles the difference, as a refund or a balance due. ### When do I have to elect to defer my bonus? You elect by December 31 of the year before you earn the bonus, under Section 409A. A bonus for 12 months or more of performance can be elected until six months before the period ends, if your plan allows. The bonus amount must still be unknown when you elect. If you are newly eligible for this type of plan, you have 30 days, but only for pay you earn after electing. A bonus paid by March 15 of the year after it vests usually falls outside Section 409A, because it is not deferred. ## Sources - 26 U.S.C. § 409A, Deferred compensation under nonqualified plans: https://www.law.cornell.edu/uscode/text/26/409A - 26 C.F.R. § 1.409A-1, Definitions and covered plans: https://www.ecfr.gov/current/title-26/section-1.409A-1 - 26 C.F.R. § 1.409A-2, Deferral elections: https://www.ecfr.gov/current/title-26/section-1.409A-2 - 26 C.F.R. § 31.3402(g)-1, Supplemental wage payments: https://www.ecfr.gov/current/title-26/section-31.3402(g)-1 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - Public Law 119-21 (One Big Beautiful Bill Act), § 70101: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - 26 U.S.C. § 3101, Rate of tax (Additional Medicare Tax): https://www.law.cornell.edu/uscode/text/26/3101 - 26 U.S.C. § 3121, Definitions (Social Security and Medicare wages): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 280G, Golden parachute payments: https://www.law.cornell.edu/uscode/text/26/280G - 26 C.F.R. § 1.280G-1, Golden parachute payments (questions and answers): https://www.ecfr.gov/current/title-26/section-1.280G-1 - 26 U.S.C. § 4999, Golden parachute payments (the 20% excise tax): https://www.law.cornell.edu/uscode/text/26/4999 - 17 C.F.R. § 240.10b5-1, Trading on the basis of material nonpublic information in insider trading cases: https://www.ecfr.gov/current/title-17/section-240.10b5-1 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 --- URL: https://valim.tax/high-earners/tax-planning-for-pilots Title: Airline pilot taxes: the state rule, per diem and retirement Updated: 2026-09-24 # Airline pilot taxes depend on where you live, because federal law keeps most other states from taxing your pay. A federal law, 49 U.S.C. 40116, limits which states can tax an airline pilot’s pay. Your home state can tax all of it. Another state can tax it only if more than half your scheduled flight time is there. Live in Florida, which has no income tax on individuals, and you generally owe no state tax on your airline pay. Airline pilots, 2026: - 50%: is the share of your scheduled flight time another state must exceed before it can tax your airline pay. - $80: a day is the IRS meals and incidentals rate for transportation workers, including airline crews, in the continental US. - 55: is the age that frees the airline’s 401(k) from the 10% additional tax, if you leave in or after the year you reach it. Outside the continental US, the transportation rate is $86 a day. Both rates apply from October 1, 2025, and IRS Notice 2026-60 keeps them for the year starting October 1, 2026. ## Which states can tax your airline pay? The first two tests decide whether the federal rule for airline crews covers you. The last two decide which states can tax your pay. ### 1. An air carrier employs you The federal rule covers employees of an air carrier, such as airline pilots and flight attendants. Ground staff fall outside it, even at the same airline, because their duties are not on aircraft. ### 2. You fly in at least two states The rule applies only if your regularly assigned duties are on aircraft in two or more states. Washington, DC and US territories count as states for this rule. ### 3. Your state of residence can tax all of it The federal rule does not define residence, so each state’s own residency law decides whether you live there. The state that counts you as a resident can tax all your airline pay, wherever you fly or are based. ### 4. Another state needs over half your scheduled flight time The test adds up your scheduled flight time in each state over the calendar year. Only the schedule counts, so delays and diversions do not change which state, if any, passes the 50% mark. Most wages are taxed in each state where the work is done. Your airline pay is the exception, under 49 U.S.C. 40116(f), and your crew base has no claim of its own. The same limits apply to local income taxes, and to pay for authorized leave to work for your union. ## What does a $100,000 withdrawal at 58 cost in extra tax? Retirement withdrawals before 59½ carry a 10% additional tax, unless an exception applies. Where the money sits, and when you left the airline, can decide whether you owe it. A former airline pilot withdraws $100,000 of pre-tax savings at age 58. - From the 401(k), left at 58: $0. You left the airline well after the year you turned 55, so its plan can pay you without the extra tax. - From an IRA, after a rollover: $10,000. The age-55 exception does not apply to IRAs, so the rollover gave it up. - From the 401(k), left at 53: $10,000. You left before the year you turned 55, so the exception never applied. The extra tax is 10% of the taxable amount, under Section 72(t). Ordinary income tax on the $100,000 is due in every row and is not shown. Other exceptions, such as substantially equal periodic payments, are left out. ## What California can tax depends on whether you live there. California can tax a nonresident pilot’s airline pay only if more than half their scheduled flight time is in California. It cannot tax their pension, 401(k) or IRA payouts. It taxes its residents on all income, wherever it comes from. The rows compare two pilots based at a California airport, one living in the state and one outside it. | | Lives in California | Lives elsewhere | | --- | --- | --- | | Airline pay | All of it | None (Unless more than half your scheduled flight time is in California) | | Rent on a home there | All of it | All of it (California taxes income from real property in the state, wherever you live) | | Pensions, 401(k)s and IRAs | All of it | None (Federal law bars California from taxing it) | In the year you move out, California taxes all of your income for the months you lived there. After the move, it taxes you as a nonresident, so the limits on airline pay and retirement payouts apply. ## Which tax mistakes cost airline pilots money? ### Uniforms and a crash pad are not deductible on your federal return As an airline employee, you cannot deduct uniforms, a crash pad or other job costs on your federal return, even ones the airline requires. These are miscellaneous itemized deductions, suspended since 2018, and the One Big Beautiful Bill Act (P.L. 119-21) made the suspension permanent. California does not follow the suspension, so its return may still allow unreimbursed job costs such as required uniforms. ### Per diem is tax-free only up to the IRS rate (https://valim.tax/glossary/accountable-plan) Per diem under an accountable plan, where you account for each trip, is tax-free up to an IRS rate, such as $80 a day. Any per diem above that rate is wages in box 1 of your W-2, as is per diem paid outside an accountable plan. The tax-free part may appear in box 12 under code L. ### A home you keep in New York can keep you a resident (https://valim.tax/multi-state-tax/moving-from-new-york-to-florida) New York has a second test for residence, apart from domicile. You count as a resident if you keep a permanent place of abode there and spend over 183 days in the state. New York can then tax all of your airline pay as your state of residence. ### A corporate flight department is outside the rule (https://valim.tax/multi-state-tax) If you fly for a company’s own flight department rather than an air carrier, the federal limit does not protect you. Each state generally applies its usual rules, so a state where you work may tax the pay for that work. ## Pilots should plan the tax on a move or a retirement before it happens. Valim’s CPAs help airline pilots and flight attendants work out which states may tax their pay, then file their federal and state returns. - We check your flight schedule against the federal rule for airline crews before we prepare your returns. - Before you move, we plan the change of home state under Tax advisory, then file that year’s returns. - Before you retire, we compare keeping your savings in the airline’s 401(k) with an IRA rollover, as part of Tax advisory. - We set estimated payments when withholding will fall short. - If the IRS or a state sends a notice on a return we prepared, we handle the response at no extra charge. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle high earners: https://valim.tax/high-earners ## Airline pilot tax questions. ### Do airline pilots have to pay taxes? Yes. Airline pilots owe federal income tax on their pay, plus Social Security and Medicare tax, as other employees do. The airline withholds these taxes from each paycheck and reports your pay on Form W-2. If the airline pays you a bonus, a flat withholding rate may fall short of your tax, as our guide for executives explains. State income tax is where pilots differ, because a federal law limits which states can tax airline pay. ### Can the state where I’m based tax my airline pay? No, your crew base alone gives that state no right to tax your airline pay. Your base state can tax that pay only if you live there, or have more than half your scheduled flight time there. A federal rule sets this limit for air carrier employees who fly in at least two states. Say a Florida resident pilot is based in Newark, with 12% of scheduled flight time in New Jersey and no state over half. New Jersey cannot tax that pilot’s airline pay, and Florida has no personal income tax. ### What tax deductions can airline pilots take? Pilot tax deductions are few when an airline employs you. On your federal return, you cannot deduct a crash pad or uniforms you buy yourself, and meals on trips are not deductible either. California still allows some unreimbursed job costs on its own return. Per diem under your airline’s accountable plan is tax-free up to the IRS rate, and any amount above it is taxed as wages. Pre-tax deferrals to the airline’s 401(k) still lower your federal taxable income, and our doctors page sets out the 2026 limits. A self-employed pilot can deduct 80% of travel meals, instead of 50%, when the duty falls under FAA hours-of-service limits. ## Sources - 49 U.S.C. § 40116, State taxation (air carrier employees): https://www.law.cornell.edu/uscode/text/49/40116 - 4 U.S.C. § 114, Limitation on State income taxation of certain pension income: https://www.law.cornell.edu/uscode/text/4/114 - 26 U.S.C. § 72, Annuities; certain proceeds of endowment and life insurance contracts: https://www.law.cornell.edu/uscode/text/26/72 - IRS, Retirement topics: exceptions to tax on early distributions: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions - 26 C.F.R. § 1.62-2, Reimbursements and other expense allowance arrangements: https://www.law.cornell.edu/cfr/text/26/1.62-2 - 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions: https://www.law.cornell.edu/uscode/text/26/67 - 26 U.S.C. § 274, Disallowance of certain entertainment, etc., expenses: https://www.law.cornell.edu/uscode/text/26/274 - IRS, Notice 2025-54 (2025-2026 special per diem rates): https://www.irs.gov/pub/irs-drop/n-25-54.pdf - IRS, Notice 2026-60 (2026-2027 special per diem rates): https://www.irs.gov/pub/irs-drop/n-26-60.pdf - IRS, Publication 463 (2025), Travel, Gift, and Car Expenses: https://www.irs.gov/publications/p463 - California FTB, Publication 1100 (2025), Taxation of Nonresidents and Individuals Who Change Residency: https://www.ftb.ca.gov/forms/2025/2025-1100-publication.pdf - California FTB, 2025 Instructions for Schedule CA (540): https://www.ftb.ca.gov/forms/2025/2025-540-ca-instructions.html - New York Tax Law § 605, General provisions and definitions: https://www.nysenate.gov/legislation/laws/TAX/605 - Florida Constitution, art. VII, § 5, Estate, inheritance and income taxes: https://www.flsenate.gov/Laws/Constitution --- URL: https://valim.tax/multi-state-tax Title: Multi-state tax returns: CPAs file every state return you owe Updated: 2026-09-24 # Valim’s CPAs prepare multi-state tax returns for remote workers and people who moved. Led by ex-Big Four CPAs, Valim is a CPA firm for anyone who owes tax in more than one state. We file your federal return and every state return you owe, with the fee fixed before any work begins. Valim for returns in several states: - $195: is the entry price for an individual return, federal and state. - 50: states are covered, so every state return stays with one firm. - <1 week: is the usual turnaround once all your documents are in. ## Wherever you owe tax, we prepare that state’s return. ### Returns for the year you move As a part-year resident, you usually owe a return to each state you lived in that has an income tax. We prepare every one, such as California’s Form 540NR. ### Nonresident returns where you work When a state you do not live in taxes your pay, we file its nonresident return, such as New York’s Form IT-203. We then claim the credit your home state allows. ### RSUs and options earned in two states We split your RSU and stock option income between states by where you worked while each award was earned. We do it again each year a grant keeps vesting. ### Planning a move We plan when to move and when to sell stock around it. We also tell you which records prove your days in each state. ### Estimated payments in each state We work out your federal and state estimated payments. ### A business in several states If your partnership or S corporation earns income in other states, we file its state returns and your nonresident returns as an owner. If your books need cleaning up first, your quote can include that. ## How does Valim handle a year spent in several states? ### 1. Start with a quote Answer a few questions online or book a call, and you get a fixed fee that holds for 7 days. There is no hourly rate. ### 2. A CPA sorts out your states Automation reads your W-2s and 1099s, and a licensed US CPA decides what each state may tax. The CPA then prepares and signs each return, and you work together online. ### 3. State letters come to us If a state or the IRS sends a notice on a return we prepared, even about residency, our reply is part of the fee. ## What do returns in more than one state cost? ### Individual return filing From $195 Individual return filing covers a return of any complexity, and your CPA answers your questions all year. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as a move or a new job in another state. A partnership or S corporation return starts at $495. ## What decides how much each state can tax you? ### A temporary move keeps you a California resident (https://valim.tax/multi-state-tax/leaving-california) California treats you as a resident while you are away for a temporary or transitory purpose. Your residency ends only when you leave for some other purpose. ### New York’s rate counts income it cannot tax (https://valim.tax/multi-state-tax/new-york-nonresident) On Form IT-203, New York taxes only your New York income. Its rate, though, is the average rate New York would charge if it taxed all your income. ### A large stock sale can bring Washington tax (https://valim.tax/multi-state-tax/washington-capital-gains-tax) Washington’s capital gains tax falls on long-term gains above a yearly standard deduction, with real estate exempt. ### Texas has no personal income tax (https://valim.tax/multi-state-tax/moving-from-california-to-texas) Once you have moved from California, neither Texas nor California taxes pay for work you do in Texas. An employer’s state with a convenience rule, such as New York, can still tax those days. ### The sale date decides which state taxes your gain (https://valim.tax/multi-state-tax/moving-from-california-to-washington) Stock you sell while you are a California resident is taxed by California. Once your domicile has moved to Washington, a later sale is Washington’s to tax. ### Leaving New York takes proof of a new domicile (https://valim.tax/multi-state-tax/moving-from-new-york-to-florida) New York needs clear and convincing evidence that your domicile moved, and it weighs how you live over what you sign. ### New Jersey has no part-year return (https://valim.tax/multi-state-tax/moving-from-new-jersey-to-florida) In the year you leave New Jersey, you file a resident return for your months there. If you have income from New Jersey after the move, you also file a nonresident return. ### New Hampshire commuters split pay by workdays (https://valim.tax/multi-state-tax/moving-from-massachusetts-to-new-hampshire) A New Hampshire resident’s wages are taxed by Massachusetts only for days worked in Massachusetts. Days worked from home in New Hampshire are free of Massachusetts tax. ## Find out which state returns you need before you file. ## Where do you have to file multiple state tax returns? ### Which state do I pay tax to if I work remotely? You pay tax to the state you live in, if it has an income tax, on pay for work you do from home. Your employer’s state generally cannot tax pay for work you do outside it. The main exception is the convenience of the employer rule, used by New York, Delaware and Pennsylvania. If your office is in one of them, days you choose to work from home can be taxed there too. Connecticut and New Jersey apply a similar rule, but only to workers who live in a state that has its own. ### Can California still tax me after I move? Yes, California keeps taxing income earned in California even after you leave the state. That includes pay for work you did in California and gains on California real estate. For RSUs that vest after you move, the Franchise Tax Board taxes the share earned by California workdays from grant to vest. Gains on stock you sell as a nonresident, and qualified pension or IRA income, are generally not taxed there. ### Do I file in two states if I moved mid-year? Usually yes, if both states have an income tax, because each expects a return for your months as a resident. Each state taxes all your income from those months, plus any income from that state for the rest of the year. If both tax the same income, the state you lived in then usually gives a credit for the other’s tax. Moving to Texas, which has no income tax, leaves only the return for the state you left. ### Can TurboTax handle a multi-state return? TurboTax, like any tax software, is only as accurate as your answers about where you lived and worked. For RSUs and stock options, you also need your workdays in each state over the years they were earned. A CPA is worth hiring when you worked in several states in one year or your equity vested across a move. At Valim, a licensed CPA counts your workdays in each state and prepares every state return. ### If I spend under 183 days in a state, do I owe nothing there? No, because 183 days is only part of a residency test in states such as New York and Massachusetts. Under 183 days, you can still owe tax on your pay for the days you worked in that state. If the state is still your domicile, you are generally a resident there whatever your day count. California has no 183-day test, so fewer days there do not by themselves make you a nonresident. ### Is it better to live in a state with no income tax? Living in a state with no income tax, such as Florida, can lower your tax bill. Your old state can still tax income from its sources, such as rent or gains from property you own there. Washington taxes no wages, though its capital gains tax reaches long-term gains above a yearly deduction. A 9.9% tax on income over $1 million, as Washington defines it, is set to start there in 2028. Voters may repeal that tax on November 3, 2026, and a court could still strike it down. ### Can I be a resident of two states? Yes, two states can each tax you as a resident in the same year. It happens when your domicile is in one state and another treats you as a statutory resident. In New York, that takes a permanent place of abode, a home you keep there, for substantially all of the year. It also takes more than 183 days in the state. A state’s credit usually covers only income earned in the other state, so dividends and stock gains can be taxed twice. ## Sources - Cal. Rev. & Tax. Code § 17014, Resident defined: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17014 - Cal. Code Regs. tit. 18, § 17014, Who are residents and nonresidents: https://www.law.cornell.edu/regulations/california/18-CCR-17014 - Cal. Rev. & Tax. Code § 17016, Presumption of residence: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17016 - Cal. Rev. & Tax. Code § 17041, Tax on residents, nonresidents and part-year residents: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17041 - Cal. Rev. & Tax. Code § 17951, Gross income of nonresidents: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17951 - Cal. Rev. & Tax. Code § 17952, Income of nonresidents from intangible personal property: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17952 - Cal. Rev. & Tax. Code § 18001, Credit for net income taxes paid to another state: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=18001 - California FTB, Publication 1100 (2025), Taxation of Nonresidents and Individuals Who Change Residency: https://www.ftb.ca.gov/forms/2025/2025-1100-publication.pdf - California FTB, Publication 1031 (2025), Guidelines for Determining Resident Status: https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf - California FTB, Residency and Sourcing Technical Manual: https://www.ftb.ca.gov/tax-pros/procedures/residency-and-sourcing-technical-manual-disclosure.pdf - California FTB, 2025 Form 540NR tax booklet: https://www.ftb.ca.gov/forms/2025/2025-540nr-booklet.pdf - 4 U.S.C. § 114, Limitation on State income taxation of certain pension income: https://www.law.cornell.edu/uscode/text/4/114 - New York Tax Law § 605, Resident and nonresident individuals: https://www.nysenate.gov/legislation/laws/TAX/605 - 20 NYCRR § 105.20, Resident individual: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-105.20 - 20 NYCRR § 132.18, Earnings of nonresident employees and officers: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.18 - 20 NYCRR § 132.24, Stock options, stock appreciation rights and restricted stock: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.24 - New York Tax Law § 620, Credit for income tax of another state: https://www.nysenate.gov/legislation/laws/TAX/620 - New York State DTF, 2025 Instructions for Form IT-203: https://www.tax.ny.gov/pdf/2025/inc/it203i_2025.pdf - New York State DTF, Nonresident Audit Guidelines (December 2021): https://www.tax.ny.gov/pdf/2021/misc/nonresident-audit-guidelines-2021.pdf - Delaware Division of Revenue, 2025 Instructions for Form PIT-NON: https://revenuefiles.delaware.gov/2025/PITForms_Instructions/Instructions/PIT-NON_Instructions_2025-01.pdf - Conn. Gen. Stat. §§ 12-704 and 12-711, Resident credit and income of nonresidents: https://www.cga.ct.gov/current/pub/chap_229.htm - New Jersey Division of Taxation, Convenience of the employer rule: https://www.nj.gov/treasury/taxation/conveniencerule.shtml - 61 Pa. Code § 109.8, Earnings of nonresident employes or casual employes and officers: https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/061/chapter109/s109.8.html - 830 CMR 62.5A.1, Non-resident income tax (Massachusetts): https://www.law.cornell.edu/regulations/massachusetts/830-CMR-62-5A-1 - 830 CMR 62.5A.3, Massachusetts source income of nonresidents telecommuting due to the COVID-19 pandemic: https://www.law.cornell.edu/regulations/massachusetts/830-CMR-62-5A-3 - New Jersey Division of Taxation, 2025 NJ-1040 instructions: https://www.nj.gov/treasury/taxation/pdf/current/1040i.pdf - Fla. Const. art. VII, § 5, Estate, inheritance and income taxes: https://www.flsenate.gov/Laws/Constitution - Texas H.J.R. 38 (2019), Tex. Const. art. VIII, § 24-a: https://capitol.texas.gov/tlodocs/86R/billtext/pdf/HJ00038E.pdf - RCW 82.87, Capital gains tax (Washington): https://app.leg.wa.gov/RCW/default.aspx?cite=82.87&full=true - Washington State Department of Revenue, Income tax: https://dor.wa.gov/taxes-rates/income-tax - ESSB 6346, Chapter 238, Laws of 2026 (Washington income tax): https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/Senate/6346-S.SL.pdf - Washington House Office of Program Research, Summary of Initiative 26-645 (2026): https://leg.wa.gov/media/ucubvqsd/2026-summary-of-initiative-26-645.pdf --- URL: https://valim.tax/multi-state-tax/washington-capital-gains-tax Title: Washington capital gains tax: 7% and 9.9% rates for 2026 Updated: 2026-09-24 # Washington’s capital gains tax is 7% of your taxable long-term gains, and 9.9% of the part over $1 million. RCW 82.87 taxes individuals who sell stock and other assets they held more than a year. A standard deduction comes off the year’s gains first, and the rest is taxed as an excise on the sale. Long-term gains sold in 2025: - 7%: is the rate on your first $1 million of taxable gains, as it has been since the tax began in 2022. - 9.9%: is the rate on taxable gains above $1 million, the 7% plus 2.9% added from 2025. - $278,000: is the standard deduction, which is adjusted for inflation each year. The rates are the same for 2026. The Department of Revenue publishes the 2026 deduction by October 31, 2026, and by law it cannot be lower than $278,000. ## Do you owe Washington’s long-term capital gains tax? For stock, crypto and other financial assets, Washington’s tax applies to a year’s sales only when all four of these are true. ### 1. You are domiciled in Washington on the sale date For stock and other intangible assets, Washington looks only at where you are domiciled on the day you sell. Art and other tangible property are taxed if they are in Washington when sold, wherever you live. ### 2. You held the asset more than one year Washington taxes only long-term gains, so you owe it nothing in 2026 on stock you held one year or less. For RSU shares, the year starts when the shares are delivered. Your gain is the sale price above their value that day. ### 3. The asset is not exempt All real estate is exempt, so selling a house or a rental brings no Washington capital gains tax. The seller usually still pays Washington’s real estate excise tax. Sales inside a 401(k), IRA or other retirement account are exempt too. ### 4. Your gains are above the standard deduction If your long-term gains for the year fall under the deduction, Washington’s tax is zero. No return is due unless you made a payment or asked for an extension. A married couple or registered domestic partners get one deduction between them, even on separate returns. A business never pays Washington’s capital gains tax itself. If you own part of a partnership, LLC, S corporation or grantor trust, you pay on your share of its long-term gains. ## How much is Washington’s tax on a large stock sale? A single filer domiciled in Washington sells long-held stock in 2025, with no other gains, losses or deductions. - $500,000 gain: $15,540. Only the $222,000 above the deduction is taxed, all of it at 7%. That is 3.1% of the gain. - $1,500,000 gain: $91,978. The 9.9% rate reaches only the $222,000 above $1,278,000. The tax is 6.1% of the gain. - $3,000,000 gain: $240,478. Of the $2,722,000 taxed, $1,722,000 is taxed at 9.9%. The tax is 8.0% of the gain. - $10,000,000 gain: $933,478. The tax is 9.3% of the gain, close to the 9.9% top rate. Each figure subtracts the 2025 standard deduction of $278,000 from the gain. The first $1 million of what is left is taxed at 7%, and the rest at 9.9%, under RCW 82.87.040. Federal tax is separate and not shown. ## How does Washington’s tax compare with federal tax in 2026? Washington’s tax on a long-term gain is owed on top of the federal tax on the same gain. | | Washington | Federal | | --- | --- | --- | | Wages and RSU income | No income tax | 10% to 37% (Plus Social Security and Medicare) | | Short-term gains | Not taxed | 10% to 37% (The same rates as wages, plus the 3.8% NIIT at higher incomes) | | Long-term gains | 7% or 9.9% (9.9% on taxable gains over $1M) | 0%, 15% or 20% (Plus the 3.8% net investment income tax at higher incomes) | | Selling your home | No capital gains tax (Real estate excise tax still applies) | Up to $250,000 of gain excluded ($500,000 for a qualifying married couple) | | When you pay | By the federal due date (Usually April 15, with no quarterly payments) | Through the year (By withholding or estimated payments) | Washington’s tax on 2026 gains is due April 15, 2027. From October 15, 2026, you can prepay it on My DOR, the Department of Revenue’s online account site. ## How can you legally avoid Washington’s capital gains tax? ### Spread large sales over two tax years The standard deduction and the $1 million line apply to each year’s gains. Selling over two years can use two deductions and keep more of the gain out of the 9.9% rate. ### Sell qualified small business stock (QSBS) (https://valim.tax/equity-compensation/qsbs) Washington does not tax gain that Section 1202 excludes from your federal return. Any gain the federal exclusion does not cover is taxed as usual. ### Give to a Washington charity in the same year For 2025, gifts to Washington charities above a separate $278,000 gift threshold were deductible, up to $111,000. That saves at most $10,989. Only charities that qualify for a federal deduction and are principally directed and managed in Washington count. An unused deduction cannot be carried to another year. ### Offset gains with long-term losses Washington taxes your net long-term gain, so a long-term loss on stock reduces it. Short-term losses do not count. Neither does a loss on real estate or another exempt sale. ### Change your domicile before you sell (https://valim.tax/glossary/domicile) Washington does not tax gain on stock you sell after your domicile has moved to another state. You must prove the move. From January 1, 2026, brokers send the state copies of Form 1099-B for long-term sales allocated to Washington. If your broker still has a Washington address for you, the state presumes the sale is Washington’s until you show otherwise. ## A CPA can plan Washington’s tax before you sell, and file the return after. Valim’s CPAs help tech employees and founders in Washington plan stock sales around the capital gains tax, and file the returns that follow. - We prepare your Washington capital gains return with your federal return, and take out the sales Washington does not tax. - We work out your Washington and federal tax both ways: selling in one year, or spreading the sales over two. - We plan the estimated payments for a large gain, including any Washington prepayment. - We plan a move out of Washington before a sale, and the records that prove your new domicile. - We answer any Department of Revenue or IRS letter about a return we prepared, and your fee already covers it. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## Washington capital gains tax questions. ### Does Washington have an income tax now? No, Washington has no individual income tax in 2026, so it does not tax wages or RSU income. Its capital gains tax is an excise tax on sales, not an income tax. A 2026 law, ESSB 6346, adds a 9.9% tax on income above a $1 million deduction from January 1, 2028. Initiative 26-645, on the November 3, 2026 ballot, would repeal that tax before it begins. ### What is Washington’s capital gains tax rate in 2026? Washington taxes long-term capital gains at 7% in 2026, and at 9.9% on the part of your taxable gains above $1 million. The 9.9% is the 7% plus an extra 2.9%, which began with 2025 sales. Both rates apply after the standard deduction. For 2025, with no other deductions, the 9.9% began once your non-exempt long-term gains passed $1,278,000. The $1 million threshold does not rise with inflation, and a married couple gets one $1 million threshold, not two. ### What is Washington’s capital gains standard deduction? Washington’s capital gains standard deduction is $278,000 for 2025, the latest amount the Department of Revenue has published. Spouses and registered domestic partners share one deduction, even if they file separately. If your long-term gains are below it, you owe nothing. You need not file unless you made a payment or requested an extension. ### What is exempt: real estate, retirement accounts? Real estate and retirement accounts are both exempt from Washington’s capital gains tax. The real estate exemption covers every kind of real estate, residential or commercial, however long you owned it. Selling a stake in a private company that owns real estate directly is exempt only for the real estate share of the gain. The retirement exemption covers assets held in a 401(k), 403(b), 457(b), IRA, Roth IRA or pension plan. Depreciable business property, timber, qualifying livestock and commercial fishing privileges are exempt too. ### Do I owe it if I move out of Washington before selling? No, Washington’s capital gains tax does not apply to stock or other intangible assets you sell after your domicile has left Washington. Washington presumes your domicile continues until you prove a move, with physical presence in the new state and intent to stay. Planning to move later does not change your domicile, and selling your Washington home does not prove the move on its own. ### What is the capital gains tax in Washington state? Washington’s capital gains tax is an excise tax that individuals pay when they sell long-term capital assets, such as stock or crypto. It is 7% of taxable gains, and 9.9% of the part over $1 million. It took effect on January 1, 2022, and the state Supreme Court upheld it in 2023, in Quinn v. State. The US Supreme Court declined to review that ruling in January 2024. Later in 2024, voters rejected Initiative 2109, which would have repealed it. ### How much capital gains tax on $300,000? Washington’s tax on a $300,000 long-term gain in 2025 was $1,540, with no other gains or deductions. That is 7% of the $22,000 left after the $278,000 standard deduction, which a married couple shares. Federal tax on long-term gains is 0%, 15% or 20% in both 2025 and 2026, depending on your taxable income. The 3.8% net investment income tax can apply too, above $200,000 of modified AGI ($250,000 joint). ### How does capital gains tax work in WA? Washington’s tax starts from your federal net long-term capital gain, recomputed without some federal rules, such as opportunity zone deferral. You take out exempt sales and stock sold while domiciled elsewhere, then subtract the standard deduction. The rest is taxed at 7%, and the part above $1 million at 9.9%. You file online with the Department of Revenue by the federal due date, and quarterly payments are not required. ### Will the Washington capital gains tax exemption be changed in 2026? The standard deduction, often called the exemption, is adjusted each October for Seattle-area inflation, and by law it never goes down. The Department of Revenue must publish the 2026 amount by October 31, 2026. It will be at least the $278,000 set for 2025. Under current law, the 7% and 9.9% rates and the $1 million line stay the same for 2026. ## Sources - Chapter 82.87 RCW, Capital gains tax (with notes, including the 2025 finding on the 2024 repeal vote): https://app.leg.wa.gov/RCW/default.aspx?cite=82.87&full=true - WAC 458-20-301, Capital gains excise tax: definitions, deductions, exemptions, and allocation of gains and losses: https://app.leg.wa.gov/WAC/default.aspx?cite=458-20-301 - Washington Department of Revenue, Frequently asked questions about Washington’s capital gains tax: https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax/frequently-asked-questions-about-washingtons-capital-gains-tax - Washington Department of Revenue, Do you owe capital gains tax? (deduction amounts by year): https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax/do-you-owe-capital-gains-tax - Washington Department of Revenue, New tiered rates for Washington’s capital gains tax: https://dor.wa.gov/forms-publications/publications-subject/special-notices/new-tiered-rates-washingtons-capital-gains-tax - Washington Department of Revenue, New documentation requirement for sales or exchanges of long-term capital assets: https://dor.wa.gov/forms-publications/publications-subject/special-notices/new-documentation-requirement-sales-or-exchanges-long-term-capital-assets - Washington Supreme Court, Quinn v. State, No. 100769-8 (March 24, 2023): https://www.courts.wa.gov/opinions/pdf/1007698.pdf - Supreme Court of the United States, Quinn v. Washington, No. 23-171 (petition denied January 16, 2024): https://www.supremecourt.gov/docket/docketfiles/html/public/23-171.html - Washington Department of Revenue, Real estate excise tax: https://dor.wa.gov/taxes-rates/other-taxes/real-estate-excise-tax - Washington ESSB 6346, Chapter 238, Laws of 2026 (individual income over $1 million): https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/Senate/6346-S.SL.pdf - Washington House Office of Program Research, Summary of Initiative 26-645 (August 21, 2026): https://leg.wa.gov/media/ucubvqsd/2026-summary-of-initiative-26-645.pdf - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 CFR 1.83-4, Holding period, basis of property, and deduction: https://www.ecfr.gov/current/title-26/section-1.83-4 - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/multi-state-tax/leaving-california Title: California residency rules when you leave: 540NR and FTB audits Updated: 2026-09-24 # Your California residency ends when you leave to live somewhere else indefinitely. California taxes residents on all their income and nonresidents only on income from California sources. In law, your residency ends when you are outside California for other than a temporary or transitory purpose. In the year you move, Form 540NR splits your income at the date your residency ended. California residency and audits, 2026: - Over 9 months: in California in one year, and the law presumes you are a resident. Fewer months do not rule residency out. - 546 days: in a row away under a work contract can make you a nonresident while your domicile stays in California. - 4 years: is how long the FTB usually has to propose more tax, counted from the due date or the day you file, if later. ## What are the California residency requirements for tax purposes? Section 17014 of the Revenue and Taxation Code makes you a resident if either of the first two tests fits. The other three are a presumption, the FTB’s closest-ties guidance and a safe harbor that can make you a nonresident. ### 1. You are in California for other than a temporary purpose Anyone in California for other than a temporary or transitory purpose is a resident, whatever their domicile. A job with no end date meets the test, and a vacation does not. ### 2. Your domicile is in California and your absence is temporary Your domicile is your true, fixed and permanent home, the place you intend to return to after any absence. A California domiciliary stays a resident during an absence for a temporary or transitory purpose. Changing your domicile takes a real move and giving up any plan to return. You must also intend to stay in the new place indefinitely. ### 3. You spent more than nine months in California The nine-month rule is only a presumption of residence. You can rebut it with evidence that your stay was temporary or transitory. A California domiciliary can stay a resident without spending a single day in the state. ### 4. California is where your ties are closest Under the FTB’s guidance, you are a resident of the place where your ties are closest. The FTB compares your family, home, work, time, bank accounts and licenses in each state, and no single factor decides. ### 5. You are away 546 days or more under a work contract The 546-day safe harbor needs an employment-related contract and an unbroken absence. Visits back totaling up to 45 days a year do not break the run. You lose it if your income from stocks, bonds and other intangibles tops $200,000 in any contract year. It also does not apply if avoiding California tax is the main purpose of your absence. The same tests decide when someone who moves to California establishes residency there. For income tax, there is no residency application to file. You claim California residency or nonresidence on the return you file. Your conduct over the whole year decides it, so your status is usually judged after the year closes. ## How does Form 540NR tax the year you leave California? Form 540NR gives nonresidents and part-year residents one tax rate. It is the average rate on all their income, as if they lived in California all year. That rate applies only to the income California can tax. A single filer leaves California for Texas in mid-2025 with $900,000 of taxable income, $400,000 of it taxable by California. - Stays in California all year: $91,537. California taxes all $900,000 at its resident rates. - Moves to Texas mid-year: $40,680. Form 540NR taxes the $400,000 at 10.17%, the average rate on $900,000. - $400,000 as a full year’s income: $33,924. A resident with $400,000 of taxable income would owe this. Taxing the same $400,000 at the whole-year rate costs $6,756 more. These figures use California’s 2025 tax brackets for single filers, from the FTB’s rate schedule, the latest published. Above $100,000 of taxable income, the schedule takes the place of the FTB’s tax table. The tax on $900,000 is $72,219.84 plus 12.3% of the amount over $742,953, or $91,537. Form 540NR divides that tax by $900,000, rounds the rate to four decimal places (0.1017) and applies it to the $400,000. The $400,000 covers the months in California, plus any California-source income after the move. On its own, $400,000 would owe $30,986.19 plus 10.3% of the amount over $371,479. Exemption credits are left out. ## What does a California nonresident pay tax on? | | Resident | Nonresident | | --- | --- | --- | | Return | Form 540 | Form 540NR (Also the return for the year you move) | | Wages | All of them | Pay for days worked in California (Wherever your employer is based) | | RSUs and stock options | All of it (If you live in California when the income is taxed) | The California-workday share (Counted from grant to vest, or grant to exercise for options. A qualifying ISO sale is not taxed.) | | Stock gains, interest and dividends | All of it | Generally none (Except the pay part of an ESPP or disqualifying ISO sale, and installments on a sale made while a resident) | | Rent and sale gains on California real estate | All of it | All of it | If another state also taxes you as a resident (dual residency), both states can tax your interest, dividends and stock gains. California’s credit for tax paid to another state covers only income earned in that state. ## What mistakes keep you taxed after leaving California? ### Your ties stayed in California (https://valim.tax/glossary/domicile) The FTB says a marital home kept in California is a significant sign of a California domicile. A new house in Nevada and a new driver’s license do not end California residency on their own. The burden is on you to prove your domicile changed. If doubt remains, the FTB treats your domicile as unchanged. ### You have no record of your days In an audit, the FTB rebuilds your days in California from records such as card statements and airline tickets. Your 540NR also asks how many days you spent in California, counting business trips and vacations. Keep a calendar for each year after the move, with the records behind it. ### You sold before your residency ended The gain on a sale you make while still a resident is California income, even if you leave the next week. In an audit, the FTB checks when your large income was realized, against the date it finds your residency ended. That date may be later than the one you claim. ### You filed nothing for a year in doubt If your status for a year is in question, the FTB’s regulation says to file a return anyway. Attach a signed statement explaining your claim of nonresidence, with the evidence for it. With no return on file, the FTB can assess that year at any time. ## Plan the taxes on your move out of California before you go. Valim’s CPAs help people leaving California plan their move with a residency audit in mind, then file the Form 540NR. - We prepare your Form 540NR for the year you leave, and your new state’s return if it taxes income. - We time your move around income California would tax in full, such as a large stock sale. - As awards from your California job vest or are exercised, we split their income by California workdays, the method the FTB uses. - We work out your California estimated tax on income with no withholding. - If the FTB sends a notice questioning your move on a return we prepared, we answer it within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## California residency questions. ### Can California still tax me after I move to Texas? Yes, California still taxes your California-source income after you move to Texas. That includes rent from California property and a bonus for California work paid after you leave. It also includes the California-workday share of pay from RSUs, NSOs and ESPPs. Stock you sell after the move is generally not California income, apart from any part that counts as pay. ### What triggers a California residency audit? Filing Form 540NR is the most common trigger, since the FTB’s audit manual says most residency cases start with that return. Before opening a case, auditors read your residency answers on Schedule CA (540NR) and the addresses on your W-2s and 1099s. They also note large income from stocks or other intangibles, and whether income arrived before or after the move. ### What happens to my RSUs if I leave California? California can still tax RSUs that vest after you leave, to the extent you earned them working in California. Under the FTB’s workday method, California taxes the vest in proportion to your California workdays between grant and vesting. If you leave that job before the vest, the count ends on your last day. Days you work from your new home count as days outside California. If you are still a California resident on the vesting date, California taxes the whole vest. ### Do I file a 540NR the year I leave? Yes, you file Form 540NR for the year you leave if your income passes California’s filing threshold. It is the return for nonresidents and part-year residents. It reports all your income from the months you lived in California, plus California-source income from the rest of the year. Schedule CA (540NR) totals your income as if you lived in California all year, to set the rate. You may need a 540NR in later years too, while RSUs from your California job keep vesting. ### Does California tax my QSBS gain? Yes, California taxes a QSBS gain in full if you live in California when you sell, because it does not follow Section 1202. Sell after you become a nonresident, and the gain on stock held as an investment is generally not California income. Shares you got as pay can still carry California wage income. California’s rule does not change your federal QSBS exclusion. ### Is there an exit tax to leave California? No, California has no exit tax as of September 2026. No law taxes your unsold gains when you leave. Proposition 40, on the November 3, 2026 ballot, would tax people worth $1 billion or more once, at up to 5% of net worth. It looks at residency on January 1, 2026, so moving after that date would not avoid it. ### Do I have to pay California taxes if I live out of state? Yes, California taxes people who live out of state on their income from California sources. Pay for work you physically do in California is California income, wherever your employer is based. So is rent from California real estate, and the gain when you sell it. Pay for days you work from another state is not California income. Whether you must file a nonresident return depends on your gross income and AGI from all sources, including income California does not tax. ## Sources - Cal. Rev. & Tax. Code § 17014, Resident defined: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17014 - Cal. Code Regs. tit. 18, § 17014, Who are residents and nonresidents: https://www.law.cornell.edu/regulations/california/18-CCR-17014 - Cal. Code Regs. tit. 18, § 17016, Presumption of residence: https://www.law.cornell.edu/regulations/california/18-CCR-17016 - Cal. Rev. & Tax. Code § 17041, Tax on residents, nonresidents and part-year residents: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17041 - Cal. Rev. & Tax. Code § 17952, Income of nonresidents from intangible personal property: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17952 - Cal. Rev. & Tax. Code § 18152, Section 1202 does not apply: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=18152 - Cal. Rev. & Tax. Code § 19057, Four-year limit on deficiency assessments: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=19057 - Cal. Rev. & Tax. Code § 19066, Early returns treated as filed on the due date: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=19066 - Cal. Rev. & Tax. Code § 19087, Assessment when no return is filed: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=19087 - California FTB, 2025 Form 540NR Tax Booklet: https://www.ftb.ca.gov/forms/2025/2025-540nr-booklet.pdf - California FTB, Publication 1031 (2025), Guidelines for Determining Resident Status: https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf - California FTB, Residency and Sourcing Technical Manual (Rev. 01/2026): https://www.ftb.ca.gov/tax-pros/procedures/residency-and-sourcing-technical-manual-disclosure.pdf - Tex. Const. art. 8, § 24-a, No tax on the net incomes of individuals: https://capitol.texas.gov/tlodocs/86R/billtext/pdf/HJ00038E.pdf - California Secretary of State, Proposition 40, text of proposed laws (2026): https://vig.cdn.sos.ca.gov/2026/general/pdf/prop40-text-proposed-laws.pdf --- URL: https://valim.tax/multi-state-tax/new-york-nonresident Title: IT-203: New York nonresident tax return and residency rules Updated: 2026-09-24 # On Form IT-203, New York nonresidents and part-year residents pay tax only on New York’s share of their income. New York first figures the tax on all your income as if you lived there. Earn a quarter of your income in New York, and you pay a quarter of that tax. Nonresidents, 2026: - 183: days is the most you can spend in New York, with a home there for substantially all of the year, and stay a nonresident. - $8,000: is the 2026 standard deduction for a single filer. A nonresident with New York income must file once New York AGI passes it. - $0: is New York City’s income tax on commuters who live outside the city. City government employees are the exception. New York AGI counts all your income, figured as if you lived in New York. On a joint return, the standard deduction is $16,050. ## Which New York residency requirements apply to you? You are a New York resident if you pass either of the first two tests. A resident files Form IT-201 instead of Form IT-203, and is taxed on all income. ### 1. Your domicile is in New York Your domicile is the place you intend as your permanent home, and you can have only one. It stays in New York until you move with the intent to make a new place your permanent home. A move meant to last a limited time does not change it, however long you stay. ### 2. You keep a New York home and spend over 183 days there This test applies even if your domicile is in another state. The home, a permanent place of abode, can be owned or rented but must be kept for substantially all of the year. A camp or cottage used only for vacations does not count. ### 3. You are domiciled in New York but spend 30 days or fewer there Your New York domicile does not make you a resident in a year when you spend 30 days or fewer in New York. You must also keep no permanent place of abode in New York, and keep one elsewhere all year. A separate 548-day rule covers long stays in a foreign country. ### 4. You moved into or out of New York during the year If your domicile moves into or out of New York during the year, you are usually a part-year resident. You file Form IT-203, reporting all income for your resident period and only New York income for the rest. Keep a New York home all year and spend over 183 days there, and you are a full-year resident instead. New York City’s residency rules are the same as the state’s, applied within the city. You are a city resident if you are domiciled in the city, or keep a home and spend more than 183 days there. ## Working from home by choice leaves the New York tax on a $300,000 salary at $20,002. A nonresident’s wages are split by workdays in and out of New York. For a telecommuter whose office is in New York, the convenience of the employer rule decides how home days count. A single Connecticut resident earns $300,000 in 2026 over 240 workdays, for an employer whose only office is in Manhattan. - In the office all 240 days: $20,002. Every workday is a New York day, so all $300,000 is New York income. - At home 144 days, by choice: $20,002. The convenience of the employer rule counts the home days as New York days, so the tax does not change. - Home office is a bona fide employer office: $8,001. The home days count as Connecticut days, so New York income falls to $120,000, or 40% of the total. New York first taxes all $300,000 as if the commuter lived there, after the $8,000 single standard deduction. At this income, New York’s 2026 rates take back the benefit of the lower brackets, so all $292,000 is taxed at 6.85%: $20,002. Schedule A of Form IT-203-B then splits the wages by workdays. New York gets 240 of 240 days in the first two rows, and 96 of 240 in the third. The income percentage (line 45 on the 2025 form) applies that share to the $20,002. Connecticut’s own tax, and its credit for the New York tax, are not shown. ## In 2026, New York taxes residents on all income and nonresidents on New York income. | | Resident | Nonresident | | --- | --- | --- | | Return | Form IT-201 | Form IT-203 | | Wages | All of them | Pay for New York workdays | | Interest, dividends and stock gains | All of it | None (Unless used in a New York business, or shares in certain entities or co-ops holding New York real estate) | | Rent and gains on New York property | All of it | All of it | | NYC resident tax | 3.078% to 3.876% (If you also live in the city) | None | | Credit for tax paid elsewhere | New York’s resident credit (For another state’s tax on income earned there) | Your home state’s credit (Usually covers the tax New York charges) | A nonresident’s share of partnership and New York S corporation income is New York income to the extent it comes from New York sources. ## Which mistakes on a New York nonresident tax return lead to an audit or a second bill? ### Part of a day counts toward the 183 days Any time in New York on a calendar day counts toward the 183 days, even a short evening visit. A day is left out only when spent traveling through, boarding a plane, train, bus or ship to leave, or confined to a medical facility. If you keep a New York home but file as a nonresident, log each day’s whereabouts in case of a New York residency audit. ### Leaving New York does not move income you already earned (https://valim.tax/multi-state-tax/moving-from-new-york-to-florida) Income you earned before moving out, such as a bonus or an installment sale’s remaining gain, stays in your resident months. ### New York taxes stock pay by the workdays you spent there (https://valim.tax/glossary/income-sourcing-equity-compensation) New York taxes the share of a nonresident’s stock option and restricted stock income that matches their New York workdays. For options, the workdays counted run from grant to vesting, which can span several years. You allocate this income on Form IT-203-F, the multi-year allocation form, and New York may split RSU income the same way. ### A New York home can get your investments taxed twice (https://valim.tax/glossary/statutory-resident) New York taxes a statutory resident on all income, and their home state taxes them as a resident too. The New York State resident credit, on Form IT-112-R, covers only tax on income from sources in the other state. Investment income has no source in either state, so neither credit applies, and both states can tax it in full. ### Yonkers taxes people who work there On the 2025 Form Y-203, Yonkers charges nonresidents who earn wages or run a business there a 0.5% earnings tax. In 2026, Yonkers residents pay a surcharge of 16.75% of their net state tax instead. Yonkers applies the state’s residency tests within its borders, so living in New York City, Brooklyn included, does not make you a Yonkers resident. ## Before you file, a CPA checks every New York day on your IT-203. Valim’s CPAs prepare Form IT-203 for New York nonresidents and part-year residents. - We test your year against domicile and the 183-day rule, so you file Form IT-203 only when it is the right return. - If your home state taxes income, we file its return too, with its credit for the New York tax. - We plan a move into or out of New York, including the income that accrues before you go. - We set estimated payments for New York income with no tax withheld. - If New York sends a residency notice on a return we prepared, we handle the response within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## New York nonresident tax questions. ### What is New York’s statutory resident test? Under New York’s statutory resident test, you are a resident if you keep a permanent place of abode there and spend over 183 days. The test applies even if your domicile is elsewhere, and the home must be kept for substantially all of the year. More than 183 days means 184 or more, and any part of a day in New York counts. A statutory resident files Form IT-201 and is taxed on all income, wherever it is earned. Anyone who keeps a New York home and files as a nonresident must be able to prove their day count. ### Do you pay NYC tax if you work in NYC but live elsewhere? No, New York City’s income tax applies only to city residents, and its commuter tax ended on July 1, 1999. For 2026, the NYC resident tax rate runs in four brackets, from 3.078% to 3.876%, and residents pay it on Form IT-201. You still owe New York State tax on pay for work in the city, on Form IT-203 if you live in another state. City government employees who live outside the city are the exception, and pay an equivalent amount on Form NYC-1127. If you moved into or out of the city that year, Form IT-360.1 figures the city tax for your months there. ### What is Form IT-203? Form IT-203 is New York State’s income tax return for nonresidents and part-year residents. You list all your income in the Federal amount column and your New York income in the New York State amount column. New York taxes the total as if you were a resident, then multiplies that tax by your income percentage. The percentage is the New York column divided by the federal column. Residents, including statutory residents, file Form IT-201, the New York resident tax return, instead. ### Does the convenience of the employer rule apply to me? The convenience of the employer rule applies if you live in another state and your assigned or primary office is in New York. New York then counts the days you work from home by choice as New York workdays, and taxes that pay. Home days count as out-of-state days if your employer needs you to work outside New York. Home days also count as out-of-state days if your employer has set up a bona fide employer office at your home. Connecticut and New Jersey apply similar rules only to people who live in a state with one, such as New York. ### Do non-residents pay NY state taxes? Yes, nonresidents pay New York State tax on their New York source income. You are a nonresident if your domicile is outside New York and you are not a statutory resident. New York source income includes pay for work in New York, rent and gains on New York property, and a business run there. Interest, dividends and gains on stocks are generally not New York source income, unless the property is used in a New York business. The rate comes from all your income, so income New York cannot tax still raises your rate. ### Do I have to file a New York nonresident tax return? You have to file Form IT-203 if you have New York source income and your New York AGI is above your standard deduction. New York AGI here means all your income, figured as if you were a New York resident. For 2026, the standard deduction is $8,000 for a single filer and $16,050 on a joint return. File anyway if New York State, New York City or Yonkers tax was withheld from your pay and you want it back. You must also file to claim a refundable or carryover credit, and in a few other cases. ### How do I file a nonresident tax return? You file a New York nonresident tax return on Form IT-203. New York requires you to file IT-203 online whenever your e-file software supports it. A New York part-year resident files the same form for the year of a move in or out. If your home state taxes income, you also file its resident return and claim its credit for the New York tax. ## Sources - New York State DTF, 2025 Instructions for Form IT-203: https://www.tax.ny.gov/pdf/2025/inc/it203i_2025.pdf - New York State DTF, 2026 Instructions for Form IT-2105: https://www.tax.ny.gov/pdf/2026/inc/it2105i_2026.pdf - New York State DTF, FAQs on filing requirements, residency and telecommuting: https://www.tax.ny.gov/pit/file/nonresident-faqs.htm - New York Tax Law § 605, General provisions and definitions: https://www.nysenate.gov/legislation/laws/TAX/605 - 20 NYCRR § 105.20, Resident individual: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-105.20 - New York Tax Law § 631, New York source income of a nonresident individual: https://www.nysenate.gov/legislation/laws/TAX/631 - 20 NYCRR § 132.18, Earnings of nonresident employees and officers: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.18 - 20 NYCRR § 132.24, Stock options, stock appreciation rights and restricted stock: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.24 - New York Tax Law § 639, Accruals upon change of residence: https://www.nysenate.gov/legislation/laws/TAX/639 - New York Tax Law § 620, Credit for income tax of another state: https://www.nysenate.gov/legislation/laws/TAX/620 - New York State DTF, Notice N-00-7 (New York City nonresident earnings tax eliminated): https://www.tax.ny.gov/pdf/notices/n00_7.pdf - New York State DTF, 2025 Instructions for Form Y-203: https://www.tax.ny.gov/pdf/2025/inc/y203i_2025.pdf - NYC Department of Finance, Personal income tax and nonresident employees FAQ: https://www.nyc.gov/site/finance/pay-now/personal-income-tax-and-non-resident-employees-faq.page --- URL: https://valim.tax/multi-state-tax/moving-from-california-to-texas Title: Moving from California to Texas: taxes California still collects Updated: 2026-09-24 # If you are moving from California to Texas, taxes on your Texas pay are only federal, but California still taxes income you earned there. A single filer earning $100,000 in Texas keeps about $6,355 a year that California would take in income tax and disability insurance. California keeps taxing pay for California workdays, part of your RSUs and options, and rent or gains on California real estate. State tax on your pay, 2026: - 0%: is Texas’s income tax rate. A 2019 amendment to its constitution bars a tax on individuals’ net incomes. - 13.3%: is California’s top rate: 12.3%, plus 1% on taxable income over $1 million. - 1.3%: of all wages is withheld for California State Disability Insurance (SDI), with no wage cap. The $6,355 uses California’s 2025 brackets, the latest its Franchise Tax Board (FTB) has published. ## Which equity awards carry California tax to Texas? California taxes the share of each award you earned while working there, counted in workdays under the FTB’s method. Which workdays count depends on the type of award. ### 1. RSUs that vest after the move For RSUs, California counts your workdays from grant to vest, or to your last day in the job if that comes first. It taxes the share of those days you worked in California. A vest that comes before your move date is California income in full. ### 2. NSOs you exercise after the move For nonqualified options, California counts your workdays from grant to exercise, or to your last day in the job if that comes first. If 750 of those 1,100 workdays were in California, $204,545 of a $300,000 spread (the stock’s value over your exercise price) is California income. So an exercise years after the move can still be mostly California income. ### 3. ESPP shares you sell after the move When you sell ESPP shares, the part taxed as pay is split by your California workdays from grant to purchase. The rest of the gain is taxed by the state you live in when you sell, and Texas does not tax it. ### 4. ISOs you exercise or sell after the move A qualifying sale of ISO shares (one that meets the ISO holding periods) after the move is not taxed by California. In a disqualifying sale, the part taxed as pay is split by your California workdays from grant to exercise. If you exercise after the move and keep the shares, California’s alternative minimum tax can still reach the California share of the spread. ## A year after the move, California can still tax $124,590 of a $200,000 RSU vest. Your RSUs, granted March 1, 2024, vest at $200,000 on September 1, 2026, a year after your move to Texas. - Had you stayed in California: $200,000. All $200,000 is California income. - Moved a year before the vest: $124,590. You worked 380 of the 610 workdays from grant to vest in California. - Granted after you moved: $0. Every workday from grant to vest falls in Texas. The California share is $200,000 × 380 ÷ 610 = $124,590. California taxes it at the average rate on your whole year’s income, figured as if you lived there all year. You report it on a 2026 Form 540NR. Texas taxes none of the vest, and federal tax applies to all $200,000 either way. The counts assume you kept the same job and worked from Texas after the move. ## Texas taxes none of the income that California taxes its residents on in 2026. After your move date, you are in the Texas column for everything except income from California sources. | | California | Texas | | --- | --- | --- | | Wages and bonuses | Taxed (Plus SDI on every dollar) | Not taxed | | Long-term capital gains | Taxed like wages | Not taxed | | QSBS gain | Taxed in full (No Section 1202 exclusion) | Not taxed | | Interest and dividends | Taxed (Not on U.S. Treasury or California bond interest) | Not taxed | | IRA and pension payouts | Taxed | Not taxed | | State income tax return | Yes (Form 540, or Form 540NR for the year you move) | None | ## Why might you still file in California after the move? ### Work trips back add California days (https://valim.tax/glossary/income-sourcing-equity-compensation) Each day you work in California after the move is a California workday. Its pay is California income, and it raises California’s share of RSUs not yet vested and options not yet exercised. ### Selling California real estate after the move When you sell California real estate after the move, 3.33% of the price is usually withheld for California. No withholding applies to a home that was last your main home, or to one that qualifies for the Section 121 home-sale exclusion. You must certify that on Form 593 before the sale closes. The exemption covers only withholding, so any taxable gain is still California income. Any amount withheld counts as a payment toward your tax on the 540NR. ### A sale made as a resident stays California income Moving does not change the source of a sale made while you lived in California. In an installment sale, the buyer pays the price over later years. If you sold stock that way before you left, the gain in each later payment is still California income. The interest on those payments is not. ### California returns can continue for years Each year a vest, an exercise or California rent brings California income, you may need another Form 540NR. The filing test counts your income from all sources, so even a small California share can require a return. ## A CPA splits your income at your move date, so California taxes only its share. Valim’s CPAs file California returns for people who moved to Texas, including the California share of their RSUs and options. - We prepare your federal return and your move-year Form 540NR. - We count California and Texas workdays for each RSU vest and option exercise, and report California’s share on your 540NR. - We check your vesting and exercise dates against your planned move, while the date can still change. - We work out the estimated payments for California tax on later vests. - An FTB notice on a return we prepared, such as one about your move date, gets our reply within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## California to Texas tax questions. ### Is it worth it to move from California to Texas? On income tax alone, Texas costs less, because it has none. On a $100,000 salary, a single filer keeps about $6,355 more a year than in California. That is $5,055 of California income tax, at its 2025 brackets, and $1,300 of State Disability Insurance. Unlike Washington, Texas does not tax capital gains either. ### Do I have to pay taxes in California if I live in Texas? If you live in Texas, California taxes only your income from California sources. That covers pay for days you work in California and the California share of RSUs and options earned there. Rent and gains from California real estate count too. California does not tax gains on stock you sell as a Texas resident, except any part of an ESPP or ISO sale taxed as pay. Your IRA and qualified pension payouts are not California income either. Texas has no personal income tax, so no credit offsets the California tax. ### How much is $100,000 salary in Texas after taxes? A $100,000 salary in Texas leaves about $79,180 after taxes for a single filer in 2026 who takes the $16,100 standard deduction. Federal income tax takes $13,170, Social Security $6,200 and Medicare $1,450. Texas adds no income tax or payroll tax of its own. California still taxes your pay for any days you work there, as Massachusetts does after a move to New Hampshire. The figure leaves out 401(k) contributions and health premiums. ### Will I be taxed if I move out of California? Not for the move itself, because California has no exit tax. It taxes you as a resident on all income until your residency ends, then only on income from California sources. For the year you move to Texas, one Form 540NR covers both parts of the year. Texas has no income tax to credit, so the 540NR is the only state return you file. ### Can I keep my California job and work remotely from Texas? Yes, and California does not tax your pay for the days you work in Texas. California taxes pay by where you do the work, wherever your employer is. That sets it apart from New York, which can tax days you work from home for a New York office. Days you work in California, such as trips to the office, stay California workdays. Equity granted while you worked in California keeps a California share, taxed when it vests or you exercise it. ### Will my business owe tax in Texas after the move? Your business owes Texas franchise tax only if it is an LLC, corporation or other taxable entity with more than $2,650,000 of revenue. That threshold applies to reports due in 2026 and 2027. The tax falls on the business, so a sole proprietorship without an LLC owes none. Above the threshold, the rate is 0.75% of taxable margin, or 0.375% for retailers and wholesalers. At or below it, the business still files an information report by May 15. ## Sources - Texas H.J.R. 38 (2019), adding Tex. Const. art. VIII, § 24-a: https://capitol.texas.gov/tlodocs/86R/billtext/pdf/HJ00038E.pdf - Cal. Rev. & Tax. Code § 17952, Intangible income of nonresidents: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17952 - Cal. Rev. & Tax. Code § 18152, Section 1202 does not apply: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=18152 - California FTB, Publication 1100 (2025), Taxation of Nonresidents and Individuals Who Change Residency: https://www.ftb.ca.gov/forms/2025/2025-1100-publication.pdf - California FTB, Publication 1004 (revised 01/2015): https://www.ftb.ca.gov/forms/misc/1004.html - California FTB, 2025 Form 540NR Tax Booklet: https://www.ftb.ca.gov/forms/2025/2025-540nr-booklet.pdf - California FTB, 2025 Instructions for Schedule CA (540), line 2 (interest): https://www.ftb.ca.gov/forms/2025/2025-540-ca-instructions.html - California FTB, 2026 Instructions for Form 593, Real Estate Withholding Statement: https://www.ftb.ca.gov/forms/2026/2026-593-instructions.html - California EDD, Contribution rates, withholding schedules, and meals and lodging values: https://edd.ca.gov/en/payroll_taxes/rates_and_withholding/ - California Secretary of State, Proposition 40, text of proposed laws (2026): https://vig.cdn.sos.ca.gov/2026/general/pdf/prop40-text-proposed-laws.pdf - Texas Comptroller of Public Accounts, Franchise tax: https://comptroller.texas.gov/taxes/franchise/ - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - 830 CMR 62.5A.1, Non-resident income tax (Massachusetts): https://www.law.cornell.edu/regulations/massachusetts/830-CMR-62-5A-1 --- URL: https://valim.tax/multi-state-tax/moving-from-california-to-washington Title: Moving from California to Washington: taxes on pay and gains Updated: 2026-09-24 # Before moving from California to Washington, taxes on a large stock sale depend on your move date, though Washington pay carries no state income tax. Washington’s capital gains tax rises to 9.9% on taxable gains beyond $1 million. California can still tax what you earned there, including part of any RSUs that vest after you leave. Which state taxes a stock sale depends on where you live on the day you sell. After the move, 2026: - 0%: is Washington’s income tax on wages in 2026. California’s top rate is 13.3%. - 7%: is Washington’s tax on long-term gains past its standard deduction, which was $278,000 for 2025. - $4,968: is how much more a single filer on $100,000 of wages keeps each year in Washington than in California. California has not published its 2026 brackets, so the $4,968 uses its 2025 ones. ## When does your move count for tax in both states? California taxes all your income until your move date. Washington’s capital gains tax reaches only stock you sell after it. ### 1. Your stay in Washington is open-ended A short work posting you plan to return from keeps you a California resident, so the move has to be open-ended. ### 2. Washington has become your permanent home Washington defines domicile as a permanent place to live, plus the intent to make it your home. Your California domicile ends once you have settled in Washington and given up any intent to return. Both states agree you can have only one domicile at a time. ### 3. Your home, family and work are in Washington Both states weigh much the same evidence, including where your home, family, work and bank accounts are. Each state decides on all the facts of your case. ### 4. You hold a Washington driver’s license Washington gives new residents 30 days to get a Washington driver’s license. A license helps your case only alongside a home, family and work in Washington. Keep the papers that date your move, such as a lease or closing statement. Note your last workday in California too. In a residency audit, California’s Franchise Tax Board (FTB) reconstructs where you were from credit card, bank and airline records. ## Selling stock with a $1.5 million gain after the move saves $77,600 of state tax. A single filer with no other income has a $1.5 million long-term gain on stock sold in 2025. - Sold as a California resident: $169,578. California taxes the whole gain at its regular rates, up to 13.3%. Washington takes nothing, since you were not domiciled there on the sale date. - Sold after the move: $91,978. Washington taxes the $1,222,000 left after its deduction. California takes nothing, because a nonresident’s gain on investment stock is not California income. - QSBS sold after the move: $0. If Section 1202 excludes the whole gain from federal tax, Washington does not tax it either. Had you sold the same shares before the move, California would tax the whole gain, because it does not follow Section 1202. California’s figure uses its 2025 schedule for single filers, on $1,494,294 of taxable income after the $5,706 standard deduction. That is $72,219.84 on the first $742,953, 12.3% on the rest, and the 1% Behavioral Health Services Tax on income above $1 million. Washington’s figure is 7% of the first $1 million left after its $278,000 deduction, and 9.9% of the other $222,000. The rows show state tax only. They leave out California’s $153 personal exemption credit, which phases out completely at this income. In your move year, a gain after the move still raises the rate California applies to your pre-move income. ## What does each state tax once you live in Washington? After your residency ends, California taxes only income from California sources. For your move year, one Form 540NR reports all your income before the move and only California-source income after it. These are the 2026 rules. Washington’s planned 2028 tax on income over $1 million would change the Washington column. | | California | Washington | | --- | --- | --- | | Pay for work done in Washington | None (Even from a California employer) | None (WA Cares long-term care and paid-leave premiums apply) | | Wages for days you work in California | All of it (Including a bonus for that work paid after the move) | None | | RSUs and NSOs from your California job | The California workday share (Counted from grant to vest for RSUs, and from grant to exercise for NSOs) | None | | Long-term stock gains | None | 7% above the deduction (9.9% on taxable gains over $1M) | | Short-term stock gains | None | None (Only assets held more than a year are taxed) | | Gain on California real estate | Taxed (Wherever you live when you sell) | None (Real estate of any kind is exempt) | Unlike Texas or Florida, Washington taxes long-term capital gains. The Washington Supreme Court upheld that tax in 2023 as an excise tax on sales, rather than an income tax. ## Where can a move to Washington still cost you tax? ### A family that moves in stages (https://valim.tax/glossary/domicile) If your family stays in your California home for a school year, California may still treat you as a resident. Under the FTB’s guidelines, a marital home in California is a significant factor toward California domicile. Washington presumes that spouses share one domicile. ### A sale both states can claim Sell in the weeks around your move, and both states may say you lived there that day. Washington then allows a credit for the California tax on that gain, up to its own tax on it. To claim the credit, you must pay the California tax before you file the Washington return. ### Washington’s tax comes due in one payment (https://valim.tax/multi-state-tax/washington-capital-gains-tax) Washington asks for no quarterly payments, so the whole tax is due by the federal due date, normally April 15. A filing extension does not extend the time to pay. You can prepay 2026 tax on the Department of Revenue’s My DOR site from October 15, 2026. ### A 2028 tax on income over $1 million From January 1, 2028, a 9.9% Washington tax is set to apply to income over $1 million, as the state defines it. Wages, RSU vests and short-term gains count, and spouses share one $1 million deduction. Initiative 26-645, on the November 3, 2026 ballot, would repeal it. ### An estate tax that starts at $3 million (https://valim.tax/high-earners/estate-tax-exemption) For deaths from July 1, 2026, Washington taxes estates above a $3,000,000 exclusion, at rates from 10% to 20%. The federal exemption is $15 million for 2026, so an estate can owe Washington tax and no federal tax. ## Plan a large stock sale around your move date with a CPA. Valim’s CPAs plan stock sales and RSU income for people moving from California to Washington, before the move and after it. - We file Form 540NR for your move year, and for each later year your California RSUs vest. - We work out what each state would take on a large sale, before and after your move. - We file Washington’s capital gains return when you owe it, with a credit for any California tax on that gain. - We plan estimated payments on RSUs still taxed by California. - When the FTB or Washington’s Department of Revenue writes about a return we prepared, we answer it within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## California to Washington tax questions. ### Will I be taxed if I move out of California? No, California does not tax the act of leaving. Until your residency ends, it taxes all your income, and afterward only income from California sources. That still includes pay and equity earned there, and gains on California real estate. A gain after the move still raises the rate on your move-year 540NR, and Washington may tax the sale instead. ### How much is $100,000 income taxed in Washington? A single filer with $100,000 of wages pays about $22,207 in taxes and premiums in Washington in 2026, and keeps $77,793. Federal income tax is $13,170 after the $16,100 standard deduction. Social Security and Medicare take $7,650. Washington charges no income tax. Its WA Cares long-term care premium takes $580, and your share of the paid-leave premium is about $807. ### Who has higher taxes, CA or WA? California has higher income taxes. It taxes wages and all capital gains at rates up to 13.3%. Washington taxes no wages and no short-term gains. Its capital gains tax charges 7% on long-term gains above a deduction, and 9.9% once taxable gains pass $1 million. A separate 9.9% Washington tax on income over $1 million is set to start in 2028. Voters decide on November 3, 2026 whether to repeal it. ### Is it cheaper to live in California or Washington state? On state income and payroll taxes, Washington costs less for most workers. A single filer paid $100,000 keeps about $4,968 more a year in Washington. California would take $5,055 in income tax, using its 2025 rates, and $1,300 for State Disability Insurance. Washington’s WA Cares and paid-leave premiums come to about $1,387. Unlike Florida or Texas, Washington also taxes long-term capital gains. ### Which state taxes my RSUs if they vest after I move to Washington? California taxes the part tied to your California workdays, and Washington taxes none of the vest in 2026. The California share is the vest’s value times your California workdays from grant to vest, divided by all your workdays in that period. A remote day in Washington is not a California workday, even for a California employer. You report California’s share on Form 540NR for the year the RSU income is taxed, usually the year the shares vest. The same rule applies after a move to Texas. ### Should I sell stock before or after I move to Washington? For shares you hold as an investment, selling after the move usually costs less state tax. California taxes a resident’s gains at up to 13.3%, and does not tax a nonresident’s gain on investment stock. Washington’s tax reaches only long-term gains above its deduction. The move must come first. Your Washington domicile has to be in place before the sale, and you need records that show it. ## Sources - Chapter 82.87 RCW, Capital gains tax: https://app.leg.wa.gov/RCW/default.aspx?cite=82.87&full=true - WAC 458-20-301, Capital gains excise tax: definitions, deductions, exemptions, and allocation of gains and losses: https://app.leg.wa.gov/WAC/default.aspx?cite=458-20-301 - Washington Department of Revenue, Do you owe capital gains tax? (deduction amounts by year): https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax/do-you-owe-capital-gains-tax - Washington Department of Revenue, Frequently asked questions about Washington’s capital gains tax: https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax/frequently-asked-questions-about-washingtons-capital-gains-tax - Washington Department of Revenue, Prepayment of capital gains tax (special notice): https://dor.wa.gov/forms-publications/publications-subject/special-notices/prepayment-capital-gains-tax - Washington Supreme Court, Quinn v. State, No. 100769-8 (March 24, 2023): https://www.courts.wa.gov/opinions/pdf/1007698.pdf - Washington ESSB 6346, Chapter 238, Laws of 2026 (individual income over $1 million): https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/Senate/6346-S.SL.pdf - Washington House Office of Program Research, Summary of Initiative 26-645 (August 21, 2026): https://leg.wa.gov/media/ucubvqsd/2026-summary-of-initiative-26-645.pdf - Chapter 83.100 RCW, Estate tax: https://app.leg.wa.gov/RCW/default.aspx?cite=83.100&full=true - RCW 46.20.021, Driver’s license required for new residents: https://app.leg.wa.gov/RCW/default.aspx?cite=46.20.021 - WA Cares Fund, How the Fund Works: https://wacaresfund.wa.gov/how-it-works - Washington Employment Security Department, Paid Family & Medical Leave premium rate increases to 1.13% in 2026: https://esd.wa.gov/about-us/news-release/2025/paid-family-medical-leave-premium-rate-increases-113-2026 - Cal. Code Regs. tit. 18, § 17014, Who are residents and nonresidents: https://www.law.cornell.edu/regulations/california/18-CCR-17014 - Cal. Rev. & Tax. Code § 17952, Intangible income of nonresidents: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17952 - Cal. Rev. & Tax. Code § 18152, Section 1202 does not apply: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=18152 - California FTB, Publication 1031 (2025), Guidelines for Determining Resident Status: https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf - California FTB, Publication 1100 (2025), Taxation of Nonresidents and Individuals Who Change Residency: https://www.ftb.ca.gov/forms/2025/2025-1100-publication.pdf - California FTB, Residency and Sourcing Technical Manual (Rev. 01/2026): https://www.ftb.ca.gov/tax-pros/procedures/residency-and-sourcing-technical-manual-disclosure.pdf - California FTB, 2025 Form 540NR Tax Booklet: https://www.ftb.ca.gov/forms/2025/2025-540nr-booklet.pdf - California EDD, Contribution rates, withholding schedules, and meals and lodging values: https://edd.ca.gov/en/payroll_taxes/rates_and_withholding/ - California Secretary of State, Proposition 40, text of proposed laws (2026): https://vig.cdn.sos.ca.gov/2026/general/pdf/prop40-text-proposed-laws.pdf - California Legislative Analyst’s Office, Proposition 40 (2026): https://lao.ca.gov/BallotAnalysis/Proposition?number=40&year=2026 - Qualified small business stock (IRC Section 1202): https://www.law.cornell.edu/uscode/text/26/1202 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/multi-state-tax/moving-from-new-york-to-florida Title: Moving from New York to Florida: taxes and what New York keeps Updated: 2026-09-24 # Even after moving from New York to Florida, taxes on your pay can still reach New York. New York treats you as a resident until you can show, by clear and convincing evidence, that your domicile moved. As a nonresident, you owe New York tax only on New York income. That can include pay for days you work from Florida. Leaving New York for Florida, 2026: - 0%: is Florida’s personal income tax, since its constitution bars one. - 184 days: in New York make you a resident if you keep a home there for substantially all of the year, whatever your domicile. - 100%: of your pay can stay New York income when your job is based in a New York office. ## What does it take to change your residency from New York to Florida? ### 1. You moved to Florida to stay Your domicile is the one place you treat as your permanent home, the place you mean to return to after time away. It moves only when you settle in Florida intending to stay for good. A move for a limited time leaves it in New York, even if you sold your home there. ### 2. Your ties are clearly greater in Florida Your move counts only when your ties to Florida clearly outweigh your ties to New York. New York’s auditors weigh five primary factors: home, active business ties, time, items “near and dear” and family. Near and dear covers heirlooms, art, collections and pets. ### 3. You spend 183 days or fewer in New York Keep a New York home for substantially all of the year and spend more than 183 days there, and you are a statutory resident. Part of a day counts, apart from traveling through or boarding a plane, train, bus or ship to leave. You must be able to prove your count with records. ### 4. Your paperwork points to Florida too A Florida declaration of domicile, driver’s license and voter registration all help. New York’s auditors turn to them only when the primary factors point to New York or are evenly balanced. In Matter of Silverman, the Tax Appeals Tribunal found them less persuasive than how a person actually lives day to day. It called that the “general habit of life.” Even while your domicile is still in New York, the 30-day rule can make you a nonresident. It applies in a year when you have no New York home at any point. You must also keep a home elsewhere all year and spend 30 or fewer days in New York. ## Where your job is based decides whether New York takes $20,002, $2,000 or nothing from a $300,000 salary. New York’s convenience of the employer rule looks at where your job is based. If your assigned office is in New York, a day you choose to work from Florida still counts as a New York workday. A single filer earns a $300,000 salary in 2026 over 240 workdays, with no other income. - Still a New York resident: $20,002. A resident is taxed on all of it, wherever the work is done. - In Florida, job based in Manhattan: $20,002. You work 24 days in Manhattan and 216 at home in Florida, by choice. New York counts all 240. - In Florida, assigned to a Florida office: $2,000. Only your 24 Manhattan days count, which is a tenth of the salary. - In Florida, no New York workdays: $0. With a Florida-based job and no days worked in New York, none of the salary is New York income. At 2026 rates, New York’s tax on the whole $300,000 is 6.85% of $292,000, after the $8,000 standard deduction: $20,002. At this income, New York takes back the benefit of its lower brackets. As a nonresident, you pay that amount times your share of wages earned on New York days: 240/240, 24/240 or none. A home office counts as a Florida office only if your employer made it a bona fide employer office. City and federal tax are left out. ## How do New York and Florida taxes compare in 2026? | | New York | Florida | | --- | --- | --- | | State income tax | 3.9% to 10.9% | None | | City income tax | 3.078% to 3.876% (In New York City, for its residents) | None | | Stock gains and dividends | Taxed with your other income | Not taxed | | Estate tax | Estates over $7,350,000 (Above $7,717,500, the whole estate is taxed) | None | | Move-year return | Form IT-203 (As a part-year resident) | None | New York City taxes only its residents, so its tax ends when you move out, even if you keep working there. City government employees are the exception: they pay a matching amount on Form NYC-1127. ## What can keep New York taxing you after you move to Florida? ### Options that vested in New York stay New York income (https://valim.tax/glossary/income-sourcing-equity-compensation) New York splits NSO income by your workdays from grant to vesting, ignoring any days after. Exercise an option that vested before the move, and a $150,000 spread can be New York income in full. New York may treat RSUs the same way. ### Income earned before the move stays resident income Income you earned as a resident but receive after the move counts in your resident months. That covers a bonus you had a fixed right to before you left, and the rest of the gain on an installment sale. The IT-203 instructions call these special accruals. ### Your spouse stays in New York A spouse who stays in New York can keep your domicile there. Spouses generally share one domicile unless they are separated in fact. A home your spouse owns or leases can also count as your permanent place of abode. ### Selling New York real estate after the move Gain on a New York house or condo is New York income wherever you live. At a 2026 closing, a nonresident seller files Form IT-2663 and prepays 10.9% of the gain, or $21,800 on a $200,000 gain. The payment counts toward the tax on your IT-203. A home that qualifies in full as your Section 121 principal residence is exempt, which you claim on Form TP-584. ### New York estate tax still reaches a home you keep there (https://valim.tax/high-earners/estate-tax-exemption) A New York house or condo you keep for visits can bring New York estate tax, even after you move to Florida. That applies only when your federal gross estate, plus certain gifts, is over $7,350,000 for a 2026 death. ## Valim’s CPAs plan your exit from New York and file the move-year return. - We prepare your federal return and move-year Form IT-203, with the IT-203-F that splits option income by New York workdays. - We compare selling a large stock position before your move date with selling it after. We also set out the records a domicile audit asks for, from your day count to where your family lives. - We plan estimated payments for New York tax on income after the move. - If New York sends a notice about your move on a return we prepared, we reply within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## What do people ask about taxes when leaving New York for Florida? ### If I move to Florida, will I still have to pay NY taxes? Yes. New York taxes all your income while your domicile is there, and only your New York income after you become a nonresident. Keep a New York home for substantially all of the year and spend more than 183 days there, and you are a statutory resident. A statutory resident is taxed on everything, even with a Florida domicile. As a nonresident, you owe New York tax on pay for days you work in New York. That includes days you work at home in Florida for a job based in New York. Rent and gains from New York real estate stay taxable too. ### Is it worth moving to Florida for tax purposes? It can be, since Florida has no state income tax and no estate tax. You gain only once New York stops treating you as a resident, and never on income New York can still tax. If you are leaving New Jersey for Florida instead, a home sale there has its own rules. ### Is it worth moving from NY to Florida? On income tax alone, yes, once you are no longer a New York resident and your job is based elsewhere. A single filer with only a $300,000 salary pays $20,002 in New York State tax for 2026, and Florida charges nothing. If your job stays assigned to a New York office, New York can keep taxing all of that pay. The move then saves New York tax on your investments, and city tax if you lived in New York City. Moving from California to Texas works differently, since California taxes only pay for days worked there. ### What is the most cost-effective way to move from New York to Florida? For taxes, the most cost-effective way is a complete change of domicile that you can prove. Move your household and working life, since a new license or voter card counts for little on its own. If you keep a New York home, log your days and stay at 183 or fewer. Time a large stock sale for after your residency ends, because a nonresident’s stock gains are generally not New York income. ### How do I file New York taxes for the year I move to Florida? For the year you move to Florida, you file one New York Form IT-203 as a part-year resident. It reports all your income for your months in New York, and only New York income after you left. New York figures tax on the whole year’s income as if you had stayed, then charges only its share. If you lived in New York City, Form IT-360.1 works out the city tax for your months there. Florida has no income tax return to file. ### How many days can I spend in New York after moving to Florida? If you keep a permanent place of abode in New York for substantially all of the year, the limit is 183 days. A day counts even if you spend only part of it in New York. Day 184 makes you a statutory resident, taxed on all your income despite a Florida domicile. Without one, days alone cannot make you a resident, though time is one of the domicile factors. Pay for every day you work in New York is New York income, whether or not you are a resident. ## Sources - Fla. Const. art. VII, § 5, Estate, inheritance and income taxes: https://www.flsenate.gov/Laws/Constitution - New York Tax Law § 605, General provisions and definitions: https://www.nysenate.gov/legislation/laws/TAX/605 - 20 NYCRR § 105.20, Resident individual: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-105.20 - New York Tax Law § 631, New York source income of a nonresident individual: https://www.nysenate.gov/legislation/laws/TAX/631 - 20 NYCRR § 132.18, Earnings of nonresident employees and officers: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.18 - 20 NYCRR § 132.24, Stock options, stock appreciation rights and restricted stock: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.24 - New York Tax Law § 639, Accruals upon change of residence: https://www.nysenate.gov/legislation/laws/TAX/639 - New York State DTF, 2025 Instructions for Form IT-203: https://www.tax.ny.gov/pdf/2025/inc/it203i_2025.pdf - New York State DTF, 2026 Instructions for Form IT-2105: https://www.tax.ny.gov/pdf/2026/inc/it2105i_2026.pdf - New York State DTF, Nonresident Audit Guidelines (December 2021): https://www.tax.ny.gov/pdf/2021/misc/nonresident-audit-guidelines-2021.pdf - New York State DTF, 2026 Instructions for Form IT-2663: https://www.tax.ny.gov/pdf/current_forms/it/it2663i_2026.pdf - New York State Department of Taxation and Finance, Estate tax: https://www.tax.ny.gov/pit/estate/etidx.htm - New York Tax Law § 952, Imposition of estate tax: https://www.nysenate.gov/legislation/laws/TAX/952 --- URL: https://valim.tax/multi-state-tax/moving-from-new-jersey-to-florida Title: Moving from New Jersey to Florida: taxes, returns and home sales Updated: 2026-09-24 # For anyone moving from New Jersey to Florida, taxes are owed to New Jersey only on New Jersey-source income once residency ends. Florida taxes no personal income, while New Jersey’s rates run up to 10.75%. In the year you move, New Jersey taxes everything you earn before your move date. After that date, New Jersey-source income includes pay for days worked in New Jersey and gain on New Jersey real estate. New Jersey and Florida income tax: - 0%: is the state income tax on everything you earn as a Florida resident, wages and gains alike. - 10.75%: is New Jersey’s top rate, charged on taxable income over $1 million. The bracket below it, from $500,000, is 8.97%. - 2%: of the sale price is the least a nonresident prepays at closing on New Jersey real estate. Exemptions include a qualifying main home. New Jersey’s rates come from its 2025 tax rate schedules. ## When does New Jersey stop taxing you as a resident? New Jersey residency ends on the day your domicile moves to Florida, unless the 183-day test keeps you a resident. ### 1. Your domicile has moved to Florida Your domicile is your one permanent home. It changes only when you move to Florida for good, intending to abandon New Jersey as your home. Even a long stay in Florida keeps New Jersey as your domicile if you plan to return. ### 2. No more than 183 days in New Jersey while you keep a home there Even with a Florida domicile, you can still be a New Jersey resident. That happens if you keep a permanent home in New Jersey and spend more than 183 days there. A home kept only for vacations is not a permanent home. ### 3. Your records point to Florida New Jersey looks at your records to decide where your domicile is. They include where you vote, your driver license and car registration, your federal return address and your bank accounts. Florida also lets you file a sworn declaration of domicile with the clerk of the circuit court. ## A Florida resident’s $200,000 gain on an $800,000 New Jersey rental means $21,500 due at closing. New Jersey collects this payment from sellers who live elsewhere, as a prepayment of its income tax. You live in Florida and sell a New Jersey house for $800,000. - Rental, $200,000 gain: $21,500. 10.75% of the gain is more than 2% of the price, so the gain sets the payment. - Rental, $50,000 gain: $16,000. The 2% minimum is more than 10.75% of this gain, so it applies. Your NJ-1040NR refunds whatever exceeds the tax you owe. - Your former main home: $0. Box 2 of Form GIT/REP-3 exempts a principal residence that qualifies under Section 121. New Jersey sets the payment at 10.75%, its top rate, times your federal gain, with a 2% floor unless an exemption applies. Here 2% × $800,000 = $16,000, and 10.75% of each gain gives $21,500 or $5,375. You claim the payment on Form NJ-1040NR (line 51 on the 2025 form), where the actual tax on the gain is figured. ## After you move to Florida, New Jersey taxes little beyond your New Jersey workdays and real estate. | | Before you move | After you move | | --- | --- | --- | | Salary and bonuses | All of it (A credit offsets another state’s tax on the same pay) | Pay for New Jersey workdays | | Bank interest | Taxed | Not taxed | | Gain on New Jersey real estate | Taxed | Taxed (With a payment at closing) | | What sets the rate | Your income as a resident | All your income after the move (Tax on it is then cut to New Jersey’s share) | | Return | NJ-1040 | NJ-1040NR (Only with New Jersey income) | ## Where New Jersey tax outlasts the move. ### The filing test counts your whole year Whether you must file Form NJ-1040 depends on your income for the whole year, including your months in Florida. Your exemptions and deductions are prorated by your months as a resident. A month counts if you lived in New Jersey for 15 days or more of it. ### Closing near your move date New Jersey’s own guidance differs on whether a seller who moves out right after closing counts as a resident at closing. The timing matters most for a rental or second home, since a qualifying main home owes no payment at closing either way. Ask a CPA before you set a closing date. ### Gain above the home-sale exclusion (https://valim.tax/high-earners/net-investment-income-tax) The main-home exemption on Form GIT/REP-3 removes only the payment at closing. Gain above the Section 121 exclusion is still taxed on your NJ-1040NR. Federally, the exclusion is $250,000 of gain, or $500,000 on a joint return that qualifies. Gain above it can also bring the 3.8% net investment income tax. ### Seller’s fees on top of the tax New Jersey charges the seller a Realty Transfer Fee on most sales of real estate. A home sold for over $1 million also owes a Graduated Percent Fee. It starts at 1% of the whole price and reaches 3.5% above $3.5 million. A 2025 law moved that fee from buyers to sellers. ### A New York job still counts (https://valim.tax/multi-state-tax/new-york-nonresident) If you commuted from New Jersey to a New York office and keep that job, New York can keep taxing its pay. You then file New York’s Form IT-203 each year, alongside any New Jersey return. ### A property tax break in both states Claim a property tax break that requires permanent residency in one state only. New Jersey treats a claim for its property tax relief as a sign your domicile is still New Jersey. Florida denies its homestead exemption to anyone receiving or claiming such a break in another state. ## File every New Jersey return, and claim every payment, as you leave. Valim’s CPAs prepare the New Jersey returns people owe after moving to Florida, from the year they leave to a later home sale. - We file an NJ-1040 for your New Jersey months with your federal return, and an NJ-1040NR when New Jersey income continues. - After you sell New Jersey property, we claim the closing payment on your NJ-1040NR. - We plan a home sale or large bonus around your move date before you commit to either. - We set estimated payments for the New Jersey income that remains. - We answer any New Jersey notice on a return we prepared, even one that disputes your move date, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## New Jersey to Florida tax questions. ### Is it worth moving from New Jersey to Florida? On income tax, yes: Florida charges none, while New Jersey’s rates reach 8.97% from $500,000 of taxable income and 10.75% above $1 million. Florida levies no estate or inheritance tax, and its constitution bars one beyond any federal credit. New Jersey’s estate tax ended for deaths from January 1, 2018, but its inheritance tax remains, with spouses, children and parents exempt. You gain once your domicile is in Florida and New Jersey’s 183-day test no longer applies. A later sale of New Jersey real estate is still New Jersey income. ### Do you get taxed for moving out of New Jersey? No, leaving New Jersey triggers no tax by itself. What people call New Jersey’s exit tax is a prepayment of income tax when a nonresident sells New Jersey real estate. The seller pays 10.75% of the gain or 2% of the price, whichever is more, and claims it on Form NJ-1040NR. The county will not record the deed without a GIT/REP form and the payment. A main home that qualifies under Section 121 is exempt, as are a few other transfers, such as a like-kind exchange. ### Is it worth moving to Florida for tax purposes? Moving to Florida pays off for income tax, because Florida levies no income tax on its residents. Unlike Washington, it taxes no capital gains, and it ended its annual tax on stocks and bonds in 2007. A home you own on January 1 and make your permanent residence can get the homestead exemption, if you apply by March 1. It exempts up to $25,000 of assessed value from all property taxes. A second exemption, set at $25,000 and indexed to inflation from 2025, covers assessed value above $50,000 for taxes other than school taxes. ### If I move to Florida, will I still have to pay NY taxes? Yes, if you still have New York-source income, such as pay from a job whose office is in New York. Days you work in New York stay taxable there after the move. Under its convenience of the employer rule, home days you work in Florida by choice can count as New York days. Stock options tied to your New York work can also stay New York income. Anyone who lived in New York must first end their New York residency. ### Does New Jersey tax my pay if I work for a New Jersey employer from Florida? New Jersey taxes only the pay for days you work in New Jersey. It applies its convenience of the employer rule only to residents of states with a similar rule, and Florida has none. Days you work from home in Florida are therefore not New Jersey days. Form NJ-1040NR splits your pay by the share of your workdays spent in New Jersey. ### Which New Jersey returns do I file in the year I move to Florida? You file up to two New Jersey returns, because New Jersey has no part-year resident return. Form NJ-1040 covers your months as a resident and reports only the income you earned while living there. Form NJ-1040NR follows only if you had New Jersey-source income after the move, such as pay for New Jersey workdays. Nothing is filed with Florida, which has no personal income tax. Massachusetts does have a part-year return, so leaving it takes one Form 1-NR/PY for the move year. ## Sources - Fla. Const. art. VII, § 5, Estate, inheritance and income taxes: https://www.flsenate.gov/Laws/Constitution - New Jersey Division of Taxation, GIT-6, Part-Year Residents and Nonresidents (May 2026): https://www.nj.gov/treasury/taxation/pdf/pubs/tgi-ee/git6.pdf - New Jersey Division of Taxation, 2025 NJ-1040 instructions: https://www.nj.gov/treasury/taxation/pdf/current/1040i.pdf - New Jersey Division of Taxation, 2025 NJ-1040NR instructions: https://www.nj.gov/treasury/taxation/pdf/current/1040nri.pdf - New Jersey Division of Taxation, TB-57(R), Estimated Gross Income Tax Payment Requirements on Sales of New Jersey Real Property by Nonresidents (June 15, 2026): https://www.nj.gov/treasury/taxation/pdf/pubs/tb/tb57r.pdf - New Jersey Division of Taxation, Form GIT/REP-3 (seller’s residency certification or exemption): https://www.nj.gov/treasury/taxation/pdf/other_forms/tgi-ee/gitrep3.pdf - New Jersey Division of Taxation, Realty Transfer Fee: https://www.nj.gov/treasury/taxation/realty.shtml - New Jersey Division of Taxation, Inheritance tax rates: https://www.nj.gov/treasury/taxation/inheritance-estate/tax-rates.shtml - Fla. Stat. § 196.011, Annual application required for exemption: https://www.flsenate.gov/Laws/Statutes/2025/196.011 - Fla. Stat. § 196.031, Exemption of homesteads: https://www.flsenate.gov/Laws/Statutes/2025/196.031 - Fla. Stat. § 222.17, Manifesting and evidencing domicile in Florida: https://www.flsenate.gov/Laws/Statutes/2025/222.17 - Florida Department of Revenue, TIP 07C02-01, Repeal of Annual Intangible Personal Property Tax: https://floridarevenue.com/taxes/tips/documents/TIP_07C02-01.pdf - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - IRS, Questions and Answers on the Net Investment Income Tax: https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax - New York State DTF, 2025 Instructions for Form IT-203: https://www.tax.ny.gov/pdf/2025/inc/it203i_2025.pdf - 20 NYCRR § 132.18, Earnings of nonresident employees and officers: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.18 - 20 NYCRR § 132.24, Stock options, stock appreciation rights and restricted stock: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.24 - Massachusetts DOR, Massachusetts 4% Surtax on Taxable Income: https://www.mass.gov/info-details/massachusetts-4-surtax-on-taxable-income --- URL: https://valim.tax/multi-state-tax/moving-from-massachusetts-to-new-hampshire Title: Moving from Massachusetts to New Hampshire: taxes on your pay Updated: 2026-09-24 # When moving from Massachusetts to New Hampshire, taxes on your salary depend on where you work each day. New Hampshire does not tax wages, and it stopped taxing interest and dividends after 2024. A day you work from home in New Hampshire is outside Massachusetts tax. With two office days a week, Massachusetts can tax about 40% of your salary. State tax for a New Hampshire resident, 2026: - 5%: is Massachusetts’s rate on your pay for working days spent in Massachusetts. - 4%: is the surtax on Massachusetts taxable income over $1,107,750. - 0%: is New Hampshire’s tax on wages, and on interest and dividends since 2025. The $1,107,750 surtax threshold is the 2026 figure. Massachusetts indexes it for inflation every year. ## Which tests decide what Massachusetts can tax after you move? Take them in order. If you fail either of the first two, Massachusetts taxes all your income as a resident’s. The last two decide which days of your pay it can tax. ### 1. New Hampshire is now your domicile Massachusetts keeps taxing you as a resident for as long as it remains your domicile, meaning your true, fixed and permanent home. New Hampshire law counts you as a resident once your actions show your home there is your principal place of physical presence. Getting a New Hampshire driver’s license is one such action. New residents who drive must get one within 60 days. ### 2. No Massachusetts home, or 183 days or fewer there A permanent place of abode in Massachusetts means a home you maintain there. If you keep one, you are a Massachusetts resident for any year you spend over 183 days there. With a Massachusetts home, any day partly in Massachusetts counts toward the 183, so 184 office commutes make you a resident. ### 3. The days you work in Massachusetts As a salaried nonresident, you owe Massachusetts tax on the share of your salary earned on Massachusetts working days. That share is your days worked in Massachusetts divided by all your days worked. Work done in Massachusetts is Massachusetts income wherever you are paid. A day at home in New Hampshire counts only toward the total. ### 4. Days split between the two states A working day spent partly in Massachusetts counts as a Massachusetts day, unless you can prove you worked elsewhere for over half of it. Holidays, sick days, vacation and paid or unpaid leave count as neither Massachusetts working days nor total working days. ## With two office days a week, Massachusetts taxes $60,000 of a $150,000 salary. You live in New Hampshire and earn $150,000 in 2026 from a Boston employer, over 240 working days. - Every workday in the Boston office: $7,500. All 240 days are Massachusetts days, so the whole salary is Massachusetts income. - Two office days a week: $3,000. You work 96 days in Boston and 144 at home in New Hampshire. - Fully remote from New Hampshire: $0. You never work in Massachusetts, so it taxes no part of the salary. Massachusetts income is the salary times Massachusetts days over 240: $150,000 × 96 ÷ 240 = $60,000. Each tax figure applies Massachusetts’s 5% rate, before the exemptions and deductions on Form 1-NR/PY that lower it. Federal tax is the same in every row, apart from any state tax you deduct by itemizing. On this salary alone, a daily commute costs the same $7,500 as living in Massachusetts would. ## Once you live in New Hampshire, Massachusetts taxes your Massachusetts work and property. The first column shows what Massachusetts taxes a resident in 2026. The second shows what it can still tax once you live in New Hampshire. | | Before the move | After the move | | --- | --- | --- | | Salary | 5% | 5% on Massachusetts days | | Interest and dividends | 5% | Not taxed | | Gains on investments | 5% (8.5% if short-term) | Not taxed (Except Massachusetts real estate) | | Rent from Massachusetts property | 5% | 5% (Still Massachusetts income) | | Income counted for the 4% surtax | All of it | Massachusetts income only | ## What trips people up after moving to New Hampshire? ### A sale a week before the move Until your move date, Massachusetts taxes your gains as it does any resident’s. A $100,000 short-term gain on a sale a week before the move costs $8,500 in Massachusetts tax, at 8.5%. Sell listed stock or funds after the move, and Massachusetts no longer taxes the gain. Massachusetts real estate and stock tied to your pay are exceptions. ### Options from your Massachusetts years (https://valim.tax/glossary/income-sourcing-equity-compensation) Massachusetts still taxes a share of the spread when you exercise nonqualified options as a New Hampshire resident. The share is your average Massachusetts percentage, meaning the part of each year’s workdays spent in Massachusetts, averaged from grant to exercise. Three years working fully in Massachusetts and one fully in New Hampshire give yearly figures of 100%, 100%, 100% and 0%. Massachusetts then taxes the average, 75% of the spread. ### Stock and pay that arrive after you leave Massachusetts still taxes RSUs and restricted stock that vest once you live in New Hampshire, on the share earned by your Massachusetts work. A bonus or other pay for Massachusetts work, paid in a later year, is Massachusetts income too. ISO and ESPP shares are generally outside Massachusetts tax after the move. The exception is a disqualifying disposition, meaning a sale before the required holding periods end. ### One surtax threshold for a married couple A couple filing jointly for federal tax must generally file jointly in Massachusetts, with one $1,107,750 surtax threshold between them. The rule holds even when the spouses have different residency status, such as one moving to New Hampshire months before the other. ## Get the Massachusetts share right on your Form 1-NR/PY. Valim’s CPAs file Form 1-NR/PY for people who left Massachusetts for New Hampshire, splitting their pay and stock by Massachusetts working days. - We place each item of income before or after your move date and split salary, RSUs and options by your Massachusetts workdays. Then we file Form 1-NR/PY with your federal return. - We test an exercise or share sale against your move date and the surtax threshold before you act. - We calculate Massachusetts estimated payments when your withholding falls short. - If Massachusetts questions the day count on a return we prepared, our reply costs nothing extra. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle multi-state tax: https://valim.tax/multi-state-tax ## Massachusetts to New Hampshire tax questions. ### Is it cheaper to live in NH or MA? For state income tax, New Hampshire is cheaper, because it taxes no wages and, from 2025, no interest or dividends. Massachusetts taxes most income at 5% and short-term capital gains at 8.5%, plus 4% on taxable income over $1,107,750 in 2026. Living in New Hampshire does not end Massachusetts tax on your Massachusetts working days. California does the same after a move to Texas, taxing pay for California workdays. ### What are the tax advantages of living in NH? The main tax advantage of living in New Hampshire is that it taxes neither your wages nor, from 2025, your interest and dividends. Its Interest and Dividends Tax, charged at 3% for 2024, was repealed for taxable periods beginning after December 31, 2024. Massachusetts still taxes the pay for your Massachusetts working days. ### Is it better to retire in MA or NH? For income tax, New Hampshire usually comes out ahead for retirees, since it no longer taxes interest and dividends. Federal law also bars Massachusetts from taxing a nonresident’s qualified pension and IRA payouts, even after a career there. Deferred pay from a Massachusetts job can stay taxable there, unless federal law protects it. Massachusetts can still tax rent from, and gains on, property located in Massachusetts. Its estate tax can reach that property too, if your federal taxable estate is over $2 million. ### Do Massachusetts and New Hampshire have reciprocity? No, Massachusetts and New Hampshire have no reciprocity agreement. Such an agreement lets workers pay wage tax only to their home state. New Hampshire has no wage tax, so it has nothing to exchange. A New Hampshire resident owes Massachusetts tax for each working day spent in Massachusetts, with no credit at home. Days worked from home in New Hampshire are taxed by neither state. ### Does the 4% surtax still apply once I live in New Hampshire? Yes, if the Massachusetts taxable income on your Form 1-NR/PY is over $1,107,750 in 2026. Only income Massachusetts can still tax counts, such as pay for Massachusetts workdays and options tied to your job there. If a large exercise brings your Massachusetts taxable income to $1,500,000, the surtax is 4% of $392,250. That is $15,690, on top of the 5% tax. ### Can I work from home in New Hampshire for a Massachusetts employer? Yes, and the days you work at home in New Hampshire fall outside Massachusetts tax. A pandemic-era rule counted them as Massachusetts days, but it ended in 2021. A day you work in a Massachusetts office is generally a Massachusetts day. New York works differently: its convenience of the employer rule can tax home days when your office is in New York. ### Which Massachusetts return covers the year of my move? Form 1-NR/PY covers the whole year of your move, as both a part-year resident and a nonresident. It taxes all your income up to the move date, and only Massachusetts income after it. New Hampshire does not tax wages, so your pay needs no New Hampshire return. In later years, pay for Massachusetts workdays still goes on a Form 1-NR/PY. Leaving New Jersey, by contrast, can take two returns for one year. ## Sources - 830 CMR 62.5A.1, Non-resident income tax (Massachusetts): https://www.law.cornell.edu/regulations/massachusetts/830-CMR-62-5A-1 - 830 CMR 62.5A.3, Massachusetts source income of nonresidents telecommuting due to the COVID-19 pandemic: https://www.law.cornell.edu/regulations/massachusetts/830-CMR-62-5A-3 - Massachusetts DOR, Massachusetts 4% Surtax on Taxable Income: https://www.mass.gov/info-details/massachusetts-4-surtax-on-taxable-income - Massachusetts DOR, Massachusetts Tax Rates: https://www.mass.gov/info-details/massachusetts-tax-rates - New Hampshire Department of Revenue Administration, Interest & Dividends Tax: https://www.revenue.nh.gov/taxes-glance/interest-dividends-tax - N.H. Rev. Stat. § 21:6, Resident; Inhabitant: https://gc.nh.gov/rsa/html/I/21/21-6.htm - N.H. Rev. Stat. § 263:35, Nonresident Who Establishes a Residency in the State: https://gc.nh.gov/rsa/html/XXI/263/263-35.htm - 4 U.S.C. § 114, Limitation on State income taxation of certain pension income: https://www.law.cornell.edu/uscode/text/4/114 - Mass. Gen. Laws ch. 65C, § 2A, Transfer of estate and real property; tax: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter65C/Section2A --- URL: https://valim.tax/expat-tax Title: US expat tax services: CPAs for Americans living abroad Updated: 2026-09-24 # Americans living abroad still owe a US return, and Valim’s US expat tax services handle it. Valim is a US CPA firm for Americans abroad. Valim’s CPAs, who include ex-Big Four accountants, prepare your Form 1040 with Form 2555 or 1116 and file your FBAR. At Valim, individual returns start at $195, and the fee is quoted before work starts. Valim’s CPAs for expats: - $195: is where an individual return starts, with anything your year abroad adds priced in your quote. - 50: states are covered, if you still file a state return from abroad. - <1 week: is the typical wait between your last upload and a filed return. ## Our CPAs prepare your US return and every form that living abroad adds. ### Exclusion and credit, compared We work out your US tax under the foreign earned income exclusion (Form 2555) and under the foreign tax credit (Form 1116). Then we file the approach that costs you less, which can be a mix of the two. ### Credits carried to other years When you pay more foreign tax than you can credit this year, we carry the excess to other years on Form 1116. ### Your FBAR We file your FBAR with FinCEN. Once your foreign assets pass the Form 8938 threshold, which is higher than the FBAR’s, we file that form with your return too. ### Years you missed If you are behind, we prepare the missing returns and FBARs. We also check if you qualify for the streamlined filing compliance procedures. ### Estimated payments We work out your US estimated payments. ### Your accountant abroad Valim prepares US returns only. Your accountant abroad files the local return, and we work alongside them. ## Your US expat tax filing runs online, from the quote to the signed return. ### 1. Your fee, set first Take the instant quote online, and your fee holds for 7 days if your documents match your answers. ### 2. A US CPA signs your return Automation reads your statements, and a licensed US CPA prepares and signs the return. You and your CPA work in one portal, from any country. ### 3. IRS letters come to us We answer any IRS or state notice about a return we prepared, at no extra cost. ## The cost of expat tax preparation depends on your plan and on what your return includes. ### Individual return filing From $195 Individual return filing covers your US return from abroad, however complex it is, and your CPA is on hand all year. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as moving abroad or coming back to the US. ## US expat taxes rest on five rules, and each country adds its own. ### Excluding pay you earn abroad (https://valim.tax/expat-tax/foreign-earned-income-exclusion) The foreign earned income exclusion shields foreign pay from US income tax up to a yearly cap, if your tax home and time abroad qualify. ### Credit for tax paid abroad (https://valim.tax/expat-tax/foreign-tax-credit) The foreign tax credit lets income tax paid abroad offset the US tax on the same income, within a limit. ### Reporting foreign accounts (https://valim.tax/expat-tax/fbar) Foreign accounts go on an FBAR to FinCEN, apart from your return, in any year their total passes a threshold. ### Catching up on missed years (https://valim.tax/expat-tax/streamlined-filing-compliance-procedures) The streamlined procedures cover unreported income from foreign assets and missed FBARs caused by negligence, inadvertence, mistake or a good faith misunderstanding. ### Giving up US citizenship (https://valim.tax/expat-tax/renounce-us-citizenship) Once the State Department approves it, renouncing generally ends US tax on later foreign income, though a covered expatriate may owe an exit tax. ### The US-Canada treaty (https://valim.tax/expat-tax/us-canada-tax-treaty) The treaty still lets the US tax citizens in Canada, and its credit rules relieve most double tax. ### The US-UK treaty (https://valim.tax/expat-tax/us-uk-tax-treaty) The US leaves growth in a qualifying UK pension scheme untaxed until you draw it, even for citizens. ### Americans in Australia (https://valim.tax/expat-tax/americans-in-australia) No treaty rule defers US tax on superannuation, and the IRS has not said how a super fund is taxed. ### Americans in Canada (https://valim.tax/expat-tax/americans-in-canada) Canada taxes your shares as if sold the day you leave, and a treaty election lets the US tax that gain the same year. ### Americans in France (https://valim.tax/expat-tax/americans-in-france) Only the US taxes the US Social Security and US pensions of an American in France. ### Americans in Germany (https://valim.tax/expat-tax/americans-in-germany) Under the treaty, only Germany taxes the US Social Security of an American who lives there. ### Americans in Japan (https://valim.tax/expat-tax/americans-in-japan) Japanese national and local tax on pay usually tops the US tax, so the foreign tax credit tends to wipe out the US bill. ### Americans in Mexico (https://valim.tax/expat-tax/americans-in-mexico) With no US-Mexico totalization agreement in force, a self-employed American there owes US self-employment tax. ### Americans in Portugal (https://valim.tax/expat-tax/americans-in-portugal) IFICI’s 20% rate can leave US tax that Portugal’s ordinary rates would have covered, so the credit and the exclusion need comparing. ### Americans in Singapore (https://valim.tax/expat-tax/americans-in-singapore) Singapore leaves most investment gains untaxed, so no credit reduces the US tax on them. ### Americans in Spain (https://valim.tax/expat-tax/americans-in-spain) A 401(k) keeps its deferral in Spain, but the treaty gives a Spanish pension plan no US deferral. ### Americans in the UAE (https://valim.tax/expat-tax/americans-in-the-uae) The UAE has no personal income tax, so Americans there rely on the foreign earned income exclusion and the foreign housing exclusion. ### Americans in the UK (https://valim.tax/expat-tax/americans-in-the-uk) An ISA’s UK tax break does not carry over, so the US taxes its income and gains. ## Get expat tax help from a US CPA before your next deadline. The right help depends on which forms your year abroad needs. Book a 30-minute consultation, and a CPA will tell you which ones. ## What do Americans abroad ask an expat tax accountant before hiring one? ### How much does an expat tax preparer cost? Valim’s individual returns start at $195, and your quote adds what filing from abroad involves. Tax advisory, which includes filing, is priced in the same quote. You know the fee before work starts, and no hours are billed. Your foreign accounts and holdings add to it, and the instant quote shows the total first. ### Do US citizens living abroad have to file US taxes? Yes, because the US taxes citizens and green card holders on their worldwide income, wherever they live. You file once gross income, including pay you will exclude, reaches the filing threshold. For a 2025 return, the threshold is $15,750 for a single filer under 65. You also file if you have $400 or more of net self-employment earnings, whatever your gross income. The foreign earned income exclusion is claimed on a filed return, so you must file even if you will owe nothing. ### Should I use expat tax software or an expat CPA? Software suits a simple return, such as one foreign salary and no foreign funds. A CPA is worth it when you must decide how to use the foreign earned income exclusion and the foreign tax credit. That choice can bind you, since revoking the exclusion generally bars it for the next five tax years. ### Do I need to file an FBAR if my accounts are under $10,000? No FBAR is due if the year’s highest values in your foreign accounts add up to $10,000 or less. Once the total passes $10,000, every foreign account goes on the FBAR, which we file for you. ### What is the foreign earned income exclusion for 2026? For 2026, a qualifying American abroad can exclude up to $132,900 of foreign pay under the foreign earned income exclusion. It covers pay for work done abroad, but never US government salaries, investment income or pensions. If you qualify for only part of the year, the cap is prorated by day. ### I haven’t filed in years. Can I catch up without penalties? Often, yes, if you left income from foreign accounts or assets off your returns and the failure was non-willful. You must not be under IRS examination or criminal investigation. Americans who meet the IRS non-residency test can use the Streamlined Foreign Offshore Procedures, which carry no penalties. You file three years of returns, six years of FBARs and Form 14653, and pay the tax and interest. ### When is the tax deadline for Americans abroad? Americans abroad get an automatic extension to June 15 for their US return, if they attach a statement saying they qualify. You qualify if your tax home and your abode are both outside the US and Puerto Rico on April 15. Interest on unpaid tax still runs from April 15. Form 4868 extends filing to October 15. The FBAR is extended to October 15 automatically. ## Sources - Treas. Reg. § 1.1-1, Income tax on individuals: https://www.law.cornell.edu/cfr/text/26/1.1-1 - IRS, 2025 Instructions for Form 1040 (who must file): https://www.irs.gov/instructions/i1040gi - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - FinCEN, FBAR (FinCEN Form 114) filing instructions: https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - IRS, Instructions for Schedule B (Form 1040) (2025): https://www.irs.gov/instructions/i1040sb - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - Treas. Reg. § 1.6038D-2, Requirement to report specified foreign financial assets: https://www.law.cornell.edu/cfr/text/26/1.6038D-2 - Public Law 114-41, § 2006(b)(11) (FBAR due date): https://www.govinfo.gov/content/pkg/PLAW-114publ41/html/PLAW-114publ41.htm - IRS, Streamlined filing compliance procedures: https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures - IRS, U.S. taxpayers residing outside the United States (Streamlined Foreign Offshore Procedures): https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-outside-the-united-states - 26 U.S.C. § 877A, Tax responsibilities of expatriation: https://www.law.cornell.edu/uscode/text/26/877A - 26 C.F.R. § 1.6081-5, Extensions of time in the case of certain partnerships, corporations and U.S. citizens and residents: https://www.law.cornell.edu/cfr/text/26/1.6081-5 - 26 U.S.C. § 6601, Interest on underpayment, nonpayment, or extensions of time for payment, of tax: https://www.law.cornell.edu/uscode/text/26/6601 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - US-Canada income tax convention, as amended (IRS text): https://www.irs.gov/pub/irs-trty/canada.pdf - Fifth protocol to the US-Canada convention (2007): https://home.treasury.gov/system/files/131/Treaty-Canada-Pr2-9-21-2007.pdf - IRS, Rev. Proc. 2014-55 (Canadian retirement plans): https://www.irs.gov/pub/irs-drop/rp-14-55.pdf - US-UK income tax convention (2001): https://home.treasury.gov/system/files/131/Treaty-UK-7-24-2001.pdf - Protocol to the US-UK convention (2002): https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-7-19-2002.pdf - Treasury, technical explanation of the US-UK convention and 2002 protocol: https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-TE-7-22-2002.pdf - GOV.UK, Individual Savings Accounts: https://www.gov.uk/individual-savings-accounts - US-Australia income tax convention (1982): https://www.irs.gov/pub/irs-trty/aus.pdf - Protocol to the US-France convention (2004): https://home.treasury.gov/system/files/131/Treaty-France-Protocol-8-12-2004.pdf - Protocol to the US-France convention (2009): https://home.treasury.gov/system/files/131/Treaty-France-Pr2-1-13-2009.pdf - Protocol to the US-Germany convention (2006): https://www.irs.gov/pub/irs-trty/germanprot06.pdf - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - Japan National Tax Agency, income tax rates (Tax Answer 2260): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2260.htm - Tokyo Metropolitan Government, Guide to Metropolitan Taxes 2025 (Suginami City copy): https://www.city.suginami.tokyo.jp/documents/546/guidebook2025e.pdf - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - Portugal, Estatuto dos Benefícios Fiscais, art. 58-A (IFICI): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/bf_rep/Pages/ebf58a.aspx - IRAS, Gains from sale of property, shares and financial instruments: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/gains-from-sale-of-property-shares-and-financial-instruments - Protocol to the US-Spain convention (2013): https://home.treasury.gov/system/files/131/Treaty-Spain-Protocol-1-14-2013.pdf - Treasury, technical explanation of the 2013 US-Spain protocol: https://home.treasury.gov/system/files/131/Treaty-Spain-Protocol-TE-6-19-2014.pdf - UAE Government portal, Taxation: https://u.ae/en/information-and-services/finance-and-investment/taxation --- URL: https://valim.tax/expat-tax/foreign-earned-income-exclusion Title: Foreign earned income exclusion (FEIE): 2026 limit and Form 2555 Updated: 2026-09-24 # The foreign earned income exclusion can shelter up to $132,900 of pay earned abroad from federal income tax in 2026. Under Section 911, you can exclude foreign earned income, the pay for work you do abroad, from federal income tax. To qualify, you need a foreign tax home and must pass the bona fide residence or physical presence test. You claim it on IRS Form 2555, filed with your Form 1040. Tax year 2026: - $265,800: can be excluded by a married couple who both qualify, at $132,900 each. - 330: full days in foreign countries, in any 12 months in a row, meet the physical presence test. - $18,606: of housing costs can also be excluded for a full year in most places, and more in high-cost cities. The limit was $130,000 for 2025. ## Do you qualify for the foreign earned income exclusion? ### 1. Your main place of work is abroad Your tax home is your main place of work, even if your family lives somewhere else. It cannot be foreign while your abode, the place you really live, is in the United States. Keeping a house in the US, or a short stay there, does not by itself put your abode in the US. ### 2. The bona fide residence test You must be a bona fide resident of another country for an uninterrupted period that includes a full tax year. Short trips to the US do not break it. A year abroad does not make you a resident by itself, since the IRS weighs why you are there and what you do there. You fail the test if you tell that country you are not a resident and it does not tax you as one. ### 3. Or the physical presence test You must be in a foreign country or countries for at least 330 full days during any 12-month period. The days do not have to be consecutive. A US layover of under 24 hours, between two foreign stops, does not count as time in the US. ### 4. Pay for work done abroad Foreign earned income is compensation for work you do abroad while you qualify, such as wages, salaries and professional fees. Interest, dividends, capital gains, pensions and US government pay to its employees never count. Pay received after the end of the year following the year you did the work does not count either. If war or civil unrest forces you to leave a country, the IRS can waive the time tests for the time you spent there. The waiver covers only the countries the IRS lists. You must also show you would have met a test if you had not been forced to leave. ## In this foreign earned income exclusion example, a $200,000 London salary leaves $28,364 for US income tax. Qualifying housing costs include rent, utilities and insurance. The part above a base amount is excluded first. The foreign earned income exclusion then covers the pay that is left, up to its limit. An employee who qualifies for all of 2026 earns $200,000 in London and pays $60,000 in rent and utilities. - No exclusion: $200,000. Without Form 2555, the whole salary is income for US tax. - Exclusion only: $67,100. The exclusion takes out $132,900, the full 2026 limit. - Exclusion and housing: $28,364. Housing takes out $38,736 first, and the exclusion still takes out $132,900. Each figure is the pay left for US income tax, before the standard deduction. The $60,000 of housing costs is under London’s 2026 cap of $68,600. The housing exclusion is those costs minus a base amount of $21,264, which is 16% of $132,900. After the housing exclusion, $161,264 of salary remains, which is more than the limit, so the exclusion takes its full amount. Under the stacking rule, the $28,364 still taxed is charged at the rates it would face if the $171,636 excluded were counted too. That tax is figured on the Foreign Earned Income Tax Worksheet in the Form 1040 instructions. ## What is the foreign earned income exclusion amount for 2025 and 2026? Section 911 sets the limit at $80,000, adjusted for inflation since 2004 and rounded down to the nearest $100. A late return for an earlier year, such as 2023, uses that year’s limit, shown in its Form 2555 instructions. | | 2025 | 2026 | | --- | --- | --- | | Exclusion limit | $130,000 | $132,900 | | Housing base amount (full year) | $20,800 | $21,264 | | Housing cap in most places (full year) | $39,000 | $39,870 | | Largest housing exclusion in most places (full year) | $18,200 | $18,606 | | Automatic extension from abroad | June 15, 2026 | June 15, 2027 | | Due with Form 4868 | October 15, 2026 | October 15, 2027 | You get an automatic extension to June 15 if your tax home and abode are outside the US and Puerto Rico on April 15. Interest on unpaid tax still runs from April 15. On a 2025 return, you can use a high-cost location’s 2026 housing cap if it is higher. ## When does the exclusion fall short, or get lost? ### Freelancers can still owe tax on excluded profit The exclusion lowers income tax only. If you work for yourself abroad, you can still owe self-employment tax on your net profit, including the part you excluded. ### Self-employed housing is a deduction The housing exclusion covers only housing paid for with pay from an employer, such as a salary. If you are self-employed, you claim the same amount on Form 2555 as the foreign housing deduction. The deduction is capped at your foreign earned income minus what you excluded. Any amount over the cap carries forward one year, then expires. ### Claiming the credit later can revoke it Publication 54 treats claiming the credit instead of the exclusion on qualifying pay in a later year as revoking your choice. It treats skipping the exclusion in a later year you qualify the same way. Otherwise, the choice you made on Form 2555 carries into every later year. Once it is revoked, you need IRS approval to use the exclusion again within the next five tax years. ### A part year gets part of the limit Your limit is prorated by day, at $364.11 for each qualifying day in 2026. If you moved abroad mid-year, you may not meet a test by your filing deadline. Form 2350 extends that deadline until after you meet it. ### A late return can still claim it (https://valim.tax/expat-tax/streamlined-filing-compliance-procedures) A return filed within a year of its original due date can still elect the exclusion. After that, you can still elect it if the exclusion leaves you owing no tax. If tax is still due, you must file before the IRS finds that you did not elect. If you have missed several years, see the streamlined filing compliance procedures. ## Weigh the exclusion against the credit with a CPA before you file Form 2555. We prepare US returns for Americans abroad, and file Form 2555 with your return for every year you qualify. - We prepare a separate Form 2555 for each spouse who qualifies, and Form 1116 for a foreign tax credit that needs one. - We run your figures under the exclusion and under the credit before you elect. - We plan estimated payments for the self-employment tax you still owe. - We prepare your US return only, and work alongside the accountant who files your return where you live. - If the IRS writes about a return we prepared, our reply is part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Foreign earned income exclusion questions. ### What is the foreign earned income exclusion limit for 2026? The foreign earned income exclusion limit for 2026 is $132,900 per qualifying person. The IRS set it in Rev. Proc. 2025-32. It is prorated by day if you qualify for only part of the year. Spouses who both qualify each get their own limit, so a couple can exclude up to $265,800. The foreign housing exclusion adds up to $18,606 for a full year in most places, or more where the IRS sets a higher cap. ### Who qualifies for the foreign earned income exclusion? You qualify for the foreign earned income exclusion if your tax home is in a foreign country and you pass either of two tests. Under the bona fide residence test, you live in another country through at least one full tax year. Under the physical presence test, you spend 330 full days in foreign countries within any 12 consecutive months. Citizens can use either test. The IRS says green card holders can use the residence test only if they are nationals of a treaty country. ### Can I use the exclusion and the foreign tax credit together? Yes, you can claim the foreign earned income exclusion and the foreign tax credit in the same year, but not on the same income. You cannot claim the credit for foreign tax on pay you excluded. You can claim it for the share of foreign tax on pay you did not exclude, and on income such as dividends. The exclusion lowers the income you are taxed on, while the credit cuts the tax itself. If you revoke the exclusion to rely on the credit, you cannot use the exclusion again for five years without IRS approval. ### Does the exclusion reduce self-employment tax? No, the foreign earned income exclusion does not reduce self-employment tax. That tax is figured as if the exclusion did not exist, so a freelancer abroad can owe it with no income tax due. The foreign tax credit cannot offset self-employment tax either, because the credit reduces only income tax. For most Americans abroad, only a totalization agreement can remove self-employment tax. Such an agreement is a social security treaty between the US and another country. ### How do I qualify under the physical presence test? Under the physical presence test, you qualify with at least 330 full days in foreign countries during any 12 consecutive months. Only full days count, midnight to midnight, so travel days to or from the US usually do not. The 12 months can start on any day. Your tax home must also be in a foreign country. US citizens and green card holders can both use this test. ### Do US citizens have to pay taxes on foreign income? Yes, US citizens and resident aliens, including green card holders, are taxed on their worldwide income wherever they live. For 2026, the foreign earned income exclusion can take up to $132,900 of foreign pay out of US tax. The foreign tax credit offsets US tax on other foreign income. Excluded pay still counts toward the filing threshold, so you file even when you will owe nothing. ## Sources - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 C.F.R. § 1.911-2, Qualified individuals: https://www.law.cornell.edu/cfr/text/26/1.911-2 - 26 C.F.R. § 1.911-3, Determination of amount of foreign earned income to be excluded: https://www.law.cornell.edu/cfr/text/26/1.911-3 - 26 C.F.R. § 1.911-7, Procedural rules: https://www.law.cornell.edu/cfr/text/26/1.911-7 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Notice 2026-25, Determination of housing cost amounts eligible for exclusion or deduction for 2026: https://www.irs.gov/pub/irs-drop/n-26-25.pdf - IRS, Instructions for Form 2555 (2025): https://www.irs.gov/instructions/i2555 - IRS, Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Foreign earned income exclusion: bona fide residence test: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test - IRS, About Form 2350, Application for Extension of Time to File U.S. Income Tax Return: https://www.irs.gov/forms-pubs/about-form-2350 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 C.F.R. § 1.1-1, Income tax on individuals: https://www.law.cornell.edu/cfr/text/26/1.1-1 - IRS, Instructions for Form 1040 (2025): https://www.irs.gov/instructions/i1040gi --- URL: https://valim.tax/expat-tax/fbar Title: FBAR filing (FinCEN Form 114): who must file and the $10,000 test Updated: 2026-09-24 # FBAR filing is generally required of any US person whose foreign accounts add up to more than $10,000 at their highest. The FBAR is FinCEN Form 114, the Report of Foreign Bank and Financial Accounts. You e-file it with FinCEN, the Treasury’s Financial Crimes Enforcement Network, through its BSA E-Filing System. It is not filed with the IRS or attached to your tax return. The FBAR, as of 2026: - $10,000: is the reporting threshold, applied to the highest values of all your foreign accounts added together. - April 15: is the due date for the previous calendar year’s FBAR. FinCEN extends it to October 15 automatically. - $16,536: is the largest non-willful penalty per late FBAR, for penalties assessed in 2026. The $10,000 is set by regulation and is not indexed for inflation. A due date on a weekend or legal holiday moves to the next business day. ## Do the FBAR filing requirements apply to you? You must file an FBAR for any calendar year in which all four of these are true. A few exceptions, set out in the FAQs below, remove FinCEN’s reporting duty even then. ### 1. You are a US person US citizens and US residents are US persons, including minor children. So are companies, partnerships, LLCs, trusts and estates formed under US law. A disregarded LLC must still file its own FBAR when it meets these four tests. ### 2. You have a financial interest or signature authority A financial interest usually means your name is on the account, alone or jointly. It also covers accounts held by your agent or nominee, a company you own more than half of, or certain trusts. Signature authority means you can move the account’s assets, alone or with someone else, by instructing the bank or broker directly. ### 3. The account is a financial account abroad Bank, securities and other financial accounts count when they are located outside the United States. Whether the account earned any income does not matter. ### 4. Your accounts’ highest values total more than $10,000 Take the highest value each account reached in the calendar year, in US dollars. If their sum is more than $10,000, the FBAR is due for that year. A green card makes you a US resident for the FBAR, and so does passing the substantial presence test. Your accounts back home then count like any other foreign account. ## Three accounts under $10,000 can still cross the FBAR threshold. A US person keeps three foreign accounts and moves money between them during the year. - Checking account, highest in March: $6,000 - Savings account, highest in August: $3,500 - Brokerage account, highest in December: $1,500 - Most held on any one day: $9,000. The accounts peaked at different times, so this is the most they ever held together. - The FBAR total: $11,000. FinCEN’s instructions add each account’s highest value, even from different months. The total is over $10,000, so an FBAR is due, and it lists all three accounts. All amounts are round illustrations already in US dollars, so no exchange rate applies. ## Which foreign accounts go on the FBAR form? | | Reported | Not reported | | --- | --- | --- | | Bank accounts | At a foreign bank, or a US bank’s branch abroad | At a foreign bank’s branch in the US (Or at a US military banking facility abroad) | | Investments | Brokerage accounts and foreign mutual funds | Foreign shares you hold directly (Foreign hedge funds and private equity funds are not reported either) | | Insurance and benefits | Life insurance or annuities with a cash value | Social security-type benefits from a foreign government | | Through a company | Accounts of a company you own over 50% of | Your stake in the company itself | Real estate, foreign cash, precious metals and art you hold directly are not accounts, so they stay off the FBAR. The FBAR rule does not list crypto accounts. An account that holds only crypto may not be reportable for now. ## Which FBAR rules do people most often miss? ### Reporting the year-end balance (https://valim.tax/glossary/maximum-account-value) Each account goes on the FBAR at its maximum value for the year, not its December 31 balance. FinCEN’s FBAR instructions accept periodic statements that fairly show the peak. Convert each peak at the Treasury’s exchange rate for December 31, then round up to the next dollar. ### Answering “No” on Schedule B Line 7a of Schedule B (Form 1040) asks if you had a financial interest in, or signature authority over, a foreign account. Check “Yes” even if no FBAR is due, then answer the follow-up question on whether you must file one. ### Relying on your spouse’s FBAR Each owner of a joint account reports its full value. One spouse can file for both only if the other’s foreign accounts are all joint with the filer, and both sign Form 114a. That FBAR must be filed on time. A joint tax return does not change these rules. ### Forgetting accounts you can sign on at work You must report signature authority over an employer’s foreign account, even with none of your own money in it. Officers and employees of US-listed companies, and of federally examined banks and brokers, are generally exempt. That exemption does not apply if you also have a financial interest in the account. ### Leaving out a child’s accounts A child who is a US person is generally responsible for their own FBAR, once their accounts pass the threshold. If the child cannot file it, a parent or guardian must file and sign it for them. ### Missing FBARs from earlier years (https://valim.tax/expat-tax/streamlined-filing-compliance-procedures) If the IRS has not contacted you and you are not under investigation, it says to file late FBARs now and explain why. The statute of limitations on a civil FBAR penalty is six years. If you also owe returns, the Streamlined filing compliance procedures may cover both. ## The CPA who prepares your US tax return also handles your FBAR filing online. Valim’s CPAs file FBARs and US tax returns for Americans abroad and for US residents with accounts back home. - We value each account at its peak, then file your FinCEN Form 114 once you sign Form 114a. Your instant quote prices each account you list on the FBAR. - We prepare your Form 1040 with Schedule B, and check your assets against Form 8938’s separate thresholds. - We prepare late FBARs for years you missed, and any returns still owed for those years. - We plan estimated payments on foreign income. - If the IRS writes about a return we prepared, we answer within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## FBAR questions. ### Do I need to file an FBAR if my accounts are under $10,000? You need no FBAR if the highest values of all your foreign accounts add up to $10,000 or less. If each account is under $10,000 but their highest values together pass it, you still file. Each account counts at its maximum value for the year, even if the maximums came months apart. Your tax return still needs a “Yes” on Schedule B, line 7a, if you had any foreign account. ### Who is exempt from FBAR reporting? IRA owners and 401(a), 403(a) or 403(b) plan participants are exempt for foreign accounts held by the IRA or plan. A trust beneficiary is exempt when a US trustee files an FBAR listing the trust’s accounts. A spouse is exempt if all their foreign accounts are joint with the other spouse, who files on time, and both sign Form 114a. A company named in its parent’s consolidated FBAR does not file its own. Anyone who is not a US person, such as a foreign national who fails the FBAR’s residency tests, has no FBAR to file. ### Do I need to file an FBAR every year? Yes, you file an FBAR for every calendar year in which your foreign accounts’ highest values together pass $10,000. Each FBAR is due April 15 of the following year, with an automatic extension to October 15. Keep the records for each account, including its maximum value, for five years. ### Do I report both accounts if only one is over $10,000? Yes, you list both accounts on the FBAR once their highest values together pass $10,000. The IRS gives this exact case as an example. Every other foreign account you have goes on the report too. With 25 or more accounts, you give only their number and basic details, and the full list if asked. ### What is the penalty for a late FBAR? A late FBAR that was not willful can bring a civil penalty of up to $16,536, for penalties assessed on or after January 17, 2025. The Supreme Court’s 2023 Bittner decision applies that cap per late report, not per account. The Streamlined procedures page covers the other penalties and how to catch up on missed years. ### Is the FBAR the same as Form 8938? No, the FBAR and Form 8938 are separate foreign account reporting rules, and many people must file both. The FBAR is a Bank Secrecy Act report that you e-file with FinCEN, part of the Treasury. Form 8938 is an IRS form attached to your income tax return, listing your specified foreign financial assets. Its thresholds start at $50,000 for a single filer in the US and $200,000 for one living abroad. Each form covers some assets the other leaves out. ## Sources - 31 U.S.C. § 5314, Records and reports on foreign financial agency transactions: https://www.law.cornell.edu/uscode/text/31/5314 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - FinCEN, BSA Electronic Filing Requirements for FinCEN Form 114 (Release January 2017, v1.4): https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - P.L. 114-41, § 2006(b)(11), due date of FinCEN Report 114: https://www.govinfo.gov/content/pkg/PLAW-114publ41/html/PLAW-114publ41.htm - IRS, Report of Foreign Bank and Financial Accounts (FBAR): https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements - IRS, Instructions for Schedule B (Form 1040) (2025): https://www.irs.gov/instructions/i1040sb - 31 U.S.C. § 5321, Civil penalties: https://www.law.cornell.edu/uscode/text/31/5321 - 31 C.F.R. § 1010.821, Penalty adjustment and table: https://www.law.cornell.edu/cfr/text/31/1010.821 - Bittner v. United States, 598 U.S. 85 (2023): https://www.supremecourt.gov/opinions/22pdf/598us1r6_0813.pdf - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 6038D, Information with respect to foreign financial assets: https://www.law.cornell.edu/uscode/text/26/6038D --- URL: https://valim.tax/expat-tax/foreign-tax-credit Title: Foreign tax credit (Form 1116): how it works for Americans abroad Updated: 2026-09-24 # The foreign tax credit takes the income tax you paid abroad off your US income tax on that income. US citizens and residents pay US tax on income from anywhere, so income earned abroad can be taxed twice. Section 901 lets you credit foreign income tax against your US income tax. Section 904 caps the credit at the US tax on your foreign income, figured on Form 1116. Individual returns: - $300: is the most total foreign tax you can pay and still skip Form 1116, or $600 on a joint return. - 10 years: is how long foreign tax above your limit carries forward, after a 1-year carryback. - 2: Form 1116 filings cover foreign wages and foreign dividends, because each category of income has its own limit. The $300 and $600 limits are fixed by statute and do not rise with inflation. ## Can you claim the foreign tax credit? Check yourself against the first test, and each foreign tax you paid against the other three. Tax that fails any test cannot be credited. ### 1. You are a US citizen or resident US citizens and resident aliens can claim the credit, wherever they live. A green card holder is a resident alien. Nonresident aliens generally cannot claim it. ### 2. The tax is a foreign income tax The credit covers foreign income taxes, and taxes charged in lieu of an income tax, meaning in place of one. The tax can be owed to a foreign country or US territory, or to a city, state or province within one. ### 3. You legally owed the tax Only foreign tax you legally owed can be credited. Tax you could reclaim under a treaty or foreign law does not count, even if you never file the claim. ### 4. The income was not excluded If you claim the foreign earned income exclusion, foreign tax on the income you exclude cannot be credited. On Form 1116, line 12 takes it off as a reduction in foreign taxes. You can still credit the share on pay the exclusion leaves taxable, such as pay above the 2026 cap of $132,900. Foreign tax on dividends counts too. Estates and trusts claim the credit on Form 1116 too. ## How is the foreign tax credit limit calculated? The limit is your US tax times the share of your taxable income from foreign sources. Once the credit reaches it, more foreign tax no longer lowers this year’s US tax. An American abroad owes $25,000 of US tax before credits, and 80% of their taxable income is foreign wages. The figures show the US tax left after the credit. - No foreign tax: $25,000. With nothing to credit, the full US tax is due. - $10,000 paid abroad: $15,000. All $10,000 is credited, since it is under the $20,000 limit. - $20,000 paid abroad: $5,000. The credit reaches the limit. The $5,000 left is US tax on the other 20%, their income from US sources. - $30,000 paid abroad: $5,000. The credit stays at $20,000, and the other $10,000 becomes a carryover. Under Section 904(a), the limit is 80% of the $25,000 of US tax, or $20,000. The $25,000 is a round figure for the example, not one from the tax brackets. Foreign wages are general category income, so one Form 1116 covers them. The example assumes no exclusion is claimed on Form 2555. ## When can you claim the credit without Form 1116? Section 904(j) lifts the limit for an individual with a small amount of foreign tax on passive income. The IRS then lets you claim that credit without filing Form 1116. It is an election you make each year, and the conditions in the first two rows must both hold. | | Without Form 1116 | With Form 1116 | | --- | --- | --- | | Foreign income | Passive only (Reported, with the tax, on a 1099, K-1 or K-3) | Any kind (Including wages) | | Foreign tax | $300 or less ($600 on a joint return) | Any amount | | The limit | Does not apply (The credit still cannot exceed your regular tax) | US tax on your foreign income | | Carryovers | None, to or from that year | Allowed (Within the same category) | | Who can use it | Individuals | Individuals, estates and trusts | A married person filing separately has the $300 limit, because $600 applies only to a joint return. ## Four rules can leave foreign tax you paid without a credit. ### Excess credit cannot cross categories Foreign tax in one category of income cannot offset US tax in another. Wages fall in the general category, and most dividends and interest in the passive category. High tax on your wages therefore cannot cover the US tax on your dividends. Unused tax also stays in its own category when it carries over. ### The credit does not cover self-employment tax The credit offsets income tax only, so it never reduces self-employment tax. A self-employed American abroad can owe no US income tax and still owe self-employment tax. ### Switching from the exclusion is hard to undo (https://valim.tax/expat-tax/foreign-earned-income-exclusion) The IRS counts a later switch to the credit as revoking the foreign earned income exclusion. Once elected, the exclusion applies every year until you revoke it. After a revocation, you cannot elect it again for five tax years without IRS consent. ### Deducting foreign tax gives up the credit that year The IRS lets you deduct foreign income taxes on Schedule A instead of crediting them, but generally not both in the same year. A year you deduct cannot use carryovers, but it still uses them up as if you had taken the credit. You have 10 years to switch a past year from the deduction to the credit, which may bring a refund. That window is separate from the 10-year carryforward. ## Foreign tax credit planning helps you use carryovers before they expire. Valim’s CPAs help Americans abroad, and US residents who pay foreign tax, claim the foreign tax credit on their US returns. - We prepare each Form 1116 your return needs, one per category, and track unused foreign tax from year to year. - We compare the credit with the foreign earned income exclusion before you elect or revoke the exclusion. - We plan estimated payments for the US tax the credit cannot cover. - We credit only tax you legally owed, checked against your foreign tax return, and work alongside any local accountant who files it. - When an IRS letter questions the credit on a return we prepared, we answer it within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Foreign tax credit questions. ### What is the foreign tax credit and how do I claim it? The foreign tax credit is a US credit for income tax you paid to a foreign country or US territory. It reduces your US income tax dollar for dollar, up to the US tax on your foreign income. You usually claim it on IRS Form 1116, filed with your Form 1040. Americans abroad can use it alongside the foreign earned income exclusion, on different income. ### How do I know if I qualify for the foreign tax credit? You qualify if you are a US citizen or resident alien who paid or accrued a foreign income tax. Accrued means owed for the year, even if not yet paid. The tax must be one you legally owed, on income you did not exclude from US tax. Taxes charged in lieu of an income tax, meaning in place of one, also qualify. Tax that a treaty or foreign law would refund to you does not qualify, even if you never ask for it. Nonresident aliens generally cannot claim the credit. ### Who has to file Form 1116? Any individual, estate or trust claiming the foreign tax credit has to file Form 1116. Individuals can skip it under the Section 904(j) election, for a small amount of foreign tax on passive income. You need a separate Form 1116 for each category of income, so foreign wages and foreign dividends take two. Tax paid to the US Virgin Islands goes on Form 8689 instead. ### How much foreign tax credit can I claim without Form 1116? You can skip Form 1116 only if your total foreign tax for the year is $300 or less, or $600 on a joint return. Above that, you need the form to claim any of it. All your foreign income must also be passive, such as dividends and interest. Both the income and the foreign tax paid on it must appear on a payee statement, such as Form 1099-DIV. In return, the Section 904 limit does not apply that year, and no foreign tax carries over to or from that year. ### How do I complete Form 1116 for foreign tax credit? For a 2025 return, the 2025 Instructions for Form 1116 walk through the form line by line. Use one form per category of foreign income, such as general for wages and passive for dividends. On each, report that category’s foreign income and the foreign tax paid or accrued on it. If you excluded income on Form 2555, line 12 cuts the tax by the share on that income. The form then caps your credit at the US tax on the category’s foreign income. For an earlier year, use that year’s form and instructions. ### Can unused foreign tax credits carry forward? Yes, foreign tax above your limit carries back 1 year and then forward up to 10 years. Each year’s excess stays in its own category of income, such as general or passive. A carryover can be used only in a year you take the credit. A year you deduct still uses it up, and counts toward the 10 years. No carryover goes to or from a year in which you claimed the credit without Form 1116. ## Sources - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 6511, Limitations on credit or refund: https://www.law.cornell.edu/uscode/text/26/6511 - 26 C.F.R. § 1.1-1, Income tax on individuals: https://www.law.cornell.edu/cfr/text/26/1.1-1 - 26 C.F.R. § 1.911-6, Disallowance of deductions, exclusions, and credits: https://www.law.cornell.edu/cfr/text/26/1.911-6 - IRS, Form 1116 (2025), Foreign Tax Credit (Individual, Estate, or Trust): https://www.irs.gov/pub/irs-pdf/f1116.pdf - IRS, Instructions for Form 1116 (2025): https://www.irs.gov/instructions/i1116 - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/expat-tax/renounce-us-citizenship Title: Renounce US citizenship in 2026: the $450 fee and the tax steps Updated: 2026-09-24 # To renounce US citizenship, you sign an oath before a US consular officer abroad and pay a $450 fee. Your citizenship ends on the oath date, once the State Department approves your Certificate of Loss of Nationality (CLN). For tax, you file Form 8854 with that year’s return, certifying five years of US tax compliance. If you meet any of the three tests below, you are a covered expatriate and may also owe an exit tax on unrealized gains. Renouncing in 2026: - $450: is the State Department fee from April 13, 2026, down from $2,350. - $910,000: of gain is excluded from the exit tax for a covered expatriate in 2026. - $10,000: is the penalty for not filing Form 8854, or for filing it incomplete or wrong. ## Three tests decide what renouncing US citizenship costs in tax. Most of the tax consequences of renouncing apply only to covered expatriates. ### 1. Average income tax above $211,000 You are covered if your average annual net income tax for the five tax years before you expatriate exceeds $211,000. That is the 2026 figure, and it is adjusted for inflation each year. For 2025 it was $206,000. ### 2. A net worth of $2 million or more You are covered if your net worth reaches $2 million on the day you expatriate. The statute sets that figure, so it does not rise with inflation. ### 3. No certification of five years of compliance On Form 8854, you certify under penalty of perjury that you met all your federal tax obligations. The certification covers the five tax years before the year you expatriate. If you do not certify, for any reason, you are covered at any income or net worth. Two exceptions remove the income tax and net worth tests, but you must still certify five years of compliance. Dual citizens from birth qualify if they are still citizens and tax residents of the other country. Under the substantial presence test, they must have been US residents in at most 10 of the 15 tax years ending with their expatriation year. People who give up citizenship before age 18½ qualify if they were US residents for no more than 10 tax years. ## If you are covered, renouncing taxes gains you never sold. For a covered expatriate, the exit tax is regular income tax, charged on a deemed sale of their property. A covered expatriate who renounces in 2026 holds shares with $1.5 million of unrealized gain and a $400,000 traditional IRA. - Gain on the shares: $1,500,000. The shares count as sold at fair market value the day before you expatriate. - Gain left after the exclusion: $590,000. The 2026 exclusion comes off the gain before any tax. - IRA counted as paid out: $400,000. The whole balance counts as distributed the day before, with no early distribution tax. - Income added to the return: $990,000. That is the $590,000 of gain plus the $400,000 from the IRA. - Not a covered expatriate: $0. With no covered status, none of this is taxed when you expatriate. The figures apply Section 877A to round amounts. A traditional IRA is a specified tax deferred account, so the exclusion does not reach it. The case assumes the IRA holds only pre-tax money and no asset carries a loss. The tax on the $990,000 depends on your other income and 2026 brackets, so no rate is applied. ## Renouncing and relinquishing end US citizenship in different ways. Both need a voluntary act, done with the intent to give up US nationality. The law requires no reason for renouncing US citizenship. Your motive matters only if duress or involuntariness is in question. | | Renouncing | Relinquishing | | --- | --- | --- | | What ends it | An oath before a US consular officer (Or a diplomatic officer, under INA 349(a)(5)) | Another listed act, done with intent (Such as naturalizing elsewhere after 18) | | Where | In person, outside the US (You need not live in that consular district) | Usually abroad (An act done in the US counts only once you live abroad) | | Main form | DS-4080, the oath | DS-4079, a questionnaire | | Fee for the CLN | $450 | $450 | | Expatriation date for tax | The day of the oath | The day you tell the State Department (In a signed statement) | At the embassy or consulate, you sign DS-4080, the form to renounce US citizenship. You also sign DS-4081, a statement that you understand the consequences. How long it takes to renounce US citizenship depends on two waits: for a consular appointment, then for approval of your CLN in Washington. For tax, the date in either column counts only once the CLN is issued. ## What else changes when you give up US citizenship? ### You still have returns to file (https://valim.tax/expat-tax/streamlined-filing-compliance-procedures) File any missing returns before you renounce, so you can certify all five years. If the lapse was non-willful, the streamlined procedures can limit penalties. They cover the three most recent years of returns and six years of FBARs. ### You renounced without ever filing An accidental American is a US citizen by birth who never filed a US return. If you are one and renounced after March 18, 2010, the IRS’s Relief Procedures for Certain Former Citizens may fit. If you qualify, you file six years of returns, owe no unpaid tax or penalties for them, and are not a covered expatriate. You need a net worth under $2 million, at most $25,000 of tax over the six years, and non-willful conduct. ### Deferred pay can be taxed at 30% as it arrives If you are covered, a US payer withholds 30% of each taxable payment of deferred pay as you receive it. For that, you give the payer Form W-8CE and waive any treaty reduction. If you do not, or a foreign payer has not agreed to withhold, the benefit’s present value is taxed the day before you expatriate. ### Gifts to US recipients are taxed at 40% The tax falls on the US citizen or resident who receives a gift or bequest from a covered expatriate. It is 40% of the value above the 2026 annual exclusion of $19,000, less any foreign gift or estate tax. Gifts that would qualify for the marital or charitable deduction are excluded. Property reported on a timely US gift or estate tax return is excluded too. ### Putting off the tax takes security You can defer the tax on each property until the return for the year you sell it. The latest it can wait is the return for the year of your death. You must post security, such as a bond, and waive any treaty right that would block the tax. Interest runs from the original due date until you pay. ### The ban on renouncing to avoid taxes has no procedures Immigration law makes a former citizen inadmissible if DHS finds they renounced US citizenship to avoid taxes. DHS has published no regulations for this rule, so no procedures to apply it are in effect. ## A CPA can run the three tests before you sign the oath. Valim’s CPAs prepare the US returns for expats renouncing US citizenship, from any years you missed to the year you expatriate. - We check each test against your figures and estimate any exit tax before your appointment. - We prepare any past-due US returns and FBARs, and work alongside your local accountant. - We prepare the return for the year you expatriate, with any exit tax figured. - We set estimated payments for the income a deemed sale adds. - If the IRS sends a notice on a return we prepared, we handle the response, included in the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Renouncing US citizenship questions. ### How much does it cost to renounce US citizenship? Since April 13, 2026, it costs $450 to renounce US citizenship, the State Department’s fee for a Certificate of Loss of Nationality. It was $2,350 before that, and those who paid the old fee get no refund. The same fee applies when you relinquish citizenship instead, so neither route is free. Tax is a separate cost, and a covered expatriate may also owe the exit tax. ### Why is it a bad idea to renounce US citizenship? Renouncing is permanent unless the government overturns it because you acted without intent or under duress. To get citizenship back, you would have to naturalize. You need a visa or other authorization to visit the US, and you can be refused or barred. If you hold no other nationality, you become stateless. Taxes you already owe stay due, and Social Security paid abroad can stop. A covered expatriate may also owe the exit tax. US recipients of their gifts and bequests pay 40% above the annual exclusion. ### What is the difference between relinquishing and renouncing? Renouncing is one specific act: signing an oath of renunciation before a US consular officer abroad. Relinquishing is losing citizenship through another listed act done with intent, such as naturalizing elsewhere after 18. Both end with a Certificate of Loss of Nationality. If you later appeal, lack of intent or duress is much harder to show for a renunciation. ### Can you still collect Social Security after renouncing? Yes, you keep the Social Security benefits you earned. As a non-citizen, though, your payments stop after six full calendar months in a row abroad, unless an exception applies. Exceptions depend on your citizenship and residence, and cover citizens of Canada, Germany, Japan and the UK, among others. Unless a treaty says otherwise, 25.5% of each payment is withheld for US tax. SSA’s Payments Abroad Screening Tool shows whether an exception covers you. ### Do I owe the exit tax? You owe the exit tax only if you are a covered expatriate. You are covered if your net worth is $2 million or more, or if you do not certify five years of compliance on Form 8854. For a 2026 expatriation, average annual net income tax above $211,000 for the five prior years also makes you covered. Some dual citizens from birth and some who give up citizenship before 18½ escape the net worth and tax tests. A covered expatriate is taxed as if they sold their property the day before expatriating, on net gains above $910,000 for 2026. IRAs and deferred pay follow separate rules, with no exclusion. ### What happens if you renounce your American citizenship? Renouncing ends your US citizenship as of the oath date, but only after the State Department approves your Certificate of Loss of Nationality. If you renounce US citizenship, you still owe US tax on some income from US sources, usually as a nonresident alien. Every expatriate also files Form 8854 for the year they expatriate, even with no exit tax to pay. ## Sources - 8 U.S.C. § 1481, Loss of nationality by native-born or naturalized citizen; voluntary action; burden of proof; presumptions: https://www.law.cornell.edu/uscode/text/8/1481 - 8 U.S.C. § 1483, Restrictions on loss of nationality: https://www.law.cornell.edu/uscode/text/8/1483 - 8 U.S.C. § 1182(a)(10)(E), Former citizens who renounced citizenship to avoid taxation: https://www.law.cornell.edu/uscode/text/8/1182 - 22 C.F.R. § 50.50, Renunciation of nationality: https://www.law.cornell.edu/cfr/text/22/50.50 - 22 C.F.R. § 22.1, Schedule of fees: https://www.law.cornell.edu/cfr/text/22/22.1 - Department of State, final rule on the Certificate of Loss of Nationality fee (91 FR 12296, March 13, 2026): https://www.govinfo.gov/content/pkg/FR-2026-03-13/pdf/2026-04931.pdf - Department of State, Foreign Affairs Manual, 7 FAM 1210 (loss of US citizenship): https://fam.state.gov/fam/07fam/07fam1210.html - 26 U.S.C. § 877A, Tax responsibilities of expatriation: https://www.law.cornell.edu/uscode/text/26/877A - 26 U.S.C. § 877, Expatriation to avoid tax: https://www.law.cornell.edu/uscode/text/26/877 - 26 U.S.C. § 6039G, Information on individuals losing United States citizenship: https://www.law.cornell.edu/uscode/text/26/6039G - IRS, Instructions for Form 8854 (2025): https://www.irs.gov/instructions/i8854 - IRS, Notice 2009-85 (guidance on Section 877A): https://www.irs.gov/pub/irs-drop/n-09-85.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Rev. Proc. 2024-40 (2025 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-24-40.pdf - 26 U.S.C. § 2801, Imposition of tax (gifts and bequests from covered expatriates): https://www.law.cornell.edu/uscode/text/26/2801 - IRS, Relief Procedures for Certain Former Citizens: https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens - IRS, Streamlined filing compliance procedures: https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures - IRS, US taxpayers residing outside the United States (Streamlined Foreign Offshore Procedures): https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-outside-the-united-states - 42 U.S.C. § 402(t), Payments to aliens outside the United States: https://www.law.cornell.edu/uscode/text/42/402 - Social Security Administration, Your Payments While You Are Outside the United States (Publication 05-10137, April 2026): https://www.ssa.gov/pubs/EN-05-10137.pdf --- URL: https://valim.tax/expat-tax/streamlined-filing-compliance-procedures Title: Streamlined filing compliance procedures and FBAR penalties Updated: 2026-09-24 # The streamlined filing compliance procedures can let Americans abroad catch up on missed US returns and FBARs with no penalty. The streamlined procedures are for people whose failure to report foreign income and accounts was non-willful, such as an honest mistake. You file the last three years of returns and six years of FBARs, and pay the tax and interest. The foreign version, for people who meet a non-residency test, charges no penalty. Catching up in 2026: - 330: or more full days abroad, in one of the last three years with no US abode, pass the foreign version’s non-residency test. - 5%: of your unreported foreign assets, at their highest year-end total, is the domestic version’s only penalty. - $16,536: is the cap on the non-willful penalty for each late or missing FBAR, outside the program. The day count is the test for citizens and green card holders. The FBAR cap applies to penalties assessed on or after January 17, 2025. ## Do the IRS streamlined procedures fit your case? If you fail any of the first four tests, neither version is open to you. The last two decide which version, if either, you can use. ### 1. You left foreign income off your returns Both versions are for people who failed to report income from a foreign financial asset and pay its tax. A missed FBAR on its own does not qualify you. ### 2. Your failure was non-willful The IRS defines non-willful conduct as negligence, inadvertence or mistake, or a good faith misunderstanding of the law. You sign a statement certifying this, with the reasons for your failure. If you hid income or assets on purpose, the IRS points you to its separate Voluntary Disclosure Practice. ### 3. No IRS examination or investigation You cannot use either version while the IRS has a civil examination open on any year’s return. That holds even if the examination has nothing to do with foreign assets. An investigation by IRS Criminal Investigation also rules you out. ### 4. A valid taxpayer ID Every streamlined return needs a valid taxpayer ID, which for US citizens and residents is a Social Security number. Someone not eligible for one can use an ITIN, or send a complete ITIN application with the returns. ### 5. The non-residency test, for the foreign version US citizens and green card holders need one of the last three years with no US abode. In that year, they must spend at least 330 full days abroad. Other non-citizens pass by failing the substantial presence test in one of those years. If you file jointly, you and your spouse must each pass. ### 6. Returns already filed, for the domestic version To use the domestic version, you must already have filed any US return due for the last three years. It takes amended returns only. If you fail the non-residency test and missed a required return, no streamlined version is open to you. The procedures are open to individuals and to the estates of individuals. ## How does the streamlined penalty compare with FBAR penalties? Both streamlined versions replace the FBAR penalties. Filed outside them, each late FBAR can draw its own penalty. You missed six years of FBARs and left the accounts’ income off your returns. The accounts’ highest year-end total was $200,000. - Foreign version: $0. If you qualify and follow the procedures in full, no penalty applies, even on the $200,000. - Domestic version: $10,000. The 5% penalty is paid with the amended returns. - Late FBARs, non-willful maximum: $99,216. This is the ceiling if the IRS charges the cap on all 6 reports. The domestic figure is 5% of $200,000, the highest year-end total across the covered years. The FBAR figure is 6 times $16,536. The IRS can charge less, or nothing if you had reasonable cause and report the balances correctly. Tax and interest are due on every route and are not shown. Outside the program, penalties on the returns may apply too. ## How do the Streamlined Foreign Offshore Procedures and the Streamlined Domestic Offshore Procedures differ? The Streamlined Foreign Offshore Procedures let a non-willful taxpayer who meets the non-residency test catch up with no penalty. You send late or amended returns for three years with a signed Form 14653, and pay the tax and interest. Each version remains open, and the IRS last updated their pages in July 2026. The years covered are the most recent ones whose due date, including any extension, has passed. | | Foreign | Domestic | | --- | --- | --- | | Who can use it | Meets the non-residency test | Fails the non-residency test (With returns filed for all three years) | | Tax returns | Late or amended (Form 1040 or 1040-X, three years) | Amended only (Form 1040-X, three years) | | Certification | Form 14653 | Form 14654 (You also figure the 5% penalty on it) | | Penalty | None | 5% miscellaneous offshore penalty (In place of the FBAR and return penalties) | Mail the returns for either version on paper to the IRS in Austin, Texas, with the version’s name written in red. The late FBARs are e-filed with FinCEN instead, giving the streamlined procedures as the reason. Either version also lets you make a late treaty election to defer tax on certain foreign retirement and savings plans. ## What can still go wrong when you file late FBARs or returns? ### The delinquent FBAR procedures are no longer offered (https://valim.tax/expat-tax/fbar) The IRS no longer lists the Delinquent FBAR Submission Procedures, which let some people file late FBARs with no penalty. If the IRS has not contacted you and you are not under investigation, it now says to file them as soon as possible. Whether it then charges a penalty depends on the facts. ### The IRS signs no closing agreement The IRS does not acknowledge a streamlined submission or sign a closing agreement, the contract that would settle those years for good. The returns are processed like any others, and they can be audited or checked against bank data. If an audit finds willful conduct, more penalties or even criminal liability can follow. ### The 5% counts more than bank accounts (https://valim.tax/glossary/specified-foreign-financial-asset) Under the domestic version, the 5% counts every foreign financial asset left off an FBAR or Form 8938. An asset you did report still counts for any of the 3 return years in which its income went unreported. ### Every missing information return goes in Each late or amended return must include any information returns it was missing. These are forms that report foreign holdings, such as Form 3520 for foreign trusts, 5471 for foreign companies and 8938 for foreign assets. The penalty relief covers only filers who follow the procedures in full. ### Penalties already assessed stay Any penalty the IRS assessed before your streamlined submission stays in place. That includes penalties on returns you filed late or amended outside any program, which is called a quiet disclosure. If the IRS later finds more tax owed (a deficiency), that deficiency can carry penalties of its own. ## Catch up with a CPA who prepares your streamlined filing and FBARs. Valim’s CPAs help Americans at home and abroad who are behind on US taxes catch up, through the streamlined procedures for those who qualify. - We check which version fits you, then prepare the late or amended returns and FBARs it requires, with each form in your quote. - We prepare the US returns only. If you live abroad, your local accountant keeps filing your returns there, and we work alongside them. - We weigh the domestic version’s 5% penalty against filing late outside the program. - If the IRS sends a notice about one of the returns we prepared, answering it is part of your fee. - We work out the estimated payments that keep you current. - Individual return: from $195 - Business return: from $495 Each price is a starting fee for one return. A streamlined filing covers three years of returns and six of FBARs. We quote the whole job as one flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Streamlined filing compliance procedures questions. ### What are the streamlined filing compliance procedures? The streamlined filing compliance procedures are an IRS program for non-willful failures to report foreign income and accounts. A submission covers the latest three years of returns and six years of FBARs, with the tax and interest paid. You also sign a statement certifying that the failure was not willful. The foreign version carries no penalty. The domestic version charges 5% of the unreported foreign assets, at their highest year-end total in the covered years. ### Foreign or domestic streamlined: which applies to me? The foreign version applies if you meet the IRS non-residency test in any one of the last three years. Citizens and green card holders need a year with no US abode and at least 330 full days abroad. Other non-citizens meet it by failing the substantial presence test in one of those years. On a joint return, both spouses must meet it. If you fail the test, the domestic version applies, and it requires US returns already filed for those three years. ### What is the penalty under the streamlined procedures? The Streamlined Foreign Offshore Procedures carry no penalty. That holds even after an audit, unless it finds fraud or a willful FBAR violation. The Streamlined Domestic Offshore Procedures charge a 5% miscellaneous offshore penalty instead of the accuracy-related, information return and FBAR penalties. It is figured on the unreported foreign assets, in the year their year-end total was highest. Under both, you pay the tax and interest in full. ### What is the penalty for not filing an FBAR? For a non-willful failure, the FBAR penalty can reach $16,536 per report, for penalties assessed on or after January 17, 2025. Since the Supreme Court’s 2023 Bittner decision, the cap applies once per report, however many accounts it should have listed. Reasonable cause removes the non-willful penalty, as long as the balances are then reported correctly. For a willful failure, the maximum rises to $165,353 or half the account balance, whichever is greater. The IRS has six years from the violation to assess either penalty. ## Sources - IRS, Streamlined filing compliance procedures: https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures - IRS, U.S. taxpayers residing outside the United States (Streamlined Foreign Offshore Procedures): https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-outside-the-united-states - IRS, U.S. taxpayers residing in the United States (Streamlined Domestic Offshore Procedures): https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-in-the-united-states - IRS, Criminal Investigation Voluntary Disclosure Practice: https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice - IRS, Report of Foreign Bank and Financial Accounts (FBAR): https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 U.S.C. § 5321, Civil penalties: https://www.law.cornell.edu/uscode/text/31/5321 - 31 C.F.R. § 1010.821, Penalty adjustment and table: https://www.law.cornell.edu/cfr/text/31/1010.821 - Bittner v. United States, 598 U.S. 85 (2023): https://www.supremecourt.gov/opinions/22pdf/598us1r6_0813.pdf - 26 U.S.C. § 6038D, Information with respect to foreign financial assets: https://www.law.cornell.edu/uscode/text/26/6038D --- URL: https://valim.tax/expat-tax/us-canada-tax-treaty Title: US tax treaty (Canada): what it changes for Americans in Canada Updated: 2026-09-24 # The US tax treaty Canada signed in 1980 leaves both countries free to tax you, but its credits relieve most double tax. The US-Canada tax treaty has generally applied since 1985, and a 2007 protocol last amended it. Article XXIV sets the credits each country gives, and the US credit works within the limits of US law. The Canada-US tax treaty for individuals: - 15%: is the treaty’s cap on most dividends and periodic pension payments paid across the border. - 85%: is the most of a Canadian resident’s US Social Security that Canada taxes, and the US taxes none of it. - $0: of US tax is due on RRSP or RRIF growth until you take money out. Canadian residents who have received US Social Security every year since before 1996 may have only 50% of it taxed. The $0 assumes you filed every required US return and reported any past withdrawals as if the growth had been deferred. Reporting the growth as income even once ends it (see Traps). ## Who can use the Canada-US income tax treaty? For an individual, the treaty turns on where you are resident for tax purposes. Run these four tests in order. ### 1. You are resident in the US or Canada A resident is anyone a country taxes because of domicile, residence, citizenship or a similar tie. A US citizen or green card holder living outside both countries needs more to count as a US resident. The treaty requires a permanent US home, habitual abode or substantial presence, and closer ties to the US than to any third country. ### 2. A tie-breaker settles dual residence If both countries treat you as resident, Article IV(2) picks one. It looks first at your permanent home, then your centre of vital interests, habitual abode and citizenship, in that order. If none of those settles it, the two tax authorities decide by mutual agreement. ### 3. Individuals pass the limitation on benefits Article XXIX A gives full treaty benefits only to a qualifying person, to stop treaty shopping. Every individual resident in either country qualifies, so the test matters only for companies and other entities. ### 4. The saving clause keeps US tax on US citizens The saving clause in Article XXIX(2) lets the US tax its citizens under its own law, wherever they live. For US tax, only the articles it excepts still help, such as Article XXIV on credits and Article XVIII(7) on RRSPs. Canada’s treaty limits on its own tax still protect them. The treaty lets the US tax a former citizen or long-term resident on US-source income for ten years after that status ends. US law now applies that only to people who gave up citizenship or a green card before June 17, 2008. ## What are the Canada-US tax treaty withholding rates? The treaty caps what the paying country can tax, and the caps work the same in both directions. Unlike the US-UK treaty, this one also lets the paying country tax a periodic pension. A US resident receives C$10,000 of each kind of income from Canada. Each figure is the most tax Canada can take. - Dividends: C$1,500. The Canada-US tax treaty caps Canada’s tax on these dividends at 15% for an individual. A company owning at least 10% of the voting stock pays at most 5%. - Periodic pension: C$1,500. Canada can tax each periodic pension payment at up to 15% of the gross amount. - Interest: C$0. Since the 2007 protocol, interest is generally taxable only where the lender lives. - CPP or OAS: C$0. Only the US taxes CPP or OAS paid to a US resident, and it taxes them as if they were US Social Security. The dividend cap is in Article X(2)(b), and the pension cap in Article XVIII(2)(a). The interest rule is in Article XI(1), and the benefits rule in Article XVIII(5)(b). Your US return then credits the Canadian tax against the US tax on that income, within the foreign tax credit limit. ## The US-Canada treaty defers US tax on RRSP growth, and does not cover a TFSA. Rev. Proc. 2014-55 made the treaty’s deferral election automatic for eligible RRSP and RRIF owners. It also retired Form 8891 on December 31, 2014. TFSAs began in 2009, after the last protocol was signed, and no treaty article or IRS guidance names them. | | RRSP or RRIF | TFSA | | --- | --- | --- | | Canadian tax on growth | None inside the plan | None inside the account (On qualified investments) | | Under the treaty | A retirement plan (Article XVIII(7)) | Not covered | | US tax on growth | Deferred until withdrawn | Income taxed as earned (Under US law) | | The deferral election | Automatic (Rev. Proc. 2014-55) | Not available | | Form 3520 | Not required | IRS has not said | Canadian mutual funds and ETFs in a TFSA are usually passive foreign investment companies (PFICs) under US law. Funds inside an RRSP usually need no Form 8621, under a Treasury rule for treaty pension plans. That rule does not reach a TFSA. ## What Americans in Canada miss about the treaty and Social Security. ### Reporting RRSP growth once ends the automatic deferral Once you report an RRSP’s undistributed income on a US return, the automatic deferral no longer covers that plan. You stay taxable on its income each year, and electing the deferral later needs the IRS Commissioner’s consent. ### A personal RRSP contribution does not cut US tax Neither the treaty nor Rev. Proc. 2014-55 makes a contribution to a personal RRSP deductible on a US return. Article XVIII(13) helps a US citizen employed in Canada by a Canadian employer. It allows a US deduction for contributions to that employer’s plan, including a group RRSP, within US limits. ### A treaty residence claim can count as expatriating (https://valim.tax/glossary/covered-expatriate) If you hold a green card and claim Canadian residence under the tie-breaker, you must disclose it on Form 8833. For a long-term resident, Form 8833 warns that this counts as expatriating under Section 877A. For tax purposes, that is the same as giving up your green card. ### Leaving Canada brings a departure tax Canada taxes you as if you sold most of your property at fair market value when you stop being resident. Article XIII(7) lets you elect a matching sale on your US return, which resets your US basis to that value. For a US citizen, the US then taxes the gain in the same year and can credit Canada’s tax. RRSPs, RRIFs, TFSAs and Canadian real estate are outside the departure tax. Property you brought to Canada or inherited is also exempt if you were resident for 60 months or less of the prior 120. ### CPP and OAS may still face US tax The treaty does not settle whether the US can tax the CPP or OAS of a US citizen living in Canada. Its social security rule covers benefits paid to a resident of the other country, and no IRS guidance addresses this case. If the US does tax them, the credit for Canadian tax can offset it. ### Self-employed people need a certificate of coverage Under the US-Canada totalization agreement, in force since August 1, 1984, a self-employed person pays social security tax only where they live. Request a certificate on form CPT56, or QUE/USA 101 in Quebec, and attach a copy to your US return every year. ## A CPA checks every treaty rule on your US return from Canada. Valim’s CPAs apply the US-Canada tax treaty to the US returns of Americans who live in Canada. We work alongside your Canadian accountant and file no Canadian return. - We claim the Canadian tax from your accountant’s return as a credit on Form 1116. - We file your FBAR and report each RRSP and RRIF on a distribution basis, which keeps its growth deferred. The instant quote counts each account and each foreign fund. - We set US estimated payments for the tax on TFSA income. - We test the credit against the foreign earned income exclusion, and plan the US side of leaving Canada. - If the IRS questions a treaty position on a return we prepared, our answer costs you nothing more. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## US-Canada tax treaty questions. ### Is there a tax treaty between the US and Canada? Yes, the US and Canada signed their income tax convention on September 26, 1980, and it generally took effect on January 1, 1985. Five protocols have amended it, the last signed in 2007 and in force since December 15, 2008. The IRS posts the Canada-US tax treaty in two files: one with the first four protocols, and one with the 2007 protocol. A separate totalization agreement, in force since August 1, 1984, coordinates Social Security with the Canada Pension Plan. ### Do I pay tax in both Canada and the US? Yes, if you are a US citizen living in Canada, both countries can tax you. Canada taxes residents on worldwide income, and the treaty’s saving clause lets the US keep taxing its citizens. Article XXIV then relieves most double tax on the same income, through credits. The US gives a foreign tax credit for the Canadian tax on your Canadian income. On US income, Canada gives a limited credit for the US tax, and the US credits the Canadian tax left over. ### How are RRSPs and TFSAs treated? Under the US-Canada tax treaty, US tax on growth inside an RRSP or RRIF can wait until money comes out. Since Rev. Proc. 2014-55, that deferral is automatic if you filed every required US return and never reported the plan’s growth as income. A TFSA is not covered, so its income is taxable on your US return each year. The IRS has not said whether a TFSA must be reported on Form 3520 as a foreign trust. An RRSP or RRIF still counts for the FBAR and Form 8938. ### Does Canada tax a US citizen who lives in the US? Only on some Canadian income, and the treaty caps that tax. Canada’s tax on dividends paid to an individual stops at 15%, and so does its tax on each periodic pension payment. Americans in Canada are Canadian residents instead, so Canada taxes their income from everywhere and the US credits that tax. ### Who qualifies for the US tax treaty? Any resident of the US or Canada qualifies for the US-Canada tax treaty, meaning someone taxed there by domicile, residence, citizenship or similar criteria. A US citizen living outside both countries also needs close ties to the US. If both countries claim you, the tie-breaker in Article IV picks one. For US tax, US citizens get only the articles the saving clause excepts, though Canada’s limits on its own tax still apply. Other US treaties set their own tests, such as the US-UK tax treaty. ## Sources - US-Canada income tax convention, as amended (IRS text): https://www.irs.gov/pub/irs-trty/canada.pdf - Fifth protocol to the US-Canada convention (2007): https://home.treasury.gov/system/files/131/Treaty-Canada-Pr2-9-21-2007.pdf - US Treasury, Technical Explanation of the 2007 protocol: https://home.treasury.gov/system/files/131/Treaty-Canada-Pr2-TE-9-21-2007.pdf - IRS, Rev. Proc. 2014-55 (Canadian retirement plans): https://www.irs.gov/pub/irs-drop/rp-14-55.pdf - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Form 8833 (Rev. December 2022), Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b): https://www.irs.gov/pub/irs-pdf/f8833.pdf - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 877, Expatriation to avoid tax: https://www.law.cornell.edu/uscode/text/26/877 - 26 CFR § 1.1298-1, Section 1298(f) annual reporting requirements: https://www.law.cornell.edu/cfr/text/26/1.1298-1 - Income Tax Act (Canada), s. 2, Tax payable by persons resident in Canada: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-2.html - Income Tax Act (Canada), s. 146.2, Tax-free savings accounts: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-146.2.html - Income Tax Act (Canada), s. 110, Deductions permitted: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-110.html - Income Tax Act (Canada), s. 128.1, Changes in residence: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-128.1.html - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - Social Security Administration, Totalization Agreement with Canada: https://www.ssa.gov/international/Agreement_Pamphlets/canada.html --- URL: https://valim.tax/expat-tax/us-uk-tax-treaty Title: US tax treaty UK: the saving clause and UK pension rules Updated: 2026-09-24 # Even under the US tax treaty, UK residents who are US citizens stay taxable in the US. The US-UK treaty’s saving clause, Article 1(4), keeps the US free to tax its citizens as if the treaty did not exist. Only the exceptions in Article 1(5)(a) still help citizens, such as the credit for UK tax and the UK pension rules. The US-UK treaty, as amended in 2002: - 2003: is the year the treaty came into force, on March 31. It replaced the 1975 convention. - $0: of US tax is due on a qualifying UK pension scheme’s growth before it pays out, citizens included. - 15%: caps the US tax on most dividends paid to a UK resident who is not a US citizen. ## Does the US-UK income tax treaty change your US tax? ### 1. Either country taxes you as a resident The treaty’s benefits go to residents of the US or the UK. You are resident in a country if it taxes you on grounds such as your domicile, residence or citizenship. A US citizen or green card holder has to meet one more test to be a treaty resident of the US. They need a substantial presence, a permanent home or a habitual abode (where they usually live) in the US. ### 2. The tie-breaker, if both countries claim you Article 4(4) settles dual residence by placing you in one country. A permanent home decides it first, then closer personal and economic ties, known as your centre of vital interests. Next come your habitual abode (where you usually live) and your nationality. If those fail, HMRC and the IRS try to agree. ### 3. The saving clause, for US citizens The saving clause in Article 1(4) still applies when the tie-breaker places a US citizen in the UK. A green card holder placed in the UK by the tie-breaker owes US tax only as the treaty allows. ### 4. Your income falls under an exception Article 1(5)(a) lists the rules the saving clause does not override. They include the credit for UK tax in Article 24 and the social security rule in Article 17(3). The pension rules in Articles 17(1)(b), 18(1) and 18(5) are on the list too. Form 8833 is how you disclose a treaty position to the IRS. Positions on pensions and social security usually need no Form 8833. ## How much US tax does the US-UK double tax treaty leave a citizen in London? Article 24 lets the US credit UK tax, but only the tax the UK charges. A US citizen in London, in the UK’s 45% band and the US 24% bracket, has $10,000 of each kind of income below. - UK salary: $0. UK income tax of $4,500 is more than the $2,400 of US tax, so the credit covers all of it. - Growth in a UK workplace pension: $0. The example assumes the pension meets the treaty’s definition of a pension scheme, so Article 18(1) defers US tax until it pays out. - Interest in a cash ISA: $2,400. The UK does not tax ISA interest, so there is no UK tax to credit against the $2,400. US tax is 24% of each $10,000, or $2,400, before any credit. UK income tax on the salary is 45%, or $4,500, at the additional rate for 2026 to 2027. No article of the treaty covers an ISA, and no IRS guidance names one. The 3.8% net investment income tax, due above $200,000 of modified adjusted gross income for a single filer, is left out. Amounts are round figures in US dollars. ## What can the US tax when you live in the UK? For UK residents who are not US citizens, the treaty caps the US tax on income from the US. For citizens, the saving clause removes most of those limits. The UK credits US tax only up to the treaty rate, and the US credits the UK tax left over. | | US citizen | Not a US citizen | | --- | --- | --- | | Most dividends from US companies | Normal US rates (The UK credits US tax up to 15%) | 15% at most (5% for a company with 10% of the voting power) | | Interest from a US bank | Normal US rates (The US credits the UK tax) | No US tax (Only the UK taxes it) | | A private US pension, paid regularly | Normal US rates (The US credits the UK tax) | No US tax (Only the UK taxes it) | | US Social Security | No US tax (The saving clause does not apply) | No US tax (Only the UK taxes it) | A US government pension stays taxable only in the US, unless you are a UK national living in the UK. Under Article 17(1)(b), the UK must exempt any US pension payment the US would exempt, such as a tax-free Roth IRA payout. Under the treaty’s capital gains article, Article 13, the country where real property sits can tax a gain on it. That includes US real property interests and unlisted shares that draw most of their value from UK land. ## Five treaty rules people get wrong. ### The 25% tax-free lump sum The UK usually lets you take 25% of a pension tax-free, capped at £268,275. The treaty never names that lump sum, and Treasury’s explanation says the US can still tax it for a citizen. Some advisers read Article 17(1)(b) the other way, and the IRS has not ruled. ### Paying into a SIPP Money you pay into a SIPP may get no US deduction. Article 18(5) covers a US citizen who lives in the UK and is paid by a UK employer or UK branch. Qualifying workplace pension contributions are then excluded from US income, within US limits. Treasury ties that rule to workplace schemes. A SIPP’s growth may still be deferred, since Treasury lists personal pension schemes as treaty pension schemes. ### Reading another treaty’s rules into this one (https://valim.tax/expat-tax/us-canada-tax-treaty) This treaty does not treat a UK State Pension as US Social Security. It lets only the US tax a UK State Pension paid to a US resident. IRS Publication 915 suggests the US then taxes it like an annuity. The US-Canada treaty is different: it treats Canada’s social security benefits as US Social Security once a US resident receives them. ### Claiming UK residence on a green card (https://valim.tax/expat-tax/renounce-us-citizenship) A green card holder who uses the tie-breaker to be treated as a UK resident must file Form 8833. If you held a green card in at least 8 of the last 15 tax years, the claim ends your US tax residency. Form 8854 is then due, and the expatriation tax under Section 877A may follow. ### Self-employment in the UK Under the separate US-UK totalization agreement, a self-employed American living in the UK pays into UK National Insurance only. Attach a copy of your certificate of coverage to each year’s US return. It proves you owe no US Social Security contributions, which the US collects as self-employment tax. ## We claim the benefits of the tax treaty between the US and the UK on your US return. Valim’s CPAs file the US returns of Americans living in the UK, with the treaty applied to their pensions and UK tax. - We credit your UK tax on Form 1116, working alongside any UK accountant who files your Self Assessment. - We report your UK pension as the treaty allows, with its growth and qualifying contributions kept out of your US income. - We compare the US tax on your UK salary under the credit and under the foreign earned income exclusion. - We plan estimated payments for US tax on ISA interest. - We answer any IRS letter about a treaty claim on a return we prepared, including a Form 8833, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## US-UK tax treaty questions. ### Is the UK in a tax treaty with the US? Yes, there is an income tax treaty between the UK and the US. It was signed in London on July 24, 2001, and amended by a protocol signed on July 19, 2002. It has been in force since March 31, 2003. Its saving clause lets the US keep taxing its citizens who live in the UK. A separate agreement, in effect since January 1, 1985, coordinates Social Security and UK National Insurance. ### Do I pay taxes in both the US and the UK? Yes, the UK and the US can each tax you, but the credits between them usually stop double tax. The UK normally taxes a resident on income from anywhere, while US citizenship or a green card keeps you in the US system. Article 24 lets you claim a foreign tax credit on your US return for UK income tax. A US citizen living in the UK gets a UK credit on US-source income only up to what a non-citizen would owe. On most US dividends, that is 15%. The US then credits whatever UK tax remains. ### How is a UK pension taxed for a US citizen? Under the US-UK tax treaty, pension growth in a qualifying UK scheme is not taxed by the US until you draw it. When you take a regular pension, the US taxes only the part that is taxable in the UK. Whether the UK’s 25% tax-free lump sum is free of US tax is unsettled, and the IRS has not ruled. Contributions cut US tax only for Americans in the UK who work for a UK employer, within US limits. ### Who qualifies for the US tax treaty? Residents of the US or the UK qualify for the US-UK tax treaty. Article 4 makes you resident in a country that taxes you as a resident, for example because you live there. Individuals always pass Article 23, the limitation on benefits, since it targets entities such as companies and funds. US citizens can claim the treaty too, but the saving clause keeps most of its rules from cutting their US tax. Residents of other countries rely on their own country’s treaty, such as the US-India tax treaty. ### What are the UK-US tax treaty withholding rates? Under the UK-US tax treaty, the US can tax most US dividends paid to a UK resident at no more than 15%. A company that owns at least 10% of the paying company’s voting power pays 5%. Some pension schemes pay nothing. So do some parent companies that have held 80% of the votes for 12 months and meet a further treaty test. Most interest is taxable only where its owner lives, so the US usually takes no tax on a UK resident’s US bank interest. A US citizen in the UK gets none of these limits, because of the saving clause. ### Does the US-UK tax treaty cover estate and inheritance tax? No, the US-UK income tax treaty does not cover estate, gift or inheritance tax. It deals with taxes on income and capital gains. US estate and gift tax, and UK inheritance tax, fall under a separate US-UK estate and gift tax treaty. ## Sources - US-UK income tax convention (2001): https://home.treasury.gov/system/files/131/Treaty-UK-7-24-2001.pdf - Protocol to the US-UK convention (2002): https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-7-19-2002.pdf - Treasury, technical explanation of the US-UK convention and 2002 protocol: https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-TE-7-22-2002.pdf - HMRC, USA tax treaties: https://www.gov.uk/government/publications/usa-tax-treaties - IRS, Form 8833 (Rev. December 2022), Treaty-Based Return Position Disclosure: https://www.irs.gov/pub/irs-pdf/f8833.pdf - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Estate & gift tax treaties (international): https://www.irs.gov/businesses/small-businesses-self-employed/estate-gift-tax-treaties-international - HMRC, Inheritance Tax Manual IHTM27161, double taxation conventions: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm27161 - GOV.UK, Tax when you get a pension (what’s tax-free): https://www.gov.uk/tax-on-pension/tax-free - GOV.UK, Individual Savings Accounts: https://www.gov.uk/individual-savings-accounts - GOV.UK, Income Tax rates and Personal Allowances: https://www.gov.uk/income-tax-rates - Social Security Administration, US-UK social security agreement: https://www.ssa.gov/international/Agreement_Pamphlets/uk.html - Social Security Administration, US international social security agreements (status): https://www.ssa.gov/international/status.html - GOV.UK, Tax on foreign income: residence: https://www.gov.uk/tax-foreign-income/residence --- URL: https://valim.tax/expat-tax/americans-in-canada Title: American living in Canada taxes: credit, departure tax and dates Updated: 2026-09-24 # Canada’s rates exceed US rates, so if you are an American living in Canada, taxes you pay there usually cover US tax on wages. Canada taxes you on world income as a resident, and US citizenship keeps you taxable in the US wherever you live. On Form 1116, the Canadian tax then comes off your US tax, up to what the US charges on that income. In Ontario in 2026, taxable income just above C$100,000 is taxed at 29.65% before Ontario’s surtax, against 22% or 24% in the US. Tax year 2026: - 46.16%: is the top federal and Ontario rate, before Ontario’s surtax, against a top US rate of 37%. - $132,900: is the most foreign pay the exclusion shelters, and it bars any credit for Canadian tax on that pay. - April 30: is when your Canadian return is due, six weeks before the automatic June 15 date for your US return. C$ amounts are Canadian dollars. Other provinces set their own rates, and Quebec’s come from Revenu Québec. ## How does the US tax your Canadian savings and benefits? The tax treaty settles the RRSP and Social Security. A totalization agreement, in effect since 1984, decides which country’s social security system a self-employed American pays into. US law alone decides the TFSA. ### 1. An RRSP or RRIF Under the treaty, an RRSP (registered retirement savings plan) or RRIF (registered retirement income fund) grows with no US tax until you withdraw. You need no election form if you filed every required US return, never reported earnings left in the plan, and reported each withdrawal. Contributions to a personal RRSP do not lower your US tax. ### 2. A TFSA Canada leaves the earnings of a TFSA (tax-free savings account) untaxed, and no treaty article mentions the account. The US taxes a TFSA’s income every year, with no Canadian tax to credit against it. The IRS has not said whether a TFSA is also a foreign trust, which would mean filing Form 3520. ### 3. US Social Security Under the treaty, only Canada may tax your US Social Security once you live there, even if you are a US citizen. Canada taxes it like a Canada Pension Plan (CPP) benefit, less the exempt share. No IRS guidance says whether the US may tax CPP and Old Age Security (OAS) paid to a US citizen in Canada. ### 4. Self-employment income Under the totalization agreement, a self-employed American in Canada pays into the CPP (the QPP in Quebec) instead of US self-employment tax. Neither the exclusion nor the credit would reduce that US tax. Attach a certificate of coverage to each year’s US return to prove it. ## In Canada, the credit usually beats the exclusion. The credit and the exclusion can each clear the US tax on a Canadian salary. Only the credit keeps the Canadian tax the US did not need, for use in other years. A single American in Toronto earns a $100,000 salary in 2026 and pays $25,000 of Canadian tax on it. Both figures are in US dollars. - No relief: $13,170. This is what the US would charge on the salary if nothing offset it. - Exclusion (Form 2555): $0. The whole salary falls under the exclusion’s cap, so none of the $25,000 can be credited or carried over. - Credit (Form 1116): $0. The credit uses $13,170 of the Canadian tax. The other $11,830 becomes a carryover, usable one year back or up to 10 years ahead. The US tax is figured at the 2026 single rates of 10%, 12% and 22%. They apply to $83,900 of taxable income, after the $16,100 standard deduction. The $25,000 of Canadian tax is a round figure, not worked out from Canadian brackets. All the pay is from Canada, so the credit’s limit is the whole US tax. ## Canada’s return comes first, so its tax figure is ready for your US credit. Both countries tax the calendar year, so the same year’s income goes on both returns. | | Canada | United States | | --- | --- | --- | | Who is taxed | Residents (On world income, in Canadian dollars) | Citizens and green card holders (On income from anywhere) | | Return due | April 30 (June 15 if you or your spouse or common-law partner is self-employed) | June 15 from abroad (October 15 with Form 4868) | | Tax due | April 30 (For everyone) | June 15 from abroad (Interest runs from April 15) | | Foreign tax credit | Form T2209 (For tax paid to the US) | Form 1116 (For tax paid to Canada) | The FBAR is due April 15 and extends automatically to October 15. You file it with FinCEN, separately from both tax returns. ## Four points a US return from Canada has to get right. ### Your RRSP still goes on the FBAR (https://valim.tax/expat-tax/fbar) An RRSP that grows free of US tax must still be reported. Its value counts toward the FBAR’s $10,000 threshold, and once your foreign accounts pass it, the plan goes on the FBAR. It counts toward Form 8938 too. ### Tax on your pay cannot cover tax on investments (https://valim.tax/expat-tax/foreign-tax-credit) Form 1116 keeps wages and most interest and dividends in separate categories, each with its own limit. Extra Canadian tax on your salary, carryovers included, cannot reduce the US tax on your investment income. That income needs Canadian tax of its own to credit. ### Canadian mutual funds are usually PFICs (https://valim.tax/glossary/passive-foreign-investment-company-pfic) A Canadian mutual fund or ETF is usually a passive foreign investment company for US tax, in a TFSA or not. Each fund generally needs its own Form 8621 every year, unless your funds total $25,000 or less ($50,000 joint) and paid no excess distribution. Funds held in an RRSP or RRIF can normally skip that form. ### Leaving Canada is taxed as a sale (https://valim.tax/expat-tax/us-canada-tax-treaty) Canada’s departure tax treats most property, such as shares and funds, as sold at fair market value on the day you leave. Canadian real estate, pensions, RRSPs, RRIFs and TFSAs are left out. A treaty election under Article XIII(7) lets the US treat the sale as happening that day too, so both taxes fall in one year. ## A US CPA builds your return from the tax you already paid in Canada. Valim’s CPAs prepare the US returns and FBARs of Americans living in Canada. We work from the Canadian return your accountant files. - We credit the tax shown on your Canadian return against your US tax, using Form 1116, and track what carries to later years. - We list your RRSP and every other Canadian account on the FBAR, and on Form 8938 when it applies. Your instant quote prices each of those accounts, each Canadian fund, and each Canadian company you own over 20% of. - We set US estimated payments when Canadian withholding will not cover your US tax. - We weigh the credit against the exclusion on your figures, and plan around a move to or from Canada. - We reply to IRS or state letters on any return we prepared, and that reply costs nothing extra. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Questions from Americans living in Canada on filing in both countries. ### Do US citizens living in Canada pay taxes? Yes, Canada taxes US citizens who live there like any other resident, and the US expects a return once income reaches its filing threshold. Foreign pay they exclude still counts toward that threshold. Net self-employment earnings of $400 or more require a return on their own. The US credit for Canadian tax usually leaves little or no US tax on Canadian pay. In Canada, the foreign tax credit generally works better than the foreign earned income exclusion. ### What is the 90% rule in Canada? The 90% rule decides whether a non-resident of Canada can claim federal non-refundable tax credits in full. The test is whether Canadian-source income is 90% or more of net world income for the time spent as a non-resident. Below that, the credits are limited. It also reaches newcomers and emigrants, for the part of the year they lived outside Canada. ### How much tax do you pay on $100,000 a year in Canada? In Ontario in 2026, C$100,000 of taxable income carries about C$23,636 of income tax: about C$16,696 federal and C$6,940 Ontario. That is before Ontario’s surtax, and before tax credits bring it down. Canada Pension Plan (CPP) and Employment Insurance (EI) contributions and the Ontario health premium are charged on top. Other provinces set their own rates. The total is usually more than an American would owe the US on the same pay, so the credit clears the US tax. ### Do I have to pay double tax for Canada and the US? Generally no, since each country gives credit for tax paid to the other on the same income. On Canadian income, your US return credits the Canadian tax. On US income, Canada credits the US tax only up to what a non-citizen would owe, under Article XXIV of the treaty. The US then allows a credit for whatever Canadian tax remains. Americans in the UK get the same order under Article 24 of their treaty. ### How is a US pension taxed if I live in Canada? Both Canada and the US can tax a US pension paid to you in Canada. Canada taxes it as your country of residence, and the US keeps taxing it because you are a citizen. Canada’s credit for the US tax stops at 15% of each periodic payment, the treaty’s cap for a non-citizen. Any Canadian tax left after Canada’s credit is then credited on your US return. Americans in France are in a different position, since only the US taxes their US pensions. ## Sources - US-Canada income tax convention, as amended (IRS text): https://www.irs.gov/pub/irs-trty/canada.pdf - IRS, Publication 597 (10/2015), Information on the United States-Canada Income Tax Treaty: https://www.irs.gov/publications/p597 - IRS, Rev. Proc. 2014-55 (Canadian retirement plans): https://www.irs.gov/pub/irs-drop/rp-14-55.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 CFR § 1.1298-1, Section 1298(f) annual reporting requirements: https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 CFR § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - Social Security Administration, Totalization Agreement with Canada: https://www.ssa.gov/international/Agreement_Pamphlets/canada.html - Income Tax Act (Canada), s. 110 (the US Social Security deduction): https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-110.html - Income Tax Act (Canada), s. 128.1 (changes in residence): https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-128.1.html - Income Tax Act (Canada), s. 146.2 (tax-free savings accounts): https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-146.2.html - Canada Revenue Agency, current-year tax rates and income brackets (2026): https://www.canada.ca/en/revenue-agency/services/tax/individuals/tax-rates-brackets/current-year.html - Canada Revenue Agency, important dates for individuals: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/important-dates-individuals.html - Canada Revenue Agency, 5006-PC Information for Residents of Ontario (the Ontario health premium): https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package/ontario/5006-pc.html - Canada Revenue Agency, federal non-refundable tax credits for newcomers and emigrants: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/federal-non-refundable-tax-credits-newcomers-emigrants.html - Canada Revenue Agency, deemed dispositions of property for emigrants: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/dispositions-property.html --- URL: https://valim.tax/expat-tax/americans-in-the-uk Title: US expat taxes UK: credit or exclusion, ISAs and pensions Updated: 2026-09-24 # For Americans filing US expat taxes, UK income tax cancels what the US would charge on most UK salaries. The US taxes citizens and green card holders on worldwide income, even after a move to the UK. UK income tax is at least 40% on income above £50,270, while the same pay mostly falls in the 22% and 24% US brackets. The foreign tax credit lets that UK tax offset the US tax. ISA interest and gains, which the UK leaves untaxed, get no credit. For Americans in the UK: - 60%: is the effective UK rate on each extra pound of pay from £100,000 to £125,140, as the Personal Allowance is withdrawn. - £20,000: can go into ISAs in the 2026 to 2027 tax year, and their income stays taxable in the US. - 1985: is when the US-UK Social Security agreement took effect, so you generally pay into only one country’s system. UK rates here are for England, Wales and Northern Ireland. Scotland sets its own. ## Which parts of your UK life reach your US return? The US taxes an American living in the UK by citizenship and the UK by residence, so both can tax the same pay. ### 1. You hold US citizenship or a green card You file a Form 1040 for each year your gross income reaches the IRS filing threshold, even as a dual US-UK citizen. From the UK, your Form 1040 gets an automatic extension to June 15, with interest on any tax due from April 15. ### 2. The UK treats you as resident UK residence decides how much UK tax you pay, and so how much you can credit on your US return. Under the statutory residence test, 183 days or more in a UK tax year makes you resident. Below 16 days you are non-resident, or below 46 if you were not resident in any of the 3 prior tax years. Cases in between turn on your ties to the UK and further tests. ### 3. UK tax on your pay tops the US tax You claim the UK income tax on your wages as a credit on Form 1116. The credit stops at the US tax on the same pay. Any UK tax left over carries back 1 year, then forward up to 10 years. ### 4. You work for yourself Under the US-UK Social Security agreement, a self-employed person pays into the system of the country they live in. Living in the UK, you pay UK National Insurance and no US self-employment tax. A certificate of coverage proves it, and a copy goes with every US return you file. ### 5. You pay into a UK workplace pension As a US citizen paid by a UK employer, you can keep pension contributions out of US income under treaty Article 18(5). The contributions must qualify for UK tax relief, and the scheme must generally correspond to a US plan. The relief stops at what that US plan would allow. A pension you fund on your own while self-employed, such as a SIPP, may not lower your US tax. ## On a £100,000 salary, UK income tax and National Insurance take £31,443, and the IRS takes nothing. A single American in London earns a £100,000 salary in 2026 to 2027, with no other income or pension contributions. - UK income tax: £27,432. Nothing on the first £12,570, 20% on the next £37,700 and 40% on the last £49,730. - National Insurance: £4,011. Employees pay 8% of pay between £242 and £967 a week, and 2% of pay above that. - US income tax after the credit: $0. UK income tax is 27.4% of the salary, more than the US would charge, so no US tax is left. - Take-home pay: £68,557. What is left of the salary after UK income tax and National Insurance. UK figures use 2026 to 2027 rates for England, with National Insurance rounded. The US side uses the 2026 brackets and standard deduction for a single filer. On those, US income tax stays under 27.4% of salary until pay passes about $487,000. For any US tax to remain, £100,000 would have to be worth more than $487,000 at the exchange rate. ## How do the UK’s rules differ from the US rules you still file under? The UK column shows UK taxes for a US citizen living there in 2026 to 2027. The US column uses the 2026 US tax year. | | UK | US | | --- | --- | --- | | Tax year | 6 April to 5 April | January to December (So each US return spans two UK tax years) | | Tax-free allowance | £12,570 (Personal Allowance, which starts to shrink at £100,000) | $16,100 (Standard deduction for a single filer) | | ISA interest, dividends and gains | Tax-free | Taxed (No ISA exemption, and no treaty article covers ISAs) | | Growth in a UK pension scheme | Not taxed | Not taxed until paid out (Treaty Article 18(1), citizens included) | | US Social Security you receive | Taxed | Not taxed (Treaty Article 17(3) protects citizens too) | If you draw the UK State Pension while living in the UK, the UK taxes it. IRS Publication 915 treats foreign social security as taxable unless a treaty exempts it. The treaty’s Article 17(3) does not reach this case, so the US may tax it too, with a credit for the UK tax. ## Which US rules surprise Americans who have settled in the UK? ### Funds inside a stocks and shares ISA (https://valim.tax/glossary/passive-foreign-investment-company-pfic) The funds in a stocks and shares ISA usually count as PFICs, short for passive foreign investment companies. Without an election, a gain on one is spread over the years you held it. The share for earlier years is taxed at the top US rate, plus interest. Each fund can also need its own Form 8621 every year. Funds inside a qualifying UK pension scheme are exempt from that form, but the exemption does not reach ISAs. ### Choosing the exclusion by default (https://valim.tax/expat-tax/foreign-earned-income-exclusion) In the UK, the credit usually saves more, because UK tax on pay you exclude can never be credited. Once claimed on Form 2555, the exclusion carries into every later year unless you revoke it. Revoking it bars you from claiming it again for 5 tax years without IRS approval. ### Leaving UK accounts off your reports (https://valim.tax/expat-tax/fbar) Your UK accounts, ISAs included, go on your FBAR once their combined highest balances top $10,000. Form 8938 is also due above $200,000 at year end, or $300,000 at any time, for a single filer abroad. A joint return doubles both figures. A UK workplace or personal pension counts toward the Form 8938 threshold, but the UK State Pension does not. ### Treating the treaty as an end to US tax (https://valim.tax/expat-tax/us-uk-tax-treaty) For a US citizen, the saving clause in Article 1(4) keeps your US tax as it would be without the treaty. Only the exceptions listed in Article 1(5)(a) still help, such as Article 24’s credit for UK tax and pension growth under Article 18(1). The treaty’s lower US rates on dividends and interest do not apply to you. A green card holder living in the UK is treated differently and should get advice before relying on the treaty. ## You get tax advice for US citizens living in the UK from the CPA who files your return. Valim’s CPAs prepare US returns and FBARs for Americans living in the UK. For the UK half of a US-UK tax question, we work alongside your UK accountant. - We prepare Form 1116 to credit the UK income tax on your salary, carrying unused UK tax forward. - We report the income and gains in your ISAs, and file your FBAR and any Form 8938. Each foreign account and fund, and any foreign company in which you own more than 20%, adds to your instant quote. - We run both the credit and the exclusion on your UK pay before you elect either. - We set estimated tax on your ISA dividends and gains together. - We answer IRS or state questions about a return we prepared, such as the UK tax credited on it, within the fee you were quoted. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Americans in the UK often ask about the 60% trap and the 5 year rule. ### Do US expats in the UK need to pay US taxes? Yes, a US citizen living in the UK files a US tax return once gross income reaches the filing threshold. Little or no US tax is due on most salaries, though. UK income tax on pay runs higher, and the foreign tax credit clears the US tax on it. US tax can remain on income the UK taxes lightly or not at all, such as ISA interest and gains. ### How to avoid the 60% tax trap in the UK? You avoid the 60% tax trap by keeping your adjusted net income at £100,000 or less. Above that, your £12,570 Personal Allowance shrinks by £1 for every £2 of income, reaching zero at £125,140. Each extra £1 in that band costs 40p of tax, plus 20p on the 50p of allowance it removes. Your UK accountant can say which payments lower adjusted net income. On your US return, the extra UK income tax counts toward the foreign tax credit. ### What is the UK expat 5 year rule? The UK expat 5 year rule is HMRC’s temporary non-residence rule. It covers you if you had sole UK residence in 4 or more of the 7 tax years before leaving. Return within 5 years, and the UK may tax certain income and gains from your time away in your first year back. Staying away more than 5 years, even by a day, keeps you outside it. Your US return reports your worldwide income every year either way, though UK tax the rule triggers may count toward your foreign tax credit. ### How much is $100,000 after tax in the UK? A £100,000 salary in England leaves about £68,557 for 2026 to 2027, after income tax and National Insurance and before any reliefs. What a $100,000 salary leaves depends on the exchange rate, since UK tax is charged in pounds. Of the £100,000, income tax takes £27,432, and employee National Insurance about £4,011. An American on that salary owes no US tax on it, because the UK income tax is credited. ### Do Americans pay US tax on an ISA? Yes, the US taxes the interest, dividends and gains in an ISA. The UK exemption does not carry over to your US return. No treaty article covers ISAs, and the IRS has published nothing that names them. Funds inside a stocks and shares ISA are usually PFICs, which can mean a Form 8621 for each fund. Americans in Canada face the same gap with their TFSAs. ### Should Americans in the UK claim the credit or the exclusion? The foreign tax credit usually works better for Americans earning a salary in the UK. Above the basic rate band, UK tax on pay tops the US rate, so the credit clears the US tax. Under the exclusion, UK tax on the excluded pay cannot be credited. The exclusion is also hard to undo: once revoked, it cannot be claimed again for 5 tax years unless the IRS agrees. Americans in Germany tend to land on the credit too, since German tax on pay also tops the US rate. ## Sources - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - US-UK income tax convention (2001): https://home.treasury.gov/system/files/131/Treaty-UK-7-24-2001.pdf - Treasury, 2002 protocol to the US-UK income tax convention: https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-7-19-2002.pdf - Treasury, technical explanation of the US-UK convention and 2002 protocol: https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-TE-7-22-2002.pdf - Social Security Administration, US-UK social security agreement: https://www.ssa.gov/international/Agreement_Pamphlets/uk.html - GOV.UK, Income Tax rates and Personal Allowances: https://www.gov.uk/income-tax-rates - GOV.UK, National Insurance: how much you pay: https://www.gov.uk/national-insurance/how-much-you-pay - GOV.UK, Individual Savings Accounts: https://www.gov.uk/individual-savings-accounts - HMRC, RDR3: guidance note for the statutory residence test: https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - FinCEN, FBAR line item filing instructions: https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting requirements for United States persons that are shareholders of a passive foreign investment company: https://www.law.cornell.edu/cfr/text/26/1.1298-1 --- URL: https://valim.tax/expat-tax/americans-in-germany Title: US expat taxes: Germany’s rates, pensions and Social Security Updated: 2026-09-24 # You still file your US expat taxes. Germany’s higher rates usually leave no US tax to pay on your salary. A credit for the German income tax on your pay offsets the US tax on that pay. The US still taxes income Germany leaves untaxed, such as interest and dividends under the saver’s allowance. Americans living in Germany, 2026: - 42%: is Germany’s income tax rate from €69,879 of a single filer’s taxable income, where the US rate on $69,879 is 22%. - $0: of US tax is due on US Social Security paid to you while you live in Germany. - 1979: is the year the US-Germany totalization agreement took effect. It generally keeps you from paying into both countries’ social security. For a single filer, German income tax rises to 45% from €277,826 of taxable income. ## Which US forms does an American living in Germany need? ### 1. A US return, every year US citizens file Form 1040 once gross income reaches the filing threshold, or net self-employment earnings reach $400, even with nothing to pay. Under Article 1(4), the treaty’s saving clause, the US taxes its citizens as it would without the treaty. Article 1(5) lists the exceptions, such as the Social Security rule in Article 18(5). Green card holders file too. A holder who claims German residence under the treaty can file as a nonresident, but a long-term holder may then be treated as expatriating. ### 2. A credit for your German tax Form 1116 is where you claim the credit. It cannot exceed the US tax on your foreign income, so German tax never reduces US tax on US income. ### 3. An FBAR once your accounts pass $10,000 If your foreign accounts together pass $10,000 at any point in the year, all of them go on the FBAR. That includes your German current account, savings account and brokerage account (Depot). The FBAR is FinCEN Form 114, filed with FinCEN rather than with your tax return. Its deadline is April 15, with an automatic extension to October 15. ### 4. Form 8938 above a higher threshold Form 8938 has higher thresholds for filers who pass the IRS test for living abroad. A single filer adds it above $300,000 at any time in the year, or $200,000 on its last day. On a joint return, the thresholds are $600,000 at any time or $400,000 on the last day. A German state pension does not count toward them, because foreign social security benefits are left off Form 8938. Form 8938 does not replace the FBAR, so many Americans in Germany file both. ## At 100,000 of taxable income, German tax takes almost twice the share that US tax does. A single filer has 100,000 of taxable income in 2026, all of it German salary. It is counted in euros for German tax and in dollars for US tax. - German income tax: €30,864. That is 30.9% of the income, and each further euro is taxed at 42%. - US income tax: $16,712. That is 16.7% of the income, and each further dollar is taxed at 22%. - US tax after the credit: $0. German tax exceeds the US tax here, so the credit leaves nothing to pay. Section 32a of the Income Tax Act (EStG) sets the 2026 German formula for a single filer’s taxable income from €69,879 to €277,825. In that band, the tax is 42% of the income, minus €11,135.63. US tax uses the 2026 single brackets: 10% to $12,400, 12% to $50,400 and 22% on the rest. Each tax is figured in its own currency, so they compare as shares of income. Both figures are income tax alone. ## Should you claim the credit or the exclusion on pay earned in Germany? | | Credit (Form 1116) | Exclusion (Form 2555) | | --- | --- | --- | | Pay above $132,900, the 2026 limit | Usually no US tax (German tax covers it) | Taxed at your top rates (German tax on it can still be credited) | | Interest and dividends | German tax credited (Under a separate limit) | Not covered (The exclusion is for earned income only) | | Unused German tax | Saved for other years (One year back, then up to 10 ahead) | Forfeited on excluded pay (It cannot carry to other years) | | Switching later | Your choice each year | Barred for 5 years (After a revocation, unless the IRS consents) | You can use both in one year, but not on the same income. You can exclude pay up to the limit and credit German tax on the rest. ## Six traps the foreign tax credit does not fix. ### Funds and ETFs in a German Depot (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Funds and ETFs based outside the US generally count as PFICs for US tax, including those held in a German Depot. Under the PFIC rules, a gain on sale can be taxed partly at the top rate, with interest added. A separate Form 8621 can be due for each fund. ### The saver’s allowance (https://valim.tax/expat-tax/foreign-tax-credit) Germany does not tax the first €1,000 of your capital income, or €2,000 on a joint return. The US does, and that slice brings no German tax to credit. US tax on it can remain, unless German tax on your other investment income covers it. Tax on your salary cannot fill the gap, because Form 1116 puts wages and investment income in separate categories with separate limits. ### A savings policy with a cash value (https://valim.tax/expat-tax/fbar) The FBAR treats a German life insurance or annuity policy with a cash value as a foreign account. Its value counts toward the $10,000 total alongside your bank and Depot accounts. Form 8938 covers the policy too, once your assets pass its threshold. ### Riester and Rürup contracts How the US taxes Riester and Rürup contracts is not settled. The treaty names only one kind of German plan: company pensions under the Betriebsrentengesetz, Germany’s company pension law. These contracts are not on that list. ### Leaving Germany with company shares When your German tax residence ends, Germany can tax your shares in a company as if you had sold them at fair value. The exit tax in Section 6 of the Foreign Tax Act (AStG) generally applies to stakes of 1% or more. It reaches you if you were taxed as a German resident for at least 7 of the last 12 years. That can include founders and early employees of German startups. ### Working for yourself (https://valim.tax/expat-tax/foreign-earned-income-exclusion) The exclusion does not lower US self-employment tax, and the credit offsets income tax only. A self-employed American in Germany can therefore owe self-employment tax with no US income tax due. Only the US-Germany totalization agreement can remove that tax. It generally puts self-employment carried on only in Germany under German coverage. You prove that with a certificate from the German fund that collects your contributions. A business moved from the US for five years or fewer stays under US coverage. ## Your German tax adviser files in Germany, and a Valim CPA files in the US. We handle the US side only, alongside your Steuerberater. Your German return, and any German tax advice, stay with them. - We claim your German income tax as a US credit on Form 1116. - We apply the treaty to your US Social Security and any Betriebsrente. We file the FBAR for your German accounts, and Form 8938 once they pass its threshold. The instant quote asks how many foreign accounts and funds you hold. - We check whether the exclusion would leave less US tax than the credit. - We calculate estimated tax on freelance income from Germany. - An IRS or state letter about a return we prepared, even one questioning the German tax credit, gets our reply within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## How the US and Germany split the tax on your income. ### Who pays more taxes, the US or Germany? Germany usually taxes a similar income more heavily. In 2026, German income tax on €150,000 of a single filer’s taxable income is €51,864, or 34.6%. US income tax on $150,000 of taxable income is $28,598, or 19.1%. That gap is why the foreign tax credit for German tax usually leaves nothing to pay on a German salary. ### Is there double taxation between the US and Germany? Usually not. The treaty’s saving clause keeps the US free to tax its citizens in Germany. Article 23 then commits the US to credit German income tax against US tax on the same income. Some income, such as US Social Security paid to a resident of Germany, is taxed by one country alone. A separate totalization agreement, in force since December 1, 1979, generally keeps your work in one social security system. ### Does Germany tax my US Social Security? Yes, and only Germany taxes it while you live there. Article 18(5) of the US-Germany treaty makes social security taxable only in the country where the recipient lives. Germany taxes your US benefits as if they were a German state pension. IRS Publication 915 confirms that US citizens living in Germany, Canada or the UK owe no US tax on these benefits. ### Does the US tax my German pension? The US generally does not tax money paid into a Betriebsrente, or its growth, while you work in Germany for a German employer. A Betriebsrente is a workplace pension under Germany’s company pension law. The treaty caps that relief at both the German and the US limits. Riester and Rürup contracts fall outside the treaty’s list, so their US treatment is uncertain. After a move to the US, a German state pension is taxed there like US Social Security, but only France taxes a French one. ### When is the German tax return due? If you have to file in Germany, the return is due July 31 of the year after the tax year. A German tax adviser can file as late as the end of February of the second year after. Your US return is due June 15 while you live abroad, about six weeks before the German date. ## Sources - Germany, AO § 149, Abgabe der Steuererklärungen (filing deadlines): https://www.gesetze-im-internet.de/ao_1977/__149.html - US-Germany income tax convention (1989): https://www.irs.gov/pub/irs-trty/germany.pdf - Protocol to the US-Germany convention (2006): https://www.irs.gov/pub/irs-trty/germanprot06.pdf - Treasury, Technical explanation of the 2006 protocol: https://www.irs.gov/pub/irs-trty/germanyte07.pdf - Protocol to the US-France convention (2004): https://home.treasury.gov/system/files/131/Treaty-France-Protocol-8-12-2004.pdf - Protocol to the US-France convention (2009): https://home.treasury.gov/system/files/131/Treaty-France-Pr2-1-13-2009.pdf - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - Social Security Administration, Totalization Agreement with Germany: https://www.ssa.gov/international/Agreement_Pamphlets/germany.html - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - Germany, EStG § 32a, Einkommensteuertarif (income tax rates): https://www.gesetze-im-internet.de/estg/__32a.html - Germany, EStG § 20, Kapitalvermögen (capital income and the saver’s allowance): https://www.gesetze-im-internet.de/estg/__20.html - Germany, AStG § 6, Besteuerung des Vermögenszuwachses (exit tax on shareholdings): https://www.gesetze-im-internet.de/astg/__6.html - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - IRS, Instructions for Form 8621: https://www.irs.gov/instructions/i8621 --- URL: https://valim.tax/expat-tax/americans-in-france Title: American living in France taxes: credit, exclusion and pensions Updated: 2026-10-06 # For an American living in France, taxes usually mean two returns a year, but the same income is rarely taxed twice. The US taxes you as a citizen wherever you live, and credits the French income tax you pay against its own. France’s income tax scale runs from 0% to 45%, and most professionals land in its 30% or 41% band. An American resident in France: - 41%: is France’s income tax rate on net taxable income from €84,578 to €181,917 per household share. - 31.4%: is France’s flat levy on dividends, interest and securities gains, of which 12.8% is income tax. - $0: is the French income tax on US Social Security and on 401(k) or IRA payouts. Income tax bands are for 2025 income, taxed in 2026. The 31.4% applies to securities gains from 2025, and to dividends and interest from 2026. ## What does an American in France file each year? ### 1. You are American, or hold a green card A US return is due for any year your gross income, including pay you exclude, reaches the filing threshold. You claim the credit for French tax on Form 1116, and the exclusion on Form 2555. France has you filing twice, and the US return waits until June 15, though interest on any tax due starts April 15. ### 2. You are resident in France France taxes you as a resident, so you also file a French return each spring. For 2025 income, the online deadline was May 21, May 28 or June 4, 2026, depending on your département. ### 3. Your accounts outside the US top $10,000 You file an FBAR once the highest balances of your foreign accounts add up to more than $10,000. It lists every account and goes to FinCEN, separately from your tax return. It is due April 15, and extends automatically to October 15. ### 4. Your foreign assets top $200,000 Form 8938 reports your foreign financial assets and goes with your tax return. Living abroad raises its thresholds. A single filer abroad files it once those assets top $200,000 on December 31, or $300,000 on any day. The joint return figures are $400,000 and $600,000. Many Americans in France must file both the FBAR and Form 8938. Neither replaces the other, and each covers some assets the other does not. ## A $10,000 IRA payout leaves $2,400 of US tax, while $10,000 of French pay leaves none. An American in France receives $10,000 from each source below. Their other income puts them in France’s 41% band and the US 24% bracket. - French salary: $0. French income tax on this pay tops the $2,400 of US tax, so the credit clears it. The French tax left over carries to other years. - French social security pension: $0. Only France may tax it, even when it is paid to a US citizen. - Interest from a French bank: Up to $1,120. France’s 12.8% flat income tax, or $1,280, is credited against the $2,400, leaving up to $1,120. Under a 2019 understanding, the IRS will not deny a credit for France’s social levies, the CSG and CRDS, on totalization grounds. - IRA or 401(k) payout: $2,400. The treaty lets only the US tax it, so there is no French tax to credit. Each figure is the US tax left on $10,000 at 24%, or $2,400, after any French tax is credited. France taxes pay net of deductible social contributions and a standard deduction for work costs. Even on that smaller base, its 41% band takes more than $2,400 of the $10,000. France’s social contributions on pay, the CSG and CRDS, fall under the same 2019 understanding as those on interest. Article 18(1) of the treaty decides who taxes both pensions, and it binds the US even for its citizens. The payout comes from a traditional account with no after-tax basis, taken after age 59½, so it is taxed in full. ## For most Americans on a French salary, the credit works better than the exclusion. On French pay, the foreign tax credit usually beats the foreign earned income exclusion. French income tax tends to top the US tax on that pay. Either one can leave no US tax on a French salary. They differ on what happens to the French tax left over, and on pay the exclusion cannot cover. The figures are for 2026. | | The credit | The exclusion | | --- | --- | --- | | French tax above the US tax | Carried to other years (1 year back, then 10 forward) | Lost on excluded pay | | Pay above $132,900 | Credited like the rest | Taxed at the rates it would face without the exclusion (Credit only for its share of French tax) | | Your first year in France | No test to pass | Prorated by day ($364.11 a day in 2026, once you pass the bona fide residence or physical presence test) | | Housing in Paris | No extra relief | Up to $52,336 more excluded (A $73,600 cap, less a $21,264 base) | | Changing your mind | Chosen each year | Revoking bars it for 5 years (Unless the IRS consents) | France’s family quotient splits household income into shares by family size, so marriage and children change your French band. A lower band means less French tax to credit, so run your figures both ways before you elect the exclusion. ## Where Americans in France go wrong on the US return. ### Expecting Germany’s rule on Social Security (https://valim.tax/expat-tax/americans-in-germany) The US taxes US Social Security paid to an American in France, as it would at home, and France does not. The German and UK treaties work the other way, giving that benefit to the country you live in. ### Buying French funds (https://valim.tax/glossary/passive-foreign-investment-company-pfic) US tax law treats most French mutual funds and ETFs as passive foreign investment companies (PFICs). PFIC shares carry their own US tax rules, and usually a Form 8621 for each fund. ### Forgetting that an assurance-vie is a foreign account (https://valim.tax/expat-tax/fbar) An assurance-vie is a French life insurance policy, and one with a cash value goes on your FBAR. No treaty article defers US tax on it, or on a PER retirement plan. The funds inside either may be PFICs. ### Expecting a credit for the IFI The US credit covers only income taxes, so it gives nothing for France’s IFI, a wealth tax on real estate. The IFI taxes net real estate above €800,000 once its value tops €1.3 million on January 1. Financial assets fall outside it. ### Relying on the exclusion for self-employment tax (https://valim.tax/expat-tax/foreign-earned-income-exclusion) Neither the foreign earned income exclusion nor the foreign tax credit lowers US self-employment tax. A totalization agreement can, and the US-France agreement has been in force since July 1, 1988. It generally has you pay into one country’s social security system. To stop US self-employment tax, you need a French certificate of coverage. Moving your business to France for two years or less keeps you in the US system. ## We prepare the US return that sits beside your French one. We apply the US-France treaty to your US return. We do not prepare French returns or give French tax advice. - We credit your French income tax on Form 1116, coordinating with whoever files your French return. - We file your FBAR with every French account on it, and Form 8938 when your assets reach its threshold. Your quote charges per account and per fund. - We test the exclusion and its Paris housing cap against the credit before you commit to one. - We figure estimated payments for your US pension income. - We answer any IRS or state letter about a return we prepared, such as one on your credit for French tax, at no added fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Five questions about US and French tax for Americans in France. ### Do US citizens pay taxes in France? Yes, US citizens who live in France pay French income tax as residents, on a scale from 0% to 45%. High incomes also pay a surcharge. The US still taxes them as citizens, so they usually file a return in each country. On the US return, the foreign tax credit subtracts French income tax from the US tax on French income. The US-France treaty also leaves US Social Security and US pension payouts to the US alone. ### Do Americans living in Europe pay US taxes? Yes, the US taxes Americans living in Europe on their worldwide income, since its tax follows citizenship and green cards. Americans in Europe must file a US return once gross income reaches the filing threshold, $15,750 for 2025 if single and under 65. In high-tax countries such as France, the foreign tax credit usually leaves little US tax on pay. Treaties differ on Social Security: France leaves it to the US alone, while in Spain both countries may tax it. ### What are the tax advantages for American retirees living in France? The main advantage is that France does not tax US Social Security or US pension payouts. Under Article 18(1) of the US-France treaty, only the US may tax them, including 401(k) and IRA payouts. France may still count that income when setting the rate on your other French income. A French social security pension is the reverse, since only France taxes it, even for a US citizen. An American retiring to Japan gets no such advantage on US Social Security, because Japan and the US can each tax it. ### Does the US have a tax treaty with France? Yes, the US-France income tax treaty was signed on August 31, 1994, and has generally applied since January 1, 1996. Protocols signed in 2004 and 2009 amended it. Article 29(2), its saving clause, lets the US go on taxing its citizens under US law. The clause makes exceptions, so the US still applies Article 18(1) on pensions and Article 24 on credits to its citizens. A separate totalization agreement has coordinated social security since July 1, 1988. ### Are taxes higher in France than in the US? French income tax rates run higher than US rates at most professional incomes. On 2025 income, France charges 30% from €29,580 and 41% from €84,578 of net taxable income per share. A single US filer pays 22% from $50,400 and 24% from $105,700 in 2026. France also charges social contributions on pay, on top of income tax. From 2026, France’s flat levy on dividends and interest is 31.4%. ## Sources - IRS, Totalization agreements (CSG and CRDS): https://www.irs.gov/individuals/international-taxpayers/totalization-agreements - US-France income tax convention (1994): https://www.irs.gov/pub/irs-trty/france.pdf - Protocol to the US-France convention (2004): https://home.treasury.gov/system/files/131/Treaty-France-Protocol-8-12-2004.pdf - Protocol to the US-France convention (2009): https://home.treasury.gov/system/files/131/Treaty-France-Pr2-1-13-2009.pdf - US-Japan income tax convention (2003): https://home.treasury.gov/system/files/131/Treaty-Japan-11-6-2003.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Notice 2026-25, Determination of housing cost amounts eligible for exclusion or deduction for 2026: https://www.irs.gov/pub/irs-drop/n-26-25.pdf - IRS, 2025 Form 1040 instructions (filing thresholds): https://www.irs.gov/instructions/i1040gi - Treas. Reg. § 1.6081-5, Extensions of time for filing returns of certain taxpayers: https://www.ecfr.gov/current/title-26/section-1.6081-5 - 26 U.S.C. § 901, Taxes of foreign countries: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - IRS, Instructions for Form 8621: https://www.irs.gov/instructions/i8621 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - FinCEN, FBAR line item filing instructions: https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - Treas. Reg. § 1.6038D-2, Requirement to report specified foreign financial assets: https://www.ecfr.gov/current/title-26/section-1.6038D-2 - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - Social Security Administration, US-France social security agreement: https://www.ssa.gov/international/Agreement_Pamphlets/france.html - Service-Public.fr, income tax scale for 2025 income (F1419): https://www.service-public.gouv.fr/particuliers/vosdroits/F1419 - Service-Public.fr, the 10% deduction for work costs (F1989): https://www.service-public.gouv.fr/particuliers/vosdroits/F1989 - impots.gouv.fr, taxation of securities income (flat levy): https://www.impots.gouv.fr/particulier/questions/jai-des-valeurs-mobilieres-comment-sont-elles-imposees - impots.gouv.fr, what changes in the 2026 income tax return: https://www.impots.gouv.fr/www2/fichiers/documentation/brochure/ir_2026/pdf_som/nouveautes.pdf - Service-Public.fr, real estate wealth tax (IFI) (F138): https://www.service-public.gouv.fr/particuliers/vosdroits/F138 - impots.gouv.fr, 2026 income tax return dates: https://www.impots.gouv.fr/les-modalites-de-la-declaration-de-revenus-en-2026 --- URL: https://valim.tax/expat-tax/americans-in-spain Title: American living in Spain taxes: Beckham regime, Social Security Updated: 2026-09-24 # As an American living in Spain, taxes on your salary usually go to Spain alone, though you still file a US return. Spain taxes its residents on worldwide income, at a state rate plus a regional one. From €60,000 to €300,000 of taxable income, the state rate is 22.5%. Where your region’s scale matches the state’s, the combined rate in that band is about 45%. The US keeps taxing you as a citizen, and Form 1116 lets you credit Spanish income tax against the US bill. Spanish rules for Americans, 2026: - 183: days in a calendar year, short trips abroad usually included, is the most Spain can count before you become resident. - 24%: is the Beckham regime’s flat rate on work income up to €600,000, for newcomers who elect it. - €50,000: of accounts outside Spain, at year end or as a last-quarter average, is the most an ordinary resident holds without filing Modelo 720. ## What decides your taxes as an American in Spain? ### 1. You are a US citizen or green card holder A Form 1040 is due once your gross income, counting pay you exclude, reaches the IRS filing threshold. From Spain, you have until June 15 to file. Interest on any tax still owed runs from April 15. ### 2. Spain treats you as a tax resident Spain decides residence by your days there and by where your work, investments and family are based. Residents generally file a Spanish return each year. For 2025 income, Spain’s window ran from April 8 to June 30, 2026, ending two weeks after the June 15 US deadline. ### 3. You moved to Spain to work You may elect the Beckham regime if you were not resident in Spain in the 5 tax years before your move. The move must come from a job, a company directorship, an entrepreneurial activity, or highly qualified startup or R&D work. An employee working remotely on Spain’s international telework visa, often called its digital nomad visa, qualifies too. You must tell Spain’s tax agency you elect within six months of the start date on your Spanish Social Security registration. ### 4. You keep accounts in both countries Once the highest balances of your foreign accounts total more than $10,000, each one belongs on an FBAR. The FBAR is due to FinCEN on April 15, with an automatic extension to October 15. Spain’s Modelo 720 lists your accounts outside Spain, US ones included, and is due between January 1 and March 31. ### 5. You work for yourself You can owe US self-employment tax even in a year when the credit leaves no US income tax. The exclusion does not reduce it, and the credit cannot offset it. Only the US-Spain totalization agreement, in effect since April 1, 1988, can remove it. Form 8938, a second US report of foreign assets, goes with your tax return. For a single filer living abroad, Form 8938 is due once foreign assets top $200,000 at year end or $300,000 at any point. A joint return doubles both thresholds. ## For a single filer on the Beckham regime, US tax remains only on salaries above about $335,000. A single American on the Beckham regime earns only a salary in 2026, for work done entirely in Spain, shown at four levels. - Salary of $200,000: $0. Spain collects $48,000 against $36,734 of US tax, so none of the US tax is left. The unused $11,266 of credit can be carried to other years. - Salary of $300,000: $0. Spain’s $72,000 still tops the US tax of $68,134. - Salary of $400,000: $7,134. US tax of $103,134 now tops Spain’s $96,000, and the credit covers only what Spain charged. - Salary of $500,000: $18,134. Each extra dollar costs 35% in US tax against Spain’s 24%, so the gap keeps growing. Each value is the US income tax left after the credit for Spanish tax. The US figures apply the 2026 single brackets and the $16,100 standard deduction, from Rev. Proc. 2025-32. Spain’s tax is a flat 24% of each salary, which holds for pay under €600,000. A flat rate takes the same share in any currency, so the dollar figures need no exchange rate. Claiming the exclusion instead would leave more US tax at $300,000 and above, so only the credit is shown. ## How does the Beckham regime change what Spain taxes? An American who elects the Beckham regime is taxed under Spain’s non-resident rules while still living there. The figures are those in force for 2026. | | Ordinary resident | Beckham regime | | --- | --- | --- | | Tax on a salary | State plus regional scales (The state’s top rate is 24.5%) | 24% flat (47% above €600,000) | | Income from abroad | Taxed in Spain | Generally untaxed (Your salary is still taxed) | | Dividends, interest and gains | 19% to 30% (On a separate savings scale) | Taxed only if from Spain | | Wealth tax | On worldwide assets (Above your region’s allowance) | On Spanish assets only | | How long it lasts | While you stay resident | 6 tax years (The year you move and the next 5) | Neither column changes how the US taxes you. Your US return reports worldwide income either way, and only the Spanish tax you can credit differs. ## What do Americans in Spain tend to miss? ### Funds and ETFs set up in Spain (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Most funds and ETFs organized in Spain count as passive foreign investment companies (PFICs) under US law. PFIC shares are taxed under their own US rules, and a Form 8621 may be due for each fund. ### A Spanish pension plan (https://valim.tax/glossary/saving-clause) The US may tax the growth inside your Spanish plan de pensiones before you draw it. Treaty Article 20(5) defers tax only on a pension fund in the other country, which for a Spanish resident means a US plan. The saving clause would let the US ignore that rule for a citizen anyway. Funds inside the plan may also be PFICs. ### Spain’s wealth tax Spain’s wealth tax applies above an allowance your region sets, or €700,000 where the region has set none. A return is due once tax is payable or your assets are worth more than €2,000,000. It is not an income tax, so none of it can be credited against US tax. ### US investments under the Beckham regime (https://valim.tax/expat-tax/foreign-tax-credit) Under the Beckham regime, the US taxes your US dividends and gains, but Spain generally does not. That leaves no Spanish tax to credit against the US bill. Spanish tax on your pay cannot cover it either. The credit only offsets US tax on foreign income, and US dividends are US income. ### Reading the Modelo 720 exemption as an FBAR exemption (https://valim.tax/expat-tax/fbar) Beckham regime taxpayers do not file Modelo 720. That exemption is Spanish, so the US still wants an FBAR for your accounts in Spain. A spouse or child who is resident in Spain may still have to file Modelo 720. ## We file your US return and credit the income tax you paid Spain. We prepare the US return only. Your gestor or asesor fiscal keeps filing your Spanish return, whether or not you are on the Beckham regime. - We claim the credit on Form 1116, using the Spanish tax your gestor or asesor fiscal reports on your Spanish return. - We file your FBAR for your Spanish accounts, and Form 8938 if your assets pass its threshold. Your quote prices each account and Spanish fund. - We compare the credit with the exclusion for your Spanish pay and use whichever leaves less US tax. - We work out estimated payments on dividends the Beckham regime leaves untaxed. - We answer IRS or state letters on returns we prepared, including queries on your Spanish tax credit, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## What Americans in Spain ask about paying tax in both countries. ### Do American expats pay taxes in Spain? Yes, an American who is resident in Spain pays Spanish income tax on worldwide income. You are usually resident for the whole calendar year once you spend more than 183 days of it in Spain. A newcomer on the Beckham regime pays Spanish tax on all pay, but generally not on other income from abroad. The US taxes you too, and a credit for Spanish tax often clears the US bill on your pay. The credit usually beats the foreign earned income exclusion, because Spanish tax on excluded pay cannot be credited. ### Will Spain tax my US social security? Spain may tax US Social Security paid to a Spanish resident, since nothing in the US-Spain treaty stops it. The treaty’s Article 20(1)(b) keeps the US right to tax benefits the US pays, without making that right exclusive. Where both countries tax the same benefits, Article 24 provides the relief. France is different, since its treaty leaves US Social Security to the US alone. ### How does Spain know if I’m a tax resident? Spain applies two tests from its income tax law, and meeting either one makes you resident. The first is spending more than 183 days in Spain in a calendar year. Short trips abroad still count as days in Spain, unless you prove you are tax resident in another country. The second is having your main business or economic interests in Spain. Spain also presumes you are resident if your spouse and dependent minor children live there. ### Do retired expats pay taxes in Spain? Yes, retired Americans who are resident in Spain pay Spanish income tax on worldwide income, including most pensions. A US government pension is the exception: under Article 21, only the US taxes it, unless you are also a Spanish national. The treaty’s Article 20(1)(a) gives Spain the sole right to tax a private pension from past employment. The saving clause still lets the US tax a citizen on it, with relief for the double tax under Article 24. Spain cannot tax the growth inside a US 401(k) or IRA until you draw it. US Social Security can be taxed by both countries. ### What is the tax rate in Spain for foreigners? Foreigners who are resident in Spain pay the same income tax rates as Spaniards. The state scale runs from 9.5% to 24.5%, and each region adds its own scale on top. Dividends, interest and gains are taxed on a separate scale, from 19% to 30%. A qualifying newcomer can elect the Beckham regime instead, which taxes pay at 24% up to €600,000. Portugal’s IFICI regime sets a 20% rate on qualifying work for some new residents. ### Does the US-Spain tax treaty stop double taxation? The US-Spain tax treaty relieves most double taxation through Article 24, but it does not stop the US from taxing you. Its saving clause, Article 1(3), lets the US tax its citizens as if the treaty did not exist. Article 24 is among the rules the saving clause leaves in force. The 1990 treaty was amended by a protocol in force since November 27, 2019. ## Sources - US-Spain income tax convention (1990): https://www.irs.gov/pub/irs-trty/spain.pdf - Protocol to the US-Spain convention (2013): https://home.treasury.gov/system/files/131/Treaty-Spain-Protocol-1-14-2013.pdf - Spain, Ley 35/2006 del Impuesto sobre la Renta de las Personas Físicas (personal income tax law): https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764 - Spain, Real Decreto 439/2007, Article 116 (electing the Beckham regime): https://www.boe.es/buscar/act.php?id=BOE-A-2007-6820 - Spain, Real Decreto 1065/2007, Article 42 bis (reporting of accounts abroad, Modelo 720): https://www.boe.es/buscar/act.php?id=BOE-A-2007-15984 - Agencia Tributaria, Modelo 720 questions: who must file: https://sede.agenciatributaria.gob.es/Sede/todas-gestiones/impuestos-tasas/declaraciones-informativas/modelo-720-decla_____sobre-bienes-derechos-extranjero_/preguntas-frecuentes/contribuyentes-obligados-declarar.html - Spain, Ley 19/1991 del Impuesto sobre el Patrimonio (wealth tax): https://www.boe.es/buscar/act.php?id=BOE-A-1991-14392 - Agencia Tributaria, 2025 income tax return dates (IRPF 2025 manual): https://sede.agenciatributaria.gob.es/Sede/ayuda/manuales-videos-folletos/manuales-practicos/irpf-2025/c01-campana-declaracion-renta/confirmacion-borrador-presentacion-declaraciones/plazo-forma-presentacion.html - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html --- URL: https://valim.tax/expat-tax/americans-in-portugal Title: US expat taxes Portugal: IFICI, NHR, pensions, Social Security Updated: 2026-09-24 # Paying less Portuguese tax under IFICI can raise your US expat taxes. Portugal’s 20% IFICI rate sits below US rates on high pay. Portugal’s ordinary rates reach 48% in 2026, above every US bracket. The foreign tax credit subtracts that Portuguese tax from your US bill, up to the US tax on the same income. IFICI, which replaced NHR for new residents, charges 20% on qualifying work and exempts most foreign income. Americans resident in Portugal, 2026: - 48%: is the top rate on Portugal’s income tax scale, for taxable income above €86,634. - 20%: is IFICI’s rate on pay from qualifying work, for 10 years from the year you register as resident. - 2024: is the year NHR stopped taking new residents, apart from transition cases. Portugal’s rates are for 2026. Its 2027 budget, due in October, may change them. ## Which rules apply to an American who lives in Portugal? ### 1. The US taxes you as a citizen or green card holder You owe a US return for each year your gross income reaches the filing threshold. Pay you exclude under the foreign earned income exclusion still counts toward it. If your tax home and the place you live are both outside the US, your return is due June 15. Form 4868 extends it to October 15, but interest on unpaid tax still starts April 15. ### 2. Portugal counts you as a resident More than 183 days in Portugal in any 12-month period that starts or ends in the year makes you resident. Keeping a home there as your usual residence can also make you resident, even with fewer days. Residents are taxed on worldwide income and file a Portuguese return from April 1 to June 30. ### 3. You moved for work that qualifies for IFICI IFICI is for people not resident in Portugal in any of the previous 5 years. The work must be a listed activity, such as research and university teaching, R&D, or a job at a certified startup. Anyone who has had NHR is excluded, and the regime can be used only once. You must also register with the body that certifies your activity. A late registration counts only from the year you make it. ### 4. You registered for NHR in time The non-habitual resident regime still covers people registered when it closed, and those resident by December 31, 2023. People resident by December 31, 2024 also qualify if they hold listed proof, such as a work contract signed by December 31, 2023. In every case, NHR lasts only until 10 years after the person became resident. ### 5. Your foreign accounts, added up, pass $10,000 The FBAR is due for any year your foreign accounts, each at its peak, add up to more than $10,000. It lists every account, however small, and goes to FinCEN by April 15, or by October 15 under an automatic extension. ## On a $300,000 salary, IFICI leaves $8,134 of US tax, and ordinary Portuguese rates leave none. A single American living in Portugal all of 2026 earns a $300,000 salary there, with no other income. - US tax before any credit: $68,134. That is the tax on $283,900, the salary less the $16,100 standard deduction. - Ordinary Portuguese rates, with the credit: $0. Portuguese tax at ordinary rates far exceeds the US tax, so the credit wipes out the US tax. The unused Portuguese tax carries to other years. - IFICI, with the credit: $8,134. IFICI’s 20% comes to $60,000, which is credited against the $68,134. - IFICI, with the exclusion: $10,220. The $26,580 of Portuguese tax on the $132,900 excluded can never be credited. The rest of the pay is taxed from the 24% bracket up. US figures use the 2026 brackets and standard deduction for a single filer. IFICI’s tax is taken as 20% of the full salary. Portugal taxes net pay, so its deductions would leave more US tax than shown. The exclusion row assumes a full year that passes the exclusion’s tests. In that row, the remaining $151,000 of taxable pay is taxed at the rates it would face on top of the excluded pay. That comes to $43,640 of US tax before the credit. The $33,420 of Portuguese tax on the pay not excluded is then credited. At this salary under IFICI, the credit beats the exclusion, leaving $8,134 of US tax against $10,220. For this single filer under IFICI, the credit covers the whole US tax on any salary below about $239,000. ## IFICI cuts Portugal’s taxes for US expats on qualifying pay and most foreign income, but not on a US pension. | | Ordinary rules, 2026 | IFICI, 2026 | | --- | --- | --- | | Who it covers | Every resident | New residents in listed work (Not resident in the prior 5 years) | | Tax on Portuguese pay | 12.5% to 48% (Plus 2.5% above €80,000, and 5% above €250,000) | 20% flat (On pay from the listed work) | | Foreign dividends, interest and gains | 28% flat (Progressive if you opt in, or on short-term gains in the top bracket) | Exempt (But counted to set your rate on other income) | | A private US pension | Progressive rates | Progressive rates (IFICI does not exempt pensions) | | Your US return | Usually no US tax on pay (The credit covers it) | US tax can remain (Compare the credit and the exclusion) | IFICI also exempts pay that Portugal treats as earned abroad. If that work was done outside the US, the exclusion may suit it better. ## Five places where Portuguese and US rules pull apart. ### Expecting a credit for income IFICI exempts (https://valim.tax/expat-tax/foreign-tax-credit) IFICI exempts most income you earn outside Portugal, such as foreign dividends, interest and rent. The US still taxes that income, and no Portuguese tax is there to credit against it. The foreign earned income exclusion never covers investment income. ### Portuguese funds, and savings in a PPR (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Most funds and ETFs based outside the US are passive foreign investment companies (PFICs), with their own US tax rules and forms. A PPR is Portugal’s retirement savings plan. No treaty article shelters its growth from US tax. The funds inside a PPR may be PFICs too. ### Self-employment tax on freelance work A freelancer in Portugal can owe US self-employment tax even when no US income tax is due. The exclusion and the credit both leave it untouched. Under the US-Portugal totalization agreement, in force since August 1, 1989, a self-employed resident of Portugal is covered only by Portuguese social security. A Portuguese certificate of coverage, attached to your US return, proves the exemption. ### Filing in Portugal before your US tax is final Under the ordinary rules, Portugal credits US tax on some income, such as US dividends, so its return needs your US figures. If that credit is still unsettled on June 30, you can file the Portuguese return by December 31 instead. To get the later date, you must notify Portugal’s tax authority by June 30. ### Electing the exclusion for your IFICI years (https://valim.tax/expat-tax/foreign-earned-income-exclusion) An exclusion you elect stays in force each later year until you revoke it. After a revocation, you cannot elect it again for 5 years without IRS consent. When IFICI ends, Portugal’s ordinary rates usually make the foreign tax credit the better choice. Plan that move from the exclusion back to the credit before you first elect the exclusion. ## We prepare your US return under IFICI, NHR or Portugal’s ordinary rates. We file only your US return, and we work with the accountant who prepares your Portuguese one. - We credit the Portuguese tax on your pay and investments on Form 1116, using the figures from your Portuguese return. - We compare your US tax under the credit and the exclusion before you elect, then each year until IFICI ends. - We report your Portuguese bank and brokerage accounts on the FBAR, and on Form 8938 once they are large enough to need it. Your instant quote shows the price for each account and foreign fund. - We plan US estimated payments for income that IFICI leaves untaxed in Portugal. - If the IRS or a state questions a return we prepared, such as the credit in an IFICI year, our reply is in your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## The questions Americans in Portugal ask, from IFICI to Social Security. ### Do US expats pay taxes in Portugal? Yes, once Portugal treats you as resident, it taxes your worldwide income. Residence usually follows more than 183 days there in any 12-month period, or keeping a home there as your usual residence. The 2026 rates run from 12.5% to 48%, or 20% on qualifying work under IFICI. The US still taxes you as a citizen, and the foreign tax credit lets Portuguese tax on the same income offset it. ### Is Portugal still tax free for expats? No, the non-habitual resident (NHR) regime has been closed to newcomers since 2024, except for people already registered and a few transition cases. Its successor, IFICI, taxes qualifying work at a flat 20% and leaves most foreign income untaxed in Portugal, though pensions stay taxable. The US taxes an American’s worldwide income under either regime. Spain’s Beckham regime is a similar special rate for new residents, and the US taxes Americans under it the same way. ### Will Portugal tax my US pension? Yes, Portugal taxes a private US pension at its progressive rates once you are resident there. Article 20(1)(a) of the US-Portugal treaty gives pensions for past work to the country you live in. The US taxes the pension too, because the treaty’s saving clause keeps its right to tax citizens. Article 25 then lets the US credit the Portuguese tax by treating the pension as Portuguese income, as far as needed. IFICI changes none of this, because pensions fall outside its exemption. A pension for US government service falls under Article 21 instead. That article can leave it taxable only in the US, depending on your nationality and status in Portugal. ### Does Portugal tax US Social Security benefits? Portugal may tax US Social Security benefits paid to its residents, because the treaty does not make the US right exclusive. Article 20(1)(b) of the US-Portugal treaty keeps the US right to tax the benefits it pays, even to a resident of Portugal. Both countries can then tax the same payments, and Article 25 relieves the double tax. IRS Publication 915 leaves Portugal off its list of countries where US citizens’ benefits are exempt from US tax. For Americans in Germany, by contrast, only Germany taxes US Social Security. ### What is Portugal’s tax rate for expats? Expats who are resident pay Portugal’s standard scale for 2026, from 12.5% up to 48% above €86,634 of taxable income. Above €80,000 of taxable income, a solidarity surcharge adds 2.5%, rising to 5% above €250,000. Under IFICI, qualifying work is taxed at a flat 20% instead. Securities gains and most investment income face a flat 28%. Residential rent is taxed at 25% or less. You can opt to have either taxed at your progressive rates. Gains on securities held under a year must be taxed at progressive rates once your taxable income, counting them, reaches the 48% bracket. ## Sources - US-Portugal income tax convention and protocol (1994): https://www.irs.gov/pub/irs-trty/portugal.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - Social Security Administration, US-Portugal totalization agreement: https://www.ssa.gov/international/Agreement_Pamphlets/portugal.html - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Report of Foreign Bank and Financial Accounts (FBAR): https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - IRS, Instructions for Form 1116: https://www.irs.gov/instructions/i1116 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - Portugal, Lei n.º 82/2023 (2024 State Budget, art. 236 on NHR): https://diariodarepublica.pt/dr/detalhe/lei/82-2023-835864042 - Portugal, Estatuto dos Benefícios Fiscais, art. 58-A (IFICI): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/bf_rep/Pages/ebf58a.aspx - Portugal, Código do IRS, art. 16 (residence): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs16.aspx - Portugal, Código do IRS, art. 60 (return deadline): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs60.aspx - Portugal, Código do IRS, art. 68 (income tax rates): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs68.aspx - Portugal, Código do IRS, art. 68-A (solidarity surcharge): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs68a.aspx - Portugal, Código do IRS, art. 72 (special rates): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs72.aspx - Portugal, Código do IRS, art. 81 (relief from international double taxation): https://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/codigos_tributarios/cirs_rep/Pages/irs81.aspx --- URL: https://valim.tax/expat-tax/americans-in-australia Title: US expat taxes: Australia’s super, the treaty and the credit Updated: 2026-09-24 # On a salary, you rarely owe US expat taxes: Australia taxes that pay first, at higher rates than the US. Australia taxes 2025-26 income from A$45,001 to A$135,000 at 30%. In dollars, most of that range falls in the US 22% or 24% brackets. You claim that Australian tax as a credit against your US tax on Form 1116. Super (superannuation, Australia’s workplace retirement savings) is less settled, since no article of the treaty defers US tax on it. Australia’s 2025-26 income year: - 45%: is the top Australian rate, charged on taxable income above A$190,000, where the US tops out at 37%. - 12%: is the Superannuation Guarantee rate employers pay into your super from July 1, 2025. - July 1: starts each Australian income year, so it never lines up with your US calendar year. Tax rates are for Australian residents, before the Medicare levy. ## Beyond your salary, three things shape your US return from Australia. ### 1. Your employer pays into super The IRS has not issued guidance on how a super fund is classified for US tax. Your CPA has to choose a reporting position, and some positions bring US tax on contributions or growth. ### 2. You are self-employed Since October 1, 2002, the US-Australia totalization agreement has exempted self-employed US citizens living in Australia from US self-employment tax. A totalization agreement decides which country’s social security system covers you. Without it, US self-employment tax would apply to your net self-employment earnings, even when the exclusion or the credit clears your income tax. Ask the SSA for a letter of exemption, then attach a copy to your US return every year. ### 3. You draw Social Security or an Age Pension Only the US can tax the US Social Security you receive in Australia. Article 18(2) of the treaty gives that right to the paying country. Article 1(4) keeps it outside the saving clause, which otherwise lets the US tax its citizens as if the treaty did not exist. It works both ways: only Australia taxes the Age Pension, its government pension, when paid to a US citizen, wherever the citizen lives. ## On a 160,000 salary, Australian tax takes a larger share than US tax, even before the Medicare levy. Each country’s rates are applied to 160,000 of taxable income for one person: Australia’s for 2025-26, and the US rates for 2026. - Australian income tax: A$40,538. It averages 25.3% of taxable income. - Medicare levy: A$3,200. Australia charges 2% of taxable income on top of income tax. - US income tax: $30,998. It averages 19.4% of taxable income. - US tax still due: $0. The credit for Australian income tax is larger than the US tax it offsets. Australian income tax uses the ATO’s 2025-26 resident rates: A$31,288 on the first A$135,000, and 37 cents for each dollar above it. The US figure applies the four 2026 brackets a single filer reaches, from 10% up to 24% on each dollar above $105,700. Neither amount is converted, so each is a share of 160,000 in its own currency. The last row compares income tax alone, leaving the levy out. ## What does Australia tax on a temporary visa? You are usually a temporary resident if you hold a temporary visa and your spouse, if any, is not an Australian citizen or permanent resident. Many Americans on work visas are temporary residents. | | Temporary resident | Other residents | | --- | --- | --- | | Pay for work in Australia | Taxed | Taxed | | Pay for work done overseas | In certain cases, if earned while a temporary resident | Taxed | | US interest and dividends | Not declared | Taxed | | Gains on US shares | Not declared | Taxed | The US taxes both groups on worldwide income. So income you do not declare in Australia pays its full US tax, with no Australian tax to credit against it. ## Five mistakes to avoid on a US return from Australia. ### Leaving super off Form 8938 Form 8938 counts foreign pensions, super included. A single filer living abroad files Form 8938 once foreign assets pass $200,000 at year end or $300,000 at their peak. Those thresholds apply only if you meet the bona fide residence or physical presence test. ### Treating super as exempt from the FBAR (https://valim.tax/expat-tax/fbar) The FBAR’s exception for retirement plans covers only US plans, such as IRAs and 401(k)s. Whether a super account is itself an FBAR account is unsettled, so decide it with your CPA. ### Ignoring the foreign trust question Some advisers treat the part of your super built from your own contributions as a foreign grantor trust, which you are treated as owning. That view brings Forms 3520 and 3520-A. Rev. Proc. 2020-17 exempts certain tax-favored foreign retirement trusts from those forms, but the IRS has not said whether super qualifies. ### Buying Australian managed funds (https://valim.tax/glossary/passive-foreign-investment-company-pfic) In US eyes, most Australian managed funds and ETFs are passive foreign investment companies (PFICs), because nearly all their income and assets are passive. Funds held inside super may be PFICs as well. Each such fund is taxed under the PFIC rules rather than as ordinary shares, and is generally reported on Form 8621. ### Crediting the wrong Australian year (https://valim.tax/expat-tax/foreign-tax-credit) On the cash method, Form 1116 credits Australian tax in the US year you pay it. If you elect the accrual method, each Australian year’s tax generally counts in the calendar year in which that Australian year ends. Pick one method and keep to it, because the accrual choice binds later years. Either way, Form 1116 needs your Australian figures. You can lodge your own return until October 31, and a registered tax agent engaged by then can lodge later. ## Who handles your US return while you live in Australia? We provide US expat tax services to Americans in Australia, working beside the Australian tax agent who lodges your Australian return. - We credit your Australian tax on Form 1116 in the US year it belongs to, on the paid or accrued method we agree with you. - We report your super on the same basis every year, and list it with each Australian account on your FBAR and any Form 8938. The instant quote counts every account and fund before we start. - We model the exclusion and the credit on your Australian pay, and you elect the exclusion only if it costs less. - We size your US estimated payments for US income Australia does not tax. - At no extra charge, we answer IRS or state notices on returns we prepared, including questions about your super. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## The US expat tax questions Americans in Australia ask most. ### Are American expats double taxed? Generally not on the same income, though an American living in Australia usually files both an Australian and a US return. Form 1116 lets you offset the US tax on Australian income with the Australian tax paid on it. Article 22 of the treaty, which relieves double taxation, applies to US citizens despite the treaty’s saving clause. US Social Security is taxed by the US alone, whereas Americans in Japan can be taxed on it by both countries. ### Does Australia have a double tax agreement with the US? Yes, the two countries signed an income tax convention at Sydney on August 6, 1982, in force since October 31, 1983. A protocol signed on September 27, 2001 amended it. Under Article 1(3), its saving clause, the US may tax citizens in Australia as though the treaty had never taken effect. Article 1(4) carves out the articles that still help citizens, among them Article 18(2) on Social Security and Article 22 on double taxation. Social security coverage is set by a separate totalization agreement, effective October 1, 2002. ### How much is $100,000 a year taxed in Australia? An Australian resident with A$100,000 of taxable income owes A$20,788 of income tax for 2025-26, or A$22,788 with the 2% Medicare levy. For 2026-27 the income tax falls to A$20,520, as the 16% rate drops to 15%. Offsets and the Medicare levy surcharge can change what you actually pay. An American can credit that income tax on Form 1116, where it usually exceeds the US tax due on the same salary. A Singapore resident pays about 5.65% on S$100,000 of chargeable income, so the credit rarely covers the US tax there. ### Should I exclude my Australian salary instead of crediting its tax? Usually not, since the credit for Australian tax already wipes out the US tax on a typical salary. Any Australian tax the credit cannot use this year carries to other years. With the foreign earned income exclusion, the Australian tax on excluded pay is lost for good. The choice is also sticky, since a revoked exclusion generally cannot be chosen again for 5 years. It tends to work better in low-tax countries such as Singapore. ### What is the 10 year tax rule in Australia? The 10 year rule usually means Australia’s tax treatment of investment bonds, a kind of life insurance investment. It is a narrow rule for those products. The US does not follow it, so the bond gets no special treatment on your US return. If the bond has a cash value, the FBAR treats it as a foreign account. Americans in the UK meet the same gap with ISAs, whose UK tax break does not reach their US return. ## Sources - US-Australia income tax convention (1982): https://www.irs.gov/pub/irs-trty/aus.pdf - Protocol to the US-Australia convention (2001): https://home.treasury.gov/system/files/131/Treaty-Australia-Protocol-9-27-2001.pdf - Australian Taxation Office, tax rates for Australian residents: https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents - Australian Taxation Office, foreign and temporary residents: https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency/foreign-and-temporary-residents - Australian Taxation Office, super guarantee rates: https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee - Australian Taxation Office, preparing your tax return: https://www.ato.gov.au/individuals-and-families/your-tax-return/before-you-prepare-your-tax-return/preparing-your-tax-return - Social Security Administration, Totalization Agreement with Australia: https://www.ssa.gov/international/Agreement_Pamphlets/australia.html - US Treasury, Technical Explanation of the US-Australia convention: https://www.irs.gov/pub/irs-trty/austtech.pdf - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Publication 514, Foreign Tax Credit for Individuals: https://www.irs.gov/publications/p514 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Rev. Proc. 2020-17 (exemption for tax-favored foreign trusts): https://www.irs.gov/pub/irs-drop/rp-20-17.pdf - IRAS, Individual income tax rates (tax residency and rates): https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates --- URL: https://valim.tax/expat-tax/americans-in-japan Title: American living in Japan taxes: credit, NISA and Social Security Updated: 2026-09-24 # Little or no US tax usually falls on the salary of an American living in Japan: taxes there run higher and offset it. Japan taxes you as a resident, and the IRS taxes you as a US citizen or green card holder. For most professionals, Japan’s taxes take 30% to 44% of each extra yen of taxable income. That combines the national tax, a 2.1% reconstruction surtax on it and the 10% inhabitant tax. The US rate on similar pay is usually 22% or 24%. A credit on Form 1116 then lets the Japanese tax cover the US tax on that pay. For 2026 income in Japan: - 55.95%: is Japan’s top rate on income, national and local tax combined, from ¥40,000,000 of taxable income. - ¥18M: is the most a NISA can hold at cost. Japan does not tax gains or dividends inside it, but the US does. - 5 years: is how long a newcomer without Japanese nationality can keep most foreign income out of Japanese tax, by holding it abroad. For income from 2027, the reconstruction surtax falls to 1.1% and a new 1% defense special income tax is added. ## What in your life in Japan changes your US return? ### 1. Your salary is taxed in Japan The credit covers Japan’s income taxes only, so the consumption tax you pay on purchases earns none. Japanese tax the credit cannot use this year carries back one year, then forward for up to 10 years. ### 2. You have lived in Japan 5 years or less In your first years in Japan, the US taxes foreign income that Japan leaves alone, with no Japanese tax to credit. A resident without Japanese nationality who has lived in Japan 5 years or less of the past 10 is a non-permanent resident. Japan taxes most of that person’s foreign-source income only if it is paid in Japan or sent there. Japan still taxes gains on foreign securities bought during those years. Pay for work done in Japan counts as Japanese income, wherever it is paid. ### 3. You are self-employed The foreign earned income exclusion and the foreign tax credit can erase your US income tax, but neither reduces self-employment tax. The US-Japan totalization agreement, in force since October 1, 2005, decides which country’s social security tax you pay. If you are self-employed only in Japan, you generally pay into Japan’s system. A Japanese certificate of coverage then exempts you from US self-employment tax. If you move a US business to Japan for 5 years or fewer, you stay in US Social Security. ### 4. A US employer sent you to Japan The same agreement generally keeps you in US Social Security alone if your assignment is expected to last 5 years or less. If you and every family member with you are certified as privately insured, you can also skip Japan’s health insurance contributions. You then cannot use Japan’s public health insurance. A longer assignment generally puts you in Japan’s system instead. ### 5. You hold accounts in Japan An FBAR (FinCEN Form 114, the US report of foreign accounts) is due once your foreign accounts’ highest values total over $10,000. It lists each one, including the account that holds your NISA. Form 8938 has higher thresholds if you meet the IRS tests for living abroad. A single filer then files with over $200,000 of foreign financial assets at year end, or over $300,000 at any time. ## An extra ¥1,000,000 of taxable income costs ¥304,200 to ¥436,930 in Japan, against ¥240,000 at the US 24% rate. Japan taxes foreign residents at the same rates as its own citizens. A Tokyo resident’s taxable income for 2026 rises by ¥1,000,000. - 20% band: ¥304,200. Japan’s 20% band covers taxable income from ¥3,300,000 to ¥6,949,000. - 23% band: ¥334,830. The 23% band runs from ¥6,950,000 to ¥8,999,000. - 33% band: ¥436,930. The 33% band runs from ¥9,000,000 to ¥17,999,000. - US 24% rate: ¥240,000. One bracket lower, the US 22% rate would take ¥220,000 of the same income. Each Japanese row sums the national rate, the 2.1% reconstruction surtax on that tax and the 10% inhabitant tax. In the 23% band, that makes ¥230,000, ¥4,830 and ¥100,000. In Tokyo, the 10% inhabitant tax splits into 4% metropolitan tax and 6% ward tax. The US row applies the 24% bracket, which covers $105,700 to $201,775 of a single filer’s 2026 taxable income. Each row is a share of the same ¥1,000,000, so no exchange rate is used. ## How does Japan’s return compare with your US return? The dates are for 2026 income, filed in 2027. | | Japan | United States | | --- | --- | --- | | Filing window | February 16 to March 15 | June 15, if you live abroad (Form 4868 moves it to October 15) | | Tax due | March 15 | June 15 (With interest from April 15) | | No return needed | Usually, one employer and pay up to ¥20,000,000 (Tax withheld on it all, other income ¥200,000 or less) | Gross income under the threshold (Excluded pay counts; $400 or more of self-employment profit requires one) | | Gains on shares | 20.315% (15.315% national and 5% inhabitant tax) | 0%, 15% or 20% (Long-term rates, plus 3.8% above $200,000 of income (single)) | Tax withheld from the salary of an employee who files no Japanese return still counts toward the US credit. ## What catches out a US return filed from Japan? ### Japanese funds, in a NISA or not (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Japanese investment trusts and ETFs generally meet the US test for a passive foreign investment company (PFIC), even inside a NISA. When you sell one, part of the gain can be taxed at the top US rate, plus interest. Each fund usually needs its own Form 8621. ### Excluding pay you could credit (https://valim.tax/expat-tax/foreign-earned-income-exclusion) At Japan’s rates, the credit usually beats the exclusion. It can clear the US tax on your pay and carry the excess Japanese tax to later years. Japanese tax on pay you exclude on Form 2555 cannot be credited or carried to another year while the exclusion stands. If you revoke the exclusion, you cannot claim it again for 5 tax years unless the IRS consents. ### The inhabitant tax runs a year behind (https://valim.tax/expat-tax/foreign-tax-credit) Japan bills the 10% inhabitant tax on last year’s income to people living there on January 1. A newcomer owes little of it in the first year, which can leave less Japanese tax to credit. Leaving does not end it, since a bill based on the year before you left can still come due. ### Leaving with large holdings Japan’s exit tax falls on a departing resident’s unrealized gains once securities and similar assets reach ¥100,000,000. It generally applies after more than 5 of the last 10 years in Japan. Years on a work visa do not count toward those 5, but years as a permanent resident or a Japanese citizen’s spouse do. With a tax agent in Japan and security (collateral), you can put off payment for 5 years, or 10 if extended. Moving back to Japan within that time can cancel the tax. ### Expecting the treaty to cut your US tax (https://valim.tax/glossary/saving-clause) Article 1(4) of the 2003 US-Japan treaty, its saving clause, keeps the treaty from changing how the US taxes its citizens. The treaty leaves interest and most share gains to your country of residence, but that rule does not cut your US tax. The saving clause does let some articles apply to citizens, including Article 23 on double tax relief. A 2013 protocol, in force since August 30, 2019, rewrote that list. ## A Valim CPA handles the US side of your taxes in Japan. Valim’s CPAs prepare the US return for Americans in Japan. Your Japanese return and any Japanese tax advice stay with your accountant there. - We credit the Japanese tax on your pay on Form 1116, and track the unused part for later years. We work with your accountant in Japan on the figures. - We report your NISA income and list your Japanese accounts on the FBAR, and on Form 8938 if you pass its threshold. Your instant quote counts each account and each Japanese fund you hold. - We check whether the credit or the exclusion leaves less US tax, starting with your first year in Japan. - Your fee covers answering IRS or state notices about a return we prepared. - We set US estimated payments for the tax on your NISA gains. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## US tax questions about living in Japan. ### Do I have to pay US taxes if I live in Japan? You usually file a US return but owe little or no US tax. US citizens and green card holders in Japan must file once their gross income reaches the filing threshold. That threshold counts pay you plan to exclude, so excluded pay can still require a return. Japanese tax on a salary usually tops the US tax on it, so the foreign tax credit often leaves nothing to pay. Any US tax left is usually on income Japan does not tax, such as NISA gains. ### Who taxes US Social Security if you live in Japan? Both countries can tax US Social Security paid to a US citizen living in Japan. Article 17(1) of the US-Japan treaty lets only your country of residence tax pensions and social security. The saving clause keeps the US taxing its citizens anyway, since Article 17(1) is not among its exceptions. Article 23(3) sets the order in which the two countries credit each other’s tax. For Americans in Australia, by contrast, the US-Australia treaty lets only the US tax US Social Security. ### Is a NISA tax-free for Americans? No, a NISA is tax-free only in Japan. Since 2024, Japan has exempted NISA gains and dividends indefinitely, within limits measured at cost: ¥3,600,000 invested a year and ¥18,000,000 in total. No treaty article shelters a NISA from US tax, so its income is taxed like any other account’s. The US-Japan treaty also says nothing about iDeCo pension accounts, and the IRS has not addressed them. The US likewise taxes ISA income, which the UK exempts, so Americans in the UK face the same gap. ### Does the Japanese inhabitant tax count toward the US foreign tax credit? Yes, its 10% levy on income counts. US law credits income taxes paid to a foreign country’s political subdivisions, such as Japan’s prefectures and cities, as well as to the country itself. The US-Japan treaty covers only Japan’s national income tax, so this credit comes from US law, not the treaty. In Tokyo, the levy splits into 4% for the metropolitan government and 6% for your ward or city. ### What is the tax rate in Japan for foreigners? Foreign residents pay the same rates as Japanese citizens. National income tax runs from 5% to 45%, with a 2.1% reconstruction surtax on that tax, and the inhabitant tax adds 10% of income. From January 1, 2027, the surtax falls to 1.1% and a new 1% defense tax on income tax starts beside it. A newcomer without Japanese nationality can keep most foreign income held abroad out of Japanese tax for up to 5 years. ## Sources - US-Japan income tax convention (2003): https://home.treasury.gov/system/files/131/Treaty-Japan-11-6-2003.pdf - Protocol to the US-Japan convention (2013): https://home.treasury.gov/system/files/131/Treaty-Japan-Pr2-1-24-2013.pdf - Japan National Tax Agency, income tax rates (Tax Answer 2260): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2260.htm - Tokyo Metropolitan Government, Guide to Metropolitan Taxes 2025 (Suginami City copy): https://www.city.suginami.tokyo.jp/documents/546/guidebook2025e.pdf - Japan National Tax Agency, individuals who owe income tax (Tax Answer 2010): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2010.htm - Japan National Tax Agency, the final return (Tax Answer 2020): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2020.htm - Japan National Tax Agency, tax on selling shares (Tax Answer 1463): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1463.htm - Japan National Tax Agency, exit tax on departure (Tax Answer 1478): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1478.htm - Japan Financial Services Agency, the NISA from 2024: https://www.fsa.go.jp/policy/nisa2/know/index.html - Social Security Administration, Totalization Agreement with Japan: https://www.ssa.gov/international/Agreement_Pamphlets/japan.html - Social Security Administration, US international social security agreements in force: https://www.ssa.gov/international/status.html - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - Japan, Income Tax Act Enforcement Order, Articles 17 and 170 (e-Gov): https://laws.e-gov.go.jp/law/340CO0000000096 - Net investment income tax (IRC Section 1411): https://www.law.cornell.edu/uscode/text/26/1411 - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/expat-tax/americans-in-singapore Title: US expat taxes Singapore: low rates, CPF, SRS and the exclusion Updated: 2026-09-24 # The credit rarely wipes out your US expat taxes. Singapore’s rates are low, so the exclusion usually saves more. At Singapore’s resident rates, S$100,000 of chargeable income carries S$5,650 of tax, about 5.65%. The foreign tax credit can subtract only that Singapore tax. The foreign earned income exclusion instead removes up to $132,900 of 2026 pay from US income tax. A separate housing exclusion can shelter more of your pay. In Singapore for 2026: - 24%: is Singapore’s top resident income tax rate, and it starts only above S$1,000,000 of chargeable income. - $86,700: is the IRS’s 2026 full-year limit on housing costs in Singapore for the housing exclusion, against $39,870 in most places. - $0: is what Singapore generally charges on gains from shares. The US still taxes them. Singapore’s resident rates have applied since the Year of Assessment 2024. S$ amounts are Singapore dollars. ## Which of these apply to your year in Singapore? ### 1. US tax still reaches you in Singapore Citizens and green card holders stay in the US tax system wherever they live. You must still file once your income passes the filing threshold, even if the exclusion will cover all of it. If your home and main place of work are in Singapore on April 15, your return is due June 15. You attach a statement claiming that extension, and interest on any tax owed still starts April 15. ### 2. You count as a Singapore tax resident Living or working in Singapore for at least 183 days in a calendar year makes you resident for that year’s income. Residents pay progressive rates, and a non-resident’s salary is taxed at 15% or more. Either way, the Singapore tax you pay is what the US credit can use. ### 3. Your time abroad passes an exclusion test To claim the exclusion, your tax home must be abroad, and working mainly in Singapore puts it there. Citizens also need a full tax year of bona fide residence abroad, or 330 full days in foreign countries within any 12-month stretch. Most green card holders can use only the 330-day test. ### 4. Your balances abroad add up past $10,000 You must file an FBAR (FinCEN Form 114) when your foreign accounts’ highest balances in the year total more than $10,000. It generally lists every account, including the small ones. It is due April 15, with an automatic extension to October 15. A single filer abroad needs Form 8938 once foreign financial assets top $200,000 at year end or $300,000 at any time. It is an IRS form filed with the return, separate from the FBAR. Only filers who pass the exclusion’s residence or 330-day test get these higher thresholds. ## A $210,000 Singapore salary can end up with no US tax after the two exclusions and the credit. A single American earning $210,000 in Singapore in 2026 pays $80,000 in rent. They owe $28,000 of Singapore tax on that pay. - No exclusion or credit: $39,134. This is US tax on $193,900, the pay left after the standard deduction. - The credit alone: $11,134. Crediting the $28,000 owed to Singapore still leaves more than a quarter of the US tax. - The exclusion, then the credit: $4,360. Pay above the $132,900 limit, less the standard deduction, leaves $61,000 taxed at 24%. The credit can use only the $10,280 of Singapore tax on that pay. - Both exclusions, then the credit: $0. The rent gives a $58,736 housing exclusion, so only $2,264 stays taxable. The credit covers the $543 of US tax on it. The US side is figured for a single filer at 2026 rates, after a $16,100 standard deduction. The $28,000 of Singapore tax is an assumed round number. The last two rows assume you qualify for the exclusion for all of 2026. The credit rows assume you choose to claim the credit for accrued taxes, so Singapore tax on 2026 pay counts for 2026. Singapore assesses that tax in 2027. Under the stacking rule, pay that is not excluded is taxed as if the excluded pay sat below it in the brackets. The credit counts only the share of Singapore tax that falls on pay not excluded. The housing exclusion is the rent minus the 2026 base amount of $21,264, up to Singapore’s higher limit. Under the limit most places get, the same case would leave $2,375 of US tax. ## Which income does Singapore leave to the US alone? The exclusion covers only pay, so it cannot shelter this income. Singapore does not tax it, so the credit has no Singapore tax to subtract. | | Singapore | US | | --- | --- | --- | | Gains on shares and funds | Generally not taxed (Unless you are trading) | Taxed | | Dividends from Singapore companies | Not taxed (The company’s tax is final under the one-tier system) | Taxed | | Investment income from abroad | Generally not taxed (Pay for work done in Singapore is taxed, even from a US employer) | Taxed (Including US dividends and interest) | | A Supplementary Retirement Scheme (SRS) account | Relief on contributions (Half of each withdrawal taxed at retirement) | No deferral (With no treaty, its earnings may be taxed each year) | A US citizen with Singapore permanent residence pays the Additional Buyer’s Stamp Duty at citizens’ rates: 0% on a first home. It is a stamp duty, so the US gives no credit for it. ## Four ways Americans in Singapore still end up owing US tax. ### Buying a fund or ETF based in Singapore (https://valim.tax/glossary/passive-foreign-investment-company-pfic) A fund or ETF set up in Singapore usually counts as a passive foreign investment company (PFIC) for US tax. PFIC rules replace the usual capital gains treatment, and each fund may need its own Form 8621. ### A bonus paid long after the work Pay for your Singapore work cannot be excluded if it arrives after the end of the year that follows the work. A bonus earned in 2026 and paid in 2028 falls outside the exclusion. ### Freelancing, or a US employer’s payroll The exclusion does not cover self-employment tax, so a freelancer with $400 or more of net profit owes it on that profit. An American employer usually keeps withholding Social Security and Medicare too. No totalization agreement between the US and Singapore assigns you to a single social security system. ### Switching to the credit after you leave (https://valim.tax/expat-tax/foreign-earned-income-exclusion) The exclusion, once elected, carries into each new year by itself. Revoking it to use the credit after a later move means five tax years without it, unless the IRS agrees. ## Our CPAs handle your US tax preparation in Singapore. Valim’s CPAs prepare and file US tax returns for Americans living in Singapore, alongside any accountant who files their Singapore return. - We file Form 2555 to claim both exclusions for your Singapore pay and rent. We claim a credit on Form 1116 for Singapore tax on any pay that stays taxable. - We weigh the credit against the exclusion before you choose, and again before you leave Singapore. - We file your FBAR, and your Form 8938 when your assets pass the higher threshold for living abroad. Your instant quote adds a set price for each foreign account and foreign fund you list. - We calculate US estimated payments on gains and dividends that Singapore does not tax. - If the IRS or a state challenges your exclusion or housing amount on a return we prepared, our reply is in the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## How do Singapore’s rules change your US tax? ### How much income tax will I pay in Singapore if I earn $100,000? Singapore sets its rates in Singapore dollars. A resident with S$100,000 of chargeable income pays S$5,650 of income tax before any rebate, about 5.65%. Chargeable income is what remains after Singapore’s reliefs. Each extra dollar up to S$120,000 is taxed at 11.5%. A non-resident employee pays a flat 15% or the resident rates, whichever is more. An American also reports that pay on a US return, where the foreign earned income exclusion can shelter it. ### Does Singapore have a tax treaty with the USA? No, the US and Singapore have no income tax treaty, and neither the IRS nor IRAS lists one. Double tax relief therefore rests on US rules: the exclusion, the housing exclusion and the foreign tax credit. Even with a treaty, the US would keep its right to tax you as a citizen. Singapore has no totalization agreement with the US either. Americans in the UAE face both gaps too. ### What is the 183 days tax rule in Singapore? The 183-day rule makes you a Singapore tax resident once you stay or work there 183 days in a calendar year. Singapore taxes each calendar year’s income in the following Year of Assessment, so residence in 2026 applies to the Year of Assessment 2027. An employee whose continuous stay straddles two calendar years also qualifies once it totals 183 days. So does anyone who stays or works there for three consecutive years. The US exclusion uses its own tests instead, starting with your tax home. ### Does Singapore tax capital gains for foreigners? Singapore generally does not tax an individual’s capital gains from selling shares, financial instruments or property, whether or not the seller is a foreigner. Gains from trading, such as buying and selling property as a business, may be taxed. An American still reports these gains on the US return, where US rules tax them. The foreign tax credit cannot reduce that tax, because no Singapore tax was paid. ### Do Americans pay into CPF in Singapore? Americans pay into CPF, the Central Provident Fund, only once they become Singapore permanent residents. CPF covers only citizens and permanent residents, so Americans on work passes do not contribute. For an American who becomes a permanent resident, no treaty or IRS guidance says how the US taxes a CPF account. The IRS has not ruled on Australian superannuation either, so both need a CPA’s review. ### How much of my Singapore rent can I exclude from US tax? For 2026, you can exclude housing costs above a $21,264 base, up to Singapore’s cap of $86,700 for a full year. That makes $65,436 the most a full year can exclude, on top of the $132,900 earned income exclusion. Rent, utilities and insurance count as housing costs. A freelancer takes the same amount as a deduction instead. The foreign housing exclusion is its own election on Form 2555. ## Sources - IRAS, Individual income tax rates (tax residency and rates): https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates - IRAS, Gains from sale of property, shares and financial instruments: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/gains-from-sale-of-property-shares-and-financial-instruments - IRAS, Dividends: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/dividends - IRAS, Income received from overseas: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/income-received-from-overseas - IRAS, SRS contributions: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/srs-contributions - CPF Board, How much CPF contributions to pay: https://www.cpf.gov.sg/employer/employer-obligations/how-much-cpf-contributions-to-pay - IRAS, Additional Buyer’s Stamp Duty (ABSD): https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiring-property/additional-buyer%27s-stamp-duty-(absd) - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Notice 2026-25, Determination of housing cost amounts eligible for exclusion or deduction for 2026: https://www.irs.gov/pub/irs-drop/n-26-25.pdf - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - 26 C.F.R. § 1.6081-5, Extensions of time for certain taxpayers abroad: https://www.ecfr.gov/current/title-26/section-1.6081-5 - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Instructions for Form 1116: https://www.irs.gov/instructions/i1116 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Report of Foreign Bank and Financial Accounts (FBAR): https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar - IRAS, List of DTAs, limited DTAs and EOI arrangements: https://www.iras.gov.sg/taxes/international-tax/international-tax-agreements-concluded-by-singapore/list-of-dtas-limited-dtas-and-eoi-arrangements --- URL: https://valim.tax/expat-tax/americans-in-the-uae Title: US expat taxes Dubai: the exclusions, housing cap and no treaty Updated: 2026-09-24 # The UAE charges no income tax on salaries, so there is no credit to cut your US expat taxes. Dubai residents rely on two exclusions instead. US tax reaches citizens and green card holders on income earned anywhere, the UAE included. In Dubai, a salaried American who meets the exclusion tests for all of 2026 can exclude up to $168,810 of pay, housing included. Salary above that, and all investment income, is taxed at US rates. Working in Dubai, tax year 2026: - 0%: is the UAE’s income tax on salaries, dividends, interest and gains, and there is no individual return to file. - $132,900: is the 2026 foreign earned income exclusion, the most pay for work abroad you can exclude from US income tax. - $57,174: is Dubai’s cap on housing costs, and the part above a $21,264 base is excluded too. The US has no income tax treaty with the UAE, so no treaty article changes these rules. ## Which US rules follow you to the UAE? ### 1. Your US citizenship or green card keeps you filing You file a US return once your gross income meets the IRS threshold, and pay you exclude counts toward it. The exclusions can be claimed only on a filed return, so a zero tax bill does not excuse one. A freelancer with $400 of net self-employment earnings must file even with no other income. ### 2. Your tax home is in the UAE, and you pass one of two tests The exclusions need a foreign tax home, meaning your main place of work, plus a residence or presence test. Under the physical presence test, you spend at least 330 full days in foreign countries within 12 consecutive months. The bona fide residence test is open to citizens and some green card holders. You pass it by living in the UAE for a full tax year, and temporary trips away do not break it. ### 3. You work for an American employer, or for yourself US Social Security and Medicare tax can follow you to Dubai. The US and UAE have no totalization agreement, the kind of pact that decides which country’s system covers a worker. An American employer generally keeps you in both. If you work for yourself, self-employment tax applies to your net profit, including the part excluded from income tax. ### 4. Your UAE and other foreign accounts top $10,000 The FBAR, FinCEN Form 114, reports your foreign accounts to the US Treasury. You file it once the highest balances of all your foreign accounts in the year add up to more than $10,000. Every foreign account then goes on the report, UAE bank and broker accounts included. Larger holdings can also bring Form 8938, whose thresholds rise for people living abroad. The UAE can treat you as tax resident after 183 days in 12 months, mainly to issue its residence certificates. The IRS applies its own tests for the exclusions. ## Both exclusions still leave $18,192 of US tax on a $250,000 Dubai salary. A single American with no other income earns $250,000 in Dubai in 2026 and spends $60,000 on rent and utilities. - The credit alone: $51,304. This is the US tax on $233,900 of taxable income, after the $16,100 standard deduction. Form 1116 has nothing to credit, because the UAE took no tax from the salary. - The exclusion alone: $26,810. Form 2555 removes $132,900 of pay. The remaining $101,000 of taxable income starts in the 24% bracket and climbs into 32%. - The exclusion plus Dubai housing: $18,192. The housing exclusion takes off $35,910 more, which is $57,174 of capped costs less the $21,264 base. The $65,090 of taxable income left is taxed from the 24% bracket up. Each row is 2026 US income tax for a single filer, from the rates in Rev. Proc. 2025-32. The $60,000 of housing costs is capped at Dubai’s $57,174 under Notice 2026-25. Under the stacking rule, the income left over takes the brackets it would reach if the excluded pay still counted. The American is assumed to meet the exclusion’s tests for the whole year. ## In 2026 the UAE leaves salaries and investments untaxed, while the US taxes both. | | UAE | US | | --- | --- | --- | | A salary | Not taxed | 24% to 37% (On a single filer’s pay above the full exclusion) | | Dividends, interest and gains | Not taxed | Taxed (No exclusion applies) | | Freelance profit | 9% above AED 375,000 (Once turnover tops AED 1,000,000. For 2026, Small Business Relief can remove it on revenue up to AED 3,000,000.) | Excludable from income tax (Self-employment tax still applies) | | Spending | 5% VAT (Plus excise tax on some goods) | No credit for either (The credit covers income taxes only) | | Individual return | None (A Corporate Tax return if business turnover tops AED 1,000,000) | Form 1040 by June 15 (Interest still starts April 15) | Salary never counts as business income for UAE Corporate Tax. Income from your own investments or rental property counts only when it needs a UAE licence or is run as a commercial business. ## What can still cost you US tax when the UAE takes nothing from your pay? ### An end-of-service gratuity A gratuity paid in 2026 can generally be excluded only for work done in 2025 and 2026. A UAE private-sector job generally ends with this end-of-service payment, which is pay for past work. The exclusion reaches pay only if you receive it by the end of the year after the work. Even those parts fit only in the room left under each year’s cap. ### Using Dubai’s housing cap outside Dubai (https://valim.tax/glossary/foreign-housing-exclusion) Notice 2026-25 sets housing caps city by city, and the Dubai figure applies only in Dubai. Abu Dhabi has its own, lower cap, and a UAE city the notice leaves out gets the standard $39,870. ### UAE funds and ETFs (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Owning a mutual fund or ETF based in the UAE usually means owning a passive foreign investment company, or PFIC. Its income and gains then fall under separate US rules. Only a foreign fund can be a PFIC, so a fund organized in the US is never one. ### Moving on to a country with higher tax (https://valim.tax/expat-tax/foreign-tax-credit) After a move to a country with high income tax, the credit may leave less US tax than the exclusion. The IRS treats switching to it as revoking the exclusion election. You then cannot claim the exclusion again for 5 years without IRS consent. Without a switch, the election carries into later years. Each year’s return still claims it on Form 2555, or the IRS may treat the gap as a revocation too. ## We file the US return an American in Dubai still owes. Valim is a US CPA firm, so for Americans in Dubai we prepare the US return and FBAR, never a UAE filing. - We claim both exclusions on Form 2555, using your city’s housing cap. We file your FBAR and any Form 8938, and your quote counts each UAE account and foreign fund. - For freelancers, we figure US self-employment tax, and work alongside any UAE accountant who files your Corporate Tax return. - We plan the US tax on an end-of-service gratuity, or on a move to a higher-tax country. - We set the US estimated payments due on income above the exclusions. - We respond to IRS and state notices on returns we prepared, such as a challenge to your exclusion, as part of the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## Dubai’s zero income tax raises five US tax questions. ### Do US citizens living in Dubai pay taxes? Yes, US citizens in Dubai owe US tax on their worldwide income, though the UAE levies no income tax on them. Most employees cut the US tax with the foreign earned income exclusion and the housing exclusion. Anything above those limits is taxed at US rates, and so is investment income. They still file a return once gross income meets the filing threshold, even if the exclusions leave nothing to pay. ### Does the US have a tax treaty with Dubai? No, the US has no income tax treaty with the United Arab Emirates, and Dubai is one of its emirates. The two countries have no totalization agreement on Social Security either. For a citizen, the gap usually matters little, since a treaty’s saving clause lets the US keep taxing its citizens. Relief comes from US law alone: the two exclusions, plus the foreign tax credit for any tax paid to another country. ### Is Dubai a tax haven for foreigners? The UAE, Dubai included, charges foreigners no personal income tax, but Americans still owe US tax on worldwide income wherever they live. Low local tax works the same way in Singapore: most investment gains go untaxed there, but not on the US return. The UAE does charge 5% VAT, and a 9% corporate tax on business profit above AED 375,000. A freelancer or sole proprietor pays that tax only once business turnover tops AED 1,000,000 in a calendar year. A company they own is a separate taxpayer under the rules for companies. ### How much of a Dubai salary can I exclude from US tax in 2026? An employee who meets the exclusion tests for all of 2026 can exclude up to $168,810 of a Dubai salary. The 2026 foreign earned income exclusion is $132,900, and Dubai housing adds $35,910, the costs between the $21,264 base and Dubai’s $57,174 cap. A single filer’s $16,100 standard deduction then covers more, so a salary up to $184,910 can owe no US income tax. That holds only with no other income and at least $57,174 of qualifying housing costs. ### Does the UAE tax my US pension or Social Security? No, the UAE levies no income tax on individuals, so it taxes neither. The US taxes both under its usual rules, since no treaty between the two countries changes them. The foreign earned income exclusion never covers pensions or Social Security. With no UAE tax paid, no credit applies either. Americans in Mexico get the same result on Social Security by treaty, which leaves US benefits to the US alone. ## Sources - UAE Government portal, Taxation: https://u.ae/en/information-and-services/finance-and-investment/taxation - UAE Cabinet Decision No. 49 of 2023, Specifying the Categories of Businesses or Business Activities Conducted by a Resident or Non-Resident Natural Person that are Subject to Corporate Tax: https://tax.gov.ae/DataFolder/Files/Legislation/05-06-2023/3/Cabinet%20Decision%20No.%2049%20of%202023%20-%20for%20publishing.pdf - UAE Federal Tax Authority, Taxation of Natural Persons under the Corporate Tax Law (CTGTNP1, November 2023): https://tax.gov.ae/Datafolder/Files/Guides/CT/Taxation%20of%20natural%20persons%20-%2025%2011%202023.pdf - UAE Ministerial Decision No. 73 of 2023 on Small Business Relief: https://tax.gov.ae/Datafolder/Files/Legislation/Corporate%20Tax/Ministerial%20Decision%20No.%2073%20of%202023%20-%20For%20publishing.pdf - UAE Cabinet Decision No. 85 of 2022, Determination of Tax Residency: https://tax.gov.ae/Datafolder/Files/Legislation/Corporate%20Tax/Cabinet%20Decision%2085%20of%202022%20-%20For%20publishing.pdf - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Notice 2026-25, Determination of housing cost amounts eligible for exclusion or deduction for 2026: https://www.irs.gov/pub/irs-drop/n-26-25.pdf - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - FinCEN, BSA Electronic Filing Requirements for the FBAR (FinCEN Form 114): https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements --- URL: https://valim.tax/expat-tax/americans-in-mexico Title: US expat taxes: Mexico’s tariff, RESICO and Social Security Updated: 2026-09-24 # Pay and pensions taxed in Mexico can earn a credit against your US expat taxes. Mexico’s rates are high enough that the credit usually clears the tax on a salary. Mexico taxes each peso above MXN 668,840 of 2026 taxable income at 30% or more. A single US filer’s rate stays at 24% or less up to $201,775 of taxable income. With no US-Mexico totalization agreement in force, freelancers still owe US self-employment tax. Mexico and the US in 2026: - 35%: is the top rate in Mexico’s 2026 tariff, from MXN 5,107,703.93 of taxable income. - $0: is what Mexico may charge on your US Social Security, whatever your citizenship. - 2004: is when the US and Mexico signed a Social Security agreement, which has never taken effect. Mexico’s rates come from its 2026 annual tariff, published on December 28, 2025. ## Your US return from Mexico starts with how you are paid. ### 1. A Mexican employer pays your salary The Mexican tax your employer withholds can count toward the US credit, whether or not you file in Mexico. Mexico lets an employee skip its annual return when wages and interest total MXN 400,000 or less. Interest must stay at MXN 100,000 or less, with tax withheld on it. Leaving a job before December 31, or having two employers at once, means you must file in Mexico. ### 2. A US company pays you to work from Mexico Pay from an American employer generally stays subject to US Social Security and Medicare tax. No totalization agreement is in force to shift that coverage to Mexico’s system. ### 3. Clients pay you as a freelancer Net profit stays subject to US self-employment tax, even when the credit or the exclusion wipes out your income tax. A US return is due once net earnings from self-employment reach $400, whatever your other income. ### 4. Your pay lands in a Mexican bank account You file an FBAR once the peak balances of your foreign accounts add up to more than $10,000. Mexican bank and brokerage accounts count, and the FBAR lists every account. It is due April 15, and FinCEN allows until October 15 without any request. Form 8938 is a separate IRS report, filed with your return. A single filer with a tax home abroad gets higher thresholds by passing the bona fide residence or physical presence test. You then file it once foreign financial assets exceed $200,000 on December 31 or $300,000 at any time in the year. ## How much do Mexico’s taxes take from an expat professional’s pay? Mexico’s 2026 annual tariff has 11 brackets, starting at 1.92%. Four Mexican tax residents have taxable income for 2026 from MXN 500,000 to MXN 2,000,000. - MXN 500,000: MXN 85,774. Mexico takes 17.2% of this income, and 23.52% of each added peso up to MXN 668,840. - MXN 1,000,000: MXN 224,833. Mexico takes 22.5% of this income, and 30% of each added peso. - MXN 1,500,000: MXN 379,294. Mexico takes 25.3% of this income, and 32% of each added peso. - MXN 2,000,000: MXN 545,243. Mexico takes 27.3% of this income, and 34% of each added peso short of the top bracket. Each figure is the fixed amount for its bracket, plus the bracket’s rate on income above the bracket’s lower limit. At MXN 1,000,000, that is MXN 125,485.07 plus 30% of MXN 331,159.85. The rates are Mexico’s 2026 annual tariff, from Anexo 8 of the Resolución Miscelánea Fiscal para 2026. No peso amount is converted to dollars. ## Mexican taxes for US citizens reach a private US pension and dividends, but not US Social Security. The US-Mexico treaty, in force since December 28, 1993, settles who taxes pensions and Social Security. | | Mexico | US | | --- | --- | --- | | US Social Security | Not taxed (Even as a resident) | Taxed (Under the usual US rules) | | A private US pension for past work | Taxed (As the country where you live) | Taxed (Mexican tax credited under Article 24) | | Gains on shares sold on Mexico’s stock exchange | 10% final tax | 0%, 15% or 20% (On shares held over a year, plus any net investment income tax. Ordinary rates apply otherwise.) | | Dividends, US stocks included | Taxed as income (Plus a further 10%) | Taxed (With relief under Article 24) | | Annual return | Due in April (For the calendar year before) | By June 15, filing from Mexico (Unpaid tax accrues interest from April 15) | The treaty’s saving clause lets the US tax its citizens as if the treaty did not exist, except under the articles it lists. Articles 19(1)(b), on Social Security, and 24, on double tax relief, are two of those exceptions. ## What can still raise your US tax in Mexico? ### Paying tax under RESICO RESICO’s low rates leave little Mexican tax to credit against the US tax on your profit, even if all of it qualifies. A freelancer whose income last year was MXN 3,500,000 or less can pay 1% to 2.5% of invoiced receipts, with no deductions. The exclusion may leave less US income tax instead. ### Going from RESICO to a salaried job (https://valim.tax/expat-tax/foreign-earned-income-exclusion) If you elect the exclusion while on RESICO, it stays in force after you take a Mexican salary. Mexican tax on the pay it excludes then earns no credit. Revoke it to credit that tax, and you cannot elect the exclusion again for five tax years without IRS consent. ### Investing through a Mexican fund or ETF (https://valim.tax/glossary/passive-foreign-investment-company-pfic) A fund or ETF set up in Mexico is generally a passive foreign investment company (PFIC). The US taxes PFIC shares under a regime of their own, whatever Mexico charges on the gains. ### Holding an Afore An Afore holds your individual retirement account in Mexico’s mandatory pension system. No part of the US-Mexico treaty postpones US tax on the money paid in or the returns it earns. The IRS has issued no guidance on an Afore, so settle its US treatment with your CPA before you file. ## We keep your US return in step with the tax you pay in Mexico. We prepare and file US returns for Americans who work or retire in Mexico. Your contador or employer handles the Mexican side. - We credit the Mexican income tax on your salary on Form 1116. The figures come from your employer’s annual statement or your contador’s return. - We prepare your FBAR, plus Form 8938 if you need it, and your quote prices each foreign account and fund before we start. - We compare the exclusion with the credit on your RESICO income, and again before you take a salaried job. - We calculate the estimated payments your freelance profit needs, self-employment tax included. - We handle the reply when the IRS or a state writes about a return we prepared, at no cost beyond your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle expat tax: https://valim.tax/expat-tax ## What do Americans in Mexico ask about their US taxes? ### Do I have to pay U.S. taxes if I live in Mexico? Yes, if you are a US citizen, because the US taxes citizens on income from everywhere. Green card holders are taxed the same way, unless they claim Mexican residence under the treaty’s tie-breaker. The filing threshold is measured on gross income, so pay you plan to exclude still counts toward it. On a Mexican salary, the foreign tax credit usually cancels the US income tax in full. US tax is more likely to remain on income Mexico may not tax, such as US Social Security. Freelancers with $400 or more of net self-employment earnings also owe self-employment tax. ### Does Mexico tax U.S. retirement income? Mexico can tax a private US pension once you live there, though it cannot tax your US Social Security. Article 19(1)(a) of the treaty gives the country where you live the right to tax a private pension for past employment. A US government pension follows Article 20, which generally leaves it to the US alone. That can change if you are a Mexican national or permanent resident. Under Article 19(1)(b), only the US may tax US Social Security, and that rule covers citizens too. The US still taxes a citizen’s private pension, and Article 24 relieves the double tax. Americans in Canada have the reverse rule, since only Canada taxes their US Social Security. ### Does Mexico have a totalization agreement with the U.S.? No, the US-Mexico totalization agreement, signed in 2004, has never entered into force. A freelancer in Mexico therefore owes US self-employment tax on profit, even with no US income tax due. Employees of an American employer generally stay in US Social Security and Medicare too. Americans in the UAE are in the same position, with no agreement either. ### Are taxes higher in Mexico or the US? On a professional salary, Mexico’s usually are. Its 2026 tariff runs from 1.92% to 35%, and every peso above MXN 668,840 of taxable income is taxed at 30% or more. US rates run from 10% to 37%. Listed Mexican shares reverse the gap, since Mexico takes only a 10% final tax on the gain. Where your US rate on it is 15% or 20%, some US tax remains after the credit. ### Can a US citizen use RESICO in Mexico? Yes, RESICO turns on residence and income, not citizenship, so a US citizen who is a Mexican tax resident can join. Last year’s income must be MXN 3,500,000 or less, and partners or shareholders of companies are shut out. You pay monthly on gross invoiced receipts, with no deductions, at 1% to 2.5%. The low Mexican rates usually leave US tax on the same profit, plus US self-employment tax. ## Sources - US-Mexico income tax convention (1992): https://www.irs.gov/pub/irs-trty/mexico.pdf - Protocol to the US-Mexico convention (2002): https://home.treasury.gov/system/files/131/Treaty-Mexico-Pr2-10-26-2002.pdf - Mexico, SAT, Anexo 8 de la Resolución Miscelánea Fiscal para 2026 (income tax tariffs): https://www.sat.gob.mx/minisitio/NormatividadRMFyRGCE/documentos2026/rmf/anexos/Anexo-8-RMF-2026_DOF-28122025.pdf - Mexico, Ley del Impuesto sobre la Renta (income tax law): https://www.diputados.gob.mx/LeyesBiblio/pdf/LISR.pdf - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements --- URL: https://valim.tax/visa-holders Title: Tax consultant USA: CPAs for visa holders and new US residents Updated: 2026-10-07 # Valim’s US tax consultants are licensed CPAs who prepare returns for H-1B and other visa holders, and for new residents. Visa holders, international students and new green card holders can hire Valim, a US CPA firm with ex-Big Four leadership, for a fixed fee. We prepare your Form 1040-NR as a nonresident, your arrival-year return (often dual-status) and your resident returns. Individual returns start at $195, and Tax advisory adds planning around your move. Valim for visa holders: - $195: is the lowest fee for any individual return. - 50: states are covered, whichever one your job brings you to. - <1 week: after your last document arrives, most returns are filed. ## We handle the US side of your move, from the first return to accounts back home. ### Nonresident returns We prepare Form 1040-NR, the nonresident alien tax return, for students and scholars as well as workers. We attach Form 8843 where it is due and claim any treaty exemption you qualify for. ### The year you arrive We find the day your residency started and prepare the return that year needs. We compare the elections that change how that year is filed, and what each means for later years. ### Accounts back home Once you are a resident alien, we file an FBAR for each year your accounts back home pass its threshold. We add Form 8938 where it applies, and Form 8621 for foreign funds such as Indian mutual funds. ### Tax paid at home Your home country may tax income the US taxes too, such as rent from a flat you own there. We claim the foreign tax credit for it on Form 1116. ### Planning the move We plan your move before US residency starts. That can mean selling property back home while the gain is still outside US tax. ### Your accountant back home Your home country’s return stays with your accountant there. We prepare the US return and work with them on the figures both returns share. ## What happens between your quote and your filed return? ### 1. A price before any work The instant quote turns your answers into a fixed fee, which holds for 7 days. No work is billed hourly. ### 2. A licensed CPA signs We built automation that reads any Form 1042-S and your W-2. A licensed US CPA prepares and signs your return, and you message them in one portal. ### 3. Your notices, answered When an IRS or state notice arrives about a return we prepared, we write the reply within your fee. ## A nonresident US tax return is priced like any other individual return. ### Individual return filing From $195 The plan covers returns of any complexity, and you can ask your CPA questions at any point in the year. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as selling property back home before your US residency starts. ## Your visa and your days in the US set which US tax rules apply to you. ### Your tax residency (https://valim.tax/visa-holders/resident-or-nonresident-alien) A foreign national becomes a resident alien through the green card test, the substantial presence test or the first-year choice, unless an exception applies. ### The nonresident return (https://valim.tax/visa-holders/form-1040-nr) A nonresident alien who worked in the US generally files Form 1040-NR, even when a treaty exempts the pay. ### The US-India tax treaty (https://valim.tax/visa-holders/us-india-tax-treaty) Under Article 21(2), students from India can claim the standard deduction on Form 1040-NR, which other nonresident aliens cannot. ### Exchange visitors on a J-1 (https://valim.tax/visa-holders/j-1-visa-taxes) A J-1 researcher’s days usually stay out of the residency count for 2 calendar years, and a student’s for 5. ### Professionals on a TN (https://valim.tax/visa-holders/tn-visa-taxes) Days commuted from a home in Canada or Mexico stay out of the day count only if you commute on over 75% of your workdays. ### Transfers on an L-1 (https://valim.tax/visa-holders/l-1-visa-taxes) An L-1 transferee’s pay for work done in the US is generally US income, even when the parent company abroad still pays it. ### Contractors on an O-1 (https://valim.tax/visa-holders/o-1-visa-taxes) An O-1 contractor who is a nonresident alien generally owes no self-employment tax, and pays it after becoming a resident alien. ### Investors on an E-2 (https://valim.tax/visa-holders/e-2-visa-taxes) An E-2 investor who is still a nonresident alien cannot own S corporation stock. ### Moving from Canada (https://valim.tax/visa-holders/from-canada) Canada taxes most of your gains as you leave, and a treaty election can set your US cost at that value. ### Moving from the UK (https://valim.tax/visa-holders/from-the-uk) Once you live in the US, only the US taxes your UK State Pension, under Article 17(3). ### Moving from Australia (https://valim.tax/visa-holders/from-australia) A treaty election under Article 13(5) can stop the US taxing a gain Australia already taxed when you left. ### Moving from Singapore (https://valim.tax/visa-holders/from-singapore) With no US-Singapore income tax treaty, a new US resident gets no tie-breaker and no treaty rates. ### Moving from South Korea (https://valim.tax/visa-holders/from-south-korea) Most Korean funds are PFICs, so each usually needs its own Form 8621 every year. ### Moving from the Philippines (https://valim.tax/visa-holders/from-the-philippines) SSS benefits stay taxable only in the Philippines, even after you become a US citizen. ### Moving from Mexico (https://valim.tax/visa-holders/from-mexico) No IRS guidance says how an Afore is taxed, so its US treatment stays unsettled. ### Moving from Brazil (https://valim.tax/visa-holders/from-brazil) Leaving Brazil takes two filings with Receita Federal, and without the first you stay resident for 12 months. ### Moving from India (https://valim.tax/visa-holders/from-india) Interest on an NRE (non-resident external) account can be tax-free in India, but the US taxes it once you are a resident alien. ### Moving from Switzerland (https://valim.tax/visa-holders/from-switzerland) Swiss source tax on a pillar 2 payout comes back only if you are a US resident when it is paid. ### Moving from Poland (https://valim.tax/visa-holders/from-poland) The 1974 treaty has no pension article, so Poland and the US can both tax a ZUS pension. ### Moving from South Africa (https://valim.tax/visa-holders/from-south-africa) South Africa’s exit tax treats most of what you own as sold the day before your residence ends. ### Moving from Japan (https://valim.tax/visa-holders/from-japan) Japan’s exit tax starts at ¥100 million of securities, and a NISA counts toward that total. ### Moving from Israel (https://valim.tax/visa-holders/from-israel) Israel’s exit tax usually waits until you sell, and the deferred tax carries no interest. ### Moving from Germany (https://valim.tax/visa-holders/from-germany) The US taxes at most 85% of a German state pension, as it does US Social Security. ### Moving from France (https://valim.tax/visa-holders/from-france) An assurance vie must pass a US life insurance test, or the US taxes its growth every year. ### Moving from the Netherlands (https://valim.tax/visa-holders/from-the-netherlands) Only the Netherlands taxes your AOW, even once you hold a green card. ### Moving from Spain (https://valim.tax/visa-holders/from-spain) A switch between Spanish funds, tax-free in Spain, can count as a taxable sale once you are a US resident. ### Moving from Ireland (https://valim.tax/visa-holders/from-ireland) Three resident years in a row keep you ordinarily resident in Ireland for three more tax years after you leave. ### Moving from Italy (https://valim.tax/visa-holders/from-italy) Registering with AIRE does not by itself end your Italian tax residence. ### Moving from Turkey (https://valim.tax/visa-holders/from-turkey) Turkey adds a 20% state contribution to BES savings in 2026, and it can continue after you move. ### Moving from Pakistan (https://valim.tax/visa-holders/from-pakistan) Naya Pakistan Certificate profit bears a final 10% Pakistani tax, and the US taxes the whole profit once you are resident. ### Moving from Nigeria (https://valim.tax/visa-holders/from-nigeria) The top rate on Nigeria’s 2026 scale is 25%, and no treaty caps what Nigeria withholds from your income. ### Moving from Nepal (https://valim.tax/visa-holders/from-nepal) Nepal withholds 6% of savings and fixed-deposit interest as a final tax, and the US taxes that interest once you are resident. ### Moving from Colombia (https://valim.tax/visa-holders/from-colombia) Colombia taxes a gift or inheritance at 15%, and the person who receives it pays. ### Moving from Vietnam (https://valim.tax/visa-holders/from-vietnam) Vietnam does not tax bank deposit interest, so no Vietnamese tax offsets the US tax on it. ### Moving from Bangladesh (https://valim.tax/visa-holders/from-bangladesh) 90 days in a July-to-June income year can make you a Bangladeshi resident for all of it, after 365 days in the four years before. ### Moving from Europe (https://valim.tax/visa-holders/from-europe) Most UCITS funds and ETFs a European saver holds count as PFICs once you live in the US. "My CPA did not know complex cross-border rules. Thank you for your expertise." (H-1B holder in San Francisco) ## Learn which return your year in the US needs before you file it. ## Visa holders and students raise these questions before their first US return. ### Am I a resident or nonresident for tax on an H-1B? An H-1B holder usually becomes a resident alien for tax, because every H-1B day counts toward the substantial presence test. Arrive by July 2 with no earlier US days, and you usually pass it in your first year. That year is then dual-status, nonresident before your start date and resident after. With fewer than 183 days here that year, the closer connection exception can keep you nonresident. A green card application pending or filed for you that year rules it out. ### Can I use TurboTax for my first year in the US? TurboTax works for your first year only if it supports the return that year needs. That return is often not a regular Form 1040. A nonresident files Form 1040-NR, and it can be e-filed. A year that starts nonresident and ends resident usually needs a dual-status return, which the IRS bars from e-filing for tax year 2025. With a US citizen or resident spouse, you can sometimes elect a joint return for the whole year instead. ### Do I need to report my bank accounts in India? Yes, once you are a US resident alien, whether or not the accounts earn taxable income. You file an FBAR once your foreign accounts, NRE and NRO included, total more than $10,000 at any point in the year. Form 8938 may also be due with your return, at higher thresholds. Nonresident aliens, such as F-1 students in their exempt years, generally file neither. A nonresident who elects to file jointly as a resident may still need Form 8938. ### Are my Indian mutual funds a problem for US tax? Usually, yes, once you are a US resident. US tax rules generally treat an Indian mutual fund as a passive foreign investment company (PFIC). Without an election, gains and excess distributions (payouts well above the fund’s recent average) are spread over the years you held the fund. The part spread to earlier years is taxed at each year’s top rate, plus interest. You usually file a Form 8621 for each fund every year. ### Should international students use Sprintax or a tax preparer? Software that supports Form 1040-NR can be enough for a simple student return. An international student files Form 8843 for each exempt year, even with no US income. Form 1040-NR follows once you have taxable US income, such as wages or a taxable scholarship. A preparer is worth paying when you claim a treaty exemption or become a resident partway through the year. ### How much does a nonresident or first-year return cost? At Valim, a nonresident or first-year return is priced as an individual return, from $195, with the fee fixed before work starts. We also plan around your move, and the return is still included. Accounts and holdings back home add to the fee, and the instant quote counts them. ### Is there a 7-year tax exemption for new immigrants? No, the US has no tax holiday for new immigrants. A resident alien is taxed on worldwide income from the first day of residency. The 7 years people cite usually comes from India’s “not ordinarily resident” status, and one of its tests looks back 7 years. That status limits Indian tax on foreign income, and it changes nothing about your US tax. ## Sources - 26 U.S.C. § 7701, Definitions (resident alien and nonresident alien): https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-3, Days of presence that are excluded for purposes of section 7701(b): https://www.law.cornell.edu/cfr/text/26/301.7701(b)-3 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 6013, Joint returns of income tax by husband and wife: https://www.law.cornell.edu/uscode/text/26/6013 - 26 C.F.R. § 1.6012-1, Individuals required to make returns of income: https://www.law.cornell.edu/cfr/text/26/1.6012-1 - IRS, Instructions for Form 1040-NR (2025): https://www.irs.gov/instructions/i1040nr - IRS, Form 8843 (2025), Statement for Exempt Individuals: https://www.irs.gov/pub/irs-pdf/f8843.pdf - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - 26 U.S.C. § 1291, Interest on tax deferral (PFICs): https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - IRS, Instructions for Form 8621: https://www.irs.gov/instructions/i8621 - Treas. Reg. § 1.1-1, Income tax on individuals: https://www.law.cornell.edu/cfr/text/26/1.1-1 - 26 U.S.C. § 872, Gross income (nonresident alien individuals): https://www.law.cornell.edu/uscode/text/26/872 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - US-India income tax convention (IRS text): https://www.irs.gov/pub/irs-trty/india.pdf - Income Tax Department of India, Non-resident FAQ (NRE interest and residential status): https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/non-resident - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 861, Income from sources within the United States: https://www.law.cornell.edu/uscode/text/26/861 - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 --- URL: https://valim.tax/visa-holders/resident-or-nonresident-alien Title: Resident alien vs nonresident alien: substantial presence test Updated: 2026-09-24 # Resident alien vs. nonresident alien: a green card or the substantial presence test usually makes you a resident alien for US tax. A nonresident alien (NRA) is anyone who is neither a US citizen nor a US resident for tax purposes. The substantial presence test counts your days in the US over three years. This year’s days count in full, last year’s count as a third and the year before’s as a sixth. A weighted total of at least 183 days, with at least 31 this year, usually makes you a resident alien. The substantial presence test: - 183: days in the US this year pass the test on their own, if none of them are excluded from the count. - 31: days this year is the minimum, however long you stayed in the two years before. - 5: calendar years of student days on an F-1 or J-1 visa usually stay out of the count. These numbers are set in the statute and are not adjusted for inflation. ## Are you a nonresident alien or a resident alien? Each calendar year is tested on its own, so your status can change from year to year. ### 1. A green card at any time in the year A green card held at any point in the year makes you a resident alien for that year. Living abroad, or holding a card that has expired, does not by itself end that status. ### 2. Days that do not count Days as an exempt individual are left out of the count, though exempt here does not mean exempt from tax. Exempt individuals include F, J, M and Q students and J and Q teachers and trainees, but not H-1B or DACA holders. Some medical stays, transits under 24 hours and regular commutes from Canada or Mexico are also left out. ### 3. At least 31 days in the US this year A day counts even if you were in the US for only part of it. Days in US territories such as Puerto Rico, or in the air over the US, do not count. ### 4. 183 days on the weighted count Fractions are not rounded, so a weighted total of 182.5 days falls short of 183. ### 5. Exceptions for people based abroad With fewer than 183 days this year, the closer connection exception can still keep you a nonresident. It needs a foreign tax home all year, closer ties to that country, a timely Form 8840 and no green card steps that year. At 183 days or more, only a tax treaty’s tie-breaker can make you a nonresident. Estate and gift tax use your domicile instead of these tests. Each state decides your state tax residency under its own rules. ## How do you calculate the substantial presence test? A London-based founder was in the US 150 days in 2026, 120 in 2025 and 90 in 2024. None of her days are excluded from the count. - 2026 days, in full: 150 days - 2025 days, at a third: 40 days. Her 120 days in 2025 count as 40. - 2024 days, at a sixth: 15 days. Her 90 days in 2024 count as 15. - Needed to pass: 183 days - Weighted total: 205 days. That is 22 days over the line, so she meets the test for 2026. Section 7701(b)(3) sets these multipliers. Her 150 days in 2026 also clear the 31-day minimum. Because she spent fewer than 183 days in the US in 2026, she may still be a nonresident. She would need a UK tax home all year, closer UK ties, no green card steps and a timely Form 8840. ## Resident aliens and nonresident aliens are taxed on different income. | | Resident alien | Nonresident alien | | --- | --- | --- | | Income the US taxes | Worldwide income (The same as a US citizen) | Only US income (US-source, or effectively connected with a US business) | | Tax return | Form 1040 | Form 1040-NR | | Joint return | Allowed (With a spouse who is a citizen or resident) | Only by election (Made with a citizen or resident spouse, to be taxed as a resident) | ## What catches people out on resident alien status? ### An employer’s green card petition counts as your own (https://valim.tax/glossary/closer-connection-exception) Green card steps taken for you rule out the closer connection exception, just as your own do. An employer’s Form I-140 or labor certification counts, and so does a pending application to adjust status. ### A late Form 8840 can make you a resident A late Form 8840 loses the closer connection exception, unless you prove reasonable efforts to learn the rule and comply. The form is due with your Form 1040-NR, and an extension moves both. For 2026, the unextended date is April 15, 2027 if you had wages subject to withholding, or June 15, 2027 if not. ### A tie-breaker is not a full exit A treaty tie-breaker makes you a nonresident only for figuring your US income tax, and you stay a resident for other rules. It applies when the US and a treaty country both treat you as a resident, which makes you a dual resident. You claim it on Form 1040-NR with Form 8833, and failing to disclose it carries a $1,000 penalty. ### Giving up a green card can bring the exit tax (https://valim.tax/glossary/covered-expatriate) The exit tax under Section 877A can reach a long-term resident who gives up a green card. Claiming treaty residence in another country can trigger it too. ## Your day count decides which return you file, so we check it first. Valim’s CPAs work out whether visa holders are resident or nonresident aliens for US tax, and prepare the return that follows. - We prepare your Form 1040, Form 1040-NR or dual-status return, with any Form 8843 or 8840 it needs. - We compare your options for the first year. You can file as you are, make the first-year choice, or make a joint election with your spouse. - We set estimated payments for your first year taxed on worldwide income. - We prepare the US side only, alongside any accountant who files for you back home. - Your instant quote includes a price for each foreign account and foreign fund you hold. - If an IRS or state notice questions a return we prepared, your day count included, our reply is part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Resident and nonresident alien questions. ### How do I pass the substantial presence test? You pass the substantial presence test with at least 31 days in the US this year and 183 days on a weighted count. That count takes every day this year, a third of last year’s days and a sixth of the year before’s. Any part of a day counts as a full day. Days as an exempt individual, such as an F-1 student, are left out. So are transits of under 24 hours between two foreign places. ### Is an H-1B holder a resident alien for tax? An H-1B holder is usually a resident alien for tax, because H-1B days count toward the substantial presence test. With no earlier US days, arriving by July 2 and staying puts you at 183 days in your first year. That year is usually dual-status, and resident status starts on your first day in the US. Arrive later and you are a nonresident that year, unless you qualify for the first-year choice or a joint election with your spouse. Earlier days as an exempt F-1 or J-1 student do not count. ### When do F-1 students become resident aliens? F-1 students usually become resident aliens in their sixth calendar year here, unless they show they do not intend to stay permanently. Any part of a year counts as a whole one. So a student who arrived in August 2021 starts counting days on January 1, 2026. Earlier exempt days never count, so the student becomes a resident once present 183 days in that year. OPT is F-1 time and uses up the same 5 years, as do earlier years on a J-1 visa. ### What is the green card test? The green card test makes you a resident alien for any year you were a lawful permanent resident, even briefly. Your days in the US do not matter. In the year you get the card, residency usually starts on your first day in the US as a permanent resident. ### Can I be a resident and a nonresident in the same year? Yes, that is a dual-status year, usually the year you arrive or leave. You are taxed on worldwide income for the resident part and on US income for the nonresident part. In an arrival year, Form 1040 covers the resident part, with a Form 1040-NR statement for the rest. You also cannot take the standard deduction or file a joint return. You can do both if you and a US citizen or resident spouse elect to treat you as a resident all year. ### How do I know if I am a nonresident alien or resident alien? You are a resident alien for a year if you pass the green card test or the substantial presence test. Pass neither and you are a nonresident alien, unless you make the first-year choice or a joint election with a citizen or resident spouse. Passing the day count can still leave you a nonresident, through the closer connection exception or a treaty tie-breaker. Resident aliens file Form 1040, and nonresident aliens file Form 1040-NR. ### What is the substantial presence test? The substantial presence test is the IRS day count that makes a non-citizen without a green card a US resident for tax. It weighs your days over three years, and you pass at 183 weighted days with 31 this year. Passing makes you a resident alien unless an exception applies. It sets your tax status only, not your status under the immigration laws. ## Sources - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-1, Resident alien: https://www.ecfr.gov/current/title-26/section-301.7701(b)-1 - 26 C.F.R. § 301.7701(b)-2, Closer connection exception: https://www.ecfr.gov/current/title-26/section-301.7701(b)-2 - 26 C.F.R. § 301.7701(b)-3, Days of presence in the United States that are excluded for purposes of section 7701(b): https://www.ecfr.gov/current/title-26/section-301.7701(b)-3 - 26 C.F.R. § 301.7701(b)-4, Residency time periods: https://www.ecfr.gov/current/title-26/section-301.7701(b)-4 - 26 C.F.R. § 301.7701(b)-7, Coordination with income tax treaties: https://www.ecfr.gov/current/title-26/section-301.7701(b)-7 - 26 U.S.C. § 6013, Joint returns of income tax by husband and wife: https://www.law.cornell.edu/uscode/text/26/6013 - 26 U.S.C. § 877A, Tax responsibilities of expatriation: https://www.law.cornell.edu/uscode/text/26/877A - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Form 8843 (2025), Statement for Exempt Individuals and Individuals With a Medical Condition: https://www.irs.gov/pub/irs-pdf/f8843.pdf - IRS, Form 8840 (2025), Closer Connection Exception Statement for Aliens: https://www.irs.gov/pub/irs-pdf/f8840.pdf - IRS, Form 8833 (Rev. December 2022), Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b): https://www.irs.gov/pub/irs-pdf/f8833.pdf --- URL: https://valim.tax/visa-holders/form-1040-nr Title: Form 1040-NR: who must file and how it differs from Form 1040 Updated: 2026-09-24 # Form 1040-NR is the federal tax return a nonresident alien files in place of Form 1040. Form 1040-NR, the U.S. Nonresident Alien Income Tax Return, reports only US income and income tied to a US business. Pay for US work is taxed at the same graduated rates residents pay. Every Form 1040-NR includes Schedule OI, where you record your visa and your days in the US. Form 1040-NR, tax year 2026: - April 15: is the due date if you had wages subject to US income tax withholding. Without such wages, it is June 15. - $0: is the standard deduction for most nonresidents, so more of their pay is taxed than a resident’s. - 30%: is withheld from US dividends paid to a nonresident, unless a treaty sets a lower rate. For a 2026 return, both dates fall in 2027. Form 4868 adds six months to file, but the tax is still due on the original date. ## Who must file, according to the Form 1040-NR instructions? Under the 2025 instructions, for returns filed in 2026, a nonresident alien files Form 1040-NR if any one of these is true. ### 1. You worked or ran a business in the US Working in the US counts as a US trade or business, so you generally must file, even with treaty-exempt pay. The main exception is a visit of 90 days or less, with no more than $3,000 of pay. That pay must come from a foreign employer with no US business, or from a US firm’s office abroad. A single student or business apprentice from India under Article 21(2) is also excused if 2025 gross income was $15,750 or less. ### 2. You had a taxable scholarship or fellowship On an F, J, M or Q visa, the taxable part of a scholarship counts as US business income. So you must file, even if the payer withheld tax at 14%. ### 3. Tax on your other US income was not all withheld With no US work or business, US dividends and similar income generally need a return only when the payer withheld too little tax. ### 4. You are owed a refund of tax withheld After the year ends, you generally get back tax withheld beyond what you owe by filing, even if no return is otherwise required. That includes tax taken from pay or a scholarship that a treaty exempts. On an F, J, M or Q visa with no taxable US income, a student, teacher or trainee does not file Form 1040-NR. They still file Form 8843 on its own, by the Form 1040-NR due date. ## A nonresident on a $40,000 salary pays tax on $14,100 more of it than a resident. A single filer earns a $40,000 salary in 2026 and has $2,000 of state income tax withheld. - Resident alien, Form 1040: $23,900. The $16,100 standard deduction comes off the salary. - Nonresident alien, Form 1040-NR: $38,000. Only the $2,000 of state tax comes off, itemized on Schedule A (Form 1040-NR). - Student from India, Form 1040-NR: $23,900. The US-India treaty lets students and business apprentices take the standard deduction. Each figure is taxable income, the amount the graduated rates apply to. A resident takes the standard deduction because $16,100 is more than the $2,000 of state tax they could itemize. The India row rests on Article 21(2) of the treaty. The 2026 instructions are not out yet, so that row assumes the IRS keeps its 2025 approach. ## How does Form 1040-NR differ from Form 1040? Two tests mainly decide which return you file: the green card test and the substantial presence test. Elections and treaty rules can change the result. Figures are for 2026. | | Form 1040 | Form 1040-NR | | --- | --- | --- | | Who files | US citizens and resident aliens | Nonresident aliens | | Income taxed | Worldwide income | US income (Plus some foreign income tied to a US business) | | Standard deduction | $16,100 (For a single filer) | None for most filers | | Filing status | Any of five (Including married filing jointly and head of household) | Single or married filing separately (Qualifying surviving spouse only in a few cases) | | Child tax credit | Allowed (With a valid SSN) | Only for some filers (US nationals and residents of Canada or Mexico, with limits for residents of South Korea and India. A valid SSN is required.) | In the year you arrive or leave, you can be a resident for only part of the year. The return for that year is a dual-status return. It goes on Form 1040 if you are a resident on December 31, and on Form 1040-NR if not. The other form can serve as a statement for the rest of the year. ## Which Form 1040-NR mistakes raise your tax or hold up your return? ### Filing Form 1040 while still a nonresident (https://valim.tax/glossary/resident-alien) A nonresident who files Form 1040 usually claims a standard deduction the law does not allow. Tax software built for Form 1040 may not support Form 1040-NR, so confirm it does first. To correct the return, file Form 1040-X with a corrected Form 1040-NR attached. ### Assuming an H-1B arrival year is a Form 1040-NR year (https://valim.tax/visa-holders/resident-or-nonresident-alien) An H-1B worker who arrives by July 2 and stays to December 31 usually files a dual-status return on Form 1040. Those dates give 183 days, which meets the substantial presence test. Arrive later with no earlier US days, and you usually file Form 1040-NR for that year. You can still choose to be treated as a resident. ### Itemizing on Schedule A (Form 1040-NR) as a resident would The nonresident Schedule A has no line for medical costs or mortgage interest. Its main lines are state and local income tax on US business income, and gifts to US charities. Most other deductions count only if they relate to your US business income. ### Leaving treaty-exempt pay off Schedule OI Pay a treaty exempts goes on line 1k of Form 1040-NR, not with your taxable wages. You also report it in item L of Schedule OI, naming the treaty country and article. If your employer withheld tax on that pay anyway, attach a statement with the details a Form 8233 would have given. ### Expecting to file jointly Form 1040-NR has no joint return, so a married nonresident generally files as married filing separately. With a US citizen or resident spouse, the two of you can elect to file jointly on Form 1040. If you stay a nonresident, that election taxes you both on worldwide income for as long as it lasts. Once it ends, neither of you can make it again. ### Looking for Form 1040-NR-EZ Form 1040-NR-EZ, the short version, was last used for tax year 2019. Every return for 2020 or later goes on the full Form 1040-NR. A late return goes on the form for its own year, such as the 2023 Form 1040-NR for 2023. Past years’ forms are on the IRS’s prior-year forms page. ### Filing with an expired ITIN Form 1040-NR asks for a Social Security number or, if you cannot get one, an ITIN (Individual Taxpayer Identification Number) from the IRS. An ITIN not used on a federal return for three years in a row expires. Renew it on Form W-7 when you next need to file. ### Filing too late to keep deductions File within 16 months of the due date, or you may lose your deductions and credits. They count only on a true and accurate return that the IRS treats as filed on time. You never lose the credit for tax withheld. ## We prepare Form 1040-NR and the dual-status return for your arrival year. Valim’s CPAs prepare Form 1040-NR for nonresident visa holders, and the dual-status return for the year they arrive or leave. - We confirm your status from your visa history and US days, then prepare the federal and state returns your year needs. - We claim treaty exemptions your employer or school did not apply, and include the Form 8843 your exempt days require. - We figure estimated tax on Form 1040-ES (NR) for income with no withholding. - We compare filing alone with electing to file jointly with a US citizen or resident spouse. - Notices from the IRS or a state on returns we prepared are handled within your fee. A notice challenging your nonresident status or a treaty claim counts too. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Form 1040-NR questions. ### Who must file Form 1040-NR? A nonresident alien who worked or ran a business in the US generally must file Form 1040-NR, even with no taxable income. Some short work visits and some low-income students from India are excused. A taxable scholarship also brings a duty to file, as does other US income whose tax was not fully withheld. Filing is also how a nonresident gets back tax withheld beyond what they owe. A student, teacher or trainee on an F, J, M or Q visa with no taxable US income files Form 8843 alone. ### Can I file Form 1040-NR online? Yes, you can e-file Form 1040-NR, and a paid preparer filing more than 10 returns a year generally must. A dual-status return, usually for the year you arrive or leave, cannot be e-filed for tax year 2025. The IRS’s Free File Fillable Forms do not include Form 1040-NR. Paper returns go to the address in the instructions’ Where To File section, which differs if you enclose a payment. ### Should an F-1 student file 1040 or 1040-NR? An F-1 student usually files Form 1040-NR for the first five calendar years in the US, and Form 1040 from the sixth. For those five years, OPT included, the student is an exempt individual, whose days do not count toward residency. The arrival year counts as one of the five, however late you arrive. A student with US income files Form 8843 with each of those returns. A student who shows no intent to stay permanently can remain exempt after the fifth year. ### Is a nonresident required to file a return? A nonresident with no US job or business generally needs no return if the payers withheld all the tax due. Working in the US usually brings a duty to file, even when no tax is due. Getting back tax withheld beyond what you owe also takes a return. ### What is the difference between 1040NR and 1040? Form 1040 is the resident tax return, for US citizens and resident aliens taxed on worldwide income. Form 1040-NR is the nonresident return, and it taxes only income from US sources or from a US business. A nonresident cannot file jointly, and only students and business apprentices from India get a standard deduction. US dividends outside a US business are taxed at a flat 30%, or at a lower treaty rate. Form 1040-NR has four schedules of its own, including Schedule P for some sales of partnership interests. Schedule OI holds your visa and day counts, Schedule A your itemized deductions and Schedule NEC your US income outside a business. The return also uses Form 1040 schedules, such as Schedule 1, Schedule C for self-employment and Schedule D for capital gains. ## Sources - IRS, Instructions for Form 1040-NR (2025): https://www.irs.gov/instructions/i1040nr - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 C.F.R. § 1.6012-1, Individuals required to make returns of income: https://www.law.cornell.edu/cfr/text/26/1.6012-1 - 26 U.S.C. § 871, Tax on nonresident alien individuals: https://www.law.cornell.edu/uscode/text/26/871 - 26 U.S.C. § 864, Definitions and special rules: https://www.law.cornell.edu/uscode/text/26/864 - 26 U.S.C. § 63, Taxable income defined: https://www.law.cornell.edu/uscode/text/26/63 - 26 U.S.C. § 1441, Withholding of tax on nonresident aliens: https://www.law.cornell.edu/uscode/text/26/1441 - 26 U.S.C. § 6013, Joint returns of income tax by husband and wife: https://www.law.cornell.edu/uscode/text/26/6013 - 26 U.S.C. § 6072, Time for filing income tax returns: https://www.law.cornell.edu/uscode/text/26/6072 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, About Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents: https://www.irs.gov/forms-pubs/about-form-1040-nr-ez --- URL: https://valim.tax/visa-holders/us-india-tax-treaty Title: US-India tax treaty: F-1 students, H-1B pay and income from India Updated: 2026-09-30 # Indian students can take the standard deduction under the US-India tax treaty, though their US wages stay taxable. Article 21(2) gives students and business apprentices from India the standard deduction, $16,100 for 2026. Other nonresident aliens cannot claim it. Once you become a resident alien, the US taxes your income from India and credits the Indian tax. The US-India treaty for tax year 2026: - $16,100: is the standard deduction an Indian student claims on line 12 of Form 1040-NR. - 2 years: is the longest a teaching or research visit can last and keep its pay exempt under Article 22. - 15%: is the most tax India may charge on a US resident’s deposit interest. Married students also use $16,100, because nonresident aliens cannot file jointly. For 2025, the amount was $15,750. ## Can you claim the US-India tax treaty as a student? Article 21 covers F-1 and J-1 students and business apprentices from India. You must pass all four tests below to claim it. ### 1. You lived in India just before the visit Article 21 requires you to have been a resident of India immediately before your visit. You also meet the test if you were resident in India in the tax year you arrived or the year before. ### 2. Study or training is your main purpose You must be in the US principally for your education or training. If work becomes your main reason for being here, the article no longer applies. ### 3. You have no green card The saving clause leaves Article 21 in place unless you are a US citizen or hold a green card. So the article still applies after you become a resident alien under the substantial presence test. ### 4. Your program is still running The benefits last only as long as your education or training reasonably or customarily takes. The treaty sets no fixed number of years. The five-year figure people quote belongs to another rule, which keeps an F-1 student’s days from counting toward US residency. Teachers and researchers from India claim Article 22 instead, which has its own tests. ## What Article 21(2) is worth on $30,000 of pay. Three nonresident F-1 students each earn $30,000 of US wages in 2026. - No treaty relief: $30,000. A student from a country whose treaty gives students no relief is taxed on every dollar of pay. - From China: $25,000. Article 20(c) of the US-China treaty exempts the first $5,000 of pay each year. - From India: $13,900. Article 21(2) subtracts the $16,100 standard deduction from the pay. Each figure is taxable income, meaning the $30,000 of pay minus the treaty relief shown. The $16,100 is the 2026 standard deduction under Rev. Proc. 2025-32, and the $5,000 is a fixed treaty amount. The figures leave out any itemized deductions the other two students could claim. Each student’s tax bracket then sets the tax. ## Your US residency status decides whether income from India is taxed here. Under Article 1(3), the saving clause, the US taxes a resident alien’s income from India under its own law. The treaty still caps India’s tax on dividends and interest, and Article 25 makes the US credit what India charges. | | Nonresident alien | Resident alien | | --- | --- | --- | | Interest from India | No US tax | Taxed in full (The US credits any Indian tax on it) | | Dividends from Indian shares | No US tax | Taxed in full (India may tax them at up to 25%) | | Rent or gains on property in India | No US tax | Taxed (The treaty does not cap India’s tax) | | Indian mutual funds | No US tax | Generally treated as PFICs (Passive foreign investment companies. Form 8621 is usually due for each fund every year.) | | FBAR for accounts in India | Not required | Required over $10,000 (All foreign accounts combined, at any time in the year) | On an H-1B, you often become a resident alien in your arrival year, from your first day in the US. On an F-1 visa, that usually happens in your sixth calendar year. ## Where Indian visa holders misread the treaty. ### A teaching visit that runs past two years (https://valim.tax/visa-holders/j-1-visa-taxes) If a teaching or research visit runs past two years, the IRS treats the Article 22 exemption as lost for the whole visit. The exemption covers pay for teaching or research at a university or other recognized educational institution. Research done mainly for the benefit of a private person or company never qualifies. ### Treating NRE interest as tax-free in the US (https://valim.tax/visa-holders/from-india) India exempts interest on an NRE (non-resident external) account for an individual resident outside India under FEMA, its foreign exchange law. US law has no matching rule, so a resident alien reports it as ordinary interest. With no Indian tax paid, there is no credit to set against it. ### Expecting the treaty to exempt H-1B wages The treaty does not exempt the wages of an H-1B worker on a US company’s payroll. Article 16 exempts pay for US work only if you are here 183 days or less in the tax year. Your employer must also be a non-US resident, with no US branch bearing the cost. ### Filing Form 8833 for a student or teacher claim A student or teacher claim does not need Form 8833. Treasury regulations waive it for treaty claims on wages and on the income of students, trainees and teachers. You claim Article 21 or 22 on the return itself. Form 8833 is still needed for some claims, such as being treated as a resident of India under the Article 4(2) tie-breaker. ### Counting the FICA exemption as a treaty benefit (https://valim.tax/glossary/fica) On-campus jobs and practical training on an F-1 or J-1 visa are usually free of Social Security and Medicare. That rule is in the Internal Revenue Code and applies to students from every country. It ends once you become a resident alien, even while Article 21 still applies. ## We file your US return with the treaty applied. Valim’s CPAs prepare the US returns of students and H-1B workers from India, alongside any accountant they have back home. - We claim your treaty benefits on Form 1040-NR, including the Article 21(2) standard deduction. - Once you are a resident alien, we credit your Indian tax on Form 1116 and file your FBAR. We add Form 8938 for foreign assets and Form 8621 for each Indian mutual fund where they apply. Your instant quote prices each account and fund. - We weigh selling property in India before your US tax residency starts against selling after it. - We figure estimated tax on Indian rent and interest. - We answer IRS and state notices on returns we prepared, treaty claims included, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What do students and H-1B workers from India ask about the US-India tax treaty? ### What treaty benefits can Indian students claim? Under Article 21, Indian students owe no US tax on money from abroad for living costs and study, and can take the standard deduction. Article 21(2) sets the deduction, $16,100 for 2026, against US wages and scholarships. On Form 1040-NR, it may also let them claim dependents who meet the tests US citizens use, such as a US-born child. The benefits last as long as the program reasonably needs, and they end with a green card or US citizenship. ### Does the treaty stop double tax on income from India? Yes, for most income, because the US lets you claim Indian tax as a foreign tax credit. Article 25 requires that credit, subject to the limit in US law. Once you are a resident alien, the US taxes your Indian interest, dividends, rent and gains. The treaty also caps India’s tax at 15% on deposit interest and 25% on an individual’s dividends. While you are a nonresident alien, the US does not tax income arising in India, such as Indian bank interest, rent or gains. Pay for work you do in the US is generally US income, even from an Indian employer. ### How is a property sale in India taxed in the US? A US citizen or resident alien reports the full gain on property sold in India, figured in US dollars. Article 13 of the treaty lets India tax the same gain under its own law. The US then credits India’s tax on that gain, up to the foreign tax credit limit. The US home sale exclusion may also cover a main home in India that meets its ownership and use tests. If you sell while still a nonresident alien, the US does not tax the gain. Our page on moving to the US from India works through a sale and India’s TDS. ### Is there a tax treaty between India and the US? Yes, the US and India have an income tax treaty, formally a convention for the avoidance of double taxation. India’s Income Tax Department lists it under “USA” as a DTAA (double taxation avoidance agreement). The treaty’s saving clause keeps US citizens and residents taxable under US law, as if the treaty had never taken effect. Two things survive it: the US credit for Indian tax, and the student and teacher articles for visitors without a green card. ### Who qualifies for the US tax treaty? The US-India tax treaty covers residents of India and the US, with residence set by Article 4. If India and the US both claim you, Article 4(2) decides, starting with where you keep a permanent home. Each article then adds its own conditions, such as Article 21’s rule that a student be here mainly to study. Each country’s treaty with the US has its own residence article, so a resident of Canada claims under the US-Canada tax treaty instead. ### What is the India-US tax treaty exemption amount? The India-US tax treaty sets no fixed exemption amount for wages. For students, the figure that matters is the standard deduction under Article 21(2): $16,100 for 2026, and $15,750 for 2025. Payments from outside the US for a student’s living costs and studies are exempt in full. Pay for teaching or research at a university is exempt in full for a visit of up to two years. The $5,000 exemption people cite is in the US-China tax treaty. ## Sources - US-India income tax convention (IRS text): https://www.irs.gov/pub/irs-trty/india.pdf - US Treasury, Technical Explanation of the US-India convention: https://www.irs.gov/pub/irs-trty/inditech.pdf - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Instructions for Form 1040-NR (2025): https://www.irs.gov/instructions/i1040nr - IRS, Publication 901 (Rev. September 2024), U.S. Tax Treaties: https://www.irs.gov/publications/p901 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 301.6114-1, Treaty-based return positions: https://www.law.cornell.edu/cfr/text/26/301.6114-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - Income Tax Department (India), FAQs on non-residents: https://www.incometax.gov.in/iec/foportal/help/all-topics/e-filing-services/non-resident - Income Tax Department (India), Double Taxation Avoidance Agreements: https://incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx - US-China income tax agreement (IRS text): https://www.irs.gov/pub/irs-trty/china.pdf --- URL: https://valim.tax/visa-holders/j-1-visa-taxes Title: J-1 visa taxes: FICA, residency and treaty exemptions Updated: 2026-09-24 # Your J-1 visa taxes include income tax on your US pay, but usually not Social Security or Medicare. The Social Security and Medicare exemption lasts only while you are a nonresident alien. While it lasts, your pay goes on Form 1040-NR, in most cases with no standard deduction. Nonresident J-1 exchange visitors: - 7.65%: is the employee’s Social Security and Medicare rate on wages, which a nonresident J-1 does not pay on program work. - 2 years: is how long a J-1 researcher’s days usually stay uncounted for residency, or 4 if a foreign employer pays all their compensation. - 5 years: is how long a J-1 student’s days usually stay uncounted, in calendar years. A treaty exemption for teaching or research has its own time limit, separate from these counts. ## Do your days on a J-1 count toward US residency yet? The substantial presence test, the day count that can make you a resident alien, leaves out days you spend as an exempt individual. Your J-1 days stay exempt while you meet the first two conditions below and stay within the year limit that fits you. ### 1. You hold a J-1, or a J-2 as family of a J-1 The exemption covers you and your immediate family on J-2 visas. That means your spouse, and your unmarried children under 21 who live with you. ### 2. You keep to the terms of your program Activities that could cost you J-1 status, such as unauthorized work, end the exemption. That is true even if your visa is never revoked. ### 3. Everyone but students: 2 years in 6 The tax code treats every J-1 who is not a student as a teacher or trainee, researchers and interns included. Your days count this year if you were exempt for any part of 2 of the 6 prior calendar years. Years you spent here as a student count toward the 2. ### 4. Paid by a foreign employer: 4 years in 6 The limit rises to 4 of the 6 prior years if a foreign employer paid all your compensation. A foreign employer must also have paid you in full in each earlier year you spent here as a teacher or trainee. ### 5. Students: 5 calendar years As a J-1 student, your days stay exempt for 5 calendar years. Earlier years as a J-1 teacher or trainee count toward the 5. After that, your days count unless you show you do not intend to live in the US permanently. Exempt here means your days are not counted. It does not make your pay tax-free. ## On $60,000 of pay, a nonresident J-1 owes less federal tax than a resident, even with no standard deduction. Each person below is paid $60,000 for US work in 2026 and does not file a joint return. - Nonresident J-1 researcher: $7,912. Income tax on the full $60,000, with no Social Security or Medicare. - Resident alien, same pay: $9,610. The standard deduction cuts income tax to $5,020, but Social Security and Medicare add $4,590. - J-2 spouse, same pay: $12,502. The same $7,912 of income tax as the J-1, plus $4,590 of Social Security and Medicare. - J-1 professor from the UK: $0. On a university visit of 2 years or less, the treaty exempts the teaching pay itself. Form 1040-NR is still filed to claim it. Each figure is 2026 federal income tax plus Social Security and Medicare, using the 10%, 12% and 22% brackets in Rev. Proc. 2025-32. Single filers and married people filing separately share these figures. With no standard deduction, $60,000 is taxed at $5,800 plus 22% of $9,600, or $7,912. After the $16,100 standard deduction, the resident’s remaining $43,900 is taxed at $1,240 plus 12% of $31,500, or $5,020. Social Security and Medicare, at 6.2% and 1.45% of pay, add $4,590 for the resident and the J-2 spouse only. Article 20A of the US-UK treaty takes the professor’s income tax to zero. State tax and other deductions are left out. ## What changes when a J-1 becomes a resident alien? You keep the same J-1 visa, but the US now taxes you like a citizen. Figures are for 2026. | | Nonresident J-1 | Resident alien | | --- | --- | --- | | Income taxed | US income (Pay from a foreign employer is left out) | Worldwide income (Pay from a foreign employer included) | | Standard deduction | None (Except for students and business apprentices from India) | $16,100 (For a single filer) | | Social Security and Medicare | None on program work | Withheld from your pay | | Return | Form 1040-NR (Plus Form 8843) | Form 1040 | | Treaty teaching exemption | Applies within its time limit | Only if the saving clause allows it (The treaty clause that lets the US tax its own residents) | In the first year your days count, 183 days in the US usually make you a resident alien. Residency then runs from your first day in the US that year. Earlier exempt days never count toward the 183. ## J-1 tax mistakes often start with a miscounted year or an exemption you do not have. ### Counting your years from the day you arrived The limits count calendar years, and a few days in a year use up that whole year. A researcher who arrives in November 2025 is exempt for 2025 and 2026, and counts days from January 1, 2027. A student who arrives in August 2025 counts 2025 as the first of 5 years. ### Assuming every treaty exempts teaching pay Only some treaties exempt pay for teaching or research, and those with Canada, Mexico and Japan do not. China’s exemption lasts 3 years in total. Under the UK and India treaties, a visit longer than 2 years loses the exemption for the whole visit. ### Paying Social Security you did not owe (https://valim.tax/glossary/fica) If your employer withheld Social Security and Medicare from exempt pay, ask it for a refund first. If it refuses, claim the refund from the IRS on Form 843, with your W-2, visa, Form I-94 and Form DS-2019. Add a statement from your employer, or your own statement or Form 8316 if it will not give one. ### Skipping Form 8843 because you had no income (https://valim.tax/visa-holders/form-1040-nr) Each exempt J-1 and J-2 files Form 8843 for every exempt year, income or not. It goes with Form 1040-NR, or on its own by that return’s due date. Filing it late does not cost you the exempt days. ### Expecting California to follow your treaty California generally does not follow federal tax treaties for its own income tax. So pay for work in California usually stays taxable there, even when a treaty exempts it from federal tax. Other states set their own treaty rules, so check yours. ### Assuming the FICA exemption follows you to an O-1 or H-1B (https://valim.tax/visa-holders/o-1-visa-taxes) The FICA exemption ends on the date of the change, because it covers only F, J, M and Q visas. Every day on the new visa counts toward residency. Your exempt J-1 days stay out of the count. ## Valim’s CPAs file every J-1 year, from Form 8843 to your first Form 1040. We also prepare the returns and Forms 8843 for your J-2 spouse and children. - We count your exempt years from your visa history, then prepare Form 1040-NR, your state return and each Form 8843. - If your tax treaty exempts teaching or research pay, we claim it after checking your visit against its time limit. - We check each W-2 for Social Security and Medicare taken from exempt pay, so you can ask your employer to refund it. - We set estimated payments when you become a resident paid by a foreign employer. - We answer IRS or state notices on a return we prepared, such as a question on your exempt days, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## J-1 visa tax questions. ### Do J-1 visa holders have to pay taxes? Yes, J-1 visa holders pay federal income tax on their US pay, and state income tax where the state has one. As nonresident aliens, they report that pay on Form 1040-NR, with no standard deduction unless they are students or business apprentices from India. A nonresident J-1 does not pay Social Security and Medicare on program work. A degree student’s taxable scholarship is withheld at 14%, or a lower treaty rate. ### Do J-1 visas pay Social Security tax? No, a nonresident J-1 visa holder pays no Social Security or Medicare tax (FICA) on work that carries out the program’s purpose. Becoming a resident alien ends this exemption, even if the visa stays the same. For researchers and trainees, that is usually the 3rd calendar year, and for students the 6th. A J-2 spouse or child who works pays both Social Security and Medicare. Work visas such as the H-1B and the TN carry no such exemption. ### Who gets the new $6000 tax break? Form 1040-NR has a line for the new $6,000 senior deduction, so an unmarried J-1 scholar aged 65 or older may claim it. It applies for tax years 2025 through 2028, and needs a Social Security number on the return. It phases out by 6 cents for each dollar of modified adjusted gross income over $75,000. ### What is the $600 rule? The $600 rule was the payment level that required a business to file Form 1099-NEC or 1099-MISC. The 1099-NEC threshold rose to $2,000 for payments made after 2025, with inflation adjustments from 2027. The Form 1099-K threshold is back to more than $20,000 and more than 200 transactions. These thresholds decide only whether a form is filed. A missing form never makes your pay tax-free, whatever your visa. ### Are J-1 researchers tax-free for their first 2 years? Usually not: the 2-year J-1 visa tax exemption people cite is a day-count rule for J-1s who are not students. Their days stay out of the substantial presence test for 2 calendar years, so they usually stay nonresident aliens. Their pay is still subject to income tax, unless a treaty exempts it. Some treaties, including the UK and India treaties, exempt teaching or research pay for up to 2 years. ## Sources - IRS, Foreign students, scholars, teachers, researchers and exchange visitors: https://www.irs.gov/individuals/international-taxpayers/foreign-students-scholars-teachers-researchers-and-exchange-visitors - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-3, Days of presence that are excluded for purposes of section 7701(b): https://www.law.cornell.edu/cfr/text/26/301.7701(b)-3 - 26 U.S.C. § 872, Gross income (pay from a foreign employer): https://www.law.cornell.edu/uscode/text/26/872 - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Form 8843 (2025), Statement for Exempt Individuals: https://www.irs.gov/pub/irs-pdf/f8843.pdf - IRS, Instructions for Form 1040-NR (2025): https://www.irs.gov/instructions/i1040nr - IRS, Instructions for Form 843 (12/2024): https://www.irs.gov/instructions/i843 - IRS, Publication 901 (Rev. September 2024), U.S. Tax Treaties: https://www.irs.gov/publications/p901 - Protocol to the US-UK convention (2002): https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-7-19-2002.pdf - US-China income tax agreement (1984): https://www.irs.gov/pub/irs-trty/china.pdf - US-India income tax convention (1989): https://www.irs.gov/pub/irs-trty/india.pdf - 8 U.S.C. § 1101, Definitions (INA Section 101(a)(15)(J)): https://www.law.cornell.edu/uscode/text/8/1101 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - California FTB, Publication 1031 (2025), Guidelines for Determining Resident Status: https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf - Public Law 119-21 (One Big Beautiful Bill Act), §§ 70103, 70432 and 70433: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf --- URL: https://valim.tax/visa-holders/tn-visa-taxes Title: TN visa taxes for Canadians and Mexicans: residency and FICA Updated: 2026-09-24 # For Canadians and Mexicans, TN visa taxes are the same as any US worker’s, and most pay them as residents. The substantial presence test sets your US tax status on a TN. Unlike a student visa, the TN itself takes none of your days out of the count. You are usually a resident alien once you have 31 days this year and 183 over three years, with earlier years counting for less. A TN worker’s US taxes in 2026: - 122: days a year in the US, three years running, reach the weighted 183 of the substantial presence test. - 7.65%: of your pay goes to Social Security and Medicare from your first TN paycheck. - Over 75%: of your workdays is how often you must commute from Canada or Mexico for those days to stay out of the count. Social Security’s 6.2% stops at $184,500 of wages in 2026, and Medicare’s 1.45% has no cap. Your employer withholds another 0.9% on wages over $200,000. ## Are you a US resident for tax on a TN visa? The weighted 183-day total settles residency for most TN workers. The last three checks matter only for commuters and for people whose home stays in Canada or Mexico. ### 1. The 31-day threshold You cannot meet the substantial presence test with fewer than 31 days in the US this year, however long you stayed before. A day counts if you are in the US at any point during it. ### 2. A weighted total of 183 days The test counts all of this year’s days, a third of last year’s and a sixth of the year before’s. So a TN worker who divides each year between the US and home can pass without 183 days in any one year. ### 3. Commuting days from Canada or Mexico The count leaves out days you commute to a US job from your home in Canada or Mexico and return within 24 hours. This applies only if you commute on more than 75% of your workdays during your US working period. Commuters who clear that bar, called regular commuters, usually stay nonresident aliens and file Form 1040-NR for their US pay. ### 4. Under 183 days, with closer ties at home With fewer than 183 days in the US this year, you may still be a nonresident under the closer connection exception. To claim it, you need a tax home in Canada or Mexico all year and closer ties there than to the US. You must also file Form 8840 on time. You cannot claim it in any year a green card application was pending or filed for you, including a petition your employer filed. ### 5. Resident in both countries If Canada or Mexico also treats you as its resident, the treaty’s tie-breaker can make you a nonresident for US income tax. It looks first at where you have a permanent home. You claim it on Form 1040-NR, with Form 8833 attached. Residency usually starts on your first day in the US, so your arrival year is a dual-status year. If you arrive too late to reach 183 days, you may still be able to choose resident status for that year. ## What federal income tax and FICA come out of an $80,000 TN salary? A single TN worker earns $80,000 from a US employer in 2026 and has no other income. - Income tax as a resident: $8,770. A full-year resident takes the $16,100 standard deduction, so $63,900 is taxed. - Social Security and Medicare: $6,120. Residents and nonresidents pay the same amount. - Total as a resident: $14,890. This is the usual TN outcome. - Income tax as a nonresident: $12,312. A regular commuter files Form 1040-NR, with no standard deduction. - Total as a nonresident: $18,432. Losing the standard deduction costs $3,542. The income tax uses the 2026 rates for a single filer from Rev. Proc. 2025-32. In both cases, that is $5,800 plus 22% of taxable income over $50,400. Social Security is 6.2% of the $80,000, and Medicare is 1.45%. State tax, credits and itemized deductions are left out. ## How do the rules differ for Canadian and Mexican TN workers? The TN is a USMCA visa for professionals, open only to citizens of Canada and Mexico. Your home country decides which tax treaty applies, and whether a Social Security agreement covers you. | | From Canada | From Mexico | | --- | --- | --- | | Social Security agreement | In force since 1984 | None in force | | Social Security and Medicare on TN pay | Due (Unless a CPT56 or QUE/USA 101 certificate keeps you in the CPP or QPP) | Due in full (No certificate can exempt you) | | US pay taxed only at home | $10,000 or less a year (Or 183 days or fewer, if no US employer pays it and no US branch bears it) | 183 days or fewer (If no US employer pays it and no US branch bears it) | Only someone the treaty treats as a resident of Canada or Mexico can use the rules that tax US pay only at home. Even then, TN pay from a US employer rarely qualifies. Residents of either country who file Form 1040-NR can still claim dependents. ## Four US tax mistakes can cost a TN worker money or a joint return. ### Expecting a US deduction for RRSP contributions Money you put into your own RRSP while you work in the US is not deductible on your US return. The treaty deduction covers only plans your employer takes part in, such as a group RRSP. Even then, you must have been in the plan before your US work began. ### Leaving income from home off the return (https://valim.tax/expat-tax/foreign-tax-credit) As a resident alien, your US return includes interest, dividends and rent from Canada or Mexico, even if the money stays there. A foreign tax credit may reduce the US tax on income your home country also taxes. ### Expecting a joint return in your first year A dual-status return cannot be filed jointly, and it gets no standard deduction. If you and your spouse are both residents by December 31, a one-time election lets you file jointly as full-year residents. If your spouse is still a nonresident then, a separate election can treat them as a resident so you can file jointly. ### Overlooking your TD spouse’s tax ID A spouse on a TD visa cannot work in the US, so they may not qualify for a Social Security number. To go on a joint return, a spouse without one applies for an ITIN on Form W-7, usually with the return. ## We prepare your US returns on a TN, commuting years and the dual-status year included. Valim’s CPAs prepare US tax returns for Canadian and Mexican professionals on a TN visa, working alongside your accountant at home. - We work out your status for each TN year and prepare the federal and state returns it needs. - We compare a joint return for your arrival year against separate returns, and weigh any treaty tie-breaker claim. - We list your accounts in Canada or Mexico, RRSPs included, on your FBAR and any Form 8938 that is due. Your instant quote prices each foreign account and each foreign mutual fund or ETF you hold. - We set estimated payments for income from home that has no US withholding. - Within your fee, we answer IRS and state notices on any return we prepared, including a notice that questions your commuting days. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## TN visa tax questions. ### What taxes do TN visa holders pay? TN visa holders pay the same taxes as other US workers: federal and any state income tax, plus Social Security and Medicare. The one exception to Social Security and Medicare is a Canadian whose certificate of coverage keeps them in the Canada or Quebec Pension Plan. The TN visa itself carries no tax exemption. The J-1 frees a nonresident’s program pay from Social Security and Medicare, and the TN has no such rule. Most TN visa holders are resident aliens, so their US return also reports what they earn in Canada or Mexico. The treaties’ wage rules rarely help, because a TN worker is paid by a US employer. ### Is a TN visa considered a resident or nonresident for tax purposes? A TN visa holder is a resident alien for tax once their days in the US pass the substantial presence test. TN days count toward the test, as H-1B days do. The test needs 31 days this year and 183 weighted days over three years. The year of arrival is usually dual-status: nonresident before the first day in the US, and resident from that day on. Regular commuters from Canada or Mexico can stay nonresidents, and so can dual residents who claim a treaty tie-breaker. Someone under 183 days this year can too, with a tax home and closer ties in Canada or Mexico and a timely Form 8840. Residents file Form 1040, and nonresidents file Form 1040-NR. ### Do TN visa holders pay Social Security tax? Yes, in most cases, because Social Security and Medicare apply to TN pay whatever your tax residency. A Canadian is exempt only with a Canadian certificate of coverage, requested on form CPT56 (QUE/USA 101 for the Quebec plan). Certificates usually go to workers their employer sends from Canada, such as many L-1 transferees. A TN worker hired by a US employer rarely gets one, so most Canadians on a TN pay. Mexicans on a TN pay in full, since the US and Mexico have no Social Security agreement in force. ### What happens to my RRSP on a TN visa? Your RRSP keeps its tax deferral when you become a US resident on a TN. The US-Canada treaty lets US tax on RRSP and RRIF growth wait until you withdraw. Rev. Proc. 2014-55 makes that deferral automatic for eligible owners, so you file no election form. Each account still goes on your FBAR, and on Form 8938 when your foreign assets pass its threshold. RRSPs and RRIFs are exempt from Form 3520. ## Sources - USCIS, TN USMCA Professionals: https://www.uscis.gov/working-in-the-united-states/temporary-workers/tn-usmca-professionals - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-3, Days of presence in the United States that are excluded for purposes of section 7701(b): https://www.ecfr.gov/current/title-26/section-301.7701(b)-3 - 26 C.F.R. § 301.7701(b)-2, Closer connection exception: https://www.ecfr.gov/current/title-26/section-301.7701(b)-2 - 26 U.S.C. § 6013, Joint returns: https://www.law.cornell.edu/uscode/text/26/6013 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Form 8833: https://www.irs.gov/pub/irs-pdf/f8833.pdf - IRS, Individual Taxpayer Identification Number: https://www.irs.gov/tin/itin/individual-taxpayer-identification-number-itin - US-Canada income tax convention, as amended (IRS text): https://www.irs.gov/pub/irs-trty/canada.pdf - Fifth protocol to the US-Canada convention (2007): https://home.treasury.gov/system/files/131/Treaty-Canada-Pr2-9-21-2007.pdf - US-Mexico income tax convention (1992): https://www.irs.gov/pub/irs-trty/mexico.pdf - IRS, Rev. Proc. 2014-55 (Canadian retirement plans): https://www.irs.gov/pub/irs-drop/rp-14-55.pdf - Social Security Administration, Totalization Agreement with Canada: https://www.ssa.gov/international/Agreement_Pamphlets/canada.html - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/visa-holders/l-1-visa-taxes Title: L-1 visa taxes: residency, FICA and the dual-status first year Updated: 2026-09-24 # L-1 visa taxes: arrive by early July, and you are usually taxed as a US resident from your first year. The L-1 is not an exempt visa for the substantial presence test, so your L-1 days count. At 183 days in a year, you are a resident alien, unless a treaty tie-breaker makes you a resident of your home country. Your residency then starts on your first day in the US that year, which makes your arrival year a dual-status year. For an L-1 transfer in 2026: - July 2: is the latest arrival date that reaches 183 US days by December 31, with no trips abroad or earlier visits. - 7.65%: is the employee share of Social Security and Medicare tax on L-1 wages up to $184,500, unless a certificate of coverage applies. - 5 years: is the usual limit on an assignment that keeps you in your home country’s Social Security system. ## Are you a US resident for tax in your first L-1 year? Any part of a day in the US counts as a full day, including the day you land. ### 1. You arrived by July 2 Each day here from your arrival to December 31 counts toward 183. Trips outside the US after you land take days off that count, so a July arrival with a holiday abroad can fall short. ### 2. You made US trips in the two years before Earlier business trips count too, with last year’s days at a third and those from two years ago at a sixth. They can lift a later arrival past 183 days. You still need at least 31 days here this year. ### 3. You visited earlier in the same year An earlier visit that year, such as a house-hunting trip, can pull your residency start date back to that visit. Visits of 10 days or fewer in total do not move it if your tax home and closer connection were still abroad. You claim this in a signed statement with your return. Those days still count toward your 183. ### 4. You arrived later in the year If you count fewer than 183 days, you are a nonresident alien for the year, unless you make an election. The first-year choice starts your residency on the first day of a stay of at least 31 days in a row. From that day to December 31, you must be here on at least 75% of the days. Up to 5 days away still count as days here. You must also pass the test the next year. A spouse who is a US citizen or resident can instead elect with you to treat you as a resident all year. Your spouse and children on L-2 visas are tested the same way, each on their own days. ## Without a certificate of coverage, a $200,000 L-1 salary costs you $14,339 in Social Security and Medicare for 2026. A certificate of coverage fits the L-1 more often than any other work visa. Every L-1 worker is transferred within one employer group, which is what the agreements look for. Two L-1A managers each earn $200,000 for work in the US in 2026. One was sent from India, and one from the UK on an assignment expected to last 5 years or less. - Sent from India: Social Security: $11,439. The 6.2% rate applies to the first $184,500 of pay. - Sent from India: Medicare: $2,900. The 1.45% rate applies to all pay, with no cap. - Sent from India: total: $14,339. India has no Social Security agreement with the US. - Sent from the UK, with a certificate: $0. She stays in the UK system, so no US Social Security or Medicare is withheld. Both managers are single, and the figures use the 2026 employee rates and wage base. The 0.9% Additional Medicare Tax applies only above $200,000 of wages, so neither owes it. The employer of the manager from India pays a matching $14,339. The UK manager’s certificate comes from the UK authorities, and her employer keeps it on file. ## Your L-1 arrival year gets a dual-status return and no standard deduction. The figures are for 2026 and assume you pass the substantial presence test in your arrival year. | | Arrival year | Later years | | --- | --- | --- | | Income taxed | Split at your start date (US income before it, worldwide income after) | Worldwide income (For the whole year) | | Tax return | Form 1040, marked Dual Status Return (Form 1040-NR can serve as the statement for the months before) | Form 1040 | | Standard deduction | None (You can still itemize) | $16,100 (For a single filer) | | Married couples | Married filing separately (Unless you and your spouse make the joint election) | Joint or separate returns | The Section 6013(h) election taxes you both on worldwide income all year, including pay from before the move. A couple can make it only once. For tax year 2025, the IRS did not accept dual-status returns by e-file, so they were filed on paper. ## What trips up L-1 transferees in their first US years? ### Your pay still comes from home Pay for work done in the US is US income, whichever company pays it and wherever it is paid. The same rule reaches a spouse who works from the US for an employer back home. ### You still earn income back home (https://valim.tax/glossary/resident-alien) Bank interest and rent from a flat back home are taxable in the US from your start date. So is the gain when you sell shares you hold there. ### Your assignment runs past 5 years (https://valim.tax/glossary/fica) An L-1A can stay up to 7 years, past the usual 5-year limit on home coverage. An L-1B’s 5-year maximum fits within that limit. If your L-1A assignment is expected to run past 5 years, you may owe US Social Security and Medicare from the start. ### You are married in your first year Filing separately in a dual-status year means the 0.9% Additional Medicare Tax applies to your wages above $125,000. Your employer withholds it only above $200,000, so tax on the wages in between is due with your return. ## A US CPA can plan your L-1 move and prepare every return after it. Valim’s CPAs prepare and file only the US returns of L-1 visa holders. We share the figures with the accountant who files your return at home. - We work out your residency start date from your travel dates, then prepare your dual-status return and each Form 1040 after it. - We plan the move before residency starts and compare a dual-status first year with the joint election. - We set estimated payments for tax your payroll does not withhold. - Your instant quote prices each foreign account and fund, and each company abroad you own more than 20% of. - Your fee covers our reply to a notice from the IRS or your state about a return we prepared. That includes a question about your residency start date. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## L-1 visa tax questions. ### How are L1 visa holders taxed? L-1 visa holders are taxed like other US workers once they pass the substantial presence test. A transferee who arrives by early July usually passes it in the first year, which becomes a dual-status year. Pay for their US work is US income, even when the employer abroad runs the payroll. Social Security and Medicare apply too, unless a certificate of coverage keeps the worker in the home country’s system. ### Is L1A better than H1B? For tax, neither is better: the same rules apply to L-1A and H-1B workers. Days on either visa count toward residency, while a J-1 visitor’s days can be exempt. The practical difference is Social Security. An L-1 worker sent from a country with an agreement is more likely to get a certificate of coverage. Other differences, such as the L-1A’s 7-year limit against the H-1B’s usual 6, are immigration rules. ### How much tax do you pay on $100,000 in the USA? For 2026, a single resident earning $100,000 in wages owes $13,170 of federal income tax. That is after the $16,100 standard deduction. Employee Social Security and Medicare add $7,650, for $20,820 before credits and state tax. A dual-status first year has no standard deduction, so with nothing to itemize, you owe $16,712 of income tax on the same pay. On contract fees, a resident O-1 contractor owes both halves of Social Security and Medicare as self-employment tax, and a nonresident usually owes none. ### Do L-1 visa holders pay Social Security tax? Yes, L-1 visa holders pay FICA, the US Social Security and Medicare tax, unless a totalization agreement applies. That exemption generally takes a transfer by the same employer, for an assignment expected to last 5 years or less. The worker also needs a certificate of coverage from the home country to prove it. The US has no such agreement with India, Mexico or China. A Canadian sent on an L-1 can stay in Canada’s system, unlike a TN professional hired by a US employer. ### Is my salary from before the move taxed in the US? Pay for work abroad is usually outside US tax if you receive it before your residency start date. Until that date, you are a nonresident alien, taxed only on US income, which a Form 1040-NR statement reports. Pay for that work received after your start date, such as a bonus, is taxed. So is all of it if you and your spouse elect to be treated as residents for the whole year. It is also taxed if an earlier US visit that year pulled your start date back before you received it. ## Sources - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-4, Residency time periods: https://www.ecfr.gov/current/title-26/section-301.7701(b)-4 - 26 U.S.C. § 6013, Joint returns of income tax by husband and wife: https://www.law.cornell.edu/uscode/text/26/6013 - 26 U.S.C. § 861, Income from sources within the United States: https://www.law.cornell.edu/uscode/text/26/861 - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Taxation of aliens by visa type and immigration status: https://www.irs.gov/individuals/international-taxpayers/taxation-of-aliens-by-visa-type-and-immigration-status - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - USCIS, L-1A Intracompany Transferee Executive or Manager: https://www.uscis.gov/working-in-the-united-states/temporary-workers/l-1a-intracompany-transferee-executive-or-manager - USCIS, L-1B Intracompany Transferee Specialized Knowledge: https://www.uscis.gov/working-in-the-united-states/temporary-workers/l-1b-intracompany-transferee-specialized-knowledge --- URL: https://valim.tax/visa-holders/o-1-visa-taxes Title: O-1 visa taxes: wages, contract fees and the residency split Updated: 2026-09-24 # Contract fees split O-1 visa taxes: residents pay self-employment tax on them, and nonresidents usually pay none. An O-1 employee’s wages bear 7.65% Social Security and Medicare, as a US citizen’s do, unless a Social Security agreement applies. The tax on your contract fees turns on your residency, which the 183-day substantial presence test sets each calendar year. O-1 contract fees in 2026: - 15.3%: is the usual self-employment tax on a resident alien’s fees, on 92.35% of profit up to the wage base. - $0: is the self-employment tax on a nonresident’s fees, unless a Social Security agreement applies. - 30%: of each fee for US work is withheld for a nonresident, unless a treaty or an IRS agreement allows less. ## How many days on an O-1 make you a US resident for tax? No visa type makes you a resident or a nonresident for tax by itself. O-1 holders here for short engagements are often nonresident aliens. If you stay most of the year, you are usually a resident. ### 1. Three years of days, weighted The substantial presence test counts every day here this year. It adds one day in three from last year and one in six from the year before. If the total reaches 183 days, and at least 31 of them fall this year, you are usually a resident alien. With 90 days here last year and 60 the year before, a touring year of 150 days counts as 190. ### 2. Fewer than 183 days, with ties abroad A year spent partly on tour abroad can leave you under 183 US days. The closer connection exception can then keep you a nonresident. Your tax home must stay abroad all year, and your ties there must outweigh your ties here. You claim it on Form 8840 by your Form 1040-NR deadline. ### 3. A green card application this year A pending green card application, or any step toward one that year, rules out the closer connection exception. That includes a Form I-140 petition, filed by you or by an employer. As a permanent resident, you are a resident alien under the green card test, however few days you spend here. ### 4. Days competing in a charity event If you are a professional athlete at a qualifying charitable sports event, your days competing can stay out of the count. You claim those days on Form 8843, and a late form puts them back in. ### 5. Exempt F-1 or J-1 days before your O-1 Days you spent here as an exempt F-1 student or J-1 visitor never enter the day count, this year or later. Your O-1 days start counting on the day your status changes. ## A resident pays $16,955 of self-employment tax on $120,000 of O-1 fees, and a nonresident usually pays nothing. Each case below is $120,000 paid for US work in 2026, with no business expenses and no other income. - Employee, resident alien: $9,180. Social Security at 6.2% and Medicare at 1.45% come out of your pay. Your employer pays the same again. - Employee, nonresident alien: $9,180. A nonresident owes the same, because O-1 wages have no exemption from either tax. - Contractor, resident alien: $16,955. With no employer to pay a share, you owe both halves of the tax yourself. - Contractor, nonresident alien: $0. The law leaves a nonresident alien’s fees out of self-employment income. Self-employment tax is 12.4% plus 2.9%, or 15.3%. It applies to 92.35% of profit, which is 100% less 7.65%, half the combined rate. For the resident contractor, 92.35% of $120,000 is $110,820, and 15.3% of that is $16,955. No case reaches the Social Security wage base, or the $200,000 of wages where the 0.9% Additional Medicare Tax begins. An O-1 employee avoids US Social Security and Medicare mainly with a certificate of coverage under a Social Security agreement. It usually goes to workers an employer abroad posts here. Income tax is not shown. ## How does residency change the tax on your O-1 fees? These rows cover fees you earn as an independent contractor in 2026. | | As a nonresident | As a resident | | --- | --- | --- | | Tax withheld from each fee | 30% (Lower with a treaty claim, or a central withholding agreement for artists and athletes) | None (Generally, unless backup withholding applies) | | Income tax | Graduated rates on Form 1040-NR (After business expenses, with no standard deduction) | Graduated rates on Form 1040 (After business expenses and a $16,100 standard deduction if single) | | Fees for work abroad | Generally not taxed | Taxed (With the rest of your worldwide income) | | 2026 return due | June 15, 2027 (If you had no wages with tax withheld) | April 15, 2027 | In the year your residency starts, you file one dual-status return. Fees for work before the start date are taxed as a nonresident’s. No part of that year gets the standard deduction, unless you and a citizen or resident spouse elect to file jointly. ## What costs O-1 holders money at tax time? ### Leaving the tax on your fees until you file (https://valim.tax/glossary/safe-harbor-estimated-tax) Payers generally withhold nothing from a resident contractor’s fees. You cover the income tax and self-employment tax on them with estimated payments during the year. Wait for your return, and the whole year’s tax falls due at once, often with an underpayment penalty. ### Counting on a treaty for performance fees Tax treaties cap the relief for entertainers and athletes. A Canadian performer loses the relief once US gross receipts, including reimbursed expenses, pass $15,000 in a year. For a Mexican performer, the limit is $3,000. Other treaties set limits of their own. ### Treating fees paid from abroad as foreign income Fees for US work are generally US income, even when a company abroad pays them into a foreign account. They go on your US return in resident and nonresident years alike. ### Carrying an F-1 or J-1 exemption into O-1 pay (https://valim.tax/glossary/fica) On OPT or allowed J-1 work, a nonresident owes neither Social Security nor Medicare. Once you change to an O-1, your wages bear both taxes from that day, unless a certificate of coverage applies. ### Forming an S corporation while a nonresident (https://valim.tax/visa-holders/e-2-visa-taxes) No nonresident alien may hold S corporation stock, so an S election made while you are one fails. A nonresident shareholder also ends an election already in place. The option opens once you are a resident alien. ## Have a CPA work out the tax on your O-1 fees before you file. Valim’s CPAs prepare the US tax returns of O-1 visa holders paid in wages, contract fees or both, as residents or nonresidents. - We set your status for each year from your US days, then report your fees to match it. As a resident, that means Schedule C and self-employment tax. As a nonresident, it means Form 1040-NR and a refund claim for any withholding above your tax. - We work out estimated payments for the tax on your fees. - We show what a longer US stay, or wages in place of fees, would do to your tax. - If another country taxes fees for work you did there, we claim the foreign tax credit on Form 1116. Foreign tax on fees for US work generally earns no US credit. For those fees, we share the US figures with any accountant you have there. - If a notice arrives from the IRS or a state about a return we prepared, we reply at no extra charge. That holds even when it questions your residency or your self-employment tax. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What do O-1 contractors and employees ask about their US taxes? ### What are the downsides of an O-1 visa? For tax, the main downside is that O-1 wages get no exemption from Social Security and Medicare. Both taxes apply from the first paycheck, unless you hold a certificate of coverage. Nonresident F-1 students and J-1 visitors skip both on allowed work. O-1 contractors pay differently. A nonresident has 30% withheld from fees for US work, and a resident owes self-employment tax. The visa’s other drawbacks are immigration questions, best put to an immigration lawyer. ### How much do F-1 students get taxed? On a nonresident F-1, pay is taxed at graduated rates, from 10% on the first $12,400 of 2026 taxable income. Allowed work is also free of Social Security and Medicare. Both change the day you switch to an O-1: the FICA exemption ends, and your O-1 days start counting toward the substantial presence test. The Form 1040-NR page covers the student years. ### When do O-1 contractors pay self-employment tax? O-1 contractors usually pay self-employment tax only in years they are resident aliens. A Social Security agreement can change that in either direction. The tax is 15.3% of 92.35% of profit. It is due once net earnings reach $400 in a year. The 12.4% Social Security part stops at $184,500 of net earnings in 2026, less any wages. O-1 employees pay Social Security and Medicare through payroll instead. ### Can I get back the 30% withheld from my O-1 fees? A nonresident O-1 contractor can often get back part of the 30% withheld by filing Form 1040-NR after the year ends. The return taxes your fees at graduated rates, after the business expenses tied to them. Those expenses count only if you file within 16 months of the due date. The 30% withheld counts as a payment toward the tax, and any excess is refunded. Say $15,000 was withheld from $50,000 of 2026 fees. After $10,000 of expenses, and with no standard deduction, $40,000 is taxable. At 2026 single-filer rates, that is $4,552 of tax, so $10,448 is refunded. ## Sources - IRS, Taxation of aliens by visa type and immigration status: https://www.irs.gov/individuals/international-taxpayers/taxation-of-aliens-by-visa-type-and-immigration-status - USCIS, O-1 Visa: Individuals with Extraordinary Ability or Achievement: https://www.uscis.gov/working-in-the-united-states/temporary-workers/o-1-visa-individuals-with-extraordinary-ability-or-achievement - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 1441, Withholding of tax on nonresident aliens: https://www.law.cornell.edu/uscode/text/26/1441 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - Treas. Reg. § 301.7701(b)-2, Closer connection exception: https://www.ecfr.gov/current/title-26/section-301.7701(b)-2 - Treas. Reg. § 301.7701(b)-3, Exempt individuals: https://www.ecfr.gov/current/title-26/section-301.7701(b)-3 - 8 U.S.C. § 1101, Definitions (O nonimmigrants): https://www.law.cornell.edu/uscode/text/8/1101 - IRS, Aliens employed in the U.S.: Social Security taxes: https://www.irs.gov/individuals/international-taxpayers/aliens-employed-in-the-us-social-security-taxes - IRS, Overview of the Central Withholding Agreement program: https://www.irs.gov/individuals/international-taxpayers/overview-of-the-central-withholding-agreement-program - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 901 (Rev. September 2024), U.S. Tax Treaties: https://www.irs.gov/publications/p901 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/visa-holders/e-2-visa-taxes Title: E-2 visa taxes for investors: residency, LLCs and S corps Updated: 2026-09-24 # E-2 visa taxes depend on your residency, which also sets when you can hold S corporation shares. Living in the US to run your E-2 business normally makes you a resident alien under the substantial presence test. It adds all your days here this year, a third of last year’s days and a sixth of the days two years ago. While you are still a nonresident, a single-member LLC you own files Form 5472 for any year it has transactions with you. Your capital contributions to it count as transactions. E-2 investors and their US companies: - 183: days on the three-year weighted count, with at least 31 this year, make you a resident alien. - 15.3%: self-employment tax generally applies to a resident owner’s net earnings from an LLC, up to the Social Security wage base. - 1: nonresident alien shareholder is enough to end an S corporation’s election. ## When does an E-2 investor become a resident alien? Some visas, such as the F and J, let you leave days out of the residency count. The E-2 is not one of them, so every day on it counts toward the substantial presence test. ### 1. You moved here during the year Residency starts on your first day in the US in the year you pass the test. If you pass in your arrival year, that year is dual-status. You are a nonresident until that first day and a resident from then on. ### 2. You made trips to set up the company Days on earlier business visits count toward the test too, such as trips to lease premises before you had your E-2. They can make you a resident sooner, or move your residency start date earlier. Trips of up to 10 days in total can be left out of the start date, if your tax home and ties stayed abroad. A longer trip counts in full. Those days still count toward the 183. ### 3. You still spend long stretches at home Your tax home is your main place of business, so running the company from the US may rule out the closer connection exception. It can keep you a nonresident only in a year with fewer than 183 days here. Your tax home and closer ties must stay abroad all year. You must also file Form 8840 on time and take no steps toward a green card that year. ### 4. Your home country also treats you as its resident When both countries count you as a resident, the tie-breaker in an income tax treaty can make you a nonresident for US income tax. You claim it on Form 1040-NR and disclose it on Form 8833. This treaty is separate from the one that makes your country an E-2 treaty country. If your company is an S corporation, a tie-breaker claim may put its election at risk, because the regulations leave that question open. E-2 employees, hired by an E-2 company for executive, supervisory or essential roles, are tested the same way. ## Social Security and Medicare reach a salary right away, and LLC profit only after you become a resident alien. Self-employment tax is the Social Security and Medicare tax on the earnings of a business you own. An E-2 investor takes $150,000 from a US business in 2026, as LLC profit or as a salary from a corporation. - LLC profit, as a nonresident alien: $0. No self-employment tax is due while you are a nonresident, unless a Social Security agreement between the US and your home country applies. - LLC profit, as a resident alien: $21,194. The 15.3% applies to $138,525, the 92.35% of profit that counts as net earnings. - Salary from your corporation, either status: $22,950. 7.65% is withheld from your pay, and the company pays another 7.65%. Net earnings are 92.35% of profit, because the law first takes off half the 15.3% rate. Neither case reaches the 2026 Social Security wage base of $184,500. The LLC has one owner and no election to be taxed as a corporation. Income tax is left out, and so is the deduction your company takes for the 7.65% it pays. ## Becoming a resident changes your return and your company’s options. In your arrival year, the nonresident column usually applies until your residency start date. | | Nonresident owner | Resident owner | | --- | --- | --- | | Income the US taxes | US income (Such as your US business profit) | Worldwide income (Including income from home) | | Your own return | Form 1040-NR | Form 1040 | | S corporation | Not allowed (No nonresident alien can hold shares) | Allowed (If every other shareholder also qualifies) | | C corporation | Allowed (It may have to file Form 5472) | Allowed | | Single-member LLC | Files Form 5472 (For any year with transactions with you, such as contributions) | Usually no Form 5472 (Form 5472 covers foreign owners, and a resident alien is not one) | Your E-2 visa tax return for a dual-status year is still a single return, filed on the form for your status on December 31. ## Which E-2 rules are easy to miss? ### An S election that takes effect too early (https://valim.tax/small-business/s-corp-taxes) An S election can fail if it takes effect before your residency start date. Until that day you are a nonresident alien, and your shares would disqualify the company. ### Selling assets at home to fund the investment If you sell shares or property at home after your residency starts, the US taxes the gain. A sale before your start date generally stays outside US tax. ### A company you still own at home (https://valim.tax/glossary/controlled-foreign-corporation-cfc) Once you are a resident alien, salary and dividends from your company at home go on your US return. If you own 10% or more of that company, you may also have US filings to make for it, such as Form 5471. ### Running your E-2 business from California (https://valim.tax/multi-state-tax/leaving-california) California judges residency by its own tests. It presumes you are a resident for a year in which you spend more than nine months there. It also ignores tax treaties that cover only federal tax, so a tie-breaker claim may not apply on your California return. ## One CPA can fit your E-2 company’s structure to your residency and prepare every return that follows. Valim’s CPAs prepare only the US returns, for you and your E-2 company, and work alongside your accountant at home. - We prepare your company’s return, if it files one, from your bookkeeper’s year-end books. Your Form 1040 or 1040-NR is built from the same figures. - We plan your move and compare the structures your company can use as your residency changes. - We work out estimated payments on profit that has no tax withheld. - Your instant quote counts any company at home you own more than 20% of, plus your foreign accounts and funds. - When the IRS or your state sends a notice on your company’s return or yours, and we prepared it, we reply within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## E-2 visa tax questions. ### Do non-US citizens pay taxes? Yes, non-US citizens pay US tax, and residency decides how much of their income it reaches. Green card holders and anyone who passes the substantial presence test are resident aliens, taxed on worldwide income like citizens. Nonresident aliens are taxed only on US-source income and income from a US business. Your visa matters for the day count: every E-2 day counts, while some J-1 days do not. ### Can an E-2 visa holder own an S corporation? E-2 visa holders can own an S corporation once they are resident aliens and every other shareholder qualifies too. A co-owner who is still a nonresident alien, or a holding company, rules it out. In your arrival year, an S election effective before your residency start date can fail. Until then, the business can be an LLC or a C corporation. A single-member LLC files Form 5472 for any year it has transactions with you. ### Do E-2 visa holders pay Social Security tax? E-2 visa holders usually pay Social Security tax, and their company’s structure decides whether it comes as payroll tax or self-employment tax. Payroll tax applies to salary from your own corporation, resident or not, unless a Social Security agreement covers you at home. Once you are a resident alien, profit from an LLC you own alone generally bears 15.3% self-employment tax, up to the wage base. While you are a nonresident, that profit owes none unless a Social Security agreement with your home country applies. O-1 contractors follow the same rule. ### Do I pay US tax on a company I still own at home? Yes, once you are a resident alien. Salary and dividends from that company go on your US return, with a credit for tax paid at home within US limits. If you own 10% or more of it, you may also file Form 5471 for the company each year. Before your residency start date, its income stays outside US tax unless it comes from the US. ## Sources - IRS, Taxation of aliens by visa type and immigration status: https://www.irs.gov/individuals/international-taxpayers/taxation-of-aliens-by-visa-type-and-immigration-status - USCIS, E-2 Treaty Investors: https://www.uscis.gov/working-in-the-united-states/temporary-workers/e-2-treaty-investors - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-2, Closer connection exception: https://www.ecfr.gov/current/title-26/section-301.7701(b)-2 - 26 C.F.R. § 301.7701(b)-7, Coordination with income tax treaties: https://www.ecfr.gov/current/title-26/section-301.7701(b)-7 - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - IRS, Instructions for Form 5472 (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/i5472.pdf - IRS, Instructions for Form 5471: https://www.irs.gov/instructions/i5471 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - California FTB, Publication 1031 (2025), Guidelines for Determining Resident Status: https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf --- URL: https://valim.tax/visa-holders/from-canada Title: Moving to the US from Canada: taxes on leaving, RRSPs and TFSAs Updated: 2026-09-24 # Canada’s departure tax comes first when moving to the US from Canada: taxes fall on your gains as if you sold most assets. Article XIII(7) of the US-Canada tax treaty lets you use the value Canada taxed as your US cost basis. The US then taxes only the growth after you leave. US tax on your RRSP waits until you make a withdrawal. A TFSA has no treaty protection, so the US taxes its income every year. Leaving Canada for the US: - C$25,000: is the most your property can be worth when you leave, not counting cash and registered plans, without filing Form T1161. - 25%: of an RRSP lump sum is withheld by Canada once you are no longer resident. - $10,000: is the most your foreign accounts, RRSP and TFSA included, can hold together at any point in the year without an FBAR. Personal-use items worth under C$10,000 also stay out of the Form T1161 total. Figures marked C$ are in Canadian dollars. ## When does your Canadian tax residency end? Two dates matter: the day Canada stops treating you as a resident, and the day the US starts treating you as one. Canada’s own rules decide the first, and the US residency tests decide the second. ### 1. You cut your residential ties Canada usually treats you as an emigrant once you leave to live in another country and cut your residential ties. The ties are a home, a spouse or dependants, personal property and social ties. ### 2. The latest of three dates Canada looks at three dates: the day you leave, the day your spouse or dependants leave, and the day you become a US resident. You usually become a non-resident on the latest of them. ### 3. Ties you keep in Canada Keeping ties in Canada can leave you a factual resident, still taxed on your worldwide income. If the treaty makes you a US resident, Canada may treat you as a deemed non-resident instead. Form NR73 asks the CRA for its opinion on your residency status. ### 4. Your first day as a US resident With a green card, US residency normally begins on the first day you are in the US as a permanent resident. Under the substantial presence test, it usually begins on your first US day of the year you meet the test. Up to 10 days of short earlier visits can be left out of that date. Your arrival year is usually dual-status for US tax: you are a nonresident before your US start date and a resident after it. ## The treaty election keeps the US from taxing gain Canada already taxed. Canada’s departure tax does not reach Canadian real estate, pension plans or registered plans (RRSPs, RRIFs, TFSAs, RESPs and RDSPs). If you lived in Canada 60 months or less of the last 10 years, property you owned on arrival or inherited later stays out too. Shares that cost you $40,000 are worth $100,000 when you leave Canada, and later sell for $120,000. - Canada’s gain on departure: $60,000. Canada treats the shares as sold at their $100,000 value when you leave. - US gain without the election: $80,000. The US measures from the $40,000 you paid, so it also taxes the $60,000 Canada taxed. - US gain with the election: $20,000. The election sets your US basis at the $100,000 value Canada used. The example works in US dollars and ignores exchange-rate moves. Without the election, IRC 1012 keeps your US basis at the $40,000 cost. Tax on each gain depends on your rates in each country, which the example leaves out. ## Which country taxes your RRSP, TFSA and other Canadian income once you move? Canada keeps withholding tax on some Canadian income after you leave, and the treaty caps the rate it can charge. | | Canada | United States | | --- | --- | --- | | RRSP or RRIF withdrawals | Withheld at source (The treaty caps a periodic pension payment at 15%) | Taxed when withdrawn (Growth is deferred until then) | | TFSA income | Tax-free (No new contributions while non-resident) | Taxed each year | | Interest from a Canadian bank | Not taxed (Since the 2007 protocol) | Taxed | | Dividends from Canadian shares | Up to 15% withheld | Taxed (A foreign tax credit may offset Canada’s tax) | | CPP and OAS benefits | Not taxed | Taxed like US Social Security | Tell your Canadian bank, broker and pension payers that you have left, so they switch you to non-resident withholding. Whether an RRSP or RRIF payment counts as periodic is for your Canadian accountant to confirm. The RRSP deferral is a federal rule. California does not apply this treaty, so it can tax the plan’s income each year. ## Five things Canadians miss in their first years as US residents. ### Form 8938 comes on top of the FBAR (https://valim.tax/glossary/specified-foreign-financial-asset) Form 8938 goes with your return once your foreign assets pass $50,000 at year end or $75,000 during the year. On a joint return, both thresholds double. Your RRSP counts toward it, even while its growth is untaxed. ### Canadian funds are usually PFICs (https://valim.tax/glossary/passive-foreign-investment-company-pfic) US tax law usually classes a Canadian mutual fund or ETF as a passive foreign investment company. In a TFSA or a taxable account, each fund generally needs its own Form 8621 every year. Small holdings can be exempt in a year with no gain and no excess distribution. Held in an RRSP or RRIF, they need no Form 8621. ### The saving clause limits what the treaty does (https://valim.tax/glossary/saving-clause) Under the saving clause in Article XXIX(2), the US can tax its residents and citizens as though there were no treaty. The clause’s exceptions mean the basis election and the RRSP deferral still apply on your US return. The treaty’s article for students stops covering a Canadian student once they get a green card. ### Canadian real estate usually keeps its old cost Canada does not tax your Canadian real estate when you leave, unless you elect to on Form T2061A. Without that election, Article XIII(7) cannot reset its US basis. The US then measures any later gain from what you paid, and Canada can tax the sale too. ### A posting that keeps you in the CPP (https://valim.tax/visa-holders/l-1-visa-taxes) Under the US-Canada Social Security agreement, in force since August 1, 1984, an employer’s temporary posting can keep you in the Canada Pension Plan. It generally covers assignments expected to last 5 years or less, proved by a certificate of coverage. Without one, your US pay owes Social Security and Medicare. ## We handle the US side of leaving Canada, starting with your arrival year. We prepare your US returns after you leave Canada, and an accountant in Canada files your Canadian return. - We prepare your federal and state returns for your arrival year, split at your residency start date, and each year after. We also apply the Article XIII(7) election on your US return for property Canada taxed when you left. - We report each account you keep in Canada on your FBAR, and on Form 8938 once its thresholds are met. We file Form 8621 for each Canadian fund that needs one. The instant quote counts each account and fund. - We figure the estimated payments due on your Canadian interest and dividends. - We compare keeping your Canadian funds against selling them before your US residency starts. - We credit the tax Canada withholds on your dividends and RRSP payments on Form 1116, within its limits. - If a return we prepared draws an IRS or state notice, even one that questions your residency start date, we reply within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Tax questions about moving from Canada. ### What are the tax implications of moving to the US from Canada? The biggest implications are Canada’s departure tax as you leave and US tax on your worldwide income once you arrive. Canada taxes your worldwide income until you become a non-resident, and only your Canadian-source income after that. On that day, the departure tax counts most of your property as sold for its fair market value. As a US resident, you list every Canadian account on the FBAR, RRSP and TFSA included, once your foreign accounts total more than $10,000. ### Do I still have to pay US income taxes if I move to Canada? Yes, if you are a US citizen or hold a green card. The US taxes its citizens wherever they live. A green card keeps you a resident alien until it is rescinded or abandoned, for example by filing Form I-407. Moving to Canada does not end it by itself. A green card holder may instead claim treaty residence in Canada on Form 8833 and be taxed as a nonresident. For a long-term resident, that claim can trigger the US exit tax. If only the substantial presence test made you a US resident, your residency usually ends on December 31 of the last year you meet it. ### What is the 90% rule in Canada? The 90% rule is Canada’s test for full federal non-refundable tax credits in the months after you leave. You pass only if Canadian-source income makes up at least 90% of your net world income for those months. If wages from a US job are most of your income after you leave, you usually fall below 90%. Your remaining credits for those months are then limited. The test also covers Americans moving to Canada, for the months before they arrive. ### Is there an exit tax to move from Canada? Yes: when you become a non-resident, Canada’s departure tax treats you as selling most of your property at fair market value. It does not reach RRSPs, TFSAs or pensions. It reaches Canadian real estate only if you elect to report it on Form T2061A. You can defer the tax, interest-free, on Form T1244. If the federal tax on the deemed sale is over C$16,500, you must post security with the CRA. On the US side, Article XIII(7) of the treaty lets that same value become your cost basis. ### Does the US tax my TFSA? Yes, once you are a US resident, because no treaty article covers a TFSA. The US taxes the account’s income every year, even though Canada still exempts it. While you are a non-resident of Canada, you cannot contribute, and your contribution room stops growing. The IRS has not said whether a TFSA is also a foreign trust. If it is, you may need to file Form 3520 for it. ### Do I pay tax on a gift from my parents in Canada? No, a gift is not income for US tax, so you owe no US tax on it. In Canada, a parent who gives you shares that have gained value is taxed as if they sold them. If your parents are not US persons and their gifts pass $100,000 in a year, you report them on Form 3520. ## Sources - US-Canada income tax convention, as amended (IRS text): https://www.irs.gov/pub/irs-trty/canada.pdf - Fifth protocol to the US-Canada convention (2007): https://home.treasury.gov/system/files/131/Treaty-Canada-Pr2-9-21-2007.pdf - IRS, Rev. Proc. 2014-55 (Canadian retirement plans): https://www.irs.gov/pub/irs-drop/rp-14-55.pdf - Income Tax Act (Canada), s. 128.1, Changes in residence: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-128.1.html - Income Tax Act (Canada), s. 212, Tax on income from Canada of non-resident persons: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-212.html - Income Tax Act (Canada), s. 69, Inadequate considerations: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-69.html - Canada Revenue Agency, leaving Canada (emigrants): https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html - Canada Revenue Agency, deemed dispositions of property for emigrants: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/dispositions-property.html - Canada Revenue Agency, federal non-refundable tax credits for newcomers and emigrants: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/federal-non-refundable-tax-credits-newcomers-emigrants.html - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - Treas. Reg. § 301.7701(b)-4, Residency time periods: https://www.law.cornell.edu/cfr/text/26/301.7701(b)-4 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - Treas. Reg. § 1.1298-1, Section 1298 reporting: https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 U.S.C. § 1297, PFIC defined: https://www.law.cornell.edu/uscode/text/26/1297 --- URL: https://valim.tax/visa-holders/from-australia Title: Moving to the US from Australia: taxes on super and shares Updated: 2026-09-24 # If you are moving to the US from Australia, taxes on superannuation are the open question, since the IRS has not classified it. Unless you were a temporary resident, Australia treats your shares and managed funds as sold at market value when your residency ends. You can choose to defer that tax instead. If you pay it, Treasury reads Article 13(5) of the treaty as letting you set your US basis at that market value. What the treaty gives a US resident: - 10%: caps the tax Australia may charge on Australian interest paid to you. - 15%: caps Australian tax on the dividends you receive from Australian companies. - 0%: of an Australian Age Pension is taxed by the US. Article 18(2) leaves it to Australia. Article 22 requires the US to credit Australian income tax against US tax, within US limits. ## Does Australia tax a deemed sale when you leave? Australia taxes you on CGT event I1, its deemed sale on leaving, only when all four of these hold. ### 1. Your Australian residency has ended The ATO first asks whether you still reside in Australia. If you no longer do, the domicile test comes next. It can keep you resident until the ATO accepts that your permanent place of abode, your settled home, is abroad. ### 2. You were not a temporary resident A temporary resident is not treated as selling anything on leaving. Broadly, that status needs a temporary visa, and neither you nor your spouse can be an Australian citizen or permanent resident. ### 3. The asset is not taxable Australian property Australian real estate and other taxable Australian property stay out of the deemed sale. Australia taxes the gain when you actually sell, wherever you then live. ### 4. You did not choose to defer You can choose to disregard all your gains and losses on leaving. You make that choice in the way you prepare your Australian return. Those assets are then treated as taxable Australian property until you sell them or become a resident again. The deemed sale reaches assets held anywhere, so US shares you already own are caught too. ## Without the Article 13(5) election, both countries count the same $60,000 of gain. Your shares cost $25,000, reach $85,000 by the day your Australian residency ends, and later sell in the US for $100,000. - Taxed on leaving, no election: $135,000. Australia counts $60,000 as you leave, and the US counts $75,000 from your $25,000 cost. - Taxed on leaving, with the election: $75,000. Australia counts the same $60,000, and the US counts only the $15,000 above $85,000. - Deferred on leaving: $75,000. Australia counts nothing as you leave, and Article 13(6) leaves the whole $75,000 to the US. Each figure adds Australia’s gross gain on leaving, before any CGT discount, to the US gain on the sale. The real gain is $75,000 in every path. All amounts are in US dollars, with exchange rates left out. Your Australian residency is assumed to end before your US residency starts. Treasury’s technical explanation of the 2001 protocol describes the Article 13(5) and 13(6) results. The cheaper path turns on each country’s rates, and no rate is applied here. ## Five US filing mistakes to avoid after moving from Australia to the US. ### Keeping Australian ETFs after the move (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Managed funds and ETFs based in Australia usually meet the US test for a passive foreign investment company (PFIC). Without a QEF (qualified electing fund) or mark-to-market election, a gain or excess distribution is spread over your holding period. The share for earlier years is taxed at the top rate, plus interest. Form 8621 is usually due for each fund. ### Assuming super is exempt from Form 3520 Rev. Proc. 2020-17 frees some foreign retirement trusts from Forms 3520 and 3520-A. Among other conditions, contributions must be capped and come only from earned income. Super, though, takes after-tax contributions from any savings, up to a yearly cap of A$130,000 for 2026-27. So whether super qualifies is unresolved. ### Reporting only your bank accounts (https://valim.tax/expat-tax/fbar) Brokerage and fund accounts go on the FBAR with your bank accounts. You file it once your foreign accounts total over $10,000 at any time in the year. Its retirement plan exemption covers only US plans, such as a 401(k) or an IRA, so super may belong on it too. Form 8938 also counts foreign pensions such as super. A single filer in the US files it with more than $50,000 abroad at year end, or $75,000 at any point. ### Skipping Form 3520 for a large gift from home A gift from family in Australia is not US income. Gifts over $100,000 in a year from a nonresident alien, counted together with gifts from their relatives, go on Form 3520. A late report can cost up to 25% of the gift. For a parent in Australia, giving you shares is a CGT event, priced at market value under Australian law. ### Paying US Social Security on a posting from Australia (https://valim.tax/visa-holders/l-1-visa-taxes) A temporary posting from an Australian employer, such as an L-1 transfer, can keep your pay out of US Social Security contributions. Your employer asks the ATO for a certificate of coverage under the US-Australia totalization agreement, in force since October 1, 2002. The exemption generally covers assignments expected to last 5 years or less. ## We keep your US returns in step with the Australian return your tax agent lodges. Valim is a CPA firm that takes on your US returns in the year you arrive from Australia and every year after. - We fix your US residency start date from your travel dates or green card. On Form 1116, we claim a credit for the Australian tax on your interest, dividends and rent. - We model the US tax on a later sale both ways: paying Australia’s tax on leaving, or deferring it. You see both results before the choice is made on your Australian return. - We file your FBAR and any Form 8938 due, plus Form 8621 for each Australian fund or ETF that requires it. The instant quote counts your Australian accounts and funds, so your fee reflects them. - We plan estimated payments on income you still earn in Australia. - If an IRS or state notice arrives on a return we prepared, even about your Article 13(5) basis, our reply costs nothing extra. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What people leaving Australia ask about US tax. ### What is the 10 year tax rule in Australia? The 10 year rule is how Australia taxes bonuses from life insurance policies and friendly society bonds, often called investment bonds. A bonus counts as Australian income only if you receive it within 10 years of the policy’s start. All of it counts in years 1 to 8, two-thirds in year 9 and one-third in year 10. Paying more than 125% of the previous year’s premium restarts the 10 years. US tax law has no matching rule, so a bond you keep needs its own US analysis. Americans living in Australia face the same gap. ### Does Australia have a tax treaty with the US? Yes, and for a new US resident its main gift is the Article 13(5) basis election. It also caps Australia’s tax on your interest at 10% and on dividends at 15%. The saving clause, Article 1(3), otherwise lets the US tax you as if the treaty were not in force. Its exceptions still apply, including Article 18(2) on public pensions and Article 22 on double taxation. The treaty dates from 1982, with a 2001 protocol. ### How much is $100,000 a year taxed in Australia? For 2026-27, A$100,000 of taxable income costs an Australian resident A$22,520 before tax offsets, Australia’s credits against tax. That is A$20,520 of income tax plus the 2% Medicare levy of A$2,000. The income tax is nil on the first A$18,200, 15% on the next A$26,800 and 30% on the A$55,000 above A$45,000. For 2025-26 the second rate was 16%, which made the total A$22,788. Once you are a foreign resident, Australia taxes only your Australian-source income, such as rent from your old home. Its capital gains tax then reaches only taxable Australian property. ### How is superannuation taxed in the US? Superannuation has no settled US tax treatment, because the IRS has not said which kind of account super is. No article of the US-Australia treaty defers US tax on what super earns. Without a treaty deferral, funds held inside your super may need their own Form 8621. Choose one reporting position on super for your US return, and apply it the same way each year. ### Are E-3 visa holders taxed as US residents? Usually, yes, because E-3 days count in full toward the substantial presence test. The E-3, open only to Australians, is not one of the exempt categories. Those cover students, teachers, trainees, foreign government staff and some professional athletes. If you land by July 2 and stay through December, you reach 183 US days in your first year. That year is usually dual-status: nonresident before your first day in the US, and resident from that day. A spouse on an E-3 dependent visa may work here and is tested on their own days. ## Sources - US-Australia income tax convention (1982): https://www.irs.gov/pub/irs-trty/aus.pdf - Protocol to the US-Australia convention (2001): https://home.treasury.gov/system/files/131/Treaty-Australia-Protocol-9-27-2001.pdf - US Treasury, Technical Explanation of the 2001 protocol to the US-Australia convention: https://home.treasury.gov/system/files/131/Treaty-Australia-Protocol-TE-3-5-2003.pdf - Australian Taxation Office, how changing residency affects CGT: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/how-changing-residency-affects-cgt - Australian Taxation Office, your tax residency: https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency - Australian Taxation Office, tax rates for Australian residents: https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents - Australian Taxation Office, contributions caps: https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/contributions-caps - Australian Taxation Office, 2025 instructions on life insurance and friendly society bonuses: https://www.ato.gov.au/forms-and-instructions/individual-supplementary-tax-return-2025-instructions/income-questions-13-24-supplementary-tax-return-2025/22-life-insurance-companies-and-friendly-societies-bonuses-2025 - IRS, Rev. Proc. 2020-17 (exemption for tax-favored foreign trusts): https://www.irs.gov/pub/irs-drop/rp-20-17.pdf - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts (FBAR): https://www.ecfr.gov/current/title-31/section-1010.350 - 26 U.S.C. § 7701(b), Definition of resident alien and nonresident alien: https://www.law.cornell.edu/uscode/text/26/7701 - USCIS, E-3 specialty occupation workers from Australia: https://www.uscis.gov/working-in-the-united-states/temporary-workers/e-3-specialty-occupation-workers-from-australia - US Social Security Administration, the US-Australia totalization agreement: https://www.ssa.gov/international/Agreement_Pamphlets/australia.html --- URL: https://valim.tax/visa-holders/from-singapore Title: Moving to the US from Singapore: taxes, CPF, SRS and no treaty Updated: 2026-09-24 # Share gains Singapore spares stay tax-free only until you finish moving to the US from Singapore. Taxes then fall on the whole gain when you sell. Singapore generally taxes neither gains on shares nor income from abroad, so gain built up there often meets its first tax in the US. With no US-Singapore tax treaty, only the US foreign tax credit and Singapore’s own rules relieve double tax. Your move from Singapore: - 50%: of an SRS lump sum is taxable in Singapore for a foreigner who has held the account at least 10 years. - $100,000: is the Form 3520 threshold for gifts and bequests in a year from people who are not US citizens or residents. Neither counts as US income. - 1 month: is how far ahead an employer generally files Form IR21 before a foreign employee, or a permanent resident leaving for good, stops work. Form 3520 applies once you are a US resident. IR21 applies while you still work in Singapore. An earlier SRS withdrawal is fully taxable, plus a 5% penalty. ## What does the US look at when you arrive from Singapore? ### 1. You are now a resident alien A green card, or enough days under the substantial presence test, turns you into a resident alien for US tax. As a nonresident before that, you generally pay US tax only on US income. As a resident, your income from Singapore is US-taxable too. ### 2. You hold unit trusts or funds based in Singapore A unit trust or fund based in Singapore is usually a passive foreign investment company (PFIC) under US rules. Without a qualified electing fund (QEF) or mark-to-market election, its gains and excess distributions face the highest US rate plus an interest charge. You generally file a separate Form 8621 for each fund, every year you hold it. You can skip the form for a fund with no election in a year with no excess distribution or gain. That applies only while your PFIC holdings total $25,000 or less at year end, or $50,000 on a joint return. ### 3. Your Singapore accounts pass the FBAR threshold Once your Singapore bank, brokerage and mutual fund accounts together pass the FBAR threshold, every one of them goes on the FBAR. Form 8938 joins your return above $50,000 of foreign assets on December 31, or $75,000 on any day of the year. Joint filers use $100,000 and $150,000. ### 4. You have CPF or SRS savings The US treatment of a CPF account is unsettled, with no IRS guidance on it. It may count as foreign social security, which Form 8938 leaves out, or as a foreign pension, which Form 8938 covers. Funds held inside SRS still need Form 8621, because without a treaty SRS gets no pension exception. ## The date you sell your Singapore shares decides how much of the gain the US taxes. Shares in a Singapore company cost you $30,000 and are worth $90,000 on the day your US residency starts. - Sold the week before: $0. You are still a nonresident alien, so the gain generally falls outside US tax. - Sold the week after: $60,000. The price is the same, but the whole gain from your Singapore years is now taxable in the US. - Sold for $110,000 later: $80,000. The US counts the growth on both sides of the move. Each figure is the sale price minus the $30,000 you paid, which Section 1012 makes your US cost. US law does not reset that cost to market value when you arrive. Singapore generally does not tax gains on shares, so these sales usually leave no Singapore tax for the foreign tax credit to offset. No US rate is applied, because the rate depends on how long you held the shares and on your bracket. The figures are in US dollars and assume the exchange rate did not move. Units in a Singapore unit trust would usually fall under the PFIC rules instead. ## Where do Singapore’s tax rules and the US rules part ways? The US column applies from your residency starting date. | | Singapore | United States | | --- | --- | --- | | Gains on shares | Generally not taxed (Trading gains may be) | Taxed (On the gain since you bought) | | Who counts as resident | 183 days in a year (Of stay or work, for a foreigner) | 183 weighted days (Over three years, with 31 this year, or a green card that year) | | Social security | CPF (Citizens and permanent residents only) | Social Security and Medicare (On US pay, with no agreement to exempt it) | | Unvested share awards | Usually taxed when you leave (Deemed realised at IR21 tax clearance) | Taxed later (Usually when they vest or you exercise) | ## Where do people moving from Singapore lose money? ### Selling in Singapore after an early US visit In a year you meet the substantial presence test, the US treats you as resident from your first US day that year. A sale back in Singapore after even a short early visit is then taxed by the US. Up to 10 days of visits can be dropped from that start date if you sign a statement. It must say your tax home and closer ties stayed in Singapore. A single visit longer than 10 days counts in full. ### Counting on a treaty tie-breaker (https://valim.tax/glossary/closer-connection-exception) No tie-breaker can make you a nonresident for US tax, because Singapore has no treaty with the US. At 183 counted days in the US in a year, you are a resident for that year, wherever your home is. Below 183, the closer connection exception may keep you a nonresident. It needs a Singapore tax home all year, closer ties to Singapore and a timely Form 8840. Any step toward a green card that year, such as an employer’s petition, rules it out. ### Taking money out of SRS early An SRS withdrawal before the retirement age that applied when you first contributed is generally fully taxable in Singapore, plus a 5% penalty. From that age, only half of each withdrawal is taxable. A foreigner can instead withdraw everything at once, half taxable and with no penalty. This needs 10 years since your first contribution, and 10 straight years without Singapore citizenship or permanent residence. ### Filing Form 3520 late for a family gift Filing Form 3520 late costs 5% of a foreign gift’s value for each month, up to 25%, unless you show reasonable cause. Gifts from related people, such as both parents, are added together toward the Form 3520 threshold. Qualified tuition or medical bills your parents pay directly to the school or provider do not count. ## A move from Singapore adds US forms, and we prepare them with your return. Valim is a US CPA firm, so we prepare only the US side of your move from Singapore. - We prepare your arrival-year return and every US return after it, leaving your Singapore return to any accountant you use there. - We report your Singapore accounts on the FBAR, plus Form 8938 above its thresholds, and file Form 8621 for any unit trust that requires one. Each account and unit trust you enter in the instant quote is priced into your fee. - We help you choose what to sell in Singapore before your residency begins, keeping that gain generally outside US tax. If you are married, we also weigh electing a joint return for your first year against filing dual-status, as part resident and part nonresident. - We schedule estimated payments for gains on Singapore shares sold after you arrive. - Our reply is in the fee when the IRS or your state writes about a return we prepared. That includes a letter asking when your residency began. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Questions about tax on a move from Singapore to the US. ### Does Singapore have a tax treaty with the USA? No, so a new US resident from Singapore gets no treaty rates, no student or pension articles, and no tie-breaker. Funds held in SRS also get no pension exception from the PFIC rules. Tax you pay Singapore can still reduce your US tax through the foreign tax credit, within its limits. ### What is the 183-day rule in Singapore? Singapore’s 183-day rule taxes a foreigner as a resident on a year’s income after 183 days of stay or work there that year. A foreigner who stays or works in Singapore for three consecutive years is also a resident. The US counts days its own way, under the substantial presence test. Americans living in Singapore meet the same 183-day rule from the other side. ### How do Singaporean taxes compare to those in the US? Singapore taxes a narrower slice of your income than the US. Since the Year of Assessment 2024, residents pay 0% to 24%, and most gains and income from abroad go untaxed. The US taxes a resident on income from every country, including gains on Singapore shares. Singapore unit trusts usually fall under the US PFIC rules, which can tax them more heavily than ordinary capital gains. On US pay, Social Security and Medicare apply as well, and no agreement with Singapore exempts you. ### Is my Singapore income still taxed there after I move? Yes, Singapore still taxes you, but generally only on income from Singapore once you are a non-resident. Pay for work done in Singapore is taxed at a flat 15% or the resident rates, whichever gives more tax. Income from abroad generally stays untaxed there, even when paid into a Singapore bank. SRS withdrawals remain taxable in Singapore, and tax is withheld when a permanent resident or foreigner withdraws. Where the US taxes the same income, the foreign tax credit can offset what you paid Singapore. ### What happens to my CPF account when I move to the US? Moving to the US does not close your CPF account while you remain a Singapore citizen or permanent resident. Once you give up that status, you can close it and move the savings to your bank. If you do not, the account closes itself the next month, and its savings stop earning CPF interest. They earn bank-like interest instead until March 31, 2027. No IRS ruling says how the US treats a CPF account, so the answer is unsettled. ## Sources - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - Social Security Administration, US international social security agreements: https://www.ssa.gov/international/status.html - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - IRS, Report of Foreign Bank and Financial Accounts (FBAR): https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar - IRS, Instructions for Form 8938 (Rev. November 2021): https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - IRAS, Individual income tax rates (tax residency and rates): https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates - IRAS, Gains from sale of property, shares and financial instruments: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/gains-from-sale-of-property-shares-and-financial-instruments - IRAS, Income received from overseas: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/income-received-from-overseas - IRAS, Tax clearance for non-Singapore citizen employees: https://www.iras.gov.sg/taxes/individual-income-tax/employees/scenario-based-faqs-for-working-in-singapore-and-abroad/tax-clearance-for-non-singapore-citizen-employees - IRAS, Tax on SRS withdrawals: https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/tax-on-srs-withdrawals - CPF Board, Closing your account when you leave Singapore: https://www.cpf.gov.sg/member/account-services/cpf-asset-management/on-leaving-singapore --- URL: https://valim.tax/visa-holders/from-the-uk Title: Moving to the US from UK: taxes on ISAs, pensions and UK funds Updated: 2026-09-24 # Your ISA stays free of UK tax after you move to the US from the UK, but the US taxes what it earns. No treaty article covers an ISA, so the US taxes the interest, dividends and gains inside it in the year they arise. Under the US-UK treaty’s Article 18(1), the US taxes a UK pension’s growth only when it pays out. Once you are non-resident, the UK generally taxes only your UK income, such as rent, and gains on UK property. Your first years out of the UK: - US only: taxes your UK State Pension once you live in the US, under Article 17(3) of the treaty. - Over 5 years: of UK non-residence keeps a move back free of UK tax on some gains and income from your years away. - 10 years: is the longest UK inheritance tax can keep reaching your assets worldwide after you leave. The 5 year rule applies if you were solely UK resident in at least 4 of the 7 tax years before leaving. The 10 years applies if you were UK resident in each of the 20 tax years before leaving. ## How long can the UK keep taxing you after you leave? The UK tax year runs from April 6 to April 5, and the tests below count in those years. ### 1. You work full-time in the US In a tax year of full-time US work, you are generally non-resident if you spend fewer than 91 days in the UK. Days with more than 3 hours of UK work must also stay below 31. In the year you leave, split year treatment can make you non-resident from the day after you go. ### 2. You move back to the UK Under the temporary non-residence rule, the UK may tax some income and gains from your years away if you return within 5 years. It covers anyone solely UK resident in at least 4 of the 7 tax years before leaving. Your period of non-residence starts the day after you leave only under split year treatment, and otherwise on April 6. ### 3. You sell within 6 years of leaving Article 13(6) of the treaty lets the UK tax your gains under its own law for 6 years after you leave. For a non-resident, UK law uses that room mainly through the temporary non-residence rule. After that, Article 13(5) leaves most gains on shares and funds to the US alone. The UK can still tax a gain on UK property. ### 4. You lived in the UK 10 of the last 20 years UK residence in at least 10 of the last 20 tax years makes you a long-term UK resident for inheritance tax. While that status lasts, UK inheritance tax can reach your assets anywhere, on a gift you make or on your death. The status runs 3 tax years after a stay of 10 to 13 years, and longer after a longer stay. Tell HMRC you are leaving on form P85, or on the SA109 residence pages of a paper Self Assessment return. ## A £425,000 gift from a parent in the UK can leave you owing £40,000 of UK inheritance tax. A gift is not income for US tax, though Form 3520 reports gifts over $100,000 in a year. UK inheritance tax can apply if the parent dies within 7 years. One parent in the UK gives you £425,000 toward a US home. - Parent dies within 3 years: £40,000. The £100,000 above the £325,000 threshold is taxed at 40%. - Dies 4 to 5 years after the gift: £24,000. Taper relief cuts the rate on that £100,000 to 24%. - Dies 6 to 7 years after the gift: £8,000. The rate is 8% in the last year of the seven. - Parent lives 7 more years: £0. No tax is due on a gift once the giver has lived 7 years after it. Because the parent’s gifts pass the £325,000 threshold, GOV.UK says you, as the person who received the gift, pay the tax. The example assumes no other gifts in those 7 years, a £3,000 annual exemption already used and no threshold inherited from a late spouse. GOV.UK’s taper table also sets 32% for a death at 3 to 4 years, and 16% at 5 to 6 years. ## How does the treaty split your UK pension between the two countries? The US-UK treaty, in force since March 31, 2003, sets which country taxes each part of a UK pension. | | UK | US | | --- | --- | --- | | Growth inside the scheme | Not taxed | Deferred until you draw it (Article 18(1)) | | Regular payments from a private or workplace pension | Not taxed (Article 17(1)(a)) | Taxed (Except any part the UK would exempt) | | A UK government service pension | Taxed (Article 19(2)) | Not taxed on a visa (With a green card, the US can tax it too) | | A lump sum | Taxed under UK rules (Article 17(2)) | Unsettled (Article 17(2) and the saving clause) | | UK State Pension | Not taxed | Taxed (Article 17(3) gives the US the sole right) | Whether the US taxes the 25% tax-free lump sum is unsettled. Treasury’s technical explanation puts Article 17(2) under the saving clause, while some advisers read Article 17(1)(b) as protecting it. ## What do new US residents from the UK most often get wrong? ### Treating your arrival year as a full US year (https://valim.tax/visa-holders/resident-or-nonresident-alien) Your arrival year usually has two parts for US tax: nonresident before your residency starting date, and resident from it. UK income you receive from that date goes on your US return, even a bonus earned before you left. A dual-status return for tax year 2025 cannot be e-filed. ### Assuming your ISA shields the funds inside it (https://valim.tax/glossary/passive-foreign-investment-company-pfic) UK OEICs (open-ended investment companies), unit trusts and UK-listed ETFs are usually PFICs, even inside a stocks and shares ISA. With no election in place, the PFIC rules can tax a gain at the top US rate plus interest. Each fund also generally needs a Form 8621 every year, while funds inside a UK pension scheme need none. ### Leaving a UK pension off Form 8938 (https://valim.tax/glossary/specified-foreign-financial-asset) A UK workplace or personal pension counts toward Form 8938, though the UK State Pension does not. A single filer living in the US files Form 8938 once foreign financial assets pass $50,000 at year end, or $75,000 at any point. On a joint return, the thresholds are $100,000 and $150,000. ### Keeping the pension deduction after a green card (https://valim.tax/glossary/saving-clause) A green card ends the US deduction for UK pension contributions, because the saving clause then applies. On a visa, you can deduct them within US limits if you or your employer paid into the scheme before your US job began. The US competent authority must also accept that the scheme broadly matches a US plan. ### A posting that keeps you in UK National Insurance (https://valim.tax/visa-holders/l-1-visa-taxes) The US-UK Social Security agreement’s coverage rules have applied since January 1, 1985. An employer’s temporary posting can keep you paying UK National Insurance instead of US Social Security. The posting generally has to be expected to last 5 years or less, and a certificate of coverage proves the exemption. ## We prepare the US returns your move from the UK brings. Valim is a CPA firm for UK expats living in the US, and we work alongside the accountant who files your UK return. - We prepare your first US return, often dual-status, and every federal and state return after it. - We report ISA income and gains each year, and keep UK pension growth out of US income under Article 18(1). We also file your FBAR, any Form 8938 and each Form 8621. Your quote counts every account and fund. - We work out estimated payments on your UK rent. - We credit the UK tax on your rent on Form 1116, within its limits. - We check if your UK pension contributions can cut your US tax, and what a green card changes. - We answer IRS or state notices about returns we prepared, such as one on your UK pension, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Questions to settle before you leave the UK. ### How to avoid the 60% tax trap in the UK? Moving to the US and becoming UK non-resident takes your US salary out of the 60% trap. A UK non-resident pays UK income tax only on UK income, unlike Americans living in the UK. In the 2026 to 2027 tax year, the trap is the band between £100,000 and £125,140 of adjusted net income. There, the £12,570 Personal Allowance shrinks by £1 for every £2, so each extra pound costs 60p in income tax outside Scotland. After the move, UK income such as rent from a home you let can still put you back in it. ### Do I pay US taxes if I live in the UK? Yes, if you are a US citizen or green card holder: you owe US tax on your worldwide income while living in the UK. A foreign tax credit for the UK tax you pay can offset US tax on the same income. A green card keeps you US tax resident until it is abandoned or rescinded, or a treaty tie-breaker claim on Form 8833 ends it. If you held the card in 8 of the last 15 tax years, ending it any of these ways counts as expatriating. Once your US residency ends, you pay US tax only on US-source income, such as US dividends. ### What is the UK expat 5 year rule? The UK expat 5 year rule, HMRC’s temporary non-residence rule, taxes some income and gains from your time away if you move back. It reaches people who were solely UK resident for at least 4 of the 7 tax years before they left. It bites only if you return within 5 years, and the tax falls in the year you come back. For gains, the US-UK tax treaty does not block the rule, since Article 13(6) preserves UK taxing rights for 6 years after departure. ### Can I keep my ISA after moving to the US? Yes, you can keep your ISA open, and the UK keeps exempting what it earns. Once you are UK non-resident, you cannot pay into it, unless you are a Crown employee overseas or their spouse or civil partner. Tell your provider when your UK residency ends. The US taxes the account’s income and gains anyway, because no treaty article covers an ISA. ### Does the US tax my UK pension? Yes, the US taxes a UK pension when you draw it, but Article 18(1) of the US-UK treaty leaves its growth untaxed until then. Regular payments from a private or workplace pension are then taxed only by the US, except any part the UK would exempt. Article 19 leaves a UK government service pension to the UK instead, though a green card lets the US tax it too. Whether the US taxes a lump sum is unsettled: the treaty gives it to the UK, yet Treasury says the US may tax it. ## Sources - US-UK income tax convention (2001): https://home.treasury.gov/system/files/131/Treaty-UK-7-24-2001.pdf - Treasury, technical explanation of the US-UK convention and 2002 protocol: https://home.treasury.gov/system/files/131/Treaty-UK-Protocol-TE-7-22-2002.pdf - GOV.UK, Tax if you leave the UK to live abroad: https://www.gov.uk/tax-right-retire-abroad-return-to-uk - HMRC, RDR3: guidance note for the statutory residence test: https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3 - GOV.UK, Individual Savings Accounts (ISAs): if you move abroad: https://www.gov.uk/individual-savings-accounts/if-you-move-abroad - HMRC, Inheritance Tax if you’re a long-term UK resident: https://www.gov.uk/guidance/inheritance-tax-if-youre-a-long-term-uk-resident - GOV.UK, How Inheritance Tax works: rules on giving gifts: https://www.gov.uk/inheritance-tax/gifts - GOV.UK, Income Tax rates and Personal Allowances: https://www.gov.uk/income-tax-rates - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 C.F.R. § 1010.306, Filing of reports: https://www.law.cornell.edu/cfr/text/31/1010.306 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting requirements for United States persons that are shareholders of a passive foreign investment company: https://www.law.cornell.edu/cfr/text/26/1.1298-1 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 --- URL: https://valim.tax/visa-holders/from-south-korea Title: Moving to the US from South Korea: taxes, PFICs and your pension Updated: 2026-09-24 # Your monthly National Pension stays with Korea after moving to the US from South Korea: taxes on it go to Korea alone. Monthly National Pension benefits are exempt from US tax under Article 24 of the US-Korea treaty, even for US citizens. The US usually treats Korean funds and Korea-listed ETFs as passive foreign investment companies (PFICs). Large shareholders leaving Korea in 2026 may owe its exit tax, at 20% to 25%, on unrealized gains in Korean shares. What Korea keeps after you move: - 10 years: of National Pension coverage earns a monthly old-age pension for life, starting between ages 60 and 65 by birth year. With less coverage, you get a lump-sum refund at 60. - 5 years: is the usual limit on a posting that keeps you in Korea’s National Pension instead of US Social Security. - 183 days: in Korea in one year lets Korea tax that year’s gains on your shares, though you live in the US. A lump-sum refund on emigrating may not get the US exemption that monthly benefits get, and no IRS guidance settles it. ## What must you report from Korea as a US resident? ### 1. A green card or enough US days makes you a resident Once you hold a green card or pass the substantial presence test, your Korean income belongs on your US return. In your arrival year, the return covers Korean income only from your residency start date. Any part of a day in the US counts toward the test. Days as an exempt student or teacher, such as on an F-1 or J-1 visa, are left out. ### 2. You hold Korean funds or Korea-listed ETFs A separate Form 8621 is generally due for every Korean fund, each year you own it. Unless you make an election, the default PFIC rules tax a gain more heavily than a capital gain and its dividends at ordinary rates. ### 3. Korean bank and brokerage accounts together top $10,000 Deposit, savings and securities accounts in Korea all count toward the FBAR, each at its peak value for the year. Once your Korean accounts pass $10,000 combined at any point in the year, each one goes on the FBAR. You file the FBAR with FinCEN by April 15, or by October 15 without asking for more time. Your Korean deposits and funds also count toward Form 8938. It goes with your return above $50,000 at year end or $75,000 at any time, twice that for joint filers. ### 4. You keep a Korean pension savings account, IRP or ISA The treaty gives no US tax deferral to a Korean pension savings account, individual retirement pension (IRP) or individual savings account (ISA). The treaty’s pension article covers pensions only once they are paid. No IRS guidance says how the US classifies such accounts, and the funds inside may count as PFICs. ### 5. Gifts from family in Korea pass $100,000 in a year The US never taxes a gift from your family in Korea as income, however large. Gifts from both parents and grandparents are added into one total, and Form 3520 is due once it passes $100,000 in a year. ## On a KRW 500 million tax base, Korea’s exit tax comes to KRW 110 million. For departures in 2026, Korea’s exit tax applies only if you lived in Korea for at least 5 of the 10 years before leaving. Large-shareholder status is judged at the end of the year before you go. A large shareholder leaves Korea for the US in 2026 with a KRW 500 million tax base on their Korean shares. - Up to KRW 300M: KRW 60M. The first KRW 300 million of the tax base is taxed at 20%. - Above KRW 300M: KRW 50M. The other KRW 200 million is taxed at 25%. - Total exit tax: KRW 110M. Payment is due within 3 months of the end of the month you leave. If you name a tax administrator, someone in Korea who handles your Korean tax, it is due in the regular filing period instead. - Paid on leaving, if deferred: KRW 0. If you name a tax administrator and post security, payment can wait until you sell. If you still hold the shares after 5 years, or 10 for study abroad, the tax falls due. The rates are Korea’s for departures from January 1, 2019. The example starts from the tax base Korea computes, not the raw gain. These figures are Korea’s national tax, and Korea’s local income tax may be due on top. Amounts stay in Korean won, and no US tax is shown. ## Korea may still tax some Korean income, within the treaty’s limits. Each row assumes you are a US resident and no longer a resident of Korea. | | Korea | US | | --- | --- | --- | | Dividends from Korean companies | Up to 15% (Article 12(2), national tax) | Taxed | | Interest from a Korean bank | Up to 12% (Article 13(2), national tax) | Taxed | | Gains on Korean shares | Not taxed (Unless you are in Korea 183 days that year) | Taxed | | Rent from, or a sale of, Korean property | May tax it (Articles 15 and 16(1)) | Taxed | | National Pension benefits | Only Korea may tax them (Article 24) | Exempt (Outside the saving clause) | | A periodic pension from a past private Korean employer | Not taxed (Article 23(1)) | Taxed | When the US taxes the same income, Korea’s tax can be credited on Form 1116, within US limits. ## Each of these mistakes costs Korean arrivals money or a treaty benefit. ### Missing the holdings report before you leave A departing large shareholder must report their Korean shareholdings, and name a tax administrator, by the day before departure. A missing or understated report costs 2% of the shares’ par value, the face value stated for each share. ### Relying on Article 21 once you hold a green card (https://valim.tax/glossary/saving-clause) A green card ends the treaty’s student exemption. For up to 5 years, Article 21 exempts a Korean student’s grants, money from home and $2,000 a year of US pay. The saving clause keeps the exemption only for people who are neither US citizens nor immigrants, and a green card makes you an immigrant. The 2-year exemption for invited teachers ends the same way. ### Leaving your children off a nonresident return (https://valim.tax/visa-holders/form-1040-nr) Most nonresident aliens cannot claim dependents on Form 1040-NR, but residents of South Korea are among the few exceptions. A child who lived with you in the US at some point in the year can count. The child tax credit or the credit for other dependents may then apply, with limits. ### Starting a US posting without a Korean certificate of coverage (https://valim.tax/visa-holders/l-1-visa-taxes) If your Korean employer sends you here on a temporary posting, a certificate of coverage can generally keep you in the National Pension. Korea issues it under the US-Korea totalization agreement, in force since April 1, 2001. You give it to your US employer. Without one, US Social Security and Medicare tax apply from your first paycheck. ## Who files your US returns after you leave Korea? Valim’s CPAs take on your US filings from the year you arrive. Any Korean return stays with your accountant in Korea. - We file your first US return, dual-status if your residency starts mid-year, and each later federal and state return. We leave monthly National Pension benefits out of your US income under Article 24. We claim the tax Korea withholds on your dividends and interest as a foreign tax credit, within the treaty caps. - We list each Korean account on your FBAR and, where it applies, Form 8938. We also prepare Form 8621 for any Korean ETF or fund that requires one. The instant quote asks how many accounts and funds you hold, and the fee includes each one. - We review a National Pension lump-sum refund before you claim it. - We set quarterly estimated payments to cover Korean interest and rent. - Your fee covers our reply to any IRS or state notice about a return we prepared, even one challenging Article 24. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Koreans heading to the US often ask these tax questions. ### Does South Korea have a tax treaty with the US? Yes, the US and South Korea signed their income tax convention on June 4, 1976. It has applied since January 1, 1980, with no later protocol. The treaty caps Korea’s national income tax on a US resident’s Korean dividends at 15% and on interest at 12%. Under Article 24, National Pension benefits are taxable only in Korea. The saving clause lets the US tax its residents as if the treaty did not exist, except under listed articles such as Article 24. ### How long can a Korean citizen stay in the USA? With an approved ESTA, a Korean citizen can stay up to 90 days per visit without a visa, for business or tourism. The rule comes from the Visa Waiver Program, which South Korea joined on November 17, 2008. A longer stay needs a visa or a green card. Visa-free visits count toward the substantial presence test, as most days in the US do. Spend 122 days in each of three years and the weighted count reaches 183, making you a US resident unless an exception applies. ### Is my Korean National Pension taxed in the US? No, the US does not tax Korean National Pension benefits paid to a US resident. Article 24 of the treaty leaves them to Korea, and the saving clause does not override it. A periodic pension from a past private Korean employer works the other way: once you live here, the US alone taxes it. A pension for Korean government service follows a separate rule, in Article 22. Whether a lump-sum refund on emigrating counts as an exempt benefit is unsettled. ### Who owes Korean gift tax when my parents give me money? Korean gift tax is normally paid by the person who receives the gift. After you stop being a Korean resident, you owe it on property located in Korea, and your parents are jointly liable. For property located abroad, a parent who lives in Korea owes the tax instead. The US does not tax the gift itself, though a year’s gifts above $100,000 must be reported on Form 3520. ## Sources - US-Korea income tax convention (IRS text): https://www.irs.gov/pub/irs-trty/korea.pdf - National Tax Service (Korea), capital gains tax on shares held by emigrants: https://www.nts.go.kr/nts/cm/cntnts/cntntsView.do?mi=2515&cntntsId=7821 - National Tax Service (Korea), gift tax: https://www.nts.go.kr/nts/cm/cntnts/cntntsView.do?mi=2338&cntntsId=7726 - National Pension Service (Korea), National Pension benefits: https://www.nps.or.kr/eng/ntnlpnsplan/bnft/getOHAI0014M0.do - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - Department of Homeland Security, Visa Waiver Program: https://www.dhs.gov/visa-waiver-program - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Instructions for Form 1040-NR (2025): https://www.irs.gov/instructions/i1040nr - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 --- URL: https://valim.tax/visa-holders/from-the-philippines Title: Moving to the US from Philippines: taxes on SSS, gifts and funds Updated: 2026-09-24 # Moving to the US from the Philippines for good limits your Philippine income tax to income earned there. Leaving to live abroad as an immigrant, or for permanent work, makes you a nonresident citizen under the Philippine Tax Code. You must give the Commissioner of Internal Revenue proof that you intend to live abroad permanently. From the year you leave, rent your Manila condo earns stays taxable there. Philippine donor’s and estate tax still count a citizen’s property wherever it is. The Tax Code charges no exit tax when you go. Once you live and work in the US: - 0%: of your SSS benefits is taxed by the US, even once you are a US citizen. - 25%: is the most the treaty lets the Philippines take from a dividend, if you are no longer a Philippine citizen. - 7.65%: of your US pay goes to Social Security and Medicare, as it does for any US employee. The 7.65% is 6.2% for Social Security, on pay up to $184,500 in 2026, plus 1.45% for Medicare. Medicare adds 0.9% on pay above $200,000. ## When does your money in the Philippines reach your US return? US reporting starts on your residency starting date. From then on, your Philippine accounts, funds and family gifts can each add a US form. ### 1. Your US residency has started A green card makes you a resident alien from your first day in the US as a permanent resident. Without one, the substantial presence test applies, and a newcomer with no recent US days needs 183 days that year. Your arrival year is usually dual-status, with a nonresident part before your start date. ### 2. Your Philippine bank and investment accounts top $10,000 combined Once your Philippine accounts together pass $10,000, you list every one on an FBAR. Savings, checking, time deposit and investment accounts all count. The total uses each account’s maximum value during the year. ### 3. Your foreign financial assets pass the Form 8938 thresholds Filing single in the US, you add Form 8938 once foreign financial assets top $75,000 at any time, or $50,000 on December 31. Married couples filing jointly use $150,000 and $100,000. A condo you own directly does not count. ### 4. You own Philippine funds or UITFs US rules normally treat a Philippine mutual fund as a passive foreign investment company (PFIC). It usually needs a Form 8621 each year, and its dividends never count as qualified dividends. A unit investment trust fund (UITF) may be a PFIC too. Since a bank holds it in trust, it may raise foreign trust questions instead. ### 5. Relatives in the Philippines send you over $100,000 in a year Form 3520 reports a year’s gifts from a nonresident alien and people related to them once the total passes $100,000. The gifts are not income, so no US tax is due on them. A late Form 3520 can bring a penalty of up to 25% of the gifts. ## How much Philippine donor’s tax does a gift from your parents cost them? The Philippines taxes the giver, at 6% of each donor’s gifts above PHP 250,000 in a calendar year. In 2026, one parent in the Philippines sends you money to help buy a home, and gives no other gifts that year. - A PHP 250,000 gift: PHP 0. The whole gift fits inside the yearly exemption. - A PHP 1,000,000 gift: PHP 45,000. The tax is 6% of the PHP 750,000 above the exemption. - A PHP 3,000,000 gift: PHP 165,000. Here the 6% applies to PHP 2,750,000. - A PHP 6,000,000 gift: PHP 345,000. Here the 6% applies to PHP 5,750,000. Sections 98 and 99(A) of the Tax Code, as amended by RA 10963, set the 6% rate and the yearly exemption. Your other parent is a separate donor, with an exemption of their own. Form 3520 adds both parents’ gifts together, so the two countries count the same money differently. ## The US-Philippines tax treaty caps some Philippine taxes on income you keep there, while the US taxes nearly all of it. Green card holders and other resident aliens owe US tax on their foreign income, including income from the Philippines. The US taxes every row below except SSS benefits. | | The Philippines | The US | | --- | --- | --- | | Dividends from a Philippine company | Up to 25% (Article 11(2)) | Taxed | | Interest from a Philippine bank | Up to 15% (10% on bonds issued to the public) | Taxed | | Rent, or a gain on land or a condo | Can tax it (Article 7, where the property is) | Taxed | | Gains on Philippine shares | Usually no right to tax (Article 14(2); land-rich company shares excepted) | Taxed | | Pension from a private employer | May tax it too (Article 18(1), for work done there) | Taxed (Under the saving clause) | | SSS benefits | Sole right to tax (Article 19) | Exempt (Even for US citizens) | The Philippine column shows the treaty’s limits. Under Article 6(3), the Philippines may set them aside for its own citizens and apply its domestic rates instead. ## Which protections do Filipinos in the US often count on without having them? ### Reading the caps as your US rate (https://valim.tax/expat-tax/foreign-tax-credit) The treaty’s ceilings on dividends and interest bind only the Philippines. Article 6(3), the saving clause, keeps the US taxing its residents and citizens under its own law. Relief from paying twice comes from the US foreign tax credit, within its limits. ### Expecting a certificate of coverage (https://valim.tax/glossary/fica) The US and the Philippines have no totalization agreement, so no certificate of coverage can keep your US pay in SSS. Your employer withholds Social Security and Medicare from your first paycheck and pays a matching amount. While still a nonresident alien, an F-1 or J-1 student generally owes no Social Security or Medicare tax on work the visa allows. ### Keeping the student article after a green card (https://valim.tax/glossary/saving-clause) Article 22 exempts a Filipino student’s grants, gifts from home and up to $3,000 a year of US pay. It lasts up to 5 taxable years. The saving clause keeps it only for students who are neither US citizens nor green card holders. The 2-year article for invited teachers and researchers ends with a green card too. ### Assuming PERA and MP2 savings grow tax-deferred Yearly earnings in a Personal Equity and Retirement Account (PERA) or Pag-IBIG MP2 savings may be taxable in the US. No treaty article covers these accounts, and we found no IRS guidance treating them as tax-deferred. The accounts may also need reporting as foreign assets. ## Your SSS benefits stay out of your income on every US return we prepare, under Article 19 of the treaty. Valim, a US CPA firm, prepares US returns for Filipinos in America, including every account and fund they keep back home. Any Philippine filing stays with your accountant there. - We prepare each federal and state return, starting with the year your US residency begins. - We list each Philippine account on your FBAR, and add Form 8938 once you pass its thresholds. We file each Form 8621 your funds need, and your instant quote prices every account and fund up front. - On Form 1116, we claim a credit for the Philippine tax you owed on dividends, interest or a pension, within its limits. - We set estimated payments for a Philippine private pension. - We review your PERA, MP2 and UITF holdings before your US residency starts, weighing each against selling. - Answering an IRS or state notice about a return we prepared is part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Which tax questions do Filipinos in the US ask most? ### Does the Philippines have a tax treaty with the USA? Yes: the income tax convention between the two countries has applied since January 1, 1983, and no protocol has amended it. It caps Philippine tax on dividends at 25% and interest at 15%, though the Philippines may set the caps aside for its citizens. Unusually, it lets the Philippines tax a private pension for work done there, even after you move. Its saving clause lets the US tax its residents on most other income as if there were no treaty. The Philippines has no totalization agreement with the US, so Social Security and Medicare apply to your US pay. ### How much is the tax of $100,000 in the Philippines? In pesos, PHP 100,000 of taxable income owes no Philippine income tax, because the first PHP 250,000 a year is taxed at 0%. Above that, the schedule in force since January 1, 2023 rises in steps from 15% to 35%. A $100,000 salary converts to several million pesos. Income between PHP 2,000,000 and PHP 8,000,000 owes PHP 402,500 plus 30% of the excess over PHP 2,000,000. After you emigrate, the Philippines no longer taxes pay you earn in the US. ### Are SSS benefits taxable in the US? No: Article 19 of the treaty makes SSS benefits paid to a US resident taxable only in the Philippines. The saving clause does not override Article 19, which also covers SSS benefits paid to a US citizen, so naturalizing changes nothing. A pension from a private Philippine employer is different, because the US taxes it. ## Sources - US-Philippines income tax convention (IRS text): https://www.irs.gov/pub/irs-trty/philip.pdf - National Internal Revenue Code of 1997 (Philippines), Sections 22, 23, 85, 98 and 104 (Supreme Court E-Library): https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/2/3896 - Republic Act No. 10963 (TRAIN), amending NIRC Sections 24(A) and 99 (Supreme Court E-Library): https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/2/80559 - 26 U.S.C. § 7701(b), Resident alien definition: https://www.law.cornell.edu/uscode/text/26/7701 - Treas. Reg. § 301.7701(b)-1, Resident alien: https://www.ecfr.gov/current/title-26/section-301.7701(b)-1 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 901, Taxes of foreign countries: https://www.law.cornell.edu/uscode/text/26/901 - IRS, Instructions for Form 1116: https://www.irs.gov/instructions/i1116 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 --- URL: https://valim.tax/visa-holders/from-mexico Title: Moving to the US from Mexico: taxes on property, Afores and IMSS Updated: 2026-09-24 # Mexican tax residents must give 15 days’ notice before moving to the US from Mexico: taxes there continue if they skip it. Mexico’s Federal Tax Code presumes its nationals are tax residents unless they prove otherwise. If you keep homes in both countries, Mexico asks where your center of vital interests is. It is in Mexico if, for example, you earn over half your year’s income there or do your main work there. Mexico’s rules for a move to the US: - 15 days: before your tax residence changes is the latest you can give Mexico notice of the move. - 10%: is the most Mexico may charge on your bank interest or dividends under the treaty, once you live in the US. - 25%: of the whole price is Mexico’s default tax when you sell real estate there as a nonresident. Mexico’s notice rule is in Article 9 of its Federal Tax Code, as amended to April 9, 2026. ## Which of your ties to Mexico need a US form? ### 1. Your US residency start date From the day a green card or the substantial presence test makes you a resident alien, the US taxes your income from Mexico too. Before that day, a nonresident pays US tax only on US income. Days you commute from your home in Mexico to a US job, back within 24 hours, do not count toward the substantial presence test. That holds only if you commute on over 75% of your workdays. ### 2. Mexican bank and brokerage accounts Once the peak balances of all your foreign accounts pass $10,000 in total, each Mexican account goes on an FBAR. You file it with FinCEN by April 15, and the deadline moves to October 15 automatically. If you file single and your foreign financial assets top $50,000 at year end, or $75,000 at any time, you also file Form 8938. ### 3. Mexican investment funds A fondo de inversión is normally a passive foreign investment company (PFIC), as most funds based abroad are. Each fund you hold generally needs a Form 8621 of its own every year. The exception is a year your PFICs total $25,000 or less at year end ($50,000 on a joint return). It covers only funds with no QEF or mark-to-market election, and only if you had no gain on selling them. You must also have had no excess distribution, meaning a payout well above your recent average. ### 4. Gifts from your family However much your parents give, the gift adds nothing to your US taxable income. Their gifts and their relatives’ gifts count as one total, reported on Form 3520 once it passes $100,000 in a year. ### 5. A home held in a fideicomiso A fideicomiso is a Mexican bank trust that holds title to a home in a restricted zone, where foreigners cannot own one directly. Revenue Ruling 2013-14 says a standard fideicomiso is not a trust for US tax, because the bank only holds title. You keep every other right, and no Form 3520 or 3520-A is due for it. Mexican nationals can hold such a home in their own name, so this mostly concerns a non-Mexican spouse. ## Mexico’s tax on the sale price can take most of your gain on a home there. As a US resident, you also report the home’s gain to the IRS, figured in dollars. If it was your main home for 2 of the 5 years before the sale, up to $250,000 of gain may be excluded. On a joint return, the limit is $500,000. Mexico’s tax may be credited against any US tax left. Your home in Mexico, bought for MXN 2.5 million, sells for MXN 4 million in 2026, after your Mexican residence ends. - Sale price: MXN 4M. Mexico’s default tax is figured on this whole amount. - Your gain: MXN 1.5M. It is the price less the MXN 2.5 million you paid. - Mexico’s tax: MXN 1M. That is 25% of the price, with nothing deducted for your cost. - Gain left: MXN 0.5M. Mexico’s tax takes two-thirds of the gain, before any US tax. Article 160 of Mexico’s income tax law sets this 25% default. With a sale recorded in a public deed, you can choose to be taxed on the gain instead, at Mexico’s top income tax rate. The example shows Mexico’s tax only, in pesos. ## Under the US-Mexico tax treaty, Mexico still gets to tax some of your income first. The treaty has applied since January 1, 1994, and a 2002 protocol rewrote its dividend article. Each row assumes Mexico no longer counts you as its resident. | | Mexico | US | | --- | --- | --- | | Interest from a Mexican bank | Up to 10% (Article 11(2)) | Taxed | | Dividends from a Mexican company | Up to 10% (Article 10(2)) | Taxed | | A pension from a private Mexican employer | May not tax it (Article 19(1)(a)) | Taxed | | IMSS benefits (Mexican social security) | Mexico alone may tax (Article 19(1)(b)) | Exempt (US citizens included) | Under the saving clause, the US taxes its residents as if the treaty did not exist. IMSS benefits are one of the exceptions the clause lists. ## Four ways a move from Mexico can cost more than it should. ### Filing the notice without proof of your new residence Even after you file the notice, Mexico can keep you as a resident if you cannot prove your new tax residence. That rule covers the year of the notice and the five years after it. An exception for countries with certain tax agreements with Mexico may not cover the US. Keep proof that the US now treats you as a tax resident. ### Expecting IMSS to cover your US job (https://valim.tax/visa-holders/tn-visa-taxes) IMSS coverage cannot keep your US pay out of US Social Security tax. That takes a totalization agreement (a Social Security agreement between two countries), and Mexico and the US have none. Your employer withholds 7.65% for Social Security and Medicare from the first paycheck, on a TN or an H-1B alike. The 6.2% Social Security part stops at $184,500 of pay in 2026. Above $200,000 of pay, your employer also withholds the 0.9% Additional Medicare Tax. ### Counting on the treaty to cover student pay (https://valim.tax/glossary/saving-clause) Article 21 exempts only money a Mexican student receives from abroad to pay for their studies and upkeep. It gives no allowance for pay earned in the US, and the treaty has no article for visiting teachers. Under the saving clause, a green card ends even that exemption. ### Selling a 25% stake in a Mexican company (https://valim.tax/expat-tax/foreign-tax-credit) Mexico can tax the gain if you held at least 25% of a Mexican company in the 12 months before selling. The same goes for shares in a company that is at least half Mexican real estate by value. Mexico’s tax on that gain may count as a foreign tax credit on your US return. ## We prepare your US returns while your accountant in Mexico handles the Mexican side. We file your FBARs too, and we work alongside your contador. - We prepare your first US return, split at the day your US residency starts, and each federal and state return after it. We keep IMSS benefits off your US income and credit Mexico’s tax on your interest and dividends on Form 1116. - We report each Mexican account and fondo de inversión on the forms it needs: the FBAR, Form 8938 and Form 8621. You enter how many you hold in the instant quote, and each one adds to the fee. We confirm the count from your documents. - We work out the US tax on selling your Mexican home before your residency starts and after it. - We map out estimated payments on rent from a property in Mexico. - Any IRS or state notice on a return we prepared, say about your Afore, is ours to answer within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Which tax questions come up most on a move from Mexico to the US? ### Is there an exit tax leaving Mexico? No. Neither Mexico’s Federal Tax Code nor its income tax law taxes gains you have not realized when you leave. The move does require a change-of-residence notice, filed at least 15 days before your tax residence changes. Skip it, and Mexico keeps treating you as a resident. ### Does Mexico have a gift tax? No, Mexico has no separate gift tax. Its income tax counts a gift as income to a Mexican tax resident. Gifts between spouses, and from parents or grandparents to descendants, are exempt whatever their size. A resident still reports gifts over MXN 600,000 in the annual return. Once you are no longer a Mexican resident, those rules generally do not reach money your family sends you. ### Does my Afore go on my US tax return? It may, but neither the treaty nor any IRS guidance we have read says how the US treats an Afore. Mexico’s social security system funds it, but private administrators run it. If the US treats it as a pension account, it may go on your FBAR and Form 8938. Form 8938 leaves out foreign social security, so that answer turns on how the Afore is classed. Its payouts could likewise count as exempt social security or as a taxable private pension. No treaty article defers US tax on an Afore’s growth. ## Sources - US-Mexico income tax convention (1992): https://www.irs.gov/pub/irs-trty/mexico.pdf - Protocol to the US-Mexico convention (2002): https://home.treasury.gov/system/files/131/Treaty-Mexico-Pr2-10-26-2002.pdf - Treasury, Technical Explanation of the US-Mexico convention and protocol (1992): https://www.irs.gov/pub/irs-trty/mexicotech.pdf - Mexico, Código Fiscal de la Federación (federal tax code): https://www.diputados.gob.mx/LeyesBiblio/pdf/CFF.pdf - Mexico, Ley del Impuesto sobre la Renta (income tax law): https://www.diputados.gob.mx/LeyesBiblio/pdf/LISR.pdf - IRS, Internal Revenue Bulletin 2013-26 (Rev. Rul. 2013-14, Mexican land trusts): https://www.irs.gov/irb/2013-26_IRB - 26 C.F.R. § 301.7701(b)-3, Days of presence in the United States that are excluded for purposes of section 7701(b): https://www.ecfr.gov/current/title-26/section-301.7701(b)-3 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html --- URL: https://valim.tax/visa-holders/from-brazil Title: Moving to the US from Brazil: taxes, INSS, FIIs and no treaty Updated: 2026-09-24 # A Social Security agreement covers workers moving to the US from Brazil. Taxes on your income follow each country’s own law, since no income tax treaty exists. Since October 1, 2018, a US-Brazil Social Security agreement has let a worker posted to the US for 5 years or less stay in INSS. Without an income tax treaty, the US withholds its full 30% on US dividends paid to a nonresident alien in Brazil. Timing your move from Brazil: - Feb. 28, 2027: is the last day to file Brazil’s departure communication after a permanent move in 2026. Filing it makes you a nonresident as of the day you left. - 10%: of each dividend a Brazilian company pays you is generally withheld from 2026 on, once Brazil treats you as a nonresident. - $0: of US tax generally falls on Brazilian shares or funds you sell before your US residency starts. For a move in another year, the deadline is the last day of the following February. ## Which dates end your tax residence in Brazil and start it in the US? Brazil’s date depends mostly on what you file. The US date depends on your days here or on a green card. ### 1. You leave Brazil for good Send Receita Federal the Comunicação de Saída Definitiva do País after you leave. The agency says this filing is mandatory. It does not replace the departure return, the Declaração de Saída Definitiva do País. ### 2. You leave without filing, or only for a while After a temporary move, or a permanent one you never reported, Brazil keeps you resident for your first 12 consecutive months abroad. The US may count you as resident in those months as well. With no treaty, no tie-breaker picks one country over the other. ### 3. You were resident for part of the departure year File the departure return the year after your residence ends, by the regular annual deadline. Any tax it shows is due in a single installment by that date. Brazil’s new minimum tax applies once your total 2026 income tops R$600,000, and its rate rises to 10% at R$1,200,000. It may also reach your months as a resident. ### 4. Your US residency begins Once you pass the substantial presence test, your US residency generally counts from your first day here that year. A green card starts your residency on the first day you are here holding one, unless the substantial presence test gives an earlier date. From your start date, the US also taxes the Brazilian income you receive. ## On $100,000 of US pay in 2026, a certificate of coverage removes your $7,650 of payroll tax, but $13,170 of income tax remains. Under the agreement, only one system covers your pay: US Social Security or Brazil’s INSS. A certificate of coverage from Brazil’s social security agency, given to your employer, keeps you in INSS. A Brazilian employer posts you here for 3 years and pays you $100,000 in 2026, a full resident year. - Your Social Security and Medicare: $7,650. Without a certificate, 7.65% is withheld from your wages. - Your employer’s matching share: $7,650. Your employer owes the same amount again. - Both, with a certificate of coverage: $0. You keep paying into INSS, so neither you nor your employer owes US Social Security or Medicare. - Your federal income tax, either way: $13,170. The agreement leaves income tax alone. The payroll figures use the 2026 rates of 6.2% for Social Security and 1.45% for Medicare, each matched by the employer. The income tax takes the $16,100 standard deduction for a single filer. That leaves $83,900, taxed at $5,800 plus 22% of the $33,500 above $50,400. State tax is extra. A dual-status arrival year gets no standard deduction. ## Becoming a US resident changes how the US treats what you keep in Brazil. The switch comes on your residency starting date, which often falls partway through the year you arrive. | | Nonresident alien | Resident alien | | --- | --- | --- | | Interest, dividends and rent from Brazil | Not taxed by the US | Taxed (With a credit for Brazil’s tax) | | Brazilian funds, FIIs included | Not taxed by the US | PFIC rules apply (Generally a Form 8621 for each) | | Accounts abroad over $10,000 in total | No FBAR | FBAR each year (Form 8938 as well, at higher totals) | | Gifts from family over $100,000 a year | Nothing to report | Form 3520 (The gift is not income) | Under US rules, Brazilian investment funds, including real estate funds (FIIs), are normally PFICs, or passive foreign investment companies. A single filer must file Form 8938 when foreign assets pass $50,000 on December 31 or $75,000 at their highest point. Married couples filing jointly use twice those amounts. ## INSS benefits, private pensions, FIIs and student relief each hold a US tax trap for people from Brazil. ### Treating INSS benefits as tax-free IRS Publication 915 says foreign social security benefits are taxable as annuities when no treaty exempts them. With no US-Brazil treaty, the US generally taxes the INSS benefits paid to its residents. ### Treating a PGBL or VGBL like a US retirement account A PGBL or VGBL may not get the tax deferral of a US retirement account. No treaty puts off the US tax on its growth, and we know of no IRS guidance on these plans. The US may treat one as a foreign trust or as a foreign insurance or annuity contract. Depending on how it is built, a plan may instead count as a holder of PFICs. ### Selling FIIs only after your start date (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Selling an FII after your US residency starts generally brings in the PFIC rules, which tax a gain harshly without an election. Its payouts also miss the lower rates for qualified dividends. ### Looking for a treaty student exemption (https://valim.tax/visa-holders/j-1-visa-taxes) Students from Brazil get no treaty exemption for grants or US pay, unlike students from some treaty countries. The Internal Revenue Code’s own rules still apply: F-1 and J-1 days can stay out of the residency count for a limited time. Work tied to the visa is generally free of Social Security and Medicare while the student is a nonresident alien. ## Our licensed CPAs handle the US returns that follow a move from Brazil. We work alongside your accountant in Brazil, who keeps the Brazilian side, including the departure return. - We prepare your US federal and state returns, beginning with an arrival year that is often dual-status. We claim Brazil’s withholding on your dividends as a foreign tax credit on Form 1116. - We prepare the FBAR for your Brazilian accounts, and Form 8938 too if your foreign assets are large enough. We also file the Form 8621 each FII or other Brazilian fund needs. The accounts and funds you list in the instant quote set your fixed fee. - We review your PGBL, VGBL and FIIs before your US start date, and weigh selling each against keeping it. - We compute estimated payments on rent and dividends from Brazil. - If the IRS or a state sends a notice on a return we prepared, perhaps about INSS benefits, your fee already covers our reply. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How far does Brazil’s tax reach once you live in the US? ### Is there an income tax treaty between Brazil and the US? No, the US and Brazil have no income tax treaty in force as of September 2026. Each country withholds at its own rate on dividends paid to residents of the other: 30% in the US and generally 10% in Brazil. Relief for tax paid twice comes from each country’s own rules instead, chiefly the US foreign tax credit on Form 1116. A Social Security agreement between them took effect on October 1, 2018, and it coordinates contributions and benefits. ### How much does Brazil withhold on dividends paid to me in the US? Brazil generally takes 10% at source from dividends paid to shareholders abroad, under a rule in force since January 1, 2026. Before then, Brazil did not tax dividends paid abroad. By contrast, a Brazilian resident has the 10% withheld only when one company pays them more than R$50,000 of dividends in a month. Once you are a US resident, the US taxes the same dividends, and Brazil’s 10% can count toward your foreign tax credit. ### Does ITCMD apply when my parents in Brazil send me money? Yes, ITCMD can apply: it is the tax Brazil’s states charge on gifts and inheritances. For money and securities, it belongs to the state where the parent giving them is domiciled. Each state sets its own rate, under a ceiling the Federal Senate fixes, and its own rule on who pays. In the US, the gift is not income, and Form 3520 reports it once your family’s gifts top $100,000 in a year. ## Sources - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - Receita Federal (Brazil), Residente e Não Residente (updated October 21, 2025): https://www.gov.br/receitafederal/pt-br/assuntos/meu-imposto-de-renda/preenchimento/dsdp/nao-residente - Gov.br (Brazil), Comunicar saída definitiva do país: https://www.gov.br/pt-br/servicos/comunicar-saida-definitiva-do-pais - Câmara dos Deputados (Brazil), Lei nº 15.270, de 26 de novembro de 2025: https://www2.camara.leg.br/legin/fed/lei/2025/lei-15270-26-novembro-2025-798354-publicacaooriginal-177117-pl.html - Constituição da República Federativa do Brasil, Article 155 (Planalto): https://www.planalto.gov.br/ccivil_03/constituicao/constituicao.htm - 26 U.S.C. § 871, Tax on nonresident alien individuals: https://www.law.cornell.edu/uscode/text/26/871 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 1, Tax imposed (qualified dividends, section 1(h)(11)): https://www.law.cornell.edu/uscode/text/26/1 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - IRS, Instructions for Form 8938 (Rev. November 2021): https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 --- URL: https://valim.tax/visa-holders/from-india Title: Moving to the US from India: taxes on NRE, NRO, PPF and property Updated: 2026-09-30 # In the year of moving to the US from India, taxes in India can still reach your first US paychecks. India’s tax year runs from April 1 to March 31. If you are an Indian citizen leaving for a job abroad, you stay resident that year only with 182 days or more there. An Indian resident can owe Indian tax on US pay too. India then credits the US income tax on that pay, up to its own tax on it (treaty Article 25(2)(a)). A non-resident pays Indian tax only on income arising or received in India, such as rent and NRO interest. India’s figures for tax year 2026-27: - 15%: is the most India may take from your NRO interest under the treaty, and the most the US will credit. - 12.5%: is India’s rate on a non-resident’s long-term gain on property, before surcharge and cess. - 20%: is the tax a bank collects at source on a parent’s gift remittances once the year’s total passes ₹10 lakh. Form 6166, the IRS certificate of US residency, is one of the papers an Indian bank needs before it applies the 15%. A parent claims the 20% against their own Indian tax. ## Which US forms do your accounts and policies in India need? You become a US resident with a green card or by passing the substantial presence test. From your residency starting date, each item below can add a form to your US return. That holds even while India still counts you as an NRI (non-resident Indian). ### 1. You keep bank accounts in India You file the FBAR once your foreign accounts together top $10,000 at any point in the year. It lists every NRE, NRO and FCNR account, plus Indian mutual funds and cash-value life policies. A joint account with a parent counts at its full value. ### 2. You have a PPF, EPF or NPS account Form 8938 generally counts PPF, EPF and NPS balances. Its instructions make foreign accounts and foreign pension plans reportable. For a single filer in the US, the thresholds are $50,000 at year end and $75,000 at any time. They may count toward your FBAR total too. ### 3. You own Indian mutual funds or ETFs Indian mutual funds are managed trusts under SEBI’s rules, so US tax law generally treats them as foreign corporations and PFICs. Each fund generally means a Form 8621 of its own every year. The IRS has said nothing about unit-linked insurance plans (ULIPs), so their US treatment is unsettled. ### 4. You pay premiums to an Indian insurer Premiums on your life policy from an Indian insurer, such as the Life Insurance Corporation of India, may carry a 1% US excise tax. You report it on Form 720 each quarter. You can rely on the treaty’s exemption only if the insurer has a closing agreement with the IRS. No Indian insurer is on the IRS lists of insurers that have one. ## When an NRI sells property in India, only the final Indian tax counts toward the US credit. The buyer deducts tax at source (TDS) from what they pay a non-resident seller. The 1% rate many buyers expect applies only when the seller is a resident of India. An NRI seller can apply for a lower-deduction certificate under section 395(1) of India’s Income-tax Act, 2025, to cut the TDS in advance. In 2026-27 you sell a flat in India for ₹2 crore that you bought five years ago for ₹1.2 crore. - TDS on the ₹2 crore price: ₹29.9 lakh. With no certificate, the buyer here deducts 14.95% of the whole price. That is the 12.5% rate, a 15% surcharge above ₹1 crore and the 4% cess. - India’s tax on the ₹80 lakh gain: ₹11.44 lakh. With no other Indian income, your final tax is 12.5% of the gain, plus a 10% surcharge and the cess. - Refund on your Indian return: ₹18.46 lakh. India repays the excess only on a return filed there, due July 31, 2027. A non-resident cannot adjust the cost for inflation (indexation). India keeps that option for residents who bought before July 23, 2024. The US figures the gain in dollars, and Form 1116 credits the ₹11.44 lakh within its limit. If the flat was your main home for 2 of the last 5 years, you may exclude up to $250,000 of that gain. The same credit rule applies to a US citizen selling property in India: only the final Indian tax counts. India’s exemption for reinvesting in another Indian home does not reduce the US gain. ## Which of your income from India faces dual taxation? The rows show a year in which the US counts you as resident and India does not. Where both countries tax the same income, a foreign tax credit for India’s tax offsets the US tax, within its limit. | | India | US | | --- | --- | --- | | NRE and FCNR interest | Exempt (While you are a non-resident) | Taxed (No Indian tax to credit) | | NRO interest | Treaty rate (Article 11(2)(b)) | Taxed (Credit limited to the treaty rate) | | Rent from a flat in India | Taxed (After a 30% standard deduction) | Taxed | | Gains on Indian equity funds | 20% or 12.5% (Short-term, or long-term above ₹1.25 lakh, before surcharge and cess) | PFIC rules (No capital gains rate without a QEF election) | | A monthly pension from a past private employer in India | Not taxed (Article 20(1); not a government or EPS pension) | Taxed | | An EPF or NPS lump sum | Mostly exempt (EPF after 5 years of service, NPS up to 60%) | May be taxed (Article 23, with a credit for any Indian tax) | ## Five mistakes that cost people who move from India. ### Assuming your spouse leaves India’s tax net with you A spouse who follows you without a job, or a student, may stay an Indian resident in the year of the move. The relief for citizens leaving for a job abroad does not cover them, so India’s 60-day test can still apply. That test counts 60 days in India that year, plus 365 days over the 4 years before. ### Staying too long on a visit home A long visit home can make you an Indian resident again for that tax year. That normally takes 182 days in India. If your Indian income is over ₹15 lakh, 120 days are enough when you spent 365 days there in the 4 years before. ### Drawing your EPF after the move (https://valim.tax/visa-holders/resident-or-nonresident-alien) The EPF lets you withdraw the whole balance just before you migrate for a job abroad. Once you have left, a full withdrawal waits until you have been out of covered employment for 12 months. A payout received before your US residency starts is generally outside US tax. ### Crediting Indian tax in the wrong year (https://valim.tax/expat-tax/foreign-tax-credit) India’s tax year ends March 31, so tax on one Indian year can fall in two US tax years. On the cash method, you claim the credit in the year you pay the tax. You can elect to claim it as it accrues instead, and that choice binds every later year. ### Expecting a totalization agreement (https://valim.tax/glossary/fica) With no US-India totalization agreement, most US wages are subject to Social Security and Medicare tax, even on an Indian payroll. Your US years also add nothing toward a pension from India’s Employees’ Pension Scheme (EPS), which needs 10 years of eligible service. ## We report every account you keep in India on the US returns we prepare. We file your US returns from your arrival year on and work alongside your accountant in India. - We report your NRE, NRO and FCNR interest, and credit the Indian tax the treaty allows on NRO interest. - We prepare your FBAR, any Form 8938, a Form 8621 for each Indian fund and Form 3520 for gifts over $100,000. The instant quote prices each NRE, NRO and FCNR account and each Indian fund you enter. - Before you migrate, we compare the US tax on drawing your EPF early with the tax on leaving it in India. - We compare selling property in India before your US residency starts with selling after it. After a sale, we set the US estimated payment and credit only your final Indian tax. - Should the IRS or your state send a notice on a return we prepared, our answer is part of the fee. That covers an IRS query on your credit for tax withheld in India. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What NRIs in the US ask about their money in India. ### Is transferring money from India to the USA taxable? Not by itself: moving your own savings from India to the US is generally not income in either country. What each country taxes is the interest, rent or gains the money earned. A gift from your parents is not taxed either, though Form 3520 is due once their gifts pass $100,000 in a year. Each parent may send up to $250,000 a financial year under the RBI’s Liberalised Remittance Scheme. Past ₹10 lakh a year, the bank collects 20% tax at source (TCS) on a gift, a prepayment of the parent’s Indian tax. ### Who pays 42% tax in India? Only someone on India’s optional old tax regime with over ₹5 crore of income pays the 42% rate. That ₹5 crore leaves out dividends, long-term capital gains and short-term gains on listed shares or equity funds. The rate is 30% plus a 37% surcharge and the 4% cess, which comes to 42.744% at the margin for tax year 2026-27. The default new regime caps the surcharge at 25%, so its top rate is 39%. Non-residents face the same schedules, though only residents can claim India’s tax rebate. ### Is interest on my NRE or NRO account taxable in the US? Yes: as a US resident alien, you owe US tax on all NRE, NRO and FCNR interest as ordinary interest. India exempts NRE and FCNR interest for non-residents, but that binds only India, so there is no Indian tax to credit. Indian banks usually withhold 31.2% on NRO interest. The treaty cuts India’s tax to 15% once the bank has Form 6166, the IRS certificate of US residency, and India’s other required papers. If the bank withheld 31.2%, your foreign tax credit still stops at 15%. You reclaim the excess from India on an Indian return. ### Are PPF and EPF taxable in the US, and how do I report them? In principle, yes: no US rule or treaty article exempts PPF or EPF from US tax. The IRS has never said how or when the US taxes them. India exempts PPF interest and most EPF payouts, yet those exemptions bind only India. A lump-sum EPF withdrawal is other income under Article 23 of the US-India tax treaty, which both countries may tax. Form 8938 reports PPF and EPF balances above its thresholds, and they may count toward your FBAR total as well. Whether either is a foreign trust needing Form 3520 is also unsettled. ## Sources - US-India income tax convention (IRS text): https://www.irs.gov/pub/irs-trty/india.pdf - US Treasury, Technical Explanation of the US-India convention: https://www.irs.gov/pub/irs-trty/inditech.pdf - Income-tax Act, 2025 (India), as amended by the Finance Act, 2026: https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf - Finance Act, 2026 (India), Gazette of India: https://egazette.gov.in/WriteReadData/2026/271439.pdf - Reserve Bank of India, Master Direction on the Liberalised Remittance Scheme: https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10192 - Employees’ Provident Funds Scheme, 2026 (G.S.R. 525(E)): https://egazette.gov.in/WriteReadData/2026/273957.pdf - Employees’ Pension Scheme, 2026 (G.S.R. 527(E)): https://egazette.gov.in/WriteReadData/2026/273951.pdf - National Savings Institute, Public Provident Fund: https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55 - SEBI (Mutual Funds) Regulations, 2026: https://www.sebi.gov.in/sebi_data/attachdocs/jul-2026/1783933012694.pdf - IRS, Publication 514, Foreign Tax Credit for Individuals: https://www.irs.gov/publications/p514 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - 26 U.S.C. § 4371, Imposition of tax (policies issued by foreign insurers): https://www.law.cornell.edu/uscode/text/26/4371 - IRS, Rev. Proc. 2003-78: https://www.irs.gov/pub/irs-drop/rp-03-78.pdf - IRS, Exemption from section 4371 excise tax: https://www.irs.gov/businesses/international-businesses/exemption-from-section-4371-excise-tax - IRS, Instructions for Form 720 (Rev. June 2026): https://www.irs.gov/instructions/i720 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.ecfr.gov/current/title-31/section-1010.350 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html --- URL: https://valim.tax/visa-holders/from-switzerland Title: Moving to the US from Switzerland: taxes on pillar 2, 3a and AHV Updated: 2026-09-30 # You can cash out your whole pillar 2 when moving to the US from Switzerland: taxes on the cash turn on your US residency starting date. Switzerland withholds source tax from a pillar 2 payout (your workplace pension). Part is federal, and the canton where the fund has its seat sets the rest. The US taxes a pillar 2 payout you receive as a US resident, less your investment in the plan. You can then reclaim the Swiss tax on a private-law fund’s payout, with proof that the IRS knows of it. Only US citizens get that refund on a payout from a public-law fund, such as a canton’s. If you take pillar 2 before your US residency starts, the cash is generally free of US tax, but the Swiss tax stays. Swiss tax you can claim back: - 3 years: is how long a US resident has to reclaim Swiss source tax on a private pillar 2 or 3a lump sum. - Dec. 31, 2029: is the last day to reclaim Swiss withholding tax on a dividend that fell due in 2026. - 15%: is what Switzerland keeps from your Swiss dividends once you claim the refund as a US resident. Each refund lapses once its deadline passes. ## What should you check before you leave Switzerland? ### 1. Your US residency starting date Your US residency starts on your first day here in the year you meet the substantial presence test, or sooner with a green card. Up to 10 days of short visits can be left out, if your tax home and closer ties stayed in Switzerland. Swiss income you receive from your US residency starting date is US-taxable, even if you earned it before the move. ### 2. Your last Swiss tax year Swiss federal tax on your last year falls due as soon as you make arrangements to leave for good. The canton can also demand security, a guarantee that you will pay. If you keep a Swiss home, you may stay domiciled there, and the treaty’s tie-breaker then decides where you are resident. ### 3. Shares and funds you hold privately Arriving in the US does not raise your cost basis to market value. Gains built up in your Swiss years are therefore taxed if you sell as a US resident. If you sell before your US residency starts, those gains generally escape tax in both countries. ### 4. Pillar 2 you leave in Switzerland If you leave your pillar 2 in Switzerland, tell your fund whether to hold it in a vested benefits account or policy. Without instructions, it goes to the substitute institution, Switzerland’s fallback pension fund, six months to two years after you leave the fund. The IRS has not said how it taxes growth in pillar 2 or 3a, and no treaty article defers that tax. ### 5. A pillar 3a account You can close a 3a account when you leave Switzerland for good, or keep it. If you withdraw it while you still live there, Switzerland taxes it separately at a reduced federal rate, and that tax is final. After you leave, a withdrawal bears pillar 2’s source tax, which is refunded only if you are a US resident when paid. A spouse or registered partner must agree in writing before you take pillar 2 or 3a in cash. ## On CHF 10,000 of Swiss dividends, a refund claim cuts Switzerland’s tax from CHF 3,500 to CHF 1,500. Swiss payers withhold the full 35% even from a US resident. You reclaim the part above the treaty rate from the Swiss Federal Tax Administration (ESTV), on Form 82 I or online. You live in the US and receive CHF 10,000 of Swiss dividends in 2026, or the same in Swiss bank interest. - Dividends, no claim filed: CHF 3,500. Switzerland keeps the whole 35%, and the US still credits no more than the treaty rate. - Dividends, refund claimed: CHF 1,500. The ESTV repays CHF 2,000, and the CHF 1,500 left is the tax you can credit in the US. - Bank interest, refund claimed: CHF 0. All CHF 3,500 comes back, because the treaty leaves interest to the US alone. The Withholding Tax Act, in Article 13, sets Switzerland’s tax on dividends and interest at 35%. The ordinance to the treaty refunds 20% of a dividend’s gross amount and all 35% of interest. That leaves the treaty rate on dividends (Article 10(2)(b)) and nothing on interest (Article 11(1)). Treas. Reg. § 1.901-2(e)(5) treats tax you could reclaim as not paid. US tax on the income is not shown. ## Which Swiss income does the US-Swiss tax treaty still leave to Switzerland? For a US resident, the treaty mainly limits what Switzerland may tax. Its saving clause, Article 1(2), binds only the US. It lets the US tax its residents and citizens as if the treaty did not exist, with listed exceptions. | | Switzerland | US | | --- | --- | --- | | Pension from a private Swiss fund or 3a | Not taxed (Lump sums: withheld, then refundable) | Taxed | | Pension for Swiss public service | Taxed (Article 19(2)) | Exempt on a visa (Taxed with a green card or US citizenship) | | AHV old-age pension | Not taxed (When paid abroad) | Taxed as an annuity | | Gains on Swiss shares and funds | Not taxed (Unless the company mostly owns Swiss land) | Taxed | | A home or land you keep in Switzerland | Taxed (Plus wealth tax on it) | Rent and sale gains taxed (Credit for Swiss income tax, not wealth tax) | A Swiss public-service pension paid to a US citizen living in the US is taxed by the US alone. ## Which slips forfeit a Swiss refund or add US tax and penalties? ### Expecting a refund from a public pension fund Source tax on a lump sum from a public-law fund, such as a canton’s, is not refunded to visa or green card holders. The treaty lets Switzerland tax public-service pensions. ### Leaving the refund proof until late The canton asks for proof that the IRS knows of the payout. We found no published rule on what proof it accepts from a US resident. Ask it early, before the claim can lapse. ### Keeping Swiss funds after you arrive (https://valim.tax/glossary/passive-foreign-investment-company-pfic) A Swiss contractual fund or SICAV usually counts as a passive foreign investment company (PFIC) once you are a US resident. Each one then generally needs its own Form 8621 every year, and funds held inside a 3a account may too. ### Overlooking vested benefits and 3a accounts (https://valim.tax/expat-tax/fbar) A vested benefits or 3a account held at a Swiss bank foundation may belong on your FBAR and on Form 8938. Whether Form 3520 applies to it is unresolved. ### Joining the US affiliate during a posting (https://valim.tax/visa-holders/l-1-visa-taxes) A Swiss certificate of coverage can keep a posted worker in AHV and out of US Social Security. The US-Swiss social security agreement counts a US affiliate as the same employer only for workers sent from the US. If you become an employee of the US affiliate instead of your Swiss employer, you may lose that exemption. ## We work out the US tax on your pillar 2 and put your Swiss accounts on the right forms. Our CPAs prepare only your US returns once you leave Switzerland. A Swiss accountant files your final Swiss return, and we coordinate with them. - We report a pillar 2 or 3a payout on your US return and work out your investment in the plan. - We compare taking your pillar 2 before your US residency starts with taking it after. We then set your estimated payments for the year the cash lands. - We put your Swiss bank, vested benefits and 3a accounts on the FBAR and Form 8938 where they belong. Every Swiss fund that needs a Form 8621 gets one. The instant quote prices each Swiss account and fund you list, and any Swiss company in which you own more than 20%. - We credit only the Swiss tax you cannot reclaim, on Form 1116. - Within the fee, we answer IRS and state notices about the returns we prepared, including questions on your AHV pension. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How do Swiss and US taxes differ once you make the move? ### Does Switzerland have a tax treaty with the US? Yes. Under the US-Switzerland tax treaty, a US resident reclaims 20 of the 35 percentage points Switzerland withholds from dividends, so Switzerland keeps 15%. The treaty was signed on October 2, 1996, and has applied since January 1, 1998. Interest and private pensions are taxed only where you live. The treaty’s saving clause binds only the US. A 2009 protocol, in force since September 20, 2019, lets the tax authorities exchange information that bank secrecy once shielded. A separate 1951 treaty covers estate tax. ### Who has higher taxes, the US or Switzerland? Whether the US or Switzerland taxes you more depends on your canton, your state and your income. Swiss federal income tax never takes more than 11.5% of taxable income, but cantons and communes add their own income tax. Switzerland also taxes wealth each year, and the US has no federal wealth tax. Swiss income tax you cannot reclaim can offset US tax on the same income through the foreign tax credit. In 2026, US federal income tax on $100,000 of wages is $13,170 for a single filer taking the standard deduction, before state tax. Social Security and Medicare take another 7.65%, unless a Swiss certificate of coverage keeps you in AHV. ### How much is $100,000 after tax in Switzerland? Switzerland has no single take-home figure for $100,000, because each canton and commune sets most of the income tax. The federal part is small: CHF 2,684.35 on CHF 100,000 of taxable income for a single person in 2026. A married couple owes CHF 1,816 of federal tax on the same income. These figures are for taxable income in francs, after deductions, not for a $100,000 salary. The Swiss Federal Tax Administration’s online calculator gives the total for any commune. ### Does Switzerland have an exit tax? No, there is no Swiss exit tax on private assets. Switzerland does not tax gains on private shares, funds and other movable assets, though cantons tax gains on Swiss real estate. The exceptions are business assets you take abroad, a Swiss company whose seat moves abroad, and gains from professional securities trading. Blocked employee options, which you cannot exercise or sell until a set date, are taxed when exercised after you leave. Switzerland then charges 11.5% federal plus cantonal tax, on the part earned while you worked there. ### Does the US tax my AHV pension? Yes, the US taxes your AHV pension once you live here, and Switzerland does not tax AHV paid abroad. The treaty does not treat AHV as US Social Security, so it is taxed under the annuity rules. The cap that taxes at most 85% of a US Social Security benefit does not apply. No IRS guidance says how much of it is a tax-free return of your own contributions. AHV stays off Form 8938, which leaves out foreign social security. ## Sources - US-Switzerland income tax convention (1996): https://www.irs.gov/pub/irs-trty/swiss.pdf - Treasury, technical explanation of the US-Switzerland convention (1996): https://www.irs.gov/pub/irs-trty/swistech.pdf - IRS, Switzerland tax treaty documents: https://www.irs.gov/businesses/international-businesses/switzerland-tax-treaty-documents - ESTV, country page for the United States (treaties and refund forms): https://www.estv.admin.ch/de/usa - ESTV, claim to refund of Swiss anticipatory tax: https://www.estv.admin.ch/en/claim-to-refund-of-swiss-anticipatory-tax - Switzerland, SR 672.933.61, Verordnung zum schweizerisch-amerikanischen Doppelbesteuerungsabkommen (ordinance to the treaty): https://fedlex.data.admin.ch/filestore/fedlex.data.admin.ch/eli/cc/1998/1807_1807_1807/20230101/de/html/fedlex-data-admin-ch-eli-cc-1998-1807_1807_1807-20230101-de-html-3.html - Switzerland, SR 642.11, Bundesgesetz über die direkte Bundessteuer (DBG): https://fedlex.data.admin.ch/filestore/fedlex.data.admin.ch/eli/cc/1991/1184_1184_1184/20260902/de/html/fedlex-data-admin-ch-eli-cc-1991-1184_1184_1184-20260902-de-html-1.html - Switzerland, SR 831.42, Freizügigkeitsgesetz (FZG): https://fedlex.data.admin.ch/filestore/fedlex.data.admin.ch/eli/cc/1994/2386_2386_2386/20240101/de/html/fedlex-data-admin-ch-eli-cc-1994-2386_2386_2386-20240101-de-html-3.html - Switzerland, SR 831.461.3, Verordnung über die steuerliche Abzugsberechtigung für Beiträge an anerkannte Vorsorgeformen (BVV 3): https://fedlex.data.admin.ch/filestore/fedlex.data.admin.ch/eli/cc/1985/1778_1778_1778/20250101/de/html/fedlex-data-admin-ch-eli-cc-1985-1778_1778_1778-20250101-de-html-5.html - Switzerland, SR 642.21, Bundesgesetz über die Verrechnungssteuer (VStG): https://fedlex.data.admin.ch/filestore/fedlex.data.admin.ch/eli/cc/1966/371_385_384/20250101/de/html/fedlex-data-admin-ch-eli-cc-1966-371_385_384-20250101-de-html-11.html - Social Security Administration, US-Switzerland social security agreement (text): https://www.ssa.gov/international/Agreement_Texts/switzrld.html - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 72, Annuities (investment in the contract): https://www.law.cornell.edu/uscode/text/26/72 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/visa-holders/from-poland Title: Moving to the US from Poland: taxes, ZUS, PPK and the 1974 treaty Updated: 2026-09-30 # A 2013 treaty never took effect, so after moving to the US from Poland, taxes still fall under the 1974 treaty. The 2013 replacement, signed that February, has waited for a US Senate vote since 2014. The 1974 treaty has no pension or social security article, so Poland and the US can both tax a ZUS pension. Polish interest and dividends paid to a US resident: - 0%: of Polish interest is taxed by Poland under Article 12(1), once the payer has your US certificate. - 15%: is the ceiling on Polish tax from a Polish company’s dividend, set by Article 11(2). - 19%: is withheld by Polish banks and brokers from interest and dividends until they have your US certificate of residence. That certificate is Form 6166, the IRS certificate of US residency, which you request on Form 8802 at least 45 days ahead. A Polish citizen should confirm these rates with a Polish adviser. ## What happens to your Polish taxes when you leave? Poland taxes a resident on income from anywhere, and a non-resident only on income from Poland. ### 1. Your family stays in Poland Poland keeps you resident while your center of vital interests, meaning your personal or economic ties, stays there. That holds however long you spend abroad. The Ministry of Finance says a spouse, partner or minor children in Poland usually keep your personal ties there. Moving the whole family usually moves them. Work, a business or your main income in Poland can still keep you resident. ### 2. You spend over 183 days in Poland More than 183 days in Poland in a tax year makes you resident on its own, wherever your family lives. The days need not run in a row, and any part of a day counts. ### 3. You leave partway through the year Polish residence can end mid-year: Poland then taxes your worldwide income up to the change, and only Polish income after it. In a Ministry of Finance example, a man who left for good on May 31 was a non-resident from June 1. ### 4. The US counts you as resident too A green card or the substantial presence test can make you a US resident while Poland still counts you as one. As a US resident, you report your income from Poland on your US return, with the rest of your worldwide income. The treaty’s tie-breaker weighs your permanent home, then your center of vital interests, then where you usually live and, last, your citizenship. Claiming Polish residence under it means filing Form 1040-NR with Form 8833. ### 5. Your shares and funds pass PLN 4,000,000 Poland’s exit tax generally takes 19% of unrealized gains on shares, fund units and other securities once their total market value passes PLN 4,000,000. Spouses share one limit for their joint property. It reaches only someone resident in Poland for 5 or more of the last 10 years. Real estate, bank deposits and cash do not count. Deregistering your address in Poland (wymeldowanie) does not end your tax residence by itself. ## Poland’s exit tax and a later US sale can tax the same gain twice. The exit tax is due in full, since Poland allows installments only for moves within the EU or the EEA. Become a Polish resident again within 5 years of the end of your departure year, and you can reclaim it. After a lifetime in Poland, you move to the US in 2026 holding US-listed shares worth PLN 5,000,000, bought for PLN 3,000,000. - Gain Poland measures on leaving: PLN 2M. It is the shares’ value the day before you leave, less the price you paid. - Exit tax: PLN 380,000. That is 19% of the gain, owed even though you sold nothing. - US gain on a later sale at that value: PLN 2M. IRC 1012 measures the US gain from the PLN 3,000,000 you paid, so the same PLN 2M is taxed again. - US gain if you sell before you move: PLN 0. A sale before your US residency starts generally falls outside US tax, though Poland still taxes the gain at 19%. The shares are listed outside Poland, so the exit tax reaches them whatever your citizenship. A US resident’s later gain on them is generally US-source under IRC 865, so the exit tax may earn no US credit. We found no IRS ruling on the point. Form PIT-NZ and the tax are generally due by the 7th of the month after the move. A Polish adviser should confirm that date. Amounts stay in zloty, with exchange rates left out. ## What would change if the 2013 US-Poland tax treaty took effect? Poland’s parliament approved the 2013 treaty the same year, and the Senate Foreign Relations Committee backed it in 2014 and again in 2016. | | 1974 (in force) | 2013 (pending) | | --- | --- | --- | | ZUS pension | Both countries can tax it | Only Poland can tax it (Article 18(3)) | | A private pension from Poland | Both countries can tax it | Taxed where you live (Article 18(1), though Poland may still tax its citizens) | | Growth inside PPK, IKE or IKZE | No treaty deferral | Still no US deferral (The saving clause lets the US tax it despite Article 18(4)) | | A student’s US pay | $2,000 a year exempt (For up to 5 years, until a green card) | $9,000 a year exempt | ## What you keep in Poland can cost you on a US return. ### Holding an FIO or FIZ as a US resident (https://valim.tax/glossary/passive-foreign-investment-company-pfic) The US generally treats a Polish investment fund as a corporation, because its investors have limited liability. That covers an open-end FIO, a specialized open-end SFIO and a closed-end FIZ. Such a fund is usually a passive foreign investment company (PFIC), and each one generally needs a Form 8621 every year. Without an election, the part of a gain assigned to earlier years pays the top US rate plus interest. ### Counting on IKE, IKZE or PPK to defer US tax The US can tax what an IKE, IKZE or PPK account earns as it grows. The IRS has not said how it classifies these accounts. Form 8621’s exception for pension funds does not cover funds held inside them. Cashing out a PPK early costs you in Poland too, since 30% of the employer-funded part goes to ZUS. ### Treating PPK as exempt from US reporting (https://valim.tax/expat-tax/fbar) A PPK, IKE or IKZE account may belong on your FBAR and Form 8938. PPK’s $50,000 yearly cap on contributions matches the FATCA agreement’s test for accounts Polish institutions need not report. That test governs only what those institutions send the IRS, not your own filings. ### Working B2B for a Polish client from the US (https://valim.tax/visa-holders/l-1-visa-taxes) Under the US-Poland Social Security agreement, in force since March 1, 2009, the self-employed pay where they live. A B2B contractor resident in the US therefore generally owes US self-employment tax. An employee posted here by a Polish employer stays in ZUS only with a certificate of coverage from ZUS. ## We file your US returns and report what you still hold in Poland. We work alongside the accountant who handles your Polish taxes, so each side knows what the other has filed. - We prepare every federal and state return from the year you arrive. On a dual-status first return, we leave out Polish pay you received before your US residency began. A joint return by election includes that pay, so we compare the two before we file. - We work out which Polish accounts, PPK and IKE included, belong on your FBAR and Form 8938. We add a Form 8621 to your return for every Polish fund that requires it. Every Polish account and fund you list is priced into the instant quote. - We file Form 3520 for any year in which gifts from your family pass $100,000. - We claim a US foreign tax credit on Form 1116 for the Polish tax on your ZUS pension. On dividends, we credit Polish tax up to the treaty’s 15%, since tax withheld above that rate earns no US credit. - We work out how much US tax you avoid by selling Polish shares and funds before your US residency starts. We also set quarterly estimated payments for Polish rent or a ZUS pension. - Letters from the IRS or a state about a return we prepared, including its Polish income, are answered within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Which Polish taxes still reach you once you live in the US? ### Does Poland have a tax treaty with the USA? Yes. The 1974 US-Poland tax treaty applies, and it has been in force since July 22, 1976. It exempts Polish interest paid to a US resident and caps Polish tax on dividends at 15%. Its saving clause lets each country tax its own citizens and residents as if there were no treaty, with listed exceptions. We found no Polish guidance on how Poland applies that clause to Polish citizens living in the US. A successor treaty, signed on February 13, 2013, still awaits US Senate approval, so it has no effect. ### Is Poland a high tax country? In 2026, Poland taxes income at 12% up to PLN 120,000 of taxable income and at 32% above it. A PLN 3,600 tax reduction leaves the first PLN 30,000 effectively untaxed. Income over PLN 1,000,000 also pays a 4% solidarity levy, for a top rate of 36%. Interest, dividends and gains on securities, funds and property pay a flat 19%. Social insurance adds 19.52% of pay for pensions, split equally with your employer, and 8% for disability, of which you pay 1.5%. ### Is my ZUS pension taxed in the US? Yes, once you are a US resident, since no article of the 1974 treaty covers social security. The US taxes it under the annuity rules, not the rules for US Social Security, so the 85% cap does not apply. Part of each payment may come back tax-free as your own contributions, though the IRS has not said how much. ZUS’s guide for US residents says it takes a Polish income tax advance out of each payment. You can claim that Polish tax as a US foreign tax credit. The 2013 treaty would leave ZUS benefits to Poland alone, but it is not in force. ### Do I have to tell the Polish tax office about a gift from my parents? Yes, once gifts from one parent pass PLN 36,120 (the 2026 limit) over the year of the gift and the 5 years before it. Filing form SD-Z2 within 6 months keeps them tax-free, if money came by bank transfer or postal order. Polish, EU and EFTA-EEA citizens get the exemption wherever they live, but a child living in the US with only US citizenship does not. Without the exemption, the tax is 3% to 7% above PLN 36,120, or 20% if the gift first surfaces in an audit. The US does not tax the gift, but gifts from your parents over $100,000 in a year go on Form 3520. ## Sources - US-Poland income tax convention (1974): https://www.irs.gov/pub/irs-trty/poland.pdf - Treasury, technical explanation of the US-Poland convention (1974): https://www.irs.gov/pub/irs-trty/us-poland-tax-treaty-technical-explanation.pdf - US-Poland income tax convention signed February 13, 2013 (not in force): https://home.treasury.gov/system/files/131/Treaty-Poland-2-13-2013.pdf - US Department of State, Treaties pending in the Senate: https://www.state.gov/treaties-pending-in-the-senate/ - Poland, Personal Income Tax Act (ustawa o podatku dochodowym od osób fizycznych), unified text: https://api.sejm.gov.pl/eli/acts/DU/1991/350/text/U/D19910350Lj.pdf - Ministry of Finance (Poland), tax explanations on tax residence (April 29, 2021): https://www.gov.pl/attachment/8f2d0cf1-ee3c-49a4-ae8e-e41c4fb19df7 - Poland, Inheritance and Gift Tax Act (ustawa o podatku od spadków i darowizn), unified text: https://api.sejm.gov.pl/eli/acts/DU/1983/207/text/U/D19830207Lj.pdf - Poland, Employee Capital Plans Act (ustawa o pracowniczych planach kapitałowych), unified text: https://api.sejm.gov.pl/eli/acts/DU/2018/2215/text/U/D20182215Lj.pdf - Social Security Administration, US-Poland social security agreement (text): https://www.ssa.gov/international/Agreement_Texts/Poland.html - ZUS (Poland), guide to ZUS pensions for people living in the US (October 2017): https://www.zus.pl/documents/10182/167561/Emerytury_i_renty_z_ZUS-USA.pdf/356c7e14-882c-47d5-ac76-2cf6d4cddf53 - IRS, Instructions for Form 8802 (Rev. October 2024): https://www.irs.gov/instructions/i8802 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 865, Source rules for personal property sales: https://www.law.cornell.edu/uscode/text/26/865 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520: https://www.irs.gov/instructions/i3520 --- URL: https://valim.tax/visa-holders/from-south-africa Title: Moving to the US from South Africa: taxes, the exit tax and RAs Updated: 2026-09-30 # SARS taxes the growth in most of what you own as you leave. After moving to the US from South Africa, taxes on that same growth come due again in the US when you sell. Section 9H of South Africa’s Income Tax Act treats most of your worldwide assets as sold at market value the day before residence ends. South African immovable property is the main exception. Only 40% of the net gain counts as taxable income, so the exit tax takes at most 18% of it. In the US, your gain still runs from your purchase price, and the treaty has no election to reset it. Getting your money out of South Africa: - 3 years: of unbroken non-residence must pass, with contributions stopped, before a retirement annuity (RA) can be cashed out early beyond its savings component. - R2 million: in total can go abroad as a travel allowance in the calendar year you cease residence, without SARS’s approval. - R10 million: more can move abroad each calendar year with SARS’s approval, if you are 18 or older and tax compliant. Transfers above R10 million face stricter SARS checks and need the Reserve Bank’s approval too. ## When does South Africa stop taxing you as a resident? Tax emigration is the informal name for ceasing to be a tax resident of South Africa. South Africa taxes by residence, and citizenship is not one of its tests. ### 1. South Africa stops being your real home SARS treats you as ordinarily resident while South Africa is your real home, the place you would naturally return to. That residence generally ends on the day you emigrate. SARS weighs your US visa, any home you keep available, where your family lives and your visits back. ### 2. Your move to the US is permanent Two court cases SARS cites, both moves to the US, show that a permanent move ends residence and a temporary one does not. A man who emigrated on a permanent residence permit was not ordinarily resident, despite spending about a third of his time in South Africa. An employee on a 14-month US assignment kept his house, job and bank accounts, and stayed resident. ### 3. You were resident only by counting days If only the physical presence test made you resident, residence ends after 330 full days in a row outside South Africa. It then counts as ended from the day you left. ### 4. The treaty’s tie-breaker picks the US If both countries count you as resident, the tie-breaker picks one, starting with the country where you have a permanent home. When it picks the US, South African residence ends, and SARS asks for Form 6166, the IRS certificate of US residency. ### 5. You tell SARS the date You record the date you ceased residence on the RAV01 form on eFiling, or on your ITR12 return. SARS asks for a signed declaration, a letter of motivation and your passport pages. To approve moving your money abroad later, SARS also wants that date and a calculation of the exit tax. Financial emigration through the South African Reserve Bank ended on March 1, 2021, and never ended tax residence by itself. ## How much of R1 million in growth does South Africa’s exit tax take? South Africa splits your exit year in two, and the deemed sale falls on the last day of the resident part. Shares that cost you R1.5 million are worth R2.5 million on that last resident day. Your other taxable income already exceeds R1,878,600, where the 45% top rate starts. - Gain on the deemed sale: R1,000,000. The gain is the R2.5 million market value less your R1.5 million cost. - After the annual exclusion: R950,000. Both parts of the exit year share one R50,000 exclusion. - Added to taxable income: R380,000. You add 40% of the R950,000 to your taxable income. - Exit tax at the 45% top rate: R171,000. That is 17.1% of the R1 million gain. At a lower marginal rate, the tax is less. The rates are South Africa’s for its tax year from March 1, 2026, to February 28, 2027. SARS applies the R50,000 exclusion and these brackets, announced in the 2026 Budget, while the bill that enacts them is still pending. When you later sell, the US generally treats the gain as US-source income. As a result, the exit tax may not count toward your US foreign tax credit. ## Under the US-South Africa tax treaty, South Africa keeps dividends and property, and gives up interest. Each row assumes you live in the US and have ceased South African residence, so the US taxes all of it. | | South Africa | US | | --- | --- | --- | | Interest from a South African bank | Not taxed (Article 11(1)) | Taxed | | Dividends from South African companies | 15% (20% until the payer has your declaration form) | Taxed (Credit capped at the 15% treaty rate) | | Gains on South African shares and unit trusts | Not taxed (Except a 20% stake in a land-rich company) | Taxed (Measured from your original cost) | | Rent from, or a sale of, South African property | Taxed (The buyer withholds 7.5% of a price over R2 million) | Taxed (With a credit, within US limits) | | A pension from a South African fund | Limited by the treaty (Article 18(1)) | Taxed (The saving clause applies) | ## South African and US rules collide in four places. ### Treating a unit trust like a US fund (https://valim.tax/glossary/passive-foreign-investment-company-pfic) The US usually treats a South African unit trust as a corporation, because its manager can change the investments. That usually makes it a passive foreign investment company (PFIC), as is an ETF set up as a collective investment scheme. Each fund generally needs its own Form 8621 every year, even inside a tax-free savings account (TFSA). The US also taxes a TFSA’s income each year. ### Leaving your RA out of US tax and the FBAR (https://valim.tax/expat-tax/fbar) In practice, the treaty does not defer US tax on your RA’s growth. Deferral needs a competent authority pension agreement between the two tax agencies, and the IRS lists no such agreement with South Africa. South African funds’ FATCA exemption covers only their own reporting. Your RA, pension or provident fund counts toward Form 8938, and may belong on the FBAR too. ### Taking a gift of shares from a parent in South Africa (https://valim.tax/glossary/cost-basis) South African donations tax falls on a resident parent, at 20% of gifts above the 2026 Budget’s R150,000 yearly exemption. The part of a parent’s gifts since March 2018 above R30 million is taxed at 25%. On shares, the parent also owes capital gains tax on any gain. When you sell, the US taxes the same growth again from your parent’s original cost. Form 3520 reports gifts from family abroad once they pass $100,000 in a year. ### Retiring to South Africa on US Social Security (https://valim.tax/glossary/fica) Without US citizenship, a South African retiring abroad generally gets US benefits only after 40 US credits or 10 years in the US. With no totalization agreement, your years of work in South Africa do not count toward a US benefit. While you work here, your US pay generally owes Social Security and Medicare. ## Your South African TFSA and RA go on your US return, and we prepare it. Valim’s licensed CPAs prepare US returns for people who have left South Africa, with their TFSAs and retirement annuities reported on them. - We coordinate with whoever files your ITR12 and RAV01, and prepare your US returns from the year you arrive. - We prepare the FBAR and Form 8938 for your South African bank, unit trust and retirement accounts, plus each Form 8621 a fund needs. We file Form 3520 once family gifts pass $100,000 in a year. The instant quote adds an amount for each account and fund you list. - Before you leave, we price the US tax on keeping your shares against selling them while you still live in South Africa. - When your RA pays out, we claim a credit for South Africa’s tax on Form 1116, within US limits. We also set that year’s estimated payments. - If the IRS or your state questions a return we prepared, including its TFSA income, we answer within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What changes for your tax when you emigrate from South Africa? ### What are the tax implications of emigrating from South Africa? Emigrating generally ends your South African tax residence. From that date, which you report to SARS, South Africa taxes only your South African income. Section 9H’s exit tax treats most of your worldwide assets as sold on your last day as a resident. From your US residency starting date, the US taxes your worldwide income. The US usually counts South African unit trusts as passive foreign investment companies. ### Does the USA have a tax treaty with South Africa? Yes. The South Africa-US tax treaty has applied since January 1, 1998, and ended a decade with no treaty. The 1946 treaty had ended on July 1, 1987, under a 1986 US anti-apartheid law. Signed at Cape Town on February 17, 1997, the treaty has never been amended. It limits South African tax on your dividends to 15% and leaves interest to the country where you live. Its saving clause lets only the US go on taxing its own residents under its own law, with listed exceptions. ### What taxes do South African citizens pay while living abroad? Citizenship does not decide South African tax: a citizen who has ceased tax residence pays it only on South African income. That includes rent, pay for work done there, South African dividends and gains on South African property. A citizen who is still resident is taxed on worldwide income, with a credit for foreign tax. A resident employee working abroad pays no South African tax on the first R1.25 million of foreign employment income. The work abroad must last over 183 full days in 12 months, over 60 of them in a row. ### Can I withdraw my retirement annuity when I emigrate to the US? Before retirement, only the savings component pays out, once a tax year, until you stop contributing and have been non-resident for three unbroken years. SARS refuses the fund a tax directive if you never reported ceasing residence. The fund also needs Form 6166, the IRS certificate of US residency. For the 2027 tax year, South Africa taxes the payout as a withdrawal benefit: 0% on the first R27,500, then 18% to 36%. Earlier lump sums count toward those bands. The US taxes it too, with a foreign tax credit for South Africa’s tax, within limits. ## Sources - US-South Africa income tax convention (1997): https://www.irs.gov/pub/irs-trty/safrica.pdf - SARS, Cease to be an SA tax resident and reinstatement of SA tax resident: https://www.sars.gov.za/individuals/cease-to-be-an-sa-tax-resident-and-reinstatement-of-sa-tax-resident/ - SARS, Interpretation Note 3 (Issue 2), ordinarily resident: https://www.sars.gov.za/wp-content/uploads/Legal/Notes/LAPD-IntR-IN-2012-03-Resident-definition-natural-person-ordinarily-resident.pdf - SARS, Inclusion rate for capital gains tax: https://www.sars.gov.za/types-of-tax/capital-gains-tax/proceeds/calculation-of-taxable-capital-gains-and-assessed-capital-losses/inclusion-rate/ - SARS, Budget 2026 tax guide: https://www.sars.gov.za/wp-content/uploads/Docs/Budget/Budget2026/Budget-tax-guide-2026-web-version.pdf - SARS, Supporting documents for approval of international transfers (AIT): https://www.sars.gov.za/individuals/manage-your-tax-compliance-status/supporting-documents-for-obtaining-approval-international-transfers/ - SARS, Tax directive guide for ceasing to be resident (IT-AE-33-G01, Revision 13): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/IT-AE-33-G01-Tax-directive-Cease-to-be-resident-and-Expiry-of-visas-External-Guide.pdf - SARS, Tax implications of the two-pot retirement system (September 2, 2024): https://www.sars.gov.za/latest-news/tax-directives-enhancements-and-tax-implications-of-the-two-pot-retirement-system/ - South African Reserve Bank, Currency and Exchanges Manual for Authorised Dealers (June 2026): https://www.resbank.co.za/content/dam/sarb/what-we-do/financial-surveillance/financial-surveillance-documents/2026/Currency%20and%20Exchanges%20Manual%20for%20Authorised%20Dealers.pdf - SARS, Withholding when a non-resident sells property in South Africa (IT-PP-02-G01, Revision 05): https://www.sars.gov.za/wp-content/uploads/Ops/Guides/IT-PP-02-G01-Amounts-to-be-Withheld-When-a-Non-Resident-Sells-Immovable-Property-in-South-AfricaSA-External-Guide.pdf - SARS, Foreign employment income exemption: https://www.sars.gov.za/individuals/tax-during-all-life-stages-and-events/foreign-employment-income-exemption/ - Social Security Administration, Your payments while you are outside the United States (Publication 05-10137): https://www.ssa.gov/pubs/EN-05-10137.pdf - IRS, Competent authority arrangements: https://www.irs.gov/individuals/international-taxpayers/competent-authority-arrangements - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - 26 U.S.C. § 865, Source rules for personal property sales: https://www.law.cornell.edu/uscode/text/26/865 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 1015, Basis of property acquired by gifts and transfers in trust: https://www.law.cornell.edu/uscode/text/26/1015 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520: https://www.irs.gov/instructions/i3520 --- URL: https://valim.tax/visa-holders/from-japan Title: Moving to the US from Japan: taxes on NISA and pension refunds Updated: 2026-10-01 # Juminzei, Japan’s resident tax, still falls on your income from the year before moving to the US from Japan. Taxes owed after you go are usually paid through a tax agent. Japan charges each year’s resident tax to people with an address there on January 1. Your city may drop its tax agent requirement if you pay that year’s resident tax in full before you leave. Your income in the year you leave escapes it if you have no Japanese address the next January 1. Thresholds and time limits on leaving Japan: - ¥100M: of securities and funds, held anywhere, can bring the exit tax as you leave. - 2 years: is your window to reclaim Japanese pension contributions after your address there ends, if you are not a Japanese national. - 10 years: is how long, after leaving, Japanese gift tax reaches a Japanese national’s gifts of property anywhere, from any donor. Gifts from parents living in Japan have no such limit. ## What decides how Japan taxes the year you leave? ### 1. You take a job abroad expected to last a year or more Japan presumes you are a non-resident from the day you leave when a job abroad is expected to last a year or more. If your plans change later, your status changes only from that point, never back to the day you left. ### 2. Your spouse or children stay behind Family who stay in Japan may keep you a Japanese resident, even after you spend half the year or more abroad. Japan decides from objective facts: your home, job, assets, where your relatives live and your nationality. ### 3. You have income besides your salary You must file a Japanese return for your final year if other income, such as rent, passes ¥200,000 or your pay passes ¥20 million. You can file it yourself before you leave. Otherwise, name a tax agent (nozei kanrinin) by your departure, who files it between February 16 and March 15 of the next year. On a posting abroad, your employer settles the tax on a salary alone before you go. File a moving-out notice at your city office to close your resident record. That record decides whether next year’s resident tax reaches you. Japan Pension Service also accepts a pension refund claim only after the record closes. ## Japan’s exit tax counts your NISA toward ¥100 million, but never your bank deposits. Japan’s exit tax treats your securities and funds as sold the moment you leave. It applies after more than 5 of your last 10 years in Japan, and years on a work or study visa do not count. Years as a Japanese national or a permanent resident all count. You are a Japanese national who has lived in Japan for the past 10 years. You leave in 2026 with shares worth ¥70 million (cost ¥30 million), a ¥35 million NISA and ¥50 million on deposit. - Shares: ¥70,000,000. They count, and their ¥40 million gain is taxed. - NISA holdings: ¥35,000,000. They lift your total past ¥100 million, though their own gain stays tax-free. - Bank deposits: ¥50,000,000. Cash and deposits are left out, so they neither count nor get taxed. - Exit tax: ¥6,126,000. That is 15% income tax on the ¥40 million gain, plus a 2.1% surtax on that tax. The 5% resident tax on share gains does not apply, since the Local Tax Act leaves the exit tax out. After the exit tax, Japan counts ¥70 million as your shares’ cost basis. The US keeps what you paid as your basis, so a later US sale is taxed on the whole gain since you bought. If you name a tax agent and post security (collateral), you can defer payment for 5 years, or 10 with an extension. Japan charges interest on the deferred tax, at 1.3% a year for 2026. Move back within that time, and the tax on assets you still hold can be cancelled. If you deferred and later sell as a US resident, Japan may credit the US tax on that sale against the exit tax. ## Where does the US-Japan tax treaty put each kind of Japanese income? Japanese payers apply the treaty’s limits only once you give them Japan’s treaty application form with Form 6166, the IRS certificate of US residency. File it before the first payment, or claim a refund of the excess from Japan later. | | Japan | US | | --- | --- | --- | | Interest from a Japanese bank | Not taxed (Article 11(1), as amended in 2013) | Taxed | | Dividends from Japanese companies | Up to 10% (Article 10(2); 15.315% or more is withheld without the form) | Taxed (Credit for the 10% treaty rate) | | Gains on Japanese shares and funds | Not taxed (Article 13(7), unless the company’s value is mainly Japanese real estate) | Taxed (From your original cost) | | Rent from, or a sale of, property in Japan | Taxed (Usually 20.42% of rent or 10.21% of the price withheld) | Taxed (Credit for the final Japanese tax) | | Your monthly national or employees’ pension | Not taxed (Article 17, once Japan has your treaty forms) | Taxed (Under the annuity rules) | The US credits none of the Japanese tax withheld beyond a treaty rate. The treaty covers only federal income tax, so a state such as California applies its own law to your Japanese income. ## Which Japanese funds, pay, gifts and pension premiums change your US return? ### Investment trusts and J-REITs from Japan (https://valim.tax/glossary/passive-foreign-investment-company-pfic) For a US resident, managed Japanese investment trusts, Tokyo-listed ETFs set up as trusts and J-REITs usually count as passive foreign investment companies (PFICs). Each fund generally needs its own Form 8621 every year. A US-domiciled ETF bought on the Tokyo exchange is not a PFIC. ### Workdays and board seats in Japan (https://valim.tax/expat-tax/foreign-tax-credit) Japan withholds 20.42% on pay for days you work there, bonuses included, and on board fees from a Japanese company (Article 15). The treaty’s 183-day exemption does not help while a Japanese employer pays you. The US credits that Japanese tax against your US tax on the same income, on Form 1116. ### Japanese gift tax that you, not the giver, owe Japanese gift tax falls on you, the recipient, on gifts above ¥1.1 million in a calendar year. It can still reach you after you move. You file between February 1 and March 15 of the next year. The US charges no income tax on the gift. ### Paying Japanese premiums with no US deduction (https://valim.tax/visa-holders/l-1-visa-taxes) On a posting from Japan, such as one on an L-1, the US-Japan totalization agreement can keep you in Japan’s pension and health insurance. Your Japanese premiums then replace US Social Security and Medicare tax, but they earn no US deduction or credit. The agreement has been in force since October 1, 2005. ## We credit the tax Japan keeps and give each Japanese account its US form. Valim’s CPAs prepare every US tax return for people moving from Japan, working alongside whoever handles your Japanese filings. - We split your arrival year at your US residency starting date. We then report your Japanese income on your US return, including pay that lands late, such as a final bonus. - We report your Japanese bank, brokerage, NISA and iDeCo accounts on the FBAR, Form 8938 or both, as each one requires. Your instant quote prices every Japanese account and fund, and any Japanese company you own more than 20% of. - Before your US residency starting date, we weigh selling NISA funds while a sale is still free of tax in both countries. After you arrive, we work out your quarterly estimated tax on Japanese rent and dividends. - We credit Japan’s tax on your dividends or rent on Form 1116, counting only what Japan keeps after any refund. For a pension lump-sum withdrawal, we first check whether the treaty allows a US credit for Japan’s tax. - When gifts from family in Japan top $100,000 in a year, we prepare the Form 3520 that reports them. - Your fee for a return we prepare covers our reply to any later IRS or state notice on it, such as one about NISA income. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Questions about leaving Japan for the US. ### Does Japan have a tax treaty with the US? Yes: the US-Japan tax treaty, a 2003 convention, is in force, and a 2013 protocol rewrote parts of it. The convention entered into force on March 30, 2004, and the protocol on August 30, 2019. The protocol applies to most taxes from January 1, 2020, and it removed the old exemption for visiting teachers and researchers. The treaty’s saving clause preserves each country’s own law for its residents, and the US’s for its citizens too. Listed exceptions, such as the foreign tax credit, still apply. ### What happens to my NISA and iDeCo when I move to the US? Your NISA normally closes the day you leave Japan, while your iDeCo usually stays invested until you are at least 60. A NISA stays open only on an employer transfer or similar unavoidable move, and never in a year you owe Japan’s exit tax. If your broker offers it, a notice by the day before you leave keeps it open for up to about 5 years, without new purchases. In the US, neither account is tax-free, and the Japanese funds inside usually count as PFICs. Your NISA belongs on the FBAR once your foreign accounts pass $10,000, and both accounts go on Form 8938 above its thresholds. ### Can I get my Japanese pension contributions back when I leave Japan? Yes, if you are not a Japanese national: claim Japan’s pension lump-sum withdrawal payment within 2 years after your address there ends. You need 6 months of coverage, no past right to a Japanese pension and fewer than 10 years toward one, US coverage included. Taking it erases your whole Japanese pension record, and the payment counts at most 60 months of coverage. Japan withholds 20.42% from the employees’ pension part, which a refund return filed through a tax agent can recover in part or in full. Paid while you are a US resident, it also belongs on your US return. ## Sources - US-Japan income tax convention (2003): https://home.treasury.gov/system/files/131/Treaty-Japan-11-6-2003.pdf - Protocol to the US-Japan convention (2013): https://home.treasury.gov/system/files/131/Treaty-Japan-Pr2-1-24-2013.pdf - US Department of State, US-Japan protocol, TIAS 19-830: https://www.state.gov/japan-19-830 - US Department of State, Treaties in Force 2025: https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Treasury, technical explanation of the US-Japan convention (2003): https://www.irs.gov/pub/irs-trty/japante04.pdf - Japan, Local Tax Act on e-Gov, Articles 32, 39, 294, 300 and 313: https://laws.e-gov.go.jp/law/325AC0000000226 - Japan National Tax Agency, who must file a return (Tax Answer 1900): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1900.htm - Japan National Tax Agency, working abroad (Tax Answer 1920): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1920.htm - Japan National Tax Agency, resident or non-resident (Tax Answer 2012): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2012.htm - Japan National Tax Agency, income while working abroad (Tax Answer 1926): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1926.htm - Japan National Tax Agency, year-end adjustment on a transfer abroad (Tax Answer 2517): https://www.nta.go.jp/taxes/shiraberu/taxanswer/gensen/2517.htm - Japan National Tax Agency, exit tax on departure (Tax Answer 1478): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1478.htm - Japan National Tax Agency, exit tax FAQ (June 2023): https://www.nta.go.jp/taxes/shiraberu/shinkoku/kokugai/pdf/02.pdf - Japan National Tax Agency, tax on share gains (Tax Answer 1463): https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1463.htm - Japan National Tax Agency, interest tax rates: https://www.nta.go.jp/taxes/nozei/entaizei/keisan/entai_wariai.htm - Japan National Tax Agency, withholding rates for non-residents (Tax Answer 2884): https://www.nta.go.jp/taxes/shiraberu/taxanswer/gensen/2884.htm - Japan National Tax Agency, treaty forms for withholding (Tax Answer 2888): https://www.nta.go.jp/taxes/shiraberu/taxanswer/gensen/2888.htm - Japan National Tax Agency, when gift tax applies (Tax Answer 4402): https://www.nta.go.jp/taxes/shiraberu/taxanswer/zoyo/4402.htm - Japan, Inheritance Tax Act, Article 1-4 (e-Gov): https://laws.e-gov.go.jp/law/325AC0000000073 - Japan, Special Taxation Measures Act on e-Gov, Articles 37-14 and 93: https://laws.e-gov.go.jp/law/332AC0000000026 - National Pension Fund Association, how iDeCo works: https://www.ideco-koushiki.jp/guide/structure.html - Japan Pension Service, Lump-sum Withdrawal Payment claim form (2026): https://www.nenkin.go.jp/international/english/japanese-system/benefit/payment.files/A.pdf - Social Security Administration, US-Japan social security agreement (text): https://www.ssa.gov/international/Agreement_Texts/japan.html - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Publication 514, Foreign Tax Credit for Individuals: https://www.irs.gov/publications/p514 - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 --- URL: https://valim.tax/visa-holders/from-israel Title: Moving to the US from Israel: taxes, exit tax and 102 equity Updated: 2026-10-01 # Years after moving to the US from Israel, taxes on leaving can still fall due. By default, the exit tax waits until you sell, and Israel charges no interest for the wait. The deemed sale under section 100A of the Income Tax Ordinance reaches most assets, section 102 equity included, and has no minimum value. Your Israeli real estate and personal belongings fall outside it. When you sell, Israel taxes the gain after inflation in proportion to the time you held the asset before your residence ended. Israel’s top 2026 rates on gains and 102 equity: - 25%: is Israel’s top rate on the part of a share or fund gain it taxes, before surtax. A substantial shareholder pays up to 30%. - 47%: is the top 2026 rate on section 102 equity taxed as pay, on income above NIS 560,280. - 24 months: is how long a trustee must hold section 102 shares on the capital-gains track for the 25% rate. At a listed company, the value up to the average share price before the grant is still taxed as pay. Israel’s surtax adds 3% on 2026 taxable income above NIS 721,560, and 2% more on capital income above that line. ## What ends your Israeli residence: your center of life or the day count? Your center of life decides it, and the day counts only raise presumptions you can rebut. The day your residence ends is the date Israel’s exit tax uses. ### 1. Your center of life stays in Israel Israel taxes you as a resident while your center of life is there. It weighs all your family, economic and social ties, from your permanent home to your workplace and business interests. ### 2. You spend 183 days in Israel, or 425 over three years Israel presumes your center of life is there if you spend 183 days or more in Israel in a tax year. Its tax year runs January to December. It presumes the same at 30 days or more, if that year and the two before total 425 days or more. You or the assessing officer can rebut either presumption. A partial day in Israel counts as a full day. ### 3. You rebut the day count If a presumption applies but you say you are not resident, attach Form 1348 to your Israeli annual return. The form lists your days, homes, family and work. You attach Form 6166, the IRS certificate of US residency, to it. Filing Form 1348 does not end your residence, because the center-of-life test still decides. ### 4. You stay abroad 183 days a year, two years running Israel can also treat you as a foreign resident if you spend at least 183 days abroad in each of two tax years. Your center of life must then stay outside Israel for the two years after. ## Hold shares six years before you leave and four after, and by default Israel’s exit tax reaches 60% of the gain after inflation. You can choose to pay the exit tax when you leave instead of at the sale. If Israel would tax the later sale anyway, it taxes the whole gain rather than a time-based share. You bought shares for NIS 1,000,000 six years before your Israeli residence ended, and sell them four years later for NIS 2,000,000. - Gain on the sale: NIS 1,000,000. That is the NIS 2,000,000 price less the NIS 1,000,000 you paid. - Share Israel taxes: NIS 600,000. Six of your ten years of holding came before your residence ended. - Israel’s tax at 25%: NIS 150,000. It falls due with the sale, four years after your residence ended. - Gain the US counts: The full gain. The US taxes the full gain from your dollar cost, at each date’s exchange rate. No treaty election resets your US basis to the value on leaving. The example applies section 100A(d) and the 25% top rate, with no inflation or surtax. It leaves out the dollar amounts the US would use. The treaty exempts most of a US resident’s gains from Israeli tax. Whether that exemption reaches this deferred tax is unsettled, and so is whether the US credits it. Have your Israeli adviser and your US CPA settle both before you sell. ## What can Israel still tax under the US-Israel tax treaty after you settle in the US? The treaty mostly limits Israel, as the country where the income arises. Once you are a US resident, the US taxes your Israeli income in full and credits Israel’s tax within US limits. | | Israel | US | | --- | --- | --- | | Interest from an Israeli bank | Up to 17.5% (Article 13(2)) | Taxed (With a credit) | | Dividends from an Israeli company | Up to 25% (Article 12(2)) | Taxed (With a credit) | | Gains on shares and funds | Mostly exempt (Article 15(1), with exceptions such as a 10% voting stake. Whether it reaches the exit tax is unsettled.) | Taxed | | A monthly pension from an Israeli fund | Exempt (Article 20(1)) | Taxed | | A lump sum from an Israeli fund | Can tax it (No treaty limit) | Taxed (With a credit) | | Bituach Leumi old-age pension | Exempt (Article 21) | Exempt (Even for US citizens) | Israeli withholding can exceed a treaty rate, such as the 17.5% cap on interest. Claim the excess back from Israel, since the US credits only the treaty amount. ## What goes wrong most often after a move from Israel? ### Keeping Israeli mutual funds and ETFs (https://valim.tax/glossary/passive-foreign-investment-company-pfic) US rules usually treat an Israeli mutual fund or ETF as a foreign corporation and a passive foreign investment company (PFIC). Each such fund generally needs its own Form 8621 every year. Holding it through the move does not spare it Israel’s tax, since the exit tax deems it sold. ### Planning to cash out your Israeli pension (https://valim.tax/glossary/specified-foreign-financial-asset) The savings in an Israeli pension fund generally come out only as a pension. Leaving Israel is not one of the listed exceptions. The treaty does not defer US tax on the fund’s growth. The IRS has not said how that growth is taxed. A pension fund, a kupat gemel (provident fund) or an executive insurance policy goes on Form 8938. Bituach Leumi rights do not. ### A parent’s gift of shares counts as a sale in Israel (https://valim.tax/glossary/cost-basis) Israel can tax a parent who gives shares or fund units to a foreign-resident child as if the parent sold them. Your US basis in the gift is generally your parent’s own. An Israeli resident who sends NIS 500,000 or more abroad within 12 months must report the transfer. That can be your parent, or you before your residence ends. ### Paying Bituach Leumi and US Social Security at once (https://valim.tax/glossary/fica) The US and Israel have no totalization agreement, the kind of agreement that stops double social security tax. Social Security and Medicare tax therefore generally applies to your US pay. The main exception is a nonresident on an F-1 or J-1 visa, for work tied to the visa. Bituach Leumi can also charge contributions on that pay, because it keeps you registered as resident for up to five years after you leave. You can ask Bituach Leumi to end that sooner, but not while your spouse and children stay in Israel. ### Forgetting that visa-free visits count (https://valim.tax/visa-holders/resident-or-nonresident-alien) Days of a visa-free visit generally count toward the substantial presence test. Israel was designated for the Visa Waiver Program on September 29, 2023. The program allows visits of up to 90 days without a visa. Days on an O-1 or an E-2 count as well. The State Department has issued E-2 visas to Israelis since May 1, 2019. ## Your 102 equity and Israeli savings belong on your US returns, and we put them there. Your Israeli accountant keeps Form 1348 and the Israeli return, and we prepare every US return that follows the move. - We prepare each US return after the move and split your 102 equity income by your workdays in each country. - On Form 1116, we claim a credit for Israel’s tax on the Israeli part of that pay. We carry unused credit back one year or forward up to ten years. - Your Israeli bank accounts, keren hishtalmut and funds go on the FBAR and Form 8938 where they belong. We add a Form 8621 for each fund that needs one, and Form 3520 in any year your family’s gifts top $100,000. The instant quote prices each Israeli account and fund, and any company you own over 20% of. - We time a withdrawal from your keren hishtalmut (Israeli study fund) around your US residency starting date. - We set your estimated payments for the year you sell Israeli shares or funds, when the deferred exit tax also falls due. - When the IRS or a state questions a return we prepared, for example over your Bituach Leumi pension, we respond within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Which country taxes what, before and after you leave Israel? ### Does Israel have a tax treaty with the USA? Yes: the US-Israel tax treaty was signed on November 20, 1975, and has applied since January 1, 1995, after protocols in 1980 and 1993. It covers federal income tax, but it does not limit state income tax. Its saving clause lets both countries tax their own residents and citizens under their own laws, apart from listed exceptions. For someone who moves, it mainly caps Israel’s tax on Israeli income. The US credits that tax within US limits. ### What taxes do US citizens pay when they work in Israel? US citizens owe US income tax on all their income, and Israeli income tax while they are Israeli residents. The treaty’s credit rules relieve the double tax, or a qualifying citizen can exclude up to $132,900 of 2026 foreign earned income. Pay from an Israeli employer for work in Israel generally carries no US Social Security tax, and Bituach Leumi covers Israeli residents. Work for an American employer, or for yourself, can bring US Social Security and Medicare tax on top of Bituach Leumi. Under Article 21, neither country taxes US Social Security paid to a resident of Israel, even a US citizen. ### Is my keren hishtalmut taxable in the US? Probably: Israel’s six-year exemption for a keren hishtalmut, the Israeli study fund, binds Israel, not the US. The treaty’s pension article covers only periodic payments, so it does not reach a study fund. For a keren hishtalmut, US tax turns on how the account is classified, and the IRS has not said. It could count as a foreign trust, an employees’ trust or an account of PFICs, each taxed and reported its own way. Taken before your US residency starting date, a withdrawal generally escapes US tax. ### How are my section 102 options taxed after I move to the US? Israel and the US both tax section 102 options after a move, at different times. Israel includes your 102 rights in its exit tax and, by default, collects when the trustee releases or sells your shares. The US generally taxes an option’s full spread as pay at exercise, and RSU shares when they vest and are delivered. It assigns that pay to each country by your workdays between grant and vesting, and credits Israel’s tax on the Israeli part. Israel measures its share by holding period instead, so have both countries’ figures checked before you exercise. ## Sources - US-Israel income tax convention (1975), with the 1980 and 1993 protocols (IRS text): https://www.irs.gov/pub/irs-trty/israel.pdf - Treasury, technical explanation of the US-Israel convention and protocols: https://www.irs.gov/pub/irs-trty/israeltech.pdf - Israel, Income Tax Ordinance (New Version), consolidated text (Nevo): https://www.nevo.co.il/law_html/law00/84255.htm - Israel, Supervision of Financial Services (Provident Funds) Law, consolidated text (Nevo): https://www.nevo.co.il/law_html/law00/70391.htm - Israel Tax Authority, deductions booklet for January 2026 (archived copy): https://web.archive.org/web/20260207101513id_/https://www.gov.il/BlobFolder/generalpage/income-tax-monthly-deductions-booklet/he/generalInformation_income-tax-monthly-deductions-booklet_monthly-deductions-booklet-2026.pdf - Israel Tax Authority, Form 1348 for tax year 2025 (archived copy): https://web.archive.org/web/20260518065409id_/https://www.gov.il/BlobFolder/service/reporting-and-payment-2025-annual-tax-report-for-individuals/he/Service_Pages_Income_tax_annual-report-2026_1348-2025-ACC.pdf - National Insurance Institute, who is a resident while living abroad: https://www.btl.gov.il/English%20Homepage/Insurance/An%20Insured%20Person%20Residing%20Abroad/Pages/Whois.aspx - National Insurance Institute, ending residency after a move abroad: https://www.btl.gov.il/English%20Homepage/Insurance/An%20Insured%20Person%20Residing%20Abroad/Pages/HfsakatTosvot1.aspx - National Insurance Institute, paying contributions while living abroad: https://www.btl.gov.il/English%20Homepage/Insurance/An%20Insured%20Person%20Residing%20Abroad/Pages/PaymentAssurContributions.aspx - IRS, Instructions for Form 8802 (Rev. October 2024): https://www.irs.gov/instructions/i8802 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 C.F.R. § 301.7701-4, Trusts: https://www.law.cornell.edu/cfr/text/26/301.7701-4 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 1015, Basis of property acquired by gifts and transfers in trust: https://www.law.cornell.edu/uscode/text/26/1015 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.861-4, Compensation for labor or personal services: https://www.law.cornell.edu/cfr/text/26/1.861-4 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 1402, Definitions (self-employment income): https://www.law.cornell.edu/uscode/text/26/1402 - Social Security Administration, POMS RS 01701.005, totalization agreements in force: https://secure.ssa.gov/poms.nsf/lnx/0201701005 - Department of State, Foreign Affairs Manual, 9 FAM 402.9 (treaty traders and treaty investors): https://fam.state.gov/fam/09FAM/09FAM040209.html - Department of Homeland Security, Visa Waiver Program: https://www.dhs.gov/visa-waiver-program --- URL: https://valim.tax/visa-holders/from-germany Title: Moving to the US from Germany: taxes, pensions, ETFs and exit tax Updated: 2026-10-07 # Rent and dividends keep a German tax bill after moving to the US from Germany: taxes paid there earn a US credit, within limits. Under Article 18(5) of the US-Germany treaty, only the US taxes a Deutsche Rentenversicherung pension paid to you as a US resident. It counts that pension as it would US Social Security, so at most 85% of it is taxable. If the pension is your only German income, you generally need not file a German return. Germany’s limits for a new US resident: - 15%: of each German dividend is as much as Germany may keep, under Article 10(2)(b) of the treaty. - 0%: is Germany’s tax on interest from an ordinary German bank account once you live in the US (Article 11(1)). - 5 years: after leaving, a German national is still within German gift and inheritance tax, or longer with a kept German home. A non-resident generally gets no tax-free allowance against German rent. ## Which German rules apply as you leave? ### 1. You keep a flat in Germany A flat you keep for your own use can keep your German tax residence alive, even once you deregister (Abmeldung). When the US treats you as resident as well, the treaty’s tie-breaker asks first where your permanent home is. ### 2. You move out in the middle of a year One German return covers the whole calendar year of your move. Germany does not tax US pay you earn after leaving. Its progression rule (EStG § 32b) still counts that pay to set the rate on your German income. ### 3. You hold 1% or more of a company Germany’s exit tax, the Wegzugsbesteuerung, treats any stake of 1% or more in a company as sold at fair value when you leave. A stake counts if it reached 1% at any time in the last five years, and a US startup stake generally counts too. The tax applies only if you were taxed as a German resident in at least 7 of the last 12 years. ### 4. Your units in one fund cost €500,000 or more For departures since 2025, the exit tax also reaches fund units you hold privately. It applies when your units in one fund cost €500,000 or more. It also applies if you held at least 1% of a fund’s units at any time in the last five years. ### 5. Your RSUs or options were granted in Germany Germany generally taxes the part of an award earned on German workdays, even if it vests after you leave. The US taxes the whole award and credits the German tax. Keeping a German flat may not avoid the exit tax if the treaty’s tie-breaker treats you as a US resident. You can apply to pay the exit tax in seven equal yearly instalments, with no interest, usually against security. If your absence is temporary, the tax lapses when you return within seven years still holding the shares. The tax office can extend that window by up to five years. ## A GmbH stake worth €1.1 million draws €284,850 of German exit tax, and the €1.1 million can become your US basis. You get that US basis only by electing it under Article 13(6) of the treaty, and US citizens can elect it too. You have always lived in Germany and own 10% of a GmbH, bought for €100,000. A funding round with outside investors eight months ago values your stake at €1.1 million. - Gain Germany counts as you leave: €1,000,000. It is the €1.1 million value less the €100,000 you paid. - Part of the gain Germany taxes: €600,000. Germany exempts 40% of a gain on shares. - Exit tax: €284,850. At 45%, the tax on €600,000 is €270,000, and the 5.5% solidarity surcharge adds €14,850. - US gain if you later sell at €1.1 million: €1,000,000. Without the election, the US counts from your €100,000 cost. - The same sale, with the Article 13(6) election: €0. Your US basis starts at the €1.1 million Germany used. The example applies 2026 rates: 45% income tax from €277,826 of a single filer’s taxable income, and the 5.5% solidarity surcharge. It assumes your other income already reaches that band, and leaves out church tax. Under German law, a funding round with outside investors in the past year can set the value of unlisted shares. The US measures its gain in dollars, while this example stays in euros. The treaty does not say how the election works if you pay in instalments. ## The US-Germany tax treaty shelters a Betriebsrente from US tax until payout, but may not protect a Riester contract. Article 18A, the treaty’s pension plan article, names German company plans under the Betriebsrentengesetz and no other German product. | | Betriebsrente | Riester contract | | --- | --- | --- | | US tax on growth in the plan | Deferred until payout (Article 18A(1)) | Treaty deferral unclear (The IRS has not said how a Riester contract is taxed) | | Funds held in the plan | No Form 8621 (The treaty pension fund exception) | Form 8621 may be due | | Payouts once you live in the US | US tax only (Lump sums as well) | US tax only (German allowances and tax savings must be repaid if you live outside the EU or EEA when payouts start) | | Contributions from your US pay | Deductible within US limits (If you are on a visa and paid in before your US job) | No treaty deduction | German providers leave both out of their FATCA reporting. If you must file Form 8938, it still has to include them. A Rürup contract (Basisrente) is not named in the treaty either, so its deferral is unclear too. ## Where do German savings run into US rules? ### Keeping your ETF savings plan (https://valim.tax/glossary/passive-foreign-investment-company-pfic) For a US resident, German funds and UCITS ETFs usually count as PFICs, and each generally needs its own Form 8621 every year. With no election, the part of a gain allocated to your earlier US-resident years is taxed at the highest US rate, plus interest. If you sell a fund before your US residency starts, only Germany taxes the gain. ### Leaving the German dividend refund unclaimed (https://valim.tax/expat-tax/foreign-tax-credit) Tax withheld above the treaty rate earns no US credit (Treas. Reg. § 1.901-2(e)(5)), so claim it back from Germany. German payers withhold 26.375% from dividends, and the Federal Central Tax Office (BZSt) refunds the excess only on a claim. The claim is due within four years after the year of payment and may need Form 6166, the IRS certificate of US residency. ### Selling German property after ten years Germany stops taxing a private sale of German property once you have owned it ten years. The US still taxes your gain, measured in dollars from your cost, with no German tax to credit. A former main home may qualify for the US home sale exclusion. ### Assuming your German pension years are lost (https://valim.tax/visa-holders/l-1-visa-taxes) A German national cannot get German pension contributions back before the standard retirement age, 67 if born from 1964. With at least 18 months of German coverage, the US-Germany totalization agreement counts your US work toward the five years a German pension needs. On a temporary posting, a German employer can keep you in German social security with certificate D/USA 101 from your health insurance fund. ### Leaving a Bausparvertrag off the FBAR (https://valim.tax/expat-tax/fbar) A Bausparvertrag (building savings contract) and a cash-value life policy count toward the FBAR. Your Girokonto (current account), Tagesgeld (instant-access savings) and Depot (brokerage account) count as well. A Riester contract may count too. ## We claim the exit tax step-up and apply the treaty’s pension rules on your US returns. Valim prepares US returns, federal and state, for newcomers from Germany, and leaves the German return to your Steuerberater. - We start with the year you arrive. When you sell shares Germany taxed as you left, we claim the Article 13(6) step-up. - We report your Deutsche Rentenversicherung pension as US Social Security, as the treaty requires, and keep a Betriebsrente’s growth out of your US income. German tax on your rent, or on the German-workday part of your RSUs, becomes a credit on Form 1116. - We file the FBAR, Form 8938 and each Form 8621 a fund calls for, plus Form 5471 for a German company where required. We report gifts or an inheritance from Germany on Form 3520 in any year they pass $100,000. In the instant quote, each German account and fund has its own price, as does each company you own more than 20% of. - Before you arrive, we compare the German tax on selling your ETFs now with the PFIC tax on selling them later. We also calculate the quarterly tax due on German rent or a German pension. - We take on any IRS or state notice about a return we prepared, within the fee, such as a query about your Riester payout. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## The tax questions a move from Germany raises. ### Do I have to pay US taxes if I live in Germany? Yes, if you are a US citizen or hold a green card, even while living in Germany. The US taxes both on worldwide income, and a green card keeps that duty until it is formally abandoned or rescinded. A green card holder who is German-resident under the treaty’s tie-breaker may file as a nonresident, but this can count as expatriating. Under Article 23 of the treaty, the US gives a credit for German income tax on income both countries tax. A German national who held a US visa and has moved back owes US tax only on US-source income. ### Is there a double tax treaty between Germany and the US? Yes, the US-Germany tax treaty signed at Bonn on August 29, 1989, has been in force since August 21, 1991. A protocol signed in Berlin on June 1, 2006, applies to withholding taxes from 2007 and to other taxes from 2008. Its saving clause binds only the US, which keeps its full right to tax citizens and residents, except under the articles the clause itself lists. A separate estate and gift tax treaty has been in force since June 27, 1986. ### Who pays 45% tax in Germany? In 2026, a single person pays Germany’s 45% rate on taxable income from €277,826, and a married couple filing jointly from €555,652. The 5.5% solidarity surcharge comes on top at those incomes, for a top rate of 47.475% before church tax. Once you have left, Germany applies its rates only to income it may still tax, such as German rent. A cabinet draft of September 2, 2026, would start the 45% rate at €250,000. It would also add a 47% rate from €280,000, but it is not yet law. ### Can German inheritance tax still apply after I move to the US? Yes. Germany taxes a gift or inheritance from a giver living there, above €400,000 per parent and child every ten years. Close family (class I) pays 7% to 30% above that allowance. A German national also stays in scope for five years after leaving, or longer while keeping a German home. The US does not tax what you receive. Gifts or bequests over $100,000 a year from a nonresident alien or a foreign estate still go on Form 3520. ## Sources - US-Germany income tax convention (1989): https://www.irs.gov/pub/irs-trty/germany.pdf - Protocol to the US-Germany convention (2006): https://www.irs.gov/pub/irs-trty/germanprot06.pdf - Treasury, Technical explanation of the 2006 protocol: https://www.irs.gov/pub/irs-trty/germanyte07.pdf - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Germany, AStG § 6, Besteuerung des Vermögenszuwachses (exit tax on shareholdings): https://www.gesetze-im-internet.de/astg/__6.html - Germany, EStG § 17, Veräußerung von Anteilen an Kapitalgesellschaften (holdings of 1% or more): https://www.gesetze-im-internet.de/estg/__17.html - Germany, EStG § 3 (tax-free income, including 40% of a gain on shares): https://www.gesetze-im-internet.de/estg/__3.html - Germany, BewG § 11, Wertpapiere und Anteile (valuation of unlisted shares): https://www.gesetze-im-internet.de/bewg/__11.html - Germany, InvStG § 19, Gewinne aus der Veräußerung von Investmentanteilen (gains on fund units): https://www.gesetze-im-internet.de/invstg_2018/__19.html - Germany, EStG § 32a, Einkommensteuertarif (income tax rates): https://www.gesetze-im-internet.de/estg/__32a.html - Germany, SolZG § 4, Zuschlagsatz (the 5.5% solidarity surcharge): https://www.gesetze-im-internet.de/solzg_1995/__4.html - Germany, SolZG § 3, Bemessungsgrundlage und zeitliche Anwendung (the surcharge on withheld tax): https://www.gesetze-im-internet.de/solzg_1995/__3.html - Germany, EStG § 43a, Bemessung der Kapitalertragsteuer (25% withheld on dividends): https://www.gesetze-im-internet.de/estg/__43a.html - Germany, EStG § 50c, Entlastung vom Steuerabzug in bestimmten Fällen (refund of withholding tax by the BZSt): https://www.gesetze-im-internet.de/estg/__50c.html - Germany, EStG § 50, Sondervorschriften für beschränkt Steuerpflichtige (no tax-free allowance for non-residents): https://www.gesetze-im-internet.de/estg/__50.html - Germany, EStG § 32b, Progressionsvorbehalt (the progression rule): https://www.gesetze-im-internet.de/estg/__32b.html - Germany, AO § 8, Wohnsitz (German residence): https://www.gesetze-im-internet.de/ao_1977/__8.html - Germany, BMG § 17, Anmeldung, Abmeldung (deregistration): https://www.gesetze-im-internet.de/bmg/__17.html - Germany, BMF letter of December 12, 2023, on wages under tax treaties (stock options and RSUs): https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Internationales_Steuerrecht/Allgemeine_Informationen/2023-12-12-steuerliche-behandlung-arbeitslohn-doppelbesteuerungsabkommen.pdf?__blob=publicationFile&v=3 - Germany, EStG § 23, Private Veräußerungsgeschäfte (the ten-year rule on property): https://www.gesetze-im-internet.de/estg/__23.html - Germany, EStG § 95, Sonderfälle der Rückzahlung (Riester repayment): https://www.gesetze-im-internet.de/estg/__95.html - Germany, ErbStG § 2, Persönliche Steuerpflicht (who gift and inheritance tax covers): https://www.gesetze-im-internet.de/erbstg_1974/__2.html - Germany, ErbStG § 16, Freibeträge (gift and inheritance tax allowances): https://www.gesetze-im-internet.de/erbstg_1974/__16.html - Germany, ErbStG § 19, Steuersätze (gift and inheritance tax rates): https://www.gesetze-im-internet.de/erbstg_1974/__19.html - Germany, SGB VI § 35, Regelaltersrente (standard retirement age): https://www.gesetze-im-internet.de/sgb_6/__35.html - Germany, SGB VI § 235, Regelaltersrente (retirement age for people born before 1964): https://www.gesetze-im-internet.de/sgb_6/__235.html - Germany, SGB VI § 50, Wartezeiten (five years of coverage): https://www.gesetze-im-internet.de/sgb_6/__50.html - Germany, SGB VI § 210, Beitragserstattung (refund of contributions): https://www.gesetze-im-internet.de/sgb_6/__210.html - German Missions in the United States, Steuerliche Behandlung von Renten (tax treatment of pensions): https://www.germany.info/us-de/service/steuern/rente-2309190 - US-Germany FATCA agreement (2013): https://home.treasury.gov/system/files/131/FATCA-Agreement-Germany-5-31-2013.pdf - Social Security Administration, Totalization Agreement with Germany: https://www.ssa.gov/international/Agreement_Pamphlets/germany.html - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 7701(b), Definition of resident alien (treaty residence of a green card holder): https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 --- URL: https://valim.tax/visa-holders/from-france Title: Moving to the US from France: taxes, assurance vie and the treaty Updated: 2026-10-01 # An assurance vie must pass a US life insurance test after moving to the US from France. Taxes reach its growth every year, as ordinary income, if the policy fails. IRC 7702 counts a policy as life insurance only if it passes US tests that weigh its cash value against its death benefit. The IRS has published no guidance on how an assurance vie fares under them. The treaty’s interest article may spare a withdrawal’s gain from French withholding if you file form 5000. If it does, French tax you could have avoided that way earns no US credit. Your assurance vie after you leave France: - 12.8%: of the gain in a withdrawal is withheld once you are non-resident, on premiums paid since September 27, 2017. No social levies apply. - 7.5%: is the rate a refund claim gets you once the contract is eight years old, on up to €150,000 of premiums. - 1%: of each premium you pay into it as a US resident can be owed to the IRS as excise tax, on Form 720. Under Rev. Proc. 2003-78, the treaty waives the 1% only if the insurer and the IRS have signed a closing agreement. In September 2026, no French assurance vie insurer was on the IRS lists. ## What does France expect from you in the year you move? France taxes by tax domicile, so a French citizen whose domicile has moved abroad owes French tax only on French income. ### 1. Your home, job or finances stay in France France treats you as tax domiciled if your home or main stay, your main work or the center of your economic interests is there. One of those is enough. The treaty’s tie-breaker assigns you one country of residence when both claim you. Since February 16, 2025, if it names the US, France no longer counts you as domiciled, even with family there. ### 2. The year you leave splits in two France taxes your worldwide income from January 1 to the day you leave, then only your French income. The next year, you report the first part on form 2042 and the second on form 2042-NR. If you have no French income after you leave, you state that on form 2042-NR. ### 3. You leave your French employer Leaving the job lets you take out your PEE, the company savings plan, early and free of French income tax. A PER, a French retirement savings plan, generally stays locked until retirement. Moving abroad is not one of the reasons France allows an early withdrawal. The US generally does not tax a PEE payout you receive while still a nonresident. An LDD, a Livret jeune or an LEP, France’s regulated passbook savings accounts, cannot stay open once your tax domicile is abroad. Ask your bank how to close them before you leave. ## Two years after you leave, France’s exit tax on holdings up to €2.57 million is cancelled if you still own them. France’s exit tax applies if you were a French tax resident for at least six of the last ten years. Your household must also hold over €800,000 in shares, bonds and fund units, or rights to at least 50% of one company’s profits. Holdings in a PEA, the French share savings plan, do not count. For a 2025 move to the US, payment was deferred automatically, with no security to post. The example assumes France’s deferral list for 2026 moves, due next year, still names the US. You settle in the US in 2026 after ten years in France, with shares worth €2 million that cost €200,000. - Exit tax on leaving: €565,200. That is 31.4% of the €1.8 million gain. - Shares kept for two years: €0. France cancels the deferred tax, as long as you file form 2074-ETD and its yearly follow-ups. - Shares sold in year one for €1.2 million: Up to €314,000. France recomputes the tax on your €1 million actual gain. It then credits the matching share of the US tax you pay on the sale. The rates are those for 2026 departures: 12.8% income tax plus 18.6% social levies. Above €2.57 million of holdings, the wait is five years. A sale at a loss also cancels the tax. For US tax, the shares keep their original cost, figured in dollars. Neither US law nor the France treaty resets it when you arrive. ## Even a US citizen owes no US tax on French state and workplace pensions, because the US-France tax treaty leaves them to France. The saving clause, which otherwise lets the US set the treaty aside for its citizens and residents, does not reach Article 18(1). So the pension rule protects green card holders and US citizens too. In Publication 519, the IRS’s own example says a US resident need not report French social security on Form 1040. Each row assumes the treaty treats you as a US resident. | | France | US | | --- | --- | --- | | Your French state, AGIRC-ARRCO or civil-service pension | Taxed (Through non-resident withholding) | Not taxed (Article 18(1)) | | Pay for your work in the US | Not taxed (Article 15(1), even from a French employer) | Taxed | | Dividends from a French company | 12.8% (France’s own rate, under the 15% treaty cap) | Taxed (Can count as qualified dividends) | | Interest on a French bank account | Not taxed (Article 11(1)) | Taxed | | A gain on French shares or fund units | Not taxed (Article 13(6), unless half the company’s assets are French real estate, or the exit tax applies) | Taxed (On the gain over what you paid) | | Rent from a French home | Taxed (Plus social levies of 17.2%, or 18.6% if furnished) | Taxed (With a credit for French income tax) | France exempts the gain on your former main home if you sell it by December 31 of the year after you leave. You must not rent it out or lend it before the sale. A move to the US should qualify. ## How can French plans and paperwork cost you money in the US? ### SICAVs and FCPs in your French accounts (https://valim.tax/glossary/passive-foreign-investment-company-pfic) A French SICAV or FCP is usually a passive foreign investment company (PFIC) under US rules. Such a fund generally needs its own Form 8621 every year. Inside an assurance vie, PFIC status is unsettled, since the IRS has not said whether you own the fund units yourself. ### Expecting the treaty to cover your PER The US may tax a PER’s growth each year, and no IRS guidance says how. The treaty shelters a French plan only for a US resident who is neither a green card holder nor a US citizen. Even then, it covers only plans under French social security law. A PER is not one, unless the two tax authorities agree to add it. ### Working here without a certificate of coverage (https://valim.tax/visa-holders/l-1-visa-taxes) The US-France totalization agreement took effect on July 1, 1988. It lets your French employer keep you in French social security during a temporary posting here. The certificate of coverage is form SE-404-1 or SE-404-2, which your employer requests from the health insurance fund that collects your French contributions. If a US employer hires you locally, you pay US Social Security and Medicare instead. ### Paying tax on a research post the treaty exempts (https://valim.tax/visa-holders/j-1-visa-taxes) Article 20 exempts your pay for teaching or public-interest research for up to 2 years from arrival, and only once. It applies if you were a French resident invited to teach or research at a US university or recognized research institution. Article 21 exempts up to $5,000 a year of a student’s US pay, and $8,000 over 12 months for a French employer’s trainee. A green card ends both exemptions. Becoming a resident by day count does not. ### A gift from parents who still live in France A French child’s allowance of €100,000 from each parent every 15 years still applies to you under the estate and gift tax treaty. Above it, France taxes a gift from a parent who lives there, wherever the property is. No US income tax falls on the gift, though a large one must be reported to the IRS. ## We test each assurance vie under IRC 7702 before it goes on your US return. From the year you leave France, Valim prepares your US tax returns, and we send your French accountant the figures they need. - French bank accounts go on the FBAR in any year your combined foreign accounts pass $10,000, even for a day. Your assurance vie and PEA go on it too. Above its own, higher thresholds, Form 8938 lists them all, and we file both forms. - We check whether each French fund is a PFIC and file its yearly Form 8621 where one is due. The instant quote prices your FBAR accounts, foreign funds and any company you own more than 20% of. Your assurance vie and PEA are priced in. - Before you leave, we estimate the US tax a later sale of your shares would bring. We set it beside your French accountant’s exit tax figure, so you can time the sale. - We claim the US credit on Form 1116 for French income tax and France’s social levies, the CSG and CRDS. For French rent, we set your quarterly estimated tax payments. - When your parents in France give you more than $100,000 in one year, we report the gifts on Form 3520. - Your fee covers our reply if the IRS or a state queries a return we prepared, such as its treatment of your assurance vie. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How does the treaty treat your French savings? ### Do France and the USA have a tax treaty? Yes: the US-France tax treaty on income has been in force since December 30, 1995, and a 1978 treaty covers estate and gift tax. Protocols in force since December 21, 2006, and December 23, 2009, rewrote parts of the income treaty, pensions included. Its saving clause runs one way. Only the US reserves the right to tax its own residents and citizens regardless of the treaty, subject to listed exceptions. ### How can US expats avoid double taxation? The treaty and the US foreign tax credit stop most double taxation for someone who has moved from France. As a US resident, by green card or by day count, you report your French income on your US return. Where both countries may tax, as with French rent or dividends, the US credits the French income tax against its own, within limits. France’s social levies, the CSG and CRDS, can earn the credit too. Since a 2019 understanding with France, the IRS will not challenge that credit on the ground that the totalization agreement covers them. ### What happens to my PEA when I move to the US? A PEA, the French share savings plan, stays open when you move to the US. A withdrawal before its fifth year still closes it, with a few exceptions. France largely stops taxing it: as a non-resident, your gain on a withdrawal or closure is outside French income tax and social levies. No treaty article covers a PEA, so the US generally taxes the dividends and gains inside it as they are realized. Each fund inside is usually a PFIC, which generally means a separate Form 8621 each year, and the account goes on the FBAR. ## Sources - US-France income tax convention (1994): https://www.irs.gov/pub/irs-trty/france.pdf - Protocol to the US-France convention (2004): https://home.treasury.gov/system/files/131/Treaty-France-Protocol-8-12-2004.pdf - Protocol to the US-France convention (2009): https://home.treasury.gov/system/files/131/Treaty-France-Pr2-1-13-2009.pdf - Treasury, technical explanation of the 2004 US-France protocol: https://home.treasury.gov/system/files/131/Treaty-France-Protocol-TE-8-12-2004.pdf - Protocol to the US-France estate and gift tax convention (2004): https://home.treasury.gov/system/files/131/Treaty-France-Estate-Gift-Protocol-8-12-2004.pdf - Légifrance, Code général des impôts, article 4 B (tax domicile): https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000051202565 - Légifrance, Code général des impôts, article 167 bis (exit tax): https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000048806379 - DGFiP, notice for form 2074-ETD (2026): https://www.impots.gouv.fr/sites/default/files/formulaires/2074-etd/2026/2074-etd_5518.pdf - impots.gouv.fr, declaring income for the year you leave France: https://www.impots.gouv.fr/international-particulier/questions/aupres-de-qui-dois-je-declarer-mes-revenus - impots.gouv.fr, non-resident withholding on salaries and pensions: https://www.impots.gouv.fr/international-particulier/questions/je-suis-non-resident-je-veux-comprendre-la-retenue-la-source-qui - BOFiP, levy on assurance vie gains paid to non-residents: https://bofip.impots.gouv.fr/bofip/11359-PGP.html/identifiant=BOI-RPPM-RCM-30-10-20-10-20191220 - impots.gouv.fr, assurance vie withdrawals by non-residents: https://www.impots.gouv.fr/international-particulier/questions/comment-sont-imposees-les-assurances-vie-en-cas-de-rachat-total - impots.gouv.fr, investment income of non-residents (form 5000): https://www.impots.gouv.fr/international-particulier/questions/mes-revenus-de-capitaux-mobiliers-sont-ils-passibles-des - BOFiP, the PEA after a move abroad: https://bofip.impots.gouv.fr/bofip/1556-PGP.html/identifiant=BOI-RPPM-RCM-40-50-20-20-20240730 - BOFiP, withholding on dividends paid abroad: https://bofip.impots.gouv.fr/bofip/2674-PGP.html/identifiant=BOI-RPPM-RCM-30-30-10-20-20220629 - Service-Public.fr, Plan d’épargne retraite (PER) (F34982): https://www.service-public.gouv.fr/particuliers/vosdroits/F34982 - Service-Public.fr, early release of employee savings (F31622): https://www.service-public.gouv.fr/particuliers/vosdroits/F31622 - Service-Public.fr, social levies on investment income (F2329): https://www.service-public.gouv.fr/particuliers/vosdroits/F2329 - impots.gouv.fr, gift rules for non-residents: https://www.impots.gouv.fr/international-particulier/questions/quelles-sont-les-regles-applicables-en-matiere-de-donation-pour - impots.gouv.fr, what you can give your children free of gift tax: https://www.impots.gouv.fr/particulier/questions/que-puis-je-donner-mes-enfants-petits-enfants-sans-avoir-payer-de-droits - BOFiP, BOI-ANNX-000508, states with assistance agreements (2025): https://bofip.impots.gouv.fr/bofip/14465-PGP.html/identifiant=BOI-ANNX-000508-20251008 - impots.gouv.fr, exemptions on a non-resident’s property sale: https://www.impots.gouv.fr/international-particulier/questions/je-vends-un-bien-immobilier-est-ce-que-je-beneficie-des-memes - Social Security Administration, US-France social security agreement: https://www.ssa.gov/international/Agreement_Pamphlets/france.html - IRS, Totalization agreements (CSG and CRDS): https://www.irs.gov/individuals/international-taxpayers/totalization-agreements - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 7702, Life insurance contract defined: https://www.law.cornell.edu/uscode/text/26/7702 - 26 U.S.C. § 4371, Imposition of tax (policies issued by foreign insurers): https://www.law.cornell.edu/uscode/text/26/4371 - IRS, Rev. Proc. 2003-78: https://www.irs.gov/pub/irs-drop/rp-03-78.pdf - IRS, Exemption from section 4371 excise tax: https://www.irs.gov/businesses/international-businesses/exemption-from-section-4371-excise-tax - IRS, Instructions for Form 720 (Rev. June 2026): https://www.irs.gov/instructions/i720 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 901, Taxes of foreign countries: https://www.law.cornell.edu/uscode/text/26/901 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - IRS, Notice 2011-64 (treaties that qualify dividends): https://www.irs.gov/pub/irs-drop/n-11-64.pdf - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 --- URL: https://valim.tax/visa-holders/from-the-netherlands Title: Moving to the US from Netherlands: taxes on pensions and the AOW Updated: 2026-10-07 # Nearly everyone moving to the US from the Netherlands with a Dutch workplace pension gets a Dutch tax bill on it. If you leave the pension untouched for about ten years, you can ask to have the bill cancelled. The Belastingdienst, the Dutch tax authority, issues a protective assessment (conserverende aanslag) on your pension rights. It is based on your M return, the Dutch return for the year you move. Filing that return counts as a request to defer payment. Cashing out the pension before the deferral ends makes the bill payable. Bank savings and ordinary investments are not assessed. Box 3, the Dutch tax on savings and investments, stops taxing them once you leave. The Dutch bill on your pension rights: - 49.50%: is the 2026 top rate. Your pension rights are added to your other Dutch income from work and home, and the part above €78,426 pays it. - 20%: of the pension’s value is usually added as revision interest, owed only if the bill falls due. - Jan. 1, 2036: ends the deferral for someone who moves in 2026. Deducted lijfrente (annuity) premiums get the same assessment and the same deferral. ## What does the Belastingdienst weigh when you emigrate? You must deregister with your municipality, no earlier than five days before you leave. That step alone does not end your Dutch tax residence. ### 1. Your family stays behind for now Dutch residence turns on your circumstances, such as where your family lives and where you work. While your partner or children still live in the Netherlands, you usually stay resident there. That can change once you rent or buy a US home for them. ### 2. You are resident in both countries In the year you move, the Netherlands and the US can each treat you as resident. The treaty then assigns you to the country where you have a permanent home, and looks further only if you have one in both. ### 3. You own 5% or more of a company A stake of 5% or more, held alone or with a partner, is a substantial interest (aanmerkelijk belang). When you leave, the Netherlands treats it as sold at market value. In 2026 the gain is taxed at 24.5% up to €68,843 and 31% above. You can defer payment for life against security. A sale, a dividend, a capital repayment or the company’s end makes the bill payable, in whole or in part. ### 4. You keep your Dutch home Box 1 taxes income from work and your own home. An empty home you are selling stays there for up to three years after the year you leave. Once you let it out, it moves to box 3 instead. A 5% stake in a foreign company may be caught too. That stake is spared if you leave within 8 years of arriving, with no more than 10 years of Dutch residence in the last 25. ## A €400,000 holiday home in the Netherlands draws €7,358 of box 3 tax for 2026, even with no rent. Box 3 keeps taxing Dutch real estate after you leave, on an assumed return unless you can show a lower actual one. You live in the US in 2026 and solely own a mortgage-free Dutch holiday home, not let out. Its WOZ value (the municipality’s official valuation) is €400,000. - WOZ value of the home: €400,000. For 2026, box 3 uses the municipal value dated January 1, 2025. - After the tax-free allowance: €340,643. A non-resident still gets the €59,357 allowance. - Assumed return at 6%: €20,439. Box 3 assumes real estate earns 6% a year, rent or no rent. - Box 3 tax at 36%: €7,358. You pay it through a Dutch return for non-residents. Each row uses the 2026 figure set in Dutch law. If you let the home, the US taxes the rent and may credit the box 3 tax, within limits. A bill to tax actual returns, aimed at 2028, is not yet law. ## The US-Netherlands tax treaty gives your AOW to the Netherlands and your workplace pension to the US. Every row is for someone the treaty treats as a US resident, and the US column shows federal tax only. The saving clause lets the US tax its citizens and residents as if there were no treaty. The AOW and pension fund rules are exceptions to it, so a green card changes neither. | | Netherlands | US | | --- | --- | --- | | AOW state pension | Taxed (The only country allowed, under Article 19(4)) | Not taxed (Even for US citizens) | | Growth inside a Dutch pension fund | Not taxed | Deferred until paid out (Article 19(7)) | | Regular payments from a workplace pension | Not taxed (Article 19(1). An exemption from the Belastingdienst stops Dutch withholding.) | Taxed | | A lump sum paid within 5 years of leaving | Can be taxed (Article 19(2), with a credit for the US tax) | Taxed (With no credit for the Dutch tax) | | A pension for Dutch government service | Taxed (Article 20(2), unless you are a US citizen) | Not taxed (Until you become a green card holder or US citizen (Article 20(2))) | The Article 19(7) deferral covers pension funds exempt from Dutch company tax, which the two countries’ tax authorities listed in 2000 (IRS Notice 2000-57). Insured schemes and lijfrente products are not on that list. We found no IRS guidance on them, or on the switch to the new pension system due by January 1, 2028. ## Which Dutch arrangements need rethinking once you live in the US? ### Holding a beleggingsfonds or UCITS ETF (https://valim.tax/glossary/passive-foreign-investment-company-pfic) US rules usually class a Dutch beleggingsfonds (investment fund), and a UCITS ETF, as a passive foreign investment company (PFIC). Each such fund generally needs its own Form 8621 every year. Without an election, a sale is taxed as if the gain built up evenly. The share from your earlier US-resident years pays the top rate plus interest. ### Moving your pension into a US plan Dutch pension law allows a cash-out only in narrow cases, such as a very small pension, and emigrating is not one of them. A transfer to a provider the Netherlands does not recognize generally counts as a cash-out and ends the deferral. ### Letting your AOW build-up stop Each insured year adds 2% of the full AOW, and moving stops the build-up unless you still work in the Netherlands. You can keep it building with voluntary insurance, which in 2026 costs 17.9% of income, from €569 to €5,693. You qualify after a full year of cover just before you leave, and you must apply within a year. An employer posting you here for a limited period can keep you in the Dutch system with certificate NL/USA 101. ### Assuming a gift from home escapes Dutch tax Gifts from your parents above €6,908 in 2026 need a Dutch gift tax return before March 1 of the next year. You pay that tax as the recipient whenever the giver lives in the Netherlands. If you are a Dutch national, the Netherlands treats you as resident for its gift and inheritance tax for 10 years after you leave. ## We file US returns that treat your AOW and Dutch pension the way the treaty does. We prepare your US returns only. Your Dutch adviser files the M return, and we coordinate the two sides with them. - From your first, often dual-status, year, every federal and state return we prepare checks each Dutch payment against the treaty. - We file your FBAR once your foreign accounts together pass $10,000. A Form 8621 goes in for every Dutch fund or UCITS ETF that needs one. We add a Form 5471 for any Dutch BV that requires one. Once you pass the Form 8938 threshold, we list your Dutch pension in its Part VI. In the instant quote, every Dutch account and fund is a line, and so is each company you own more than 20% of. - We file Form 3520 when family in the Netherlands gives or leaves you over $100,000 in a year. - For each Dutch fund you keep, we weigh a mark-to-market or QEF election against the default PFIC tax. - We claim the US credit on Form 1116 for Dutch tax on your rent, dividends or a pension lump sum. - Once a Dutch pension starts paying, we set the quarterly estimated tax it calls for. - We reply within the fee to any IRS or state letter on a return we prepared, including one that asks about your AOW. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What else do people leaving the Netherlands ask about Dutch and US tax? ### Do I have to pay US taxes if I live in the Netherlands? Only if you are a US citizen or green card holder, and even then only the Netherlands taxes your AOW. The US taxes citizens on worldwide income wherever they live, and green card holders until the card is given up or rescinded. Its foreign tax credit offsets US tax on other income the Netherlands also taxes. ### What is the 30% expat tax ruling in the Netherlands? The 30% ruling, or expatregeling, lets a Dutch employer pay a worker hired from abroad up to 30% of salary tax-free. A ruling lasts five years at most. In 2026 it covers pay up to €262,000. The worker must earn more than €48,013, or €36,497 if under 30 with a master’s degree. The rate falls to 27% from 2027, except for rulings already applied by the end of 2023. When you leave, the ruling ends no later than the pay period after the one with your last Dutch workday. ### Do the Dutch have a 75% income tax? No. The top Dutch income tax rate in 2026 is 49.50%, on taxable income from work and home above €78,426. The 75% is a levy on severance pay, and the employer pays it. It applies to severance above the employee’s reference wage, when that wage exceeds €700,000. Savings and investments pay 36% on an assumed return, and substantial shareholdings 24.5% or 31%. ### Is there an income tax treaty between the US and the Netherlands? Yes. The US-Netherlands tax treaty is in force and has applied since January 1, 1994. It was signed on December 18, 1992, and protocols of 1993 and 2004 amend it. It caps Dutch tax on dividends paid to a US-resident individual at 15%, which is already the Dutch rate, and leaves interest to the US. Its saving clause runs both ways, letting each country tax its own residents and nationals as it would without the treaty, with listed exceptions. ### Does the Netherlands have an exit tax? Yes, on some assets. The Netherlands exit tax is the protective assessment (conserverende aanslag). It mainly covers pension and lijfrente (annuity) rights and company stakes of 5% or more. Portfolio shares, funds and bank savings are not assessed. A foreign company’s shares can escape it after a short stay. The treaty gives no US step-up for the assessed value, so a later US sale is taxed from your original cost basis. ### Is my AOW taxed in the US? No. Under Article 19(4) of the treaty, only the Netherlands may tax an AOW paid to a US resident or citizen. The article is an exception to the saving clause, so it holds with a green card too. The SVB, the Dutch agency that pays the AOW, may withhold Dutch wage tax from it. The AOW stays off Form 8938. Whether your state taxes the AOW is up to the state, since the treaty binds only federal tax. ## Sources - US-Netherlands income tax convention (1992): https://www.irs.gov/pub/irs-trty/nether.pdf - Protocol to the US-Netherlands convention (2004): https://home.treasury.gov/system/files/131/Treaty-Netherlands-Protocol-3-8-2004.pdf - Treasury, technical explanation of the 2004 US-Netherlands protocol: https://www.irs.gov/pub/irs-trty/netherte04.pdf - IRS, Notice 2000-57 (exempt pension trusts, US-Netherlands convention): https://www.irs.gov/pub/irs-irbs/irb00-43.pdf - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Social Security Administration, US-Netherlands social security agreement: https://www.ssa.gov/international/Agreement_Pamphlets/netherld.html - Netherlands, Algemene wet inzake rijksbelastingen, article 4 (tax residence): https://wetten.overheid.nl/BWBR0002320/2026-04-11 - Netherlands, Wet basisregistratie personen, article 2.43 (deregistration): https://wetten.overheid.nl/BWBR0033715/2025-11-11 - Netherlands, Wet inkomstenbelasting 2001 (Income Tax Act 2001): https://wetten.overheid.nl/BWBR0011353/2026-02-21 - Netherlands, Invorderingswet 1990 (Tax Collection Act 1990): https://wetten.overheid.nl/BWBR0004770/2026-07-01 - Belastingdienst, protective assessment on emigration: https://www.belastingdienst.nl/wps/wcm/connect/nl/buitenland/content/conserverende-aanslag-bij-emigratie - Belastingdienst, Toelichting aangifte M 2025 (notes to the M return): https://download.belastingdienst.nl/belastingdienst/docs/toelichting_m_biljet_ib3271t51fd.pdf - Belastingdienst, Fiscale informatie 2026: box 3 tax calculation: https://www.belastingdienst.nl/wps/wcm/connect/fisin/fisin2026/belastingberekening - Belastingdienst, Fiscale informatie 2026: box 3 assets and debts: https://www.belastingdienst.nl/wps/wcm/connect/fisin/fisin2026/bezittingen_en_schulden_box_3_ - Belastingdienst, Fiscale informatie 2026: living outside the Netherlands: https://www.belastingdienst.nl/wps/wcm/connect/fisin/fisin2026/u_woont_buiten_nederland - Eerste Kamer, Wet werkelijk rendement box 3 (36.748): https://www.eerstekamer.nl/wetsvoorstel/36748_wet_werkelijk_rendement_box - Belastingdienst, exemption from wage tax withholding for non-residents: https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/themaoverstijgend/programmas_en_formulieren/verzoek_vrijstelling_inhouding_loonbelasting_premie_volksverzekeringen - Netherlands, Pensioenwet (Pensions Act): https://wetten.overheid.nl/BWBR0020809/2026-01-01 - Netherlands, Wet op de loonbelasting 1964 (Wage Tax Act 1964): https://wetten.overheid.nl/BWBR0002471/2026-02-21 - Netherlands, Wet op de dividendbelasting 1965, article 5 (dividend tax): https://wetten.overheid.nl/BWBR0002515/2025-01-01 - Rijksoverheid, the transition to the new pension system: https://www.rijksoverheid.nl/themas/werk/pensioen/overgang-naar-nieuwe-pensioenstelsel - Netherlands, Successiewet 1956 (gift and inheritance tax): https://wetten.overheid.nl/BWBR0002226/2026-01-01 - Belastingdienst, when to file a gift tax return: https://www.belastingdienst.nl/wps/wcm/connect/nl/schenken/content/moet-ik-aangifte-schenkbelasting-doen - Rijksoverheid, the 30% ruling for workers from abroad: https://www.rijksoverheid.nl/themas/werk/inkomstenbelasting/belastingvoordeel-buitenlandse-werknemers - Belastingdienst, 30% ruling: term and conditions: https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/internationaal/personeel/u_bent_niet_in_nederland_gevestigd_loonheffingen_inhouden/als_u_loonheffingen_gaat_inhouden/extraterritoriale_kosten_en_de_30procentregeling/voorwaarden_voor_de_30procentregeling1/beschikking_geldigheid_en_toetsen_voorwaarden - SVB, how the AOW builds up: https://www.svb.nl/nl/aow/wat-is-aow/hoe-gaat-de-opbouw-van-de-aow - SVB, conditions for voluntary insurance: https://www.svb.nl/nl/vv/wonen-werken-buiten-nederland/voorwaarden-voor-vrijwillig-verzekeren - SVB, the cost of voluntary insurance abroad: https://www.svb.nl/nl/vv/kosten-vrijwillig-verzekeren/wat-kost-vrijwillig-verzekeren-buiten-nederland - SVB, deductions from the AOW abroad: https://www.svb.nl/nl/aow/aow-buiten-nederland/wat-gaat-er-van-uw-aow-af-buiten-nederland - 26 C.F.R. § 1.1-1, Income tax on individuals: https://www.law.cornell.edu/cfr/text/26/1.1-1 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 901, Taxes of foreign countries: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 --- URL: https://valim.tax/visa-holders/from-spain Title: Moving to the US from Spain: taxes on funds, flats and pensions Updated: 2026-10-06 # Spain lets you switch between funds without tax, a relief you lose by moving to the US from Spain. Taxes can then fall on each switch as if you had sold. A traspaso moves money between Spanish funds free of Spanish tax, keeping the old cost and purchase date. The US has no such rule, and Spanish funds usually count as passive foreign investment companies (PFICs). Without a PFIC election, a switch that counts as a sale spreads the gain over the years you held the fund. The share that falls in your earlier years as a US resident is taxed at the top rate, plus interest. What Spain still claims as you leave: - Jan. 1: of the next year is the earliest your Spanish residence ends if you stayed over 183 days in the year you leave. - Over €4M: of shares and fund units brings an exit tax as you leave, after 10 of your last 15 years in Spain. - €700,000: of assets in Spain is the state’s wealth tax exemption for a non-resident. Spanish holdings above it can still be taxed every year. A non-resident may follow the wealth tax rules of the region where their Spanish assets are worth the most. Spain’s solidarity tax on large fortunes still reaches net Spanish assets above €3 million, whatever the region. ## What can keep Spain taxing you after you leave? ### 1. More than 183 days in Spain that year Spain has no split year. Over 183 days in Spain in the year you leave make you resident all year, so Spain can tax your US pay too. Time briefly abroad still counts toward the 183 days, unless you prove tax residence elsewhere. Leave early, with no more than 183 days in Spain and your main interests elsewhere, and you can be non-resident from January 1. ### 2. A spouse and children who stay in Spain With your spouse and dependent minor children still in Spain, Spanish law presumes you are still resident, unless you prove otherwise. Keeping your main business or investments in Spain can also keep you resident. If both countries then claim you, Article 4 of the treaty settles which one counts for treaty purposes. ### 3. A large portfolio or a 25% stake Spain’s exit tax falls on the unrealized gain in your shares and fund units as your residence ends. A stake above 25% of one company, worth over €1 million, triggers it even when your total is €4 million or less. Only that stake is then taxed. ### 4. Modelo 030 within three months Tell the Agencia Tributaria, Spain’s tax agency, that you have left, on modelo 030 within three months, giving the date your non-residence starts. If the income tax return due after your move comes first, you report the change there instead. A permanent move to the US gets no deferral of Spain’s exit tax. A temporary move can defer it, on request, with interest and a guarantee. Returning within five years without selling cancels the tax and the interest. Your US cost stays what you paid, so gain built up before the move is taxed when you sell. ## Letting your flat in Spain costs 24% of the gross rent, because a US resident deducts no costs there. Spain’s non-resident income tax reaches a flat you keep there every year, even a year it earns you nothing. You keep a flat in Spain with a cadastral value, the official value Spain records for each property, of €100,000. You bought it for €200,000. - Kept empty, or for your own visits: €480. A deemed rent of 2% of the cadastral value, €2,000, is taxed at 24%. - Let all year for €12,000: €2,880. Tax falls on the whole €12,000. - Sold for €320,000: €22,800. Spain taxes the €120,000 gain. The buyer withholds €9,600, 3% of the price, toward it, and modelo 210 settles the rest. Spain taxes a US resident’s gains at 19%. Where new cadastral values took effect in your town in the last ten years, the deemed rent is 1.1%, a €264 tax. The sale assumes no buying or selling costs, and a flat never let. For each year you let it, Spain cuts a set depreciation from its cost, even if you never deducted it. In the US, you report the rent too, after costs, and claim Spain’s tax as a credit within its limits. A former main home may qualify for the US exclusion of up to $250,000 of gain, or $500,000 on a joint return. Spain still charges its 19%. ## Both countries can tax your Spanish state pension under the US-Spain tax treaty, while private and workplace pensions are taxed only in the US. The Spain column applies once you show Spain Form 6166, the IRS certificate of US residency, and each certificate is good for one year. | | Spain | US | | --- | --- | --- | | Your Spanish Social Security retirement pension | Taxed (Article 20(1)(b) allows it, at Spain’s 8% to 40%) | Taxed (As a foreign annuity, with a credit for Spain’s tax) | | A pension from a past employer | Not taxed (Article 20(1)(a)) | Taxed | | Payouts from a plan de pensiones or a PPA (an insured pension plan) | Not taxed (Once you prove US residence) | Taxed (Whether the US taxes growth before payout is unsettled) | | A Spanish government service pension | Taxed (Unless you are a US citizen, Article 21(2)) | Exempt without a green card (A green card or US citizenship lets the US tax it) | Your Spanish state pension stays off Form 8938. A plan de pensiones goes in its Part VI once your foreign assets pass the form’s thresholds. ## Which Spanish assumptions stop holding once you live in the US? ### Assuming a fondo de inversión is not a company (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Spanish law gives a fondo de inversión no legal personality, but US rules usually treat it as a company, as they do a SICAV. That usually makes it a PFIC, and each one generally needs its own Form 8621 every year. ### Paying into your plan de pensiones from the US Contributions you make as a US resident earn no deduction in either country. The treaty has no article for them, and Spain’s non-resident tax lets you subtract nothing for them. The plan may also miss the Form 3520 relief in Rev. Proc. 2020-17, because Spain lets you withdraw ten-year-old contributions without penalty. ### Overlooking the wealth tax on what stays in Spain Even with no wealth tax due, a non-resident must file a wealth tax return once Spanish assets, a home included, top €2 million. The income tax treaty does not cover wealth tax, so it offers no relief. ### Falling short of Spain’s 15 years, or leaving its system on a posting (https://valim.tax/visa-holders/l-1-visa-taxes) A Spanish retirement pension needs at least 15 years of contributions, two of them in the 15 years before you claim it. The US-Spain totalization agreement, in force since April 1, 1988, lets Spain count your US work toward that minimum. On a posting from a Spanish employer, within the agreement’s time limit, you can stay in Spain’s system instead of US Social Security. Your employer asks the TGSS, Spain’s social security treasury, for form E/USA 1 to prove it. ### Expecting your parents to pay the gift tax on Spanish property As a non-resident, you pay Spanish gift tax yourself, but only on property in Spain, such as a flat there. For a flat or other real estate, you may use the gift rules of the region where it is. Madrid’s rules cut a child’s tax by 99% when their conditions are met. Your parents in Spain also owe Spanish income tax on any gain in what they give. The gift goes on modelo 651 within 30 working days, through a representative who lives in Spain. ## We check the US tax on a traspaso before you switch, and report your Spanish funds every year. Every US return Valim prepares for you reports each fondo and plan de pensiones you keep in Spain. - We prepare your first US return, often a dual-status one, and every federal and state return after it. - Selling a fondo gets the same check as a switch: we show you the US tax on each choice before you act. - We decide which fondos need a Form 8621 each year and file them, with your FBAR and any Form 8938. Where a Spanish company calls for Form 5471, we file that too. The instant quote prices every account, every fund and any company in which you own more than 20%. - We claim Spain’s tax on your rent or state pension as a credit on Form 1116, and set quarterly estimated payments for that income. - Any Spanish gift tax stays with your gestor, the adviser who files for you in Spain. We file Form 3520 for each year family gifts pass $100,000. - We reply at no extra charge to an IRS or state notice about a return we prepared, including one on a traspaso. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How Spanish and US tax rules fit together after the move. ### Does Spain have a tax treaty with the US? Yes, the US-Spain tax treaty is in force. It was signed at Madrid on February 22, 1990. A protocol signed in 2013 has been in force since November 27, 2019. Once you live in the US, Spain may tax your Spanish dividends at no more than 15%, and your Spanish interest not at all. Spain keeps its right to tax Spanish real estate and Spanish social security pensions. Its saving clause, in Article 1(3), binds both countries. Each may tax its own residents and citizens as if the treaty did not exist, apart from the articles it lists. ### Do I have to pay US taxes if I move abroad? A US citizen owes US tax on worldwide income wherever they live, Spain included. A green card keeps you US tax resident abroad until it is rescinded or you formally abandon it, such as with Form I-407. If day count alone made you resident, you owe US tax only on US-source income once you stop meeting the substantial presence test. ### What is the exit tax in Spain? Spain’s income tax law, in article 95 bis, taxes the built-up gain in your shares and fund units when your residence ends. It reaches only people resident for at least 10 of their last 15 years. Their shares and fund units must be worth over €4 million in total, or one stake above 25% must be worth over €1 million. The gain counts as savings income of your last resident year, taxed at 19% to 30%. Real estate, bank deposits and pension plans are outside it. ### Are taxes higher in Spain or the USA? Neither country is higher for everyone: Spain’s national rates on general income run from 9.5% to 24.5% before your region’s rates are added. In Spain, interest, dividends and gains are taxed at 19% to 30% in total. In 2026, $100,000 of US wages costs a single filer $13,170 of federal income tax and $7,650 in payroll tax, before any state tax. As a US resident, you pay US tax on worldwide income, with a credit for Spanish tax on Spanish income. ### What happens to my Spanish pension plan when I move to the US? It stays in place, since leaving Spain is not one of the events that let you cash in a plan de pensiones. Early access is limited to serious illness, long-term unemployment and contributions at least ten years old. An employment plan releases ten-year-old contributions only if its terms allow it. Once you live in the US, the treaty leaves any payout to the US alone. Whether the US taxes the plan’s growth before then is unsettled. Article 20(5) defers that tax, but the saving clause can override it. ## Sources - US-Spain income tax convention (1990): https://www.irs.gov/pub/irs-trty/spain.pdf - Protocol to the US-Spain convention (2013): https://home.treasury.gov/system/files/131/Treaty-Spain-Protocol-1-14-2013.pdf - IRS, Spain tax treaty documents: https://www.irs.gov/businesses/international-businesses/spain-tax-treaty-documents - Spain, Ley 35/2006 del Impuesto sobre la Renta de las Personas Físicas (personal income tax law): https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764 - Spain, Real Decreto Legislativo 5/2004, Ley del Impuesto sobre la Renta de no Residentes (non-resident income tax law): https://www.boe.es/buscar/act.php?id=BOE-A-2004-4527 - Agencia Tributaria, Modelo 030 instructions (change of tax address and residence): https://sede.agenciatributaria.gob.es/Sede/censos-nif-domicilio-fiscal/censos/modelo-030-censo_____de-domicilio-variacion-personales_/instrucciones.html - Agencia Tributaria, Imputed income on a home a non-resident keeps for own use: https://sede.agenciatributaria.gob.es/Sede/no-residentes/irnr-sin-establecimiento-permanente/cuestiones-especificas-sobre-tributacion-inmuebles/renta-imputada-inmueble-urbano-uso-propio.html - Agencia Tributaria, Gains when a non-resident sells property in Spain: https://sede.agenciatributaria.gob.es/Sede/no-residentes/irnr-sin-establecimiento-permanente/cuestiones-especificas-sobre-tributacion-inmuebles/ganancia-patrimonial-derivada-transmision.html - Spain, Ley 35/2003 de Instituciones de Inversión Colectiva (investment funds law): https://www.boe.es/buscar/act.php?id=BOE-A-2003-20331 - Spain, Real Decreto Legislativo 1/2002, Ley de Regulación de los Planes y Fondos de Pensiones (pension plans law): https://www.boe.es/buscar/act.php?id=BOE-A-2002-24252 - Spain, Ley 19/1991 del Impuesto sobre el Patrimonio (wealth tax): https://www.boe.es/buscar/act.php?id=BOE-A-1991-14392 - Spain, Ley 38/2022, article 3 (solidarity tax on large fortunes): https://www.boe.es/buscar/act.php?id=BOE-A-2022-22684 - Spain, Ley 29/1987 del Impuesto sobre Sucesiones y Donaciones (inheritance and gift tax law): https://www.boe.es/buscar/act.php?id=BOE-A-1987-28141 - Agencia Tributaria, Inheritance and gift tax for non-residents: general questions: https://sede.agenciatributaria.gob.es/Sede/no-residentes/impuesto-sobre-sucesiones-donaciones/cuestiones-generales.html - Comunidad de Madrid, Decreto Legislativo 1/2010 (regional tax rules, gift and inheritance tax): https://www.boe.es/buscar/act.php?id=BOCM-m-2010-90068 - Social Security Administration, Totalization Agreement with Spain: https://www.ssa.gov/international/Agreement_Pamphlets/spain.html - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Rev. Proc. 2020-17 (exemption for tax-favored foreign trusts): https://www.irs.gov/pub/irs-drop/rp-20-17.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 C.F.R. § 301.7701-2, Business entities; definitions: https://www.ecfr.gov/current/title-26/section-301.7701-2 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 --- URL: https://valim.tax/visa-holders/from-ireland Title: Moving to the US from Ireland: taxes on ETFs, pensions and gifts Updated: 2026-10-06 # Three resident years in a row keep you ordinarily resident for three tax years after moving to the US from Ireland. Taxes there still apply to your worldwide gains if you are Irish-domiciled, but not to your US pay. Ireland taxes most of those gains at 33%. Your pay escapes Irish income tax only for work done entirely outside Ireland. The treaty may lift the charge on gains once you live in the US, a point Revenue has not addressed. Irish taxes that outlast the move: - €3,810: of non-Irish investment income a year stays outside Irish tax while you are ordinarily resident. Above that, Irish law taxes all of it. - 38%: is the exit tax for individuals, from 2026, on selling an Irish fund or on its deemed disposal every eight years. - 20%: of your Irish rent is withheld by a tenant who pays you directly once you live abroad. If you were ordinarily resident and 2026 is your last resident year, the status lasts through 2029. A tenant who pays an Irish collection agent withholds nothing. The agent answers to Revenue for your tax instead. ## Four tests set how far Irish tax reaches after you leave. Ireland’s tax year is the calendar year, so each test counts from January 1 to December 31. ### 1. Your domicile is still Irish Your domicile decides whether Irish tax reaches your foreign gains while you are ordinarily resident. Everyone gets a domicile of origin at birth, and you shed it only on clear evidence that you will stay abroad for good. Without an Irish domicile, you pay Irish tax on foreign gains only if you bring the money into Ireland. ### 2. You leave partway through a year Split-year treatment leaves out pay you earn abroad after you go. It applies if you leave for more than a temporary stay and are non-resident the next year. It covers employment income only, so interest, rent and gains are taxed for the whole year. For departures since January 1, 2025, you claim it on that year’s Irish return. ### 3. You still spend time in Ireland You become resident again with 183 days in Ireland in a year, or 280 over that year and the last. Any part of a day counts, but a year with 30 days or fewer adds nothing to the 280. Separately, while you are ordinarily resident, fewer than 30 workdays a year in Ireland generally count as work done abroad. ### 4. You might come home within five years Ireland can tax gains on large holdings you owned when you left and sold while away, if you come back within five tax years. This applies only if you were Irish-domiciled when you left. A large holding is 5% or more of any company, or a stake worth over €500,000. Revenue’s guidance for people leaving lists no tax on departure itself. Change your address in myAccount or Revenue Online Service (ROS) to ‘My address is not in the Republic of Ireland’. An Income Tax Return for the year you leave can refund tax on unused tax credits and standard rate band. ## Gifts from both parents share one €400,000 CAT threshold, so €500,000 from them costs you €31,020. Capital acquisitions tax (CAT) is Ireland’s tax on gifts and inheritances, and the person who receives one pays it. Your parents’ Irish residence brings the whole gift within CAT, even though you now live in the US. In June 2026 your parents, who live in Ireland, give you €250,000 each. Neither has given you anything before. - The two gifts: €500,000. Both fall in Group A, the group for a child receiving from a parent. - After the small gift exemption: €494,000. The first €3,000 from each giver in a calendar year is exempt. - Above the threshold: €94,000. The €400,000 is a lifetime limit. - CAT you pay: €31,020. That is 33% of the €94,000. This example uses Revenue’s current 33% rate and the Group A threshold in force since October 2, 2024. Earlier gifts and inheritances from your parents since December 5, 1991 would use up the threshold first. Above 80% of the threshold, you file an IT38 return. For a gift made from January 1 to August 31, you pay and file by October 31 that year. The US does not tax a gift as income (IRC 102). The US side is a Form 3520, since the two gifts together pass $100,000. ## The US-Ireland tax treaty decides who taxes your Irish income and gains after you move. Once you are a US resident, including on a green card, you report your Irish income and gains on your US return. Where both countries may tax, the US credits the Irish tax under Article 24, within US limits. | | Ireland | US | | --- | --- | --- | | Interest from an Irish bank | Not taxed (Article 11(1)) | Taxed | | Dividends from an Irish company | Capped at 15% (Article 10(2)(b)) | Taxed | | Rent from property in Ireland | Taxed (Article 6, on a Form 11 return) | Taxed | | A sale of Irish land or buildings | Taxed (Article 13(1)) | Taxed (On the gain measured in dollars) | | A sale of other shares or funds | Usually not taxed (Article 13(5)) | Taxed (On the whole gain since you bought, with no reset on arrival) | | A pension from a private employer’s scheme | Not taxed (Article 18(1)(a), once a PAYE Exclusion Order is in place) | Taxed (Growth inside the plan gets no treaty deferral) | | State Pension (Contributory) | Not taxed (Article 18(1)(b)) | Taxed (Under the annuity rules, not as US Social Security) | An Irish public-service pension stays taxable in Ireland under Article 19, unless you are also a US citizen. Social security taxes fall under a separate agreement, in force since September 1, 1993. On an employer’s temporary posting, a certificate of coverage can keep you in Irish PRSI instead of US Social Security. ## Where does Irish tax still come out at source after you move? ### Interest and dividends taxed past the treaty limits (https://valim.tax/expat-tax/foreign-tax-credit) Irish banks deduct deposit interest retention tax (DIRT) at 33%, and Irish companies withhold dividend withholding tax (DWT) at 25%. Both exceed what the treaty lets Ireland keep, and the excess earns no US credit (Treas. Reg. § 1.901-2(e)(5)). A non-resident declaration to your bank stops DIRT, while Form V2A stops DWT only once ordinary residence ends. ### The eight-year deemed disposal on Irish funds Leaving Ireland is not a chargeable event for an Irish fund, so the fund keeps deducting exit tax every eight years you hold it. The charge stops only with your non-resident declaration, which you cannot sign while still ordinarily resident. Irish residents self-assess listed ETFs instead, and whether that reaches you in the US, or earns a US credit, is unsettled. ### ARF and vested PRSA withdrawals Revenue taxes money you take from an approved retirement fund (ARF) or a vested personal retirement savings account (PRSA) at source, wherever you live. It issues no PAYE Exclusion Order for these funds. The treaty leaves pensions to your country of residence, so a US credit for that Irish tax is unsettled. ### Selling Irish property without a CG50A Selling Irish property needs a CG50A clearance certificate above €500,000, or above €1 million for a house or apartment. A non-resident gets one only after paying any CGT due on the sale. Without it, the buyer keeps back 15% of the price, which you reclaim on Form CG50B. ## Our CPAs report your Irish funds under the PFIC rules and credit the Irish tax you still pay. We handle the US half of a move from Ireland, preparing your federal and state returns while your Irish accountant keeps the Irish side. - We list your Irish accounts on the FBAR and, when due, Form 8938, plus a Form 8621 for each Irish fund that needs one. We add Form 5471 for an Irish company where required, and Form 3520 for family gifts over $100,000 in a year. Your instant quote counts each account and fund, and each company you own more than 20% of. - We claim Form 1116 credits for Irish tax on rent, dividends and property sales, but never above the treaty’s limits. - Before your US residency starts, we weigh selling your Irish funds, a sale only Ireland taxes, against keeping them as PFICs. Once you arrive, we set quarterly US payments for your Irish rent, State Pension or other pension income, none of which has US withholding. - Our fee covers replies to IRS or state notices on returns we prepared, such as a query on an Irish ETF. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Leaving Ireland raises tax questions on both sides of the Atlantic. ### Is there a 7 year tax rule in Ireland? Ireland has no seven-year rule for leavers or for gifts, but one capital gains relief turns on seven years of ownership. It covers land or buildings in Ireland or the EEA bought from December 7, 2011 to December 31, 2014. On a sale now, the exempt share is seven divided by the years you owned it, so at most seven-elevenths in 2026. The US does not follow the relief, so a US resident is taxed on the whole gain. Only the Irish tax on the rest of the gain earns a US credit. ### Does Ireland have a tax treaty with the USA? Yes: the US-Ireland tax treaty is the convention signed at Dublin on July 28, 1997, replacing one from 1949. It has been in force since December 17, 1997, and has applied since January 1, 1998. A 1999 amending convention changed only Article 10(4), on dividends from US mutual funds (RICs) and real estate investment trusts (REITs). Its saving clause lets the US tax you as a resident under US law, apart from listed exceptions. Ireland keeps the same right over its residents. A separate 1949 convention covers Irish inheritance tax and US estate tax, but not gift tax. ### Do US citizens living in Ireland pay taxes? Yes: US citizens living in Ireland pay tax to both countries. Ireland taxes them while they are resident there, and the US taxes its citizens on worldwide income wherever they live. The saving clause keeps that US right, with a foreign tax credit for Irish tax under Article 24. Under Article 18(1)(b), though, only Ireland may tax US Social Security paid to an Irish resident, even a citizen. ### What happens to my Irish pension when I move to the US? An Irish pension usually stays put until you can draw it, from 60, or from 50 on early retirement. Once you are a US resident, only the US taxes a private employer’s pension, and a PAYE Exclusion Order stops Irish withholding. A public-service pension stays taxable in Ireland under Article 19 unless you are a US citizen. No treaty article carries Ireland’s €200,000 tax-free lump sum into US law or defers US tax on the plan’s growth. Only visa holders may deduct contributions, for up to five calendar years, if they paid in just before arriving and the IRS accepts the plan. ### Are Irish-domiciled ETFs PFICs? Irish-domiciled ETFs are usually PFICs once you are a US resident, because a fund of securities meets the income or asset test. A fund set up as an Irish public limited company (plc) is a corporation under US rules. Other fund forms, such as an ICAV or unit trust, usually default to corporate status. Without an election, a sale’s gain is ordinary income. The part spread over your earlier US-resident years is taxed at the top rate plus interest. Each fund generally needs its own Form 8621 every year, and a qualified electing fund (QEF) election needs the fund’s PFIC Annual Information Statement. ## Sources - US-Ireland income tax convention (1997), with protocol and exchange of notes: https://www.irs.gov/pub/irs-trty/ireland.pdf - Treasury, Technical explanation of the US-Ireland convention: https://www.irs.gov/pub/irs-trty/iretech.pdf - Amending convention to the US-Ireland convention (1999): https://www.irs.gov/pub/irs-trty/amending_convention_ireland_treaty_24_sept_1999.pdf - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Revenue, Tax and Duty Manual Part 34-00-01, Provisions relating to residence of individuals: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-34/34-00-01.pdf - Revenue, How to know if you are ordinarily resident for tax purposes: https://www.revenue.ie/en/jobs-and-pensions/tax-residence/ordinarily-resident-tax-purposes.aspx - Revenue, Split-year treatment in your year of departure: https://www.revenue.ie/en/life-events-and-personal-circumstances/moving-to-or-from-ireland/leaving-ireland/split-year-treatment-in-your-year-of-departure.aspx - Revenue, If you are leaving Ireland: https://www.revenue.ie/en/life-events-and-personal-circumstances/moving-to-or-from-ireland/leaving-ireland/if-you-are-leaving-ireland-permanently.aspx - Revenue, Tax and Duty Manual Part 02-03-02, Temporary non-residents (s.29A): https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-02/02-03-02.pdf - Revenue, Tax and Duty Manual Part 27-01A-02, Investment undertakings: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-01a-02.pdf - Revenue, What DIRT rate is applicable: https://www.revenue.ie/en/additional-incomes/dirt/what-dirt-rate-is-applicable.aspx - Revenue, DIRT: non-resident account holder: https://www.revenue.ie/en/additional-incomes/dirt/non-resident-account-holder.aspx - Revenue, Dividend Withholding Tax (DWT): https://www.revenue.ie/en/companies-and-charities/dividend-withholding-tax/index.aspx - Revenue, Dividend Withholding Tax: exemptions for non-residents: https://www.revenue.ie/en/companies-and-charities/dividend-withholding-tax/exemptions-for-non-residents.aspx - Revenue, Tax and Duty Manual Part 45-01-04, Taxation of non-Irish resident landlords: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-45/45-01-04.pdf - Revenue, CGT clearance certificate (CG50A): https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/cgt-clearance-certificate-cg50a.aspx - Revenue, Property acquired between 7 December 2011 and 31 December 2014: https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/property-acquired-between-7-December-2011-and-31-December-2014.aspx - Revenue, Capital Gains Tax: transferring an asset: https://www.revenue.ie/en/gains-gifts-and-inheritance/transfering-an-asset/index.aspx - Revenue, If you have retired and are moving abroad: https://www.revenue.ie/en/life-events-and-personal-circumstances/moving-to-or-from-ireland/leaving-ireland/if-you-have-retired-and-are-moving-abroad.aspx - Revenue, Pensions Manual chapter 9, Retirement before normal retirement age: https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-09.pdf - Revenue, Pensions Manual chapter 13, Transfer payments: https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-13.pdf - Revenue, Pensions Manual chapter 24, Personal Retirement Savings Accounts: https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-24.pdf - Revenue, Pensions Manual chapter 27, Taxation of retirement lump sums: https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-27.pdf - Capital Acquisitions Tax Consolidation Act 2003, section 6, Taxable gift: https://www.irishstatutebook.ie/eli/2003/act/1/section/6/enacted/en/html - Revenue, CAT rates: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-rates.aspx - Revenue, CAT thresholds: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-thresholds.aspx - Revenue, CAT aggregation rules: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-aggregation-rules.aspx - Revenue, Small gift exemption: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-exemptions/small-gift-exemption/index.aspx - Revenue, Capital Acquisitions Tax (CAT) thresholds, rates and aggregation rules: https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/index.aspx - Revenue, How and when do you pay and file? (CAT): https://www.revenue.ie/en/gains-gifts-and-inheritance/gift-and-inheritance-tax-cat/how-and-when-do-you-pay-and-file.aspx - Revenue, Double taxation relief (US): the estate tax convention: https://www.revenue.ie/en/gains-gifts-and-inheritance/credits-you-can-claim-against-cat/double-taxation-relief-usa.aspx - Social Security Administration, Totalization Agreement with Ireland: https://www.ssa.gov/international/Agreement_Pamphlets/ireland.html - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 U.S.C. § 402, Taxability of beneficiary of employees’ trust: https://www.law.cornell.edu/uscode/text/26/402 - 26 C.F.R. § 301.7701-2, Business entities; definitions: https://www.ecfr.gov/current/title-26/section-301.7701-2 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 C.F.R. § 1.1295-1, Qualified electing funds: https://www.law.cornell.edu/cfr/text/26/1.1295-1 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 --- URL: https://valim.tax/visa-holders/from-italy Title: Moving to the US from Italy: taxes, AIRE, TFR and the treaty Updated: 2026-10-06 # AIRE registration alone does not end your Italian tax residence after moving to the US from Italy. Taxes also follow your family life and your days in Italy. Under Italian law, any residence test met for most of the year makes you resident for all of it. Most means 183 days, or 184 in a leap year, counting part days. That makes the year you leave wholly resident or wholly non-resident. The US treaty has no split-year clause, but its tie-breaker may still settle the months you count as resident in both countries. AIRE, Italy’s registry of citizens abroad: - 90 days: after you arrive is your deadline to declare the move to the Italian consulate for your US area. - Over a year: abroad is the stay that makes that declaration a duty for an Italian citizen. - €1,000: is the most your town can fine you for each year you go unregistered. The least is €200. Registering no more than 90 days late, before any check has started, cuts the fine to €20. ## What keeps you an Italian tax resident, and what can end it? Italian law makes you resident through your days, your family life or your civil-law residence, and a town registry entry adds a presumption. ### 1. Your days in Italy Being in Italy for most of the year makes you resident, even with no home or family there. Separate stays add up, so long visits back after your move can tip a later year. ### 2. Your family life Your domicile is where your personal and family ties mainly are, so a family that stays in Italy can keep it there. The Revenue Agency gives an example of a domicile that survives AIRE. It is a house you keep with the utilities on and return to on weekends. ### 3. Your name on a town registry If your town’s resident registry lists you for most of the year, Italy presumes you are resident. Since 2024 you can rebut that with objective evidence, though before then the presumption was final. Registering with AIRE takes you off the town registry. If you never told your town you were leaving, that happens on the day you file. ### 4. You are also a US resident When both countries count you as resident, Article 4(2) of the treaty assigns you to one. It weighs, in order, a permanent home, your center of vital interests, your habitual abode and then nationality. The Revenue Agency accepts that this result overrides your registry entry. Italy’s exit tax does not reach your private shares and funds. Article 166 of its income tax code taxes only commercial business assets that leave Italy with you. Assets kept in an Italian branch fall outside it. For a US move it is due in full, since installments are open only for moves to EU states or listed EEA states. ## In 2026, each parent in Italy can give you €1,000,000 free of Italian gift tax, and the tax above that is 4%. Italian gift tax depends on where the giver lives, so a gift from a parent resident in Italy falls entirely under it. The gift is not US income, but Form 3520 reports a gift this size if you are a US resident when it arrives. In 2026 you receive €1,500,000 toward a US home from family in Italy, and no giver has given you anything before. - From one parent: €20,000. The €500,000 above that parent’s €1,000,000 allowance for you is taxed at 4%. - Split between both parents: €0. Each parent gives €750,000, inside that parent’s own allowance for you. - From a brother or sister: €84,000. A sibling’s allowance is €100,000, and the €1,400,000 above it is taxed at 6%. - From an aunt or uncle: €90,000. Other relatives get no allowance, so the whole gift is taxed at 6%. The figures use the 2026 rates and allowances in articles 56 and 57 of Italy’s gift and inheritance tax law (D.Lgs. 346/1990), applied to the gift’s net value. Earlier gifts from the same giver count against that giver’s allowance, so it does not renew each year. They assume a gift made by deed. An informal transfer can be taxed differently under article 56-bis, so ask an Italian notary first. A new code takes over on January 1, 2027, so check the rates for a later gift. ## Who taxes your Italian pension, rent and gains under the US-Italy tax treaty? Most of the 1999 convention’s rules have applied since January 1, 2010. The rows apply once the treaty counts you as a US resident. | | Italy | US | | --- | --- | --- | | Interest on an Italian bank or postal account | Not taxed (Not Italian income for a non-resident) | Taxed | | Dividends from an Italian company | 15% at most (Article 10(2)) | Taxed (Italy’s tax is credited) | | Rent from a flat or house in Italy | Taxed (Article 6) | Taxed (Italy’s income tax is credited) | | A sale of property in Italy | Taxed if sold within 5 years of buying (Exempt if inherited, or if it was your or your family’s main home for most of that time. Building land is always taxed. You can ask the notary for a flat 26% tax.) | Taxed (On the whole gain, though the US home sale exclusion can cover a former main home) | | A sale of shares or funds | Not taxed (Article 13(4), unless the company mainly owns Italian property) | Taxed (From your original cost, with no step-up) | | An INPS (Italian social security) pension from private-sector work | Not taxed (Article 18(2)) | Taxed (Taxed like a foreign pension, with no Social Security exclusion) | | Severance (TFR) paid after you move | Taxed (Article 18(3)) | Generally taxed (Through the saving clause, with a credit) | Where an Italian payer withholds more than the treaty allows, the US will not credit the excess (Treas. Reg. § 1.901-2(e)(5)). Italy refunds it on a claim backed by a US residency certificate. ## Where do Italian funds, pensions, homes and employers cost a new US resident money? ### Funds bought in Italy (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Investment funds sold in Italy, such as Sicav shares, fondo comune units and UCITS ETFs, normally count as PFICs for a US resident. Each fund generally needs its own Form 8621 every year. Without a QEF or mark-to-market election, a gain on a fund held for years is spread back over them. The years you held it as a US resident before the sale are taxed at the top rate, with interest. ### Leaving INPS withholding in place INPS withholds Italian tax from your pension until you ask the office that pays it to apply the treaty. You do that on form EP-I, with Form 6166, the IRS certificate of US residency. The Revenue Agency’s office in Pescara refunds tax already withheld on a claim made within 48 months of each withholding. ### IMU on the home you keep Once you register with AIRE, your Italian home may lose the main-home exemption from IMU, Italy’s municipal property tax. A home without the exemption pays a base rate of 0.86%. Towns can set the rate anywhere from 0% to 1.06%, and some go up to 1.14%. The US allows no deduction for IMU on a home kept for your own use, only against rent from one you let. ### Working in the US for an Italian employer (https://valim.tax/glossary/fica) An Italian national working here for an Italian employer, or for a company an Italian firm controls, stays in Italian social security. That rule comes from the US-Italy totalization agreement, effective November 1, 1978. It is the only US agreement with no special rule for workers sent here on temporary assignment. Your Italian employer proves the US exemption with certificate IT/USA 4 from INPS. With a US employer, US Social Security generally applies. ## We report your INPS pension and TFR on your US returns, and credit the Italian tax the treaty allows. After a move from Italy, one of our licensed CPAs prepares and signs your US returns. Your Italian accountant (commercialista) keeps any Italian filing. - We prepare every federal and state return from your first US year on. That first return is dual-status if your residency starts partway through the year. - On Form 1116, we claim a US credit for the Italian tax on your TFR, rent or a property sale, within US limits. - Your Italian bank, postal and brokerage accounts go on the FBAR once they total over $10,000, and on Form 8938 above its thresholds. We also file a Form 8621 for each Italian fund. Form 3520 follows once gifts from one foreign giver and their relatives pass $100,000 in a year. An Italian company that requires Form 5471 gets one from us. Each account, each fund and each company in which you hold over 20% has its own price in the instant quote. - Before you leave, we compare the US tax on cashing out your fondo pensione or Italian funds with the tax on keeping them. After you arrive, we plan your quarterly estimated payments on Italian rent or an INPS pension. - We answer IRS or state letters about any return we prepared, such as a query on your INPS pension, at no added cost. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What people moving from Italy ask about US and Italian tax. ### Do I have to pay US taxes if I live in Italy? US citizens and green card holders do, on their worldwide income, even while living in Italy. The US gives a foreign tax credit for Italian income tax under Article 23 of the treaty. A green card keeps that duty until it is rescinded or administratively or judicially found abandoned. Under Article 18(2), Italy alone taxes US Social Security paid to an Italian resident. The exception is a US citizen who is not also Italian. ### Is there double taxation between Italy and the USA? The US-Italy tax treaty, signed in 1999, prevents most double taxation between Italy and the USA. It gives each kind of income to one country or caps the tax where it arises, and the US credits Italian income tax. Its saving clause applies both ways, so the US taxes a TFR paid after you arrive by its own rules, apart from listed exceptions. IMU, Italy’s property tax, is not an income tax, so the US gives no credit for it. A separate 1955 convention covers estate and inheritance taxes, but not gift tax. ### Do I have to register with AIRE when I move to the US? Italian citizens moving to the US for more than 12 months must register with AIRE. Within 90 days of arriving, you notify the consulate covering where you live, free of charge, through the Fast It portal. Registration takes you off your town’s resident registry, which would otherwise make Italy presume you still live there. Each year you stay unregistered can cost a fine of €200 to €1,000. AIRE alone does not end Italian residence if your family life, or a home you keep using, stays in Italy. ### What happens to my TFR and Italian pension fund when I move to the US? Italy taxes your TFR, the severance your employer sets aside, apart from your other income. The US leaves alone a TFR paid before your US residency starts, but generally taxes one paid later, with a credit for Italy’s tax. Moving abroad alone does not let you cash out a fondo pensione, an Italian supplementary pension fund. You can usually cash one out when you leave the employer whose collective fund you joined, at a final 23% Italian tax. The treaty gives no US deferral on the fund’s growth, and the IRS has issued no guidance on such funds. ## Sources - US-Italy income tax convention (1999), with protocol: https://home.treasury.gov/system/files/131/Treaty-Italy-8-24-1999.pdf - Treasury, Technical explanation of the US-Italy convention: https://home.treasury.gov/system/files/131/Treaty-Italy-TE-10-22-1999.pdf - IRS, Italy tax treaty documents: https://www.irs.gov/businesses/international-businesses/italy-tax-treaty-documents - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Italy, TUIR art. 2, Soggetti passivi (tax residence), 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:presidente.repubblica:decreto:1986-12-22;917~art2!vig=2026-06-30 - Agenzia delle Entrate, Circular 20/E of November 4, 2024 (English translation): https://www.agenziaentrate.gov.it/portale/documents/20143/6519685/Circolare_20_del_4_11_2024_Eng.pdf/bdacb2e0-a699-5180-719e-665210459d75 - Italy, Law 470/1988, art. 6 (registration with AIRE): https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:1988-10-27;470~art6 - Italy, Law 1228/1954, art. 11 (fines): https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:1954-12-24;1228~art11 - Consulate General of Italy in New York, AIRE: https://consnewyork.esteri.it/it/servizi-consolari-e-visti/servizi-per-il-cittadino-italiano/anagrafe-degli-italiani-residenti-allestero-aire/ - Italy, TUIR art. 166, Imposizione in uscita (exit tax), 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:presidente.repubblica:decreto:1986-12-22;917~art166!vig=2026-06-30 - Italy, TUIR art. 23, Applicazione dell’imposta ai non residenti, 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:presidente.repubblica:decreto:1986-12-22;917~art23!vig=2026-06-30 - Italy, TUIR art. 67, Redditi diversi (property gains), 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:presidente.repubblica:decreto:1986-12-22;917~art67!vig=2026-06-30 - Agenzia delle Entrate, Tassazione delle plusvalenze immobiliari: https://www.agenziaentrate.gov.it/portale/schede/pagamenti/tassazioneplusvalenze/cosa-tassazione-plusvalenze-immobiliari - Italy, Civil Code art. 2120, Disciplina del trattamento di fine rapporto: https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:regio.decreto:1942-03-16;262:2~art2120 - Italy, TUIR art. 17, Tassazione separata (TFR), 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:presidente.repubblica:decreto:1986-12-22;917~art17!vig=2026-06-30 - Italy, D.Lgs. 252/2005, art. 14 (leaving a pension fund), 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:2005-12-05;252~art14!vig=2026-06-30 - COVIP, answer on redeeming a pension fund position: https://www.covip.it/normativa/fondi-pensione/quesiti/risposta-quesito-tema-riscatto-della-posizione-individuale-parte - Italy, D.Lgs. 346/1990, art. 2, Territorialità dell’imposta, 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:1990-10-31;346:1~art2!vig=2026-06-30 - Italy, D.Lgs. 346/1990, art. 56, Determinazione dell’imposta, 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:1990-10-31;346:1~art56!vig=2026-06-30 - Italy, D.Lgs. 346/1990, art. 57, Donazioni anteriori, 2026 text: https://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:1990-10-31;346:1~art57!vig=2026-06-30 - Ministry of Economy and Finance, IMU rate table: https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/Varie/tabella-aliquote-IMU.pdf - Comune di Torino, IMU for residents abroad: https://www.comune.torino.it/domande-frequenti/imu-residenti-allestero - INPS, Normativa fiscale per i residenti all’estero: https://www.inps.it/it/it/dettaglio-approfondimento.schede-informative.49937.normativa-fiscale-residenti-all-estero.html - Social Security Administration, Totalization Agreement with Italy: https://www.ssa.gov/international/Agreement_Pamphlets/italy.html - Social Security Administration, U.S. International Social Security Agreements: https://www.ssa.gov/international/agreements_overview.html - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 C.F.R. § 301.7701(b)-1, Resident alien: https://www.ecfr.gov/current/title-26/section-301.7701(b)-1 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - 26 U.S.C. § 164, Taxes: https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 --- URL: https://valim.tax/visa-holders/from-turkey Title: Moving to the US from Turkey: taxes on BES, funds and gifts Updated: 2026-10-06 # The BES law lets you keep your private pension after moving to the US from Turkey. Taxes on an early payout can then reach the same return in both countries. BES (Bireysel Emeklilik Sistemi) is Turkey’s private pension system. You earn the retirement right after 10 years in the system and at age 56. Ask for a payout before then, and your pension company pays out your savings in full within 20 business days. Turkey withholds tax only on the investment return, never on what you paid in. Without a treaty deferral, the US may tax that return each year you hold the account. Cashing out BES early, 2026: - 15%: of the investment return is what Turkey withholds when you cash out with under 10 years in BES. After 10 years, it is 10%. - 20%: is the state contribution Turkey adds to what you pay in lira in 2026. Turkey ties it to citizenship, so it can continue after you move. - 60%: of your state contribution account is yours to keep after 10 years in BES. It is 35% after 6 years and 15% after 3. The state contribution you have not yet earned goes to Turkey’s budget when you cash out early. Retiring at 56 with 10 years in BES cuts the withholding to 5%. ## When does Turkey stop taxing what you earn abroad? Turkey taxes its residents on worldwide income, and everyone else only on income earned in Turkey. ### 1. Your domicile is still in Turkey Turkey taxes you as a resident while your domicile, the place you live intending to stay for good, is there. A domicile moves only when you settle somewhere new, so a plan to return may keep it in Turkey. ### 2. You stay in Turkey over six months in a year A continuous stay of more than six months in one calendar year also makes you a Turkish resident. Temporary absences from Turkey do not break that stay. ### 3. You live abroad on a work or residence permit Turkey’s Revenue Administration (GİB) treats a citizen abroad over six months on a work or residence permit as a limited taxpayer. Turkey then taxes only your income from Turkey. Staff posted abroad by a Turkish public body, or by an employer based in Turkey, remain full taxpayers, taxed on worldwide income. ### 4. You leave partway through a year Turkey’s Income Tax Law does not appear to tax the unrealized gains on what you own when you go. If you have income to declare that year, your Turkish return is due within the 15 days before you leave. ### 5. Keeping a home in Turkey A home you keep in Turkey can make Turkey your country of residence under Article 4(2), even once the US counts you as resident too. A 2026 law exempts your foreign income from Turkish tax for 20 years if you later move back. To qualify, you first need three calendar years with no Turkish domicile or tax liability. Tax owed only on Turkish rent, investment income or gains does not break those three years. ## Turkey’s gift tax falls on you, the child: TL 294,980 on a TL 5 million gift from a parent. Turkey taxes a gift of a Turkish citizen’s property, or of property in Turkey. From abroad, you file at a Turkish consulate within one month of the gift. A Turkish bank paying it out can ask for proof the tax is paid, or hold back 15%. A parent who is a Turkish citizen gives you cash from a Turkish bank account in 2026. - A TL 1 million gift: TL 46,653. That is 5% of the TL 933,065 above the exemption. - A TL 5 million gift: TL 294,980. Turkey charges 5% on the first TL 3 million taxed and 7.5% on the remaining TL 1,933,065. - A TL 10 million gift: TL 669,980. The rate stays 7.5% on the TL 6,933,065 above the first TL 3 million taxed. - US income tax on any of them: $0. Form 3520 reports them once one giver’s gifts, with their family’s, pass $100,000 in a year. Under Turkey’s 2026 rules, a gift is exempt up to TL 66,935. A gift from a parent, spouse or child is taxed at half the standard gift rates. That gives 5% on the first TL 3 million taxed and 7.5% on the next TL 7 million. Each figure is rounded to the nearest lira. Turkey lets you pay over three years, in two installments a year, in May and November. With no US tax on the gift, the Turkish tax has nothing to offset. ## Turkey’s tax on your dividends stops at 20% under the US-Turkey tax treaty, and only Turkey may tax your SGK pension. Once you hold a green card or pass the day count, the US taxes your income from Turkey, with the treaty exceptions shown below. Turkey can set the treaty aside only for its own residents. A Turkish citizen the treaty places in the US therefore keeps these limits. | | Turkey | US | | --- | --- | --- | | Dividends from a Turkish company or fund | Up to 20% (Article 10(2), for an individual; real estate funds only under a 10% stake) | Taxed (With a credit for Turkey’s tax) | | Interest on a Turkish bank deposit | Up to 15% (Article 11(2)) | Taxed (With a credit up to 15%) | | Gains on shares and funds | Mostly exempt (Article 13(5), though a bank may still withhold) | Taxed | | Rent from a home in Turkey | Taxed (Generally above TL 58,000 of rent in 2026) | Taxed (With a credit for Turkey’s tax) | | A gain on a home in Turkey | Taxed within 5 years of purchase (Never on a home you inherited or were given) | Taxed (Even after 5 years, unless the main-home exclusion covers the gain) | | Your SGK retirement pension | Taxable only in Turkey (Article 18(2)) | Not taxed (Even for US citizens and green card holders) | The US credits Turkish tax only up to each treaty cap, even when Turkey withholds more. Protocol point IX also says tax withheld under Article 94 of Turkey’s Income Tax Law is not an income tax for the treaty’s credit. Read literally, that covers tax withheld from a BES payout and the 20% a business tenant withholds from rent. Whether the US credits either is unsettled. ## Which Turkish accounts and jobs are easy to get wrong on a US return? ### Treating a Turkish fund as a simple account (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Under Turkish law, an investment fund is not a legal entity. US rules still treat a managed fund as a corporation, normally a PFIC. Each one generally needs its own Form 8621 every year. The treaty has no pension-fund rule that would spare funds held inside BES from that form. ### Reporting lira interest without the lira’s fall Report lira deposit interest net of the lira’s yearly fall, not in full. Because the lira likely counts as hyperinflationary, the currency loss generally reduces the interest first. ### Working remotely for a Turkish employer Turkish law counts pay charged to a Turkish employer as Turkish income, even for work done in the US. Article 15 of the treaty leaves that pay to the US alone once you are a US treaty resident, Turkish citizen or not. A Turkish payroll may still want Form 6166, the IRS certificate of US residency, before it stops withholding. ### Expecting SGK to cover your US work (https://valim.tax/glossary/fica) Law 3201 lets a Turkish citizen buy SGK credit for documented insurance years abroad, at 45% of a chosen daily earnings figure. That is the only bridge, since the US and Turkey have no totalization agreement. US Social Security and Medicare tax generally applies to work done here, even on a posting from a Turkish employer. ### Counting on the two-year teacher exemption (https://valim.tax/visa-holders/j-1-visa-taxes) Article 20(2) exempts a Turkish teacher or researcher only on pay from outside the US. Salary from a US university is taxed as usual. A stay over two years loses the exemption for the whole visit, and a green card ends it. ## We plan around your BES and handle the US side of everything you keep in Turkey. For newcomers from Turkey, we prepare each federal and state return, with BES and every other Turkish account on the forms it needs. - We start with your arrival-year return, often dual-status, and coordinate with your mali müşavir (your Turkish accountant) on the Turkish side. - Before you request a BES payout, we price it twice: paid before your US residency starting date, and kept and drawn later. - Each Turkish bank, fund and BES account goes on your FBAR, and on Form 8938 when that form applies. We file Form 8621 for each Turkish fund that is a PFIC, and Form 5471 for a qualifying stake in a Turkish company. The instant quote prices each account, each fund and each company you own over 20% of. - Gifts from family in Turkey that pass $100,000 in a year go on Form 3520, and we prepare it with your return. - We credit Turkey’s tax on your rent, dividends and interest on Form 1116, with dividends and interest held to the treaty caps. For tax withheld from a BES payout or by a business tenant, we first check whether US rules allow a credit at all. Your Turkish rent has no US withholding, so we set quarterly estimated payments to cover it. - We answer any notice the IRS or a state sends about a return we prepared, at no cost beyond your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What else should you know before leaving Turkey for the US? ### Is there a tax treaty between the USA and Turkey? Yes: the US-Turkey tax treaty was signed in Washington on March 28, 1996, and entered into force on December 19, 1997. It took effect on January 1, 1998, and still stands as signed. For a US resident, it caps Turkey’s tax at 20% on dividends and 15% on interest. Its saving clause lets each country tax its own residents, and the US its citizens, as if there were no treaty, with listed exceptions. The two countries have no estate tax treaty and no totalization agreement. ### Does Turkey tax me after I move to the US? Turkey taxes only your income from Turkey once it stops treating you as a resident. For a citizen, that usually follows more than six months abroad on a work or residence permit. Turkey then taxes rent from a home there, generally above TL 58,000 a year (2026). It also taxes gains on Turkish property sold within five years of purchase, and withholds tax on Turkish interest and fund income. Your SGK pension stays taxable only in Turkey under the treaty. ### What happens to my BES private pension when I move to the US? You can keep your BES account after moving to the US, and citizens living abroad may pay into it in foreign currency. Cash out early and you keep only the vested part of the state contribution, while Turkey withholds tax on the investment return. The treaty neither defers US tax on BES growth nor lets you deduct contributions, and the IRS has not classified BES. The funds inside are likely PFICs. A BES account goes on Form 8938 as a foreign pension above that form’s thresholds, and very likely on the FBAR too. ### Is lira deposit interest taxed in the US? Yes, once you are a US resident, interest on a lira deposit is part of your worldwide income. The lira likely counts as hyperinflationary under US rules, which apply that label once prices rise at least 100% over 36 months. Turkish consumer prices rose 211% over 2023 to 2025. A yearly currency loss on a lira savings deposit then generally reduces the interest you report. ## Sources - US-Turkey income tax convention (1996), with protocol (IRS text): https://www.irs.gov/pub/irs-trty/turkey.pdf - Treasury, technical explanation of the US-Turkey convention (1996): https://www.irs.gov/pub/irs-trty/turkey-technical-explanation-1996.pdf - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Turkey, Income Tax Law no. 193 (Gelir Vergisi Kanunu), consolidated text: https://www.mevzuat.gov.tr/mevzuatmetin/1.4.193.pdf - Turkey, Individual Pension Savings and Investment System Law no. 4632, consolidated text: https://www.mevzuat.gov.tr/mevzuatmetin/1.5.4632.pdf - Pension Monitoring Center (EGM), state contribution (archived copy): https://web.archive.org/web/20260906072355id_/https://www.egm.org.tr/bireysel-emeklilik/devlet-katkisi/ - Pension Monitoring Center (EGM), what the individual pension system is (archived copy): https://web.archive.org/web/20260518092522id_/https://www.egm.org.tr/bireysel-emeklilik/bireysel-emeklilik-nedir/ - Turkey, Inheritance and Gift Tax Law no. 7338, consolidated text: https://www.mevzuat.gov.tr/mevzuatmetin/1.3.7338.pdf - Turkey, Civil Code no. 4721, consolidated text: https://www.mevzuat.gov.tr/mevzuatmetin/1.5.4721.pdf - Turkey, Capital Markets Law no. 6362, consolidated text: https://www.mevzuat.gov.tr/mevzuatmetin/1.5.6362.pdf - Turkey, Law no. 3201 on counting insurance years abroad, consolidated text: https://www.mevzuat.gov.tr/mevzuatmetin/1.5.3201.pdf - Revenue Administration (GİB), 2026 guide to investment income: https://intvrg.gib.gov.tr/hazirbeyan/assets/pdf/DUYURU_UNIVERSAL_2026_2026_menkulsermayeiradi.pdf - Revenue Administration (GİB), 2026 guide to rental income for non-residents: https://cdn.gib.gov.tr/api/gibportal-file/file/getFileResources?objectKey=arsiv%2Ffileadmin%2Fbeyannamerehberi%2F2026%2F2026_darmukellefkirageliri.pdf - Turkish Central Bank (TCMB), consumer price statistics: https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Istatistikler/Enflasyon+Verileri/Tuketici+Fiyatlari - 26 C.F.R. § 1.985-1, Functional currency: https://www.law.cornell.edu/cfr/text/26/1.985-1 - 26 C.F.R. § 1.988-1, Certain definitions and special rules: https://www.law.cornell.edu/cfr/text/26/1.988-1 - 26 C.F.R. § 1.988-2, Recognition and computation of exchange gain or loss: https://www.law.cornell.edu/cfr/text/26/1.988-2 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 26 C.F.R. § 301.7701-4, Trusts: https://www.law.cornell.edu/cfr/text/26/301.7701-4 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - IRS, Form 6166, Certification of U.S. Tax Residency: https://www.irs.gov/individuals/international-taxpayers/form-6166-certification-of-us-tax-residency - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - Social Security Administration, POMS GN 01701.005, International Social Security (Totalization) Agreements: https://secure.ssa.gov/poms.nsf/lnx/0201701005 - IRS, Publication 901 (Rev. September 2024), U.S. Tax Treaties: https://www.irs.gov/publications/p901 --- URL: https://valim.tax/visa-holders/from-pakistan Title: Moving to the US from Pakistan: taxes on RDAs, NPCs and property Updated: 2026-10-06 # Pakistan takes 10% of Naya Pakistan Certificate profit as a final tax. For anyone moving to the US from Pakistan, taxes in the US start on the whole profit from the first day of US residency. Naya Pakistan Certificates are sold only through a Roshan Digital Account (RDA), a bank account in Pakistan for Pakistanis abroad. Pakistan exempts a non-resident’s profit on a foreign-currency RDA, and on a rupee RDA funded only by money sent from abroad. The US taxes profit on the account and on conventional certificates as interest, generally in the year it is credited. No IRS guidance covers Islamic certificates. Pakistan’s rules for tax year 2027: - 10%: comes off conventional and Islamic certificate profit before it reaches your RDA, and can be credited against US tax, within limits. - 2.75%: of the price is collected as advance tax when a NICOP or POC holder sells property in Pakistan. - Over 182 days: in another country, as a resident taxpayer abroad, can end a citizen’s Pakistani residence for the tax year. Tax year 2027 runs from July 1, 2026 to June 30, 2027. A seller with only a CNIC who is off the Active Taxpayers’ List may pay 11.5% instead of 2.75%. ## Your travel dates and your passport decide how long Pakistan counts you as resident. Pakistan settles residence for a whole tax year at once, so the month you leave can decide a full year. ### 1. You leave Pakistan in January or later If you were in Pakistan from July 1, leaving on or after January 1 keeps you resident for that whole tax year. July 1 to December 31 is 184 days, past the 183 that make you resident. ### 2. You are a Pakistani citizen Leaving Pakistan does not by itself end a citizen’s residence there. A full Pakistani tax year in the US as a resident alien ends it. On the law’s words, an F-1 student who is still a US nonresident alien may stay a Pakistani resident. A Pakistani government employee posted abroad stays resident regardless. ### 3. You earn US pay while still resident Pakistan exempts your US salary in a year you are still resident there, if US tax was paid on it. Tax your employer withheld counts as paid. Other foreign income gets a Pakistani credit for the US tax on it, up to Pakistan’s own tax on that income. A resident with $10,000 or more of foreign income, or $100,000 or more of foreign assets, also files a statement listing them. ### 4. You leave with no plan to return Pakistan’s Income Tax Ordinance requires anyone leaving for good to notify the tax Commissioner at least 15 days before departure. The notice comes with a return for the period since your last one, treated as a separate tax year. ### 5. You work during visits to Pakistan Once only the US counts you as resident, Article XI(1) of the treaty spares pay for work on visits to Pakistan from Pakistani tax. Your visits must total 183 days or fewer in a tax year. The work must also be for a US resident, and the US must tax the pay. As a non-resident, you owe Pakistani tax only on income from Pakistan. That includes rent, gains on property and shares there, and dividends from Pakistani companies. A green card or enough days in the US make you a US resident. From then on, the US taxes all your income from Pakistan, even what Pakistan exempts. ## A Rs 30 million house sale in Pakistan starts with Rs 825,000 of advance tax, whatever the gain. Pakistan taxes an overseas Pakistani’s property sale at two points: when the sale is registered, and on the gain itself. As a US resident, you also report the whole gain on your US return, worked out in dollars. The US home-sale exclusion may cover a main home you owned and lived in for 2 of the 5 years before the sale. It can shield $250,000 of gain ($500,000 married filing jointly). In late 2026 you sell a house in Pakistan for Rs 30 million, Rs 10 million more than you paid. - Advance tax at registration: Rs 825,000. The registrar collects it at the 2.75% rate when the transfer is registered. It counts toward your final Pakistani tax on the sale. - Tax on the gain, house bought in 2025: Rs 1,500,000. Property bought from July 1, 2024 pays 15% on the gain, however long you held it. The US credits the full Rs 1.5 million, within the Form 1116 limit. You pay the Rs 675,000 balance with your Pakistani return in 2027. On the cash method, that part of the credit falls on your 2027 US return. - Tax on the gain, house bought in 2021: Rs 0. A house bought by June 30, 2024 and held over 4 years carries no Pakistani gains tax. The Rs 825,000 comes back only through a Pakistani return. As tax due back to you, none of it earns a US credit (Treas. Reg. 1.901-2(e)(2)(i)). The figures use the rates for transfers from July 1, 2026. The advance tax rate is in Division X of Part IV of the First Schedule to the Ordinance. The gains rates are in Division VIII of Part I. The example assumes you hold a NICOP, are on the Active Taxpayers’ List when you sell, and did not buy through an RDA. If you did buy through an RDA, the 2.75% is your final Pakistani tax on the sale. Older property pays a rate that falls with the holding period: a flat reaches 0% after 2 years, and a plot after 6. A sale completed before your US residency starting date is outside US tax. ## The US-Pakistan tax treaty can spare a private pension from Pakistani tax, and puts no cap on Pakistan’s tax on your interest or gains. The 1957 treaty has no article on interest, capital gains or social security, so Pakistan’s own law sets those taxes. Each row is for a year in which only the US treats you as resident. | | Pakistan | US | | --- | --- | --- | | Profit on an ordinary rupee deposit or National Savings | 10% for a non-resident (Check what National Savings withheld) | Taxed | | Rent from property in Pakistan | Taxed | Taxed (A home first rented after 2017 is depreciated over 30 years) | | Dividends from a Pakistani company | Taxed (Pakistan-source income) | Taxed (Article VII(1)’s exemption leaves out US residents) | | A private pension or annuity from Pakistan | Not taxed (Article X(1), unless an approved or recognized superannuation fund pays it) | Taxed | Article XV(1) lets you credit Pakistan’s tax against the US tax on the same income, within the Form 1116 limit. ## Which loose ends in Pakistan cost new US residents money? ### Holding units in Pakistani mutual funds (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Pakistani mutual funds are set up as trusts under SECP rules. US rules generally treat them as corporations, and so usually as PFICs. Each fund generally needs its own Form 8621 every year. The treaty adds no exception to that form, since it has no pension-fund article and no tie-breaker. ### Listing only your bank accounts on the FBAR (https://valim.tax/expat-tax/fbar) Once your foreign accounts together pass $10,000, your FBAR must list more than your RDA. Pakistani fund accounts count, and so may certificates your bank holds for you and a National Savings account. Each owner of a joint account with a parent generally reports its full value. ### Counting on EOBI to follow you (https://valim.tax/glossary/fica) An EOBI old-age pension needs 15 years of contributions. It is suspended while you live outside Pakistan, unless EOBI’s regulations allow payment abroad. If it is paid, the US taxes it as an annuity. With no totalization agreement, US pay generally carries Social Security and Medicare tax, even from a Pakistani employer. ### Taking a parent’s house as a gift (https://valim.tax/glossary/step-up-in-basis) A lifetime gift of a house passes your parent’s built-up gain on to you. The house keeps the parent’s cost as its basis, for Pakistani and US tax alike. Inherit it instead, and its US basis becomes its value on the day your parent dies. ### Falling off Pakistan’s Active Taxpayers’ List Missing the due date for your Pakistani return, September 30 unless extended, keeps you off the list for that year. Pakistan’s Federal Board of Revenue issues no refunds while you are off it. Gains on property bought since July 2024 are then taxed at ordinary income tax rates, never below 15%. Since July 1, 2026, getting back on costs a Rs 25,000 surcharge, unless you undertake not to buy property for six months. ## We translate your income from Pakistan into dollars and file every US form it needs. Licensed Valim CPAs prepare and sign US returns for Pakistanis in the US, including RDA profit and rent or gains on property back home. - We prepare the dual-status return your first US year usually needs, then every federal and state return after it. Your Pakistani return stays with your accountant there. - We list your RDA and every other Pakistani account that counts on the FBAR. Form 8938 follows once your foreign assets pass its thresholds. - We prepare the yearly Form 8621 each Pakistani fund requires, and Form 5471 for a Pakistani company where one is due. The instant quote prices every account and fund, and each company you own more than 20% of. - We claim the Pakistani tax you finally owe on certificate profit, rent or a property gain as a credit on Form 1116. - Before you sell property in Pakistan, we work out the US tax for each closing date you weigh, including one before US residency starts. We also set the quarterly estimated payments your Pakistani rent and certificate profit call for. - When relatives in Pakistan give you more than $100,000 in a year, we file Form 3520 by your return’s due date. - Your fee includes our response if the IRS or a state writes about a return we prepared, for instance on RDA profit. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Does the US tax what Pakistanis keep back home? ### Does Pakistan have a tax treaty with the US? Yes, a 1957 one: the US-Pakistan tax treaty, unamended, has been in force since May 21, 1959. It has no tie-breaker for someone both countries count as resident, and no general saving clause. In place of a saving clause, its residence definitions do the work. A US resident alien is no longer a treaty resident of Pakistan, which ends its student and teacher relief. A green card also ends its US exemption for a Pakistani government pension. A private pension is free of Pakistani tax once only the US treats you as resident. The exception is a pension from a superannuation fund approved or recognized under Pakistani law. ### Is my Roshan Digital Account taxable in the US? Yes, from your US residency starting date, even where Pakistan exempts the profit. The US taxes RDA profit and conventional certificate profit as interest, and Pakistan’s 10% on certificates can be claimed as a foreign tax credit. Balances and certificates in rupees, or in any currency other than dollars, also create currency gains or losses. These are generally ordinary income or loss. Dollar holdings avoid them. The IRS has not said how it treats Islamic certificates, which pay a share of a pool’s actual results. ### Can my family in Pakistan send me money, and do I owe tax on it? Yes, they can, and a gift is not income for US tax. Form 3520 is due once gifts from one person, counted with gifts from people related to them, pass $100,000 in a year. Pakistan’s income tax leaves out a gift from a relative, a group that runs from grandparents and parents to cousins and in-laws. A gift from anyone else counts as income under Pakistani law. A relative with a foreign currency account fed from abroad can generally send money from it to any country, for any purpose. ### What is the Pakistan US tax treaty $5,000? The $5,000 is the student exemption in Article XIII of the US-Pakistan tax treaty. A Pakistani resident in the US only to study pays no US tax on up to $5,000 a year of pay for work. Money sent from abroad for support and study is exempt as well. The exemption has no time limit, but it ends once a green card or the day count makes you a resident alien. A trainee of a Pakistani employer can exclude up to $6,000 for one year, and a US government program participant up to $10,000. ## Sources - US-Pakistan income tax convention (1957): https://www.irs.gov/pub/irs-trty/us-pakistan-income-tax-treaty.pdf - IRS, Publication 901 (Rev. September 2024), U.S. Tax Treaties: https://www.irs.gov/publications/p901 - IRS Chief Counsel, AM 2012-002, Application of income tax treaties to lawful permanent resident employees of foreign governments: https://www.irs.gov/pub/irs-counsel/am2012002.pdf - IRS, Tax Treaty Table 2, Compensation for personal services performed in the United States exempt from US income tax: https://www.irs.gov/pub/irs-lbi/tax-treaty-table-2.pdf - Pakistan, Income Tax Ordinance, 2001, amended up to June 30, 2026 (FBR, archived copy): https://web.archive.org/web/20260921235845id_/https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf - Pakistan, Finance Act, 2026 (FBR, archived copy): https://web.archive.org/web/20260827220621id_/https://download1.fbr.gov.pk/Docs/20266291261044366FinanceAct2026.pdf - State Bank of Pakistan, Roshan Digital Accounts (archived copy): https://web.archive.org/web/20260914232955id_/https://www.sbp.org.pk/our-operations/roshan-digital-accounts - State Bank of Pakistan, Naya Pakistan Certificates FAQs (archived copy): https://web.archive.org/web/20260218032630id_/https://www.sbp.org.pk/NPC-/FAQs.html - State Bank of Pakistan, Foreign Exchange Manual, chapter 6 (archived copy): https://web.archive.org/web/20240625033352id_/https://www.sbp.org.pk/fe_manual/chapters/chapter6.htm - Central Directorate of National Savings, FAQs (archived copy): https://web.archive.org/web/20260911121448id_/https://savings.gov.pk/faqs/ - SECP, Non-Banking Finance Companies and Notified Entities Regulations, 2008, updated to May 17, 2023 (archived copy): https://web.archive.org/web/20260513103038id_/https://www.secp.gov.pk/wp-content/uploads/2023/08/Non-Banking-Finance-Companies-and-Notified-Entities-Regulations-2008-Updated-till-May-17-2023.pdf - Pakistan, Employees’ Old-Age Benefits Act of 1976 (archived copy): https://web.archive.org/web/20240714184839id_/https://ophrd.gov.pk/SiteImage/Misc/files/EOB%20ACT%201976.pdf - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 514, Foreign Tax Credit for Individuals: https://www.irs.gov/publications/p514 - IRS, Publication 527, Residential Rental Property: https://www.irs.gov/publications/p527 - IRS, Publication 550 (2025), Investment Income and Expenses: https://www.irs.gov/publications/p550 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 U.S.C. § 988, Treatment of certain foreign currency transactions: https://www.law.cornell.edu/uscode/text/26/988 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 168, Accelerated cost recovery system (bonus depreciation): https://www.law.cornell.edu/uscode/text/26/168 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 1014, Basis of property acquired from a decedent: https://www.law.cornell.edu/uscode/text/26/1014 - 26 U.S.C. § 1015, Basis of property acquired by gifts and transfers in trust: https://www.law.cornell.edu/uscode/text/26/1015 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 C.F.R. § 1010.306, Filing of reports: https://www.law.cornell.edu/cfr/text/31/1010.306 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html --- URL: https://valim.tax/visa-holders/from-nigeria Title: Moving to the US from Nigeria: taxes on RSAs, funds and property Updated: 2026-10-06 # One of six tests is enough to keep you a Nigerian tax resident, even after moving to the US from Nigeria. Taxes from both countries can then fall on the same income, and no treaty decides between them. The Nigeria Tax Act, 2025 took effect on January 1, 2026, and taxes an individual’s capital gains as income. Its reach depends on residence: worldwide income for a resident, but only Nigerian income, such as rent or interest, for a non-resident. If Nigeria still counts you as resident, it may tax your US pay with no credit for the US tax. Its credit covers only foreign income, and the Act may treat a resident’s pay as Nigerian. The US credits Nigeria’s tax on your Nigerian rent, interest and gains, within its limit. Your money in Nigeria, 2026: - 25%: is the top rate on Nigeria’s 2026 scale, charged on taxable income above ₦50 million. - Age 50: is the earliest most holders of a retirement savings account (RSA) can draw their existing balance, and only once retired. Moving abroad does not bring it forward. - $10,000: is the FBAR line, or ₦14.5 million across all your foreign accounts at Treasury’s rate for December 31, 2025. The Personal Income Tax Act and the Capital Gains Tax Act gave way to the 2026 law. The FBAR for 2026 will use Treasury’s rate for December 31, 2026. ## Does leaving Nigeria end your Nigerian tax residence? Nigeria’s year of assessment is the calendar year. The Act sets no date within a year when residence ends, so the year you leave may count in full. ### 1. You keep a home in Nigeria Two tests turn on a home: a permanent place kept available for your domestic use, and a place of habitual abode. As written, the first needs only that the place be available to you, not that you live in it. ### 2. Your family and finances stay in Nigeria Substantial economic and immediate family ties to Nigeria make you resident too. The Act does not say how strong those ties must be, or how the test applies once you live abroad. ### 3. You are domiciled in Nigeria Nigerian domicile is a test of its own, yet the Act never defines it. Whether it reaches a Nigerian on a US visa or green card is a question for your adviser in Nigeria. ### 4. You spend 183 days in Nigeria Days in Nigeria that add up to 183 or more in a 12-month period make you resident. Annual leave and temporary absences count toward that total. Under the sixth test, a diplomat or diplomatic agent serving Nigeria abroad stays resident. A move made in 2025 is generally taxed in Nigeria for that year under the Personal Income Tax Act, since repealed. The US taxes Nigerian income only from your residency starting date, set by a green card, the substantial presence test or the first-year choice. A sale before that date stays outside US tax, unless a joint-return election makes you resident all year. ## A Lagos home that gains ₦76 million in naira can show a loss in dollars for US tax. Nigeria taxes a non-resident’s gain on property in Nigeria. The US measures the same sale in dollars, converting what you paid and what you got at the rate on each date. You lived in a Lagos flat bought for ₦44 million at the end of 2022, and sell it for ₦120 million in September 2026. - Your gain in naira: ₦76 million. Nigeria counts the whole gain as your income for 2026, because the flat is in Nigeria. - Nigeria’s tax on that gain: ₦16.93 million. This assumes no other Nigerian income or reliefs. - Your gain for US tax: $0. In dollars, the flat cost $100,000 and sold for $90,445, a $9,555 loss. A loss on a home you lived in is not deductible. Nigeria’s tax on the sale can then cut US tax only on other foreign income, within the credit limit. Nigeria’s 2026 scale charges 0% on the first ₦800,000 of taxable income. The next four bands, of ₦2.2 million, ₦9 million, ₦13 million and ₦25 million, pay 15%, 18%, 21% and 23%. Above ₦50 million, the rate is 25%. On ₦76 million, that comes to ₦330,000, ₦1,620,000, ₦2,730,000, ₦5,750,000 and ₦6,500,000, or ₦16,930,000 in all. The Act sets no separate rate for a non-resident’s gain, so the example assumes this scale. The example also assumes you already used Nigeria’s once-in-a-lifetime exemption for a dwelling-house, which would otherwise remove this tax. The dollar figures use Treasury reporting rates of 440 naira for December 31, 2022 and 1,326.78 for September 30, 2026. ## No US-Nigeria tax treaty is in force, so Nigeria’s own law decides its tax on what you keep there. These rows apply once Nigeria treats you as a non-resident and the US treats you as a resident. Nigeria’s withholding rates come from its 2024 regulations, which the new Act keeps in force unless they conflict with it. | | Nigeria | US | | --- | --- | --- | | Interest on a naira or domiciliary (foreign currency) account | 10% withheld (The final tax for a non-resident, at the 2024 rate) | Taxed | | Interest on Federal or State Government bonds | Exempt | Taxed (A bond you hold directly is not a PFIC (passive foreign investment company)) | | Rent from property in Nigeria | Taxed (10% withheld is final if a company or public body pays the rent. Otherwise you file a Nigerian return.) | Taxed (Generally depreciated over 30 years) | | Dividends from a Nigerian mutual fund | Exempt | PFIC rules (Not qualified dividends) | | Gain on shares in a Nigerian company | Often exempt (Exempt when proceeds stay under ₦150 million and the gain is ₦10 million or less in 12 months.) | Taxed | ## Nigerian savings that look settled can still bring a US tax bill or a penalty. ### Keeping units in Nigerian mutual funds (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Nigeria treats most collective investment schemes as pass-through, looking past the fund to its investors. US rules generally treat a Nigerian unit trust or fund company as a foreign corporation, and usually as a PFIC. Each such fund generally needs its own Form 8621 every year. Unless you make an election, a gain on sale is ordinary income. The share spread over your earlier US-resident years is taxed at the top rate, plus interest. ### Waiting for your bank to report you (https://valim.tax/expat-tax/fbar) Nigeria has no FATCA agreement with the US, but your filing duty never depended on your bank. Once your foreign accounts pass the thresholds, you file the FBAR and Form 8938 yourself. Domiciliary, naira, fixed-deposit and fund accounts count, as do the non-resident accounts the Central Bank of Nigeria launched in January 2025. An RSA likely counts as a foreign pension plan for Form 8938, and listing it on the FBAR is the cautious course. ### Converting naira without tracking the rate Converting or spending naira from an interest-bearing deposit generally creates an ordinary currency gain or loss under IRC 988. On Treasury’s rates, ₦1 million was worth $2,273 at the end of 2022 and $649 two years later. Dollar balances in a domiciliary account have no such gain or loss. ### Expecting a Nigerian payroll to cover Social Security (https://valim.tax/glossary/fica) US Social Security and Medicare generally apply to work you do in the US, even if a Nigerian employer keeps paying you. No US-Nigeria agreement offers a certificate of coverage to exempt you. Nigeria stops requiring RSA contributions once you work abroad. Under 2025 guidelines from the National Pension Commission (PenCom), you can keep paying in dollars. ## We work out where your RSA and naira savings belong on your US returns. At Valim, our licensed CPAs prepare and sign your US returns, including for any year Nigeria still counts you as resident. - We prepare every federal and state return from your first US year, which is often dual-status. Your accountant in Nigeria files any Nigerian return, and we share figures with them. - Once your foreign accounts together pass $10,000, we list each Nigerian account on your FBAR. We add them to Form 8938 when your foreign assets cross its higher thresholds. Each Nigerian fund gets the Form 8621 it generally needs, and a Nigerian company gets Form 5471 where one is due. The instant quote charges per account, per fund and per such company. - We decide how your RSA is reported and taxed, and record why, since the IRS has issued nothing on RSAs. If you still hold Nigerian funds or property, we work out the US tax on selling before your residency starting date and after it. - We claim your foreign tax credit on Form 1116, and carry any credit the limit blocks to other years. If your US withholding does not cover the tax on Nigerian rent and interest, we set quarterly estimated payments for the gap. - We prepare Form 3520 for any year in which one nonresident alien giver and their relatives give you more than $100,000. - Our reply to any IRS or state notice on a return we prepared adds nothing to your fee, even one questioning a naira loss. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How do Nigeria and the US each tax you after the move? ### How will Nigerians be taxed? From your US residency starting date, the US taxes your income from everywhere, Nigerian interest, rent and gains included. Before that date, Nigerian income is outside US tax, unless an election makes you resident for the whole year. Nigeria’s 2026 law taxes its residents on worldwide income at 0% to 25%, and non-residents only on Nigerian income. With no treaty, both countries can tax the same income, and neither credits the other’s tax on income it treats as its own. ### Does Nigeria have a tax treaty with the US? No, there is no US-Nigeria tax treaty in force. The IRS list of US income tax treaties, reviewed January 3, 2026, has no Nigeria entry. The State Department’s Treaties in Force 2025 lists no tax agreement with Nigeria either. So Nigeria’s withholding has no treaty cap, and no tie-breaker settles your residence if both countries claim you. Double tax is eased only by credits: the US foreign tax credit on Nigerian income, and Nigeria’s credit on foreign income. ### What happens to my Nigerian pension (RSA) when I move to the US? Your retirement savings account (RSA) stays with your Pension Fund Administrator, and moving abroad does not let you cash it out. The Pension Reform Act bars withdrawals before age 50. The exceptions are medical or disability grounds, early retirement under your employment terms, and a 25% withdrawal after a job ends. That 25% needs four months without new work, which a US job likely rules out. Nigeria exempts the account’s income and benefits, except income on voluntary contributions withdrawn within five years. The US may still tax payouts in full. Under IRC 72(w), contributions and growth from before your US residency that were never taxed anywhere give you no US basis. The IRS has said nothing about RSAs, so how the US treats their yearly growth is unsettled. ### Do I pay US tax on money my family sends from Nigeria? No, the US does not tax gifts as income, even large ones from abroad. If one nonresident alien giver and their relatives give you more than $100,000 in a year, you report the gifts on Form 3520. Filing it late can cost 5% of the gifts for each month, up to 25%, unless you show reasonable cause. The Nigeria Tax Act has no gift tax and does not list gifts received as income. Moving your own savings to the US is neither a gift nor income. ## Sources - Nigeria Tax Act, 2025 (Official Gazette No. 117, Vol. 112), gazette copy hosted by the Lagos State Internal Revenue Service: https://lirs.gov.ng/assets/docs/Gazette%20-%20NIGERIA%20TAX%20ACT,%202025.pdf - Nigeria Tax Administration Act, 2025, National Assembly copy: https://nass.gov.ng/documents/download/11250 - Pension Reform Act, 2014 (National Pension Commission): https://www.pencom.gov.ng/wp-content/uploads/2018/01/PRA_2014.pdf - National Pension Commission, Frequently Asked Questions (2020): https://www.pencom.gov.ng/wp-content/uploads/2020/06/FREQUENTLY-ASK-QUESTION-2020-ENGLISH-MAIN-VISUAL.pdf - National Pension Commission, Guidelines on Foreign Currency Pension Contributions (September 2025): https://www.pencom.gov.ng/wp-content/uploads/2025/09/Guidelines-on-Foreign-Currency-Pension-ContributionsSeptember-2025.pdf - Investments and Securities Act, 2025 (Securities and Exchange Commission, Nigeria): https://home.sec.gov.ng/documents/1319/Investments_and_Securities_Act_2025_x9rSXtI.pdf - Deduction of Tax at Source (Withholding) Regulations, 2024 (archived copy): https://web.archive.org/web/20260108134828id_/https://fiscalreforms.ng/wp-content/uploads/2024/10/Deduction-of-Tax-at-Source-Withholding-Regulations-2024_Gazetted.pdf - Central Bank of Nigeria, Reforms (non-resident Nigerian accounts): https://www.cbn.gov.ng/AboutCBN/Reforms.html - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - US Treasury, Foreign Account Tax Compliance Act: https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act - US Treasury, Fiscal Data, Treasury Reporting Rates of Exchange: https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 1, Tax imposed (qualified dividends, section 1(h)(11)): https://www.law.cornell.edu/uscode/text/26/1 - 26 U.S.C. § 72, Annuities; certain proceeds of endowment and life insurance contracts: https://www.law.cornell.edu/uscode/text/26/72 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 165, Losses: https://www.law.cornell.edu/uscode/text/26/165 - 26 U.S.C. § 168, Accelerated cost recovery system (alternative depreciation system, section 168(g)): https://www.law.cornell.edu/uscode/text/26/168 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 988, Treatment of certain foreign currency transactions: https://www.law.cornell.edu/uscode/text/26/988 - 26 C.F.R. § 1.988-2, Recognition and computation of exchange gain or loss: https://www.law.cornell.edu/cfr/text/26/1.988-2 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 26 C.F.R. § 301.7701-4, Trusts: https://www.law.cornell.edu/cfr/text/26/301.7701-4 - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - 26 U.S.C. § 3121, Definitions (employment, section 3121(b)): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 6013, Joint returns of income tax by husband and wife (sections 6013(g) and (h)): https://www.law.cornell.edu/uscode/text/26/6013 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 --- URL: https://valim.tax/visa-holders/from-nepal Title: Moving to the US from Nepal: taxes on EPF, CIT, deposits and land Updated: 2026-10-06 # Quitting your job releases your whole EPF balance, so you can take it before moving to the US from Nepal. Taxes on a payout made before your US residency starts generally stop at Nepal’s final 5% on part of it. Nepal’s Employees Provident Fund adds interest and pays the whole balance in one lump sum, whatever your reason for leaving the job. The Citizen Investment Trust’s retirement scheme pays out in full once a resignation is accepted. Nepal subtracts half the payout or Rs 5 lakh, whichever is higher, and withholds 5% of the rest as a final tax. Paid after your US residency starting date, the same payout may be taxable in the US almost in full. Nepal’s rules for income year 2083/84: - 183 days: in Nepal within any 365-day period make you a Nepali tax resident for the income year. - 6%: of the interest on a Nepali savings or fixed deposit is withheld from individuals as a final tax. - 7.5%: of the gain on land or a house you owned 5 years or more is Nepal’s final tax when you sell. Under 5 years, it is 10%. Income year 2083/84 runs from mid-July 2026 to mid-July 2027. A bank may withhold more from interest once it treats you as non-resident. Nepal exempts some property sales, such as a home you owned and lived in for 10 years, or one sold under Rs 10 lakh. ## Will Nepal still count you as resident in the income year you leave? Nepal decides residence one income year at a time, from Shrawan 1 to the last day of Ashadh. Meeting any one of the first three tests makes you resident for that whole year. ### 1. Your normal abode is still in Nepal A normal abode (your usual home) in Nepal makes you resident, but the Income Tax Act never says what counts as one. Ask your adviser in Nepal whether a home or family you leave behind keeps you resident. ### 2. You were in Nepal 183 days out of 365 The 183-day test looks at any 365 days in a row, since the Act does not tie that window to the income year. A move early in an income year may therefore still leave you resident for it. ### 3. The Government of Nepal posted you abroad Anyone the Government of Nepal posts to a foreign country at any time in the income year is resident for that year. ### 4. You hold shares when your residence ends Nepal’s Income Tax Act taxes the gain on your shares and other securities as you leave. It treats them as sold at market value just before you become non-resident. Land and buildings in Nepal are left out, and so is your interest in a retirement fund. The US still uses what you first paid as your basis when you later sell. ### 5. You leave Nepal for an indefinite period If you leave for an indefinite period, the Inland Revenue Department can require an early return by written notice. That return may cover the whole income year or part of it. It can fall due before the usual date, which is three months after the year ends. Once you are non-resident, Nepal taxes only income with its source in Nepal. While you stay resident, it can also tax your US pay, with a credit for the US tax up to Nepal’s average rate. ## Nepal’s tax on a Rs 20 lakh EPF payout is Rs 50,000, and the US tax turns on when you take it. Nepal lets you deduct what you pay into the EPF, within limits, and does not tax the fund’s income. Because no country taxed that money, IRC 72(w) leaves you little or no US basis, the untaxed part of a later payout. If you leave an EPF balance unclaimed for 6 years after it becomes payable, it moves to an account that earns no interest. You resign from a job in Nepal with Rs 20 lakh in your EPF account and claim the whole balance. - Part of the payout Nepal taxes: Rs 10 lakh. Nepal first subtracts half the payout, because half is more than Rs 5 lakh. - Nepal’s final tax on that part: Rs 50,000. The fund takes this before paying you, and it settles Nepal’s tax on the payout. - Added to US income if paid after your residency starting date: Rs 20 lakh. At most the whole payout, about $13,205 in this example. Nepal’s Rs 50,000 may then count toward a US foreign tax credit. - Added to US income if paid before your starting date: Rs 0. A payout while you are still a nonresident alien is generally foreign income outside US tax. Section 65 of Nepal’s Income Tax Act taxes a lump sum from an approved retirement fund as a gain, after the first row’s subtraction. Here the gain is Rs 10 lakh, and 5% of Rs 10 lakh is Rs 50,000. CIT’s retirement scheme follows the same rule. The dollar figure is an illustration at Treasury’s reporting rate of 151.46 rupees per dollar for June 30, 2026. ## Because there is no US-Nepal tax treaty, Nepal and the US each tax your Nepali income by their own rules. Nepal’s rules here are for years it treats you as non-resident, and the US rules apply from your residency starting date. | | Nepal | US | | --- | --- | --- | | Interest on a savings or fixed deposit | Final tax withheld (At the rate set for individuals) | Taxed (With a credit for the Nepali tax you owe) | | Payouts from a Nepali mutual fund | 5% withheld (A final tax) | PFIC rules (Ordinary income rates) | | Gain on land or a house in Nepal | Final tax at registration (The rate depends on how long you owned it, and some sales are exempt) | Taxed in dollars (A main home may qualify for the US exclusion) | | Rent from a house you let | No income tax (The municipality charges its own rent tax) | Taxed (Generally depreciated over 30 years) | | Gifts and inheritances from family | Exempt (Unless tied to a business, a job or an investment) | Not income (Large gifts go on Form 3520) | The US credits the Nepali tax you finally owe on income from Nepal, within the Form 1116 limit. Tax that Nepal would refund to you is not a tax paid, so it earns no credit. ## Which parts of a move from Nepal trip people up later? ### Holding Nepali mutual funds or CIT units (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Under US rules, a Nepali mutual fund or CIT unit scheme is usually a PFIC (passive foreign investment company). A fund like that generally needs its own Form 8621 every year. If you sell without a PFIC election, the gain from your earlier US-resident years is taxed at the top US rate, plus interest. ### Omitting your EPF and CIT from your US forms (https://valim.tax/expat-tax/fbar) Report your EPF and CIT accounts on Form 8938 once your foreign assets pass its thresholds. The form generally treats each as a foreign pension plan, valued at your share at year end. No FBAR exemption covers them, so list both accounts there as well. The IRS has not said how it classifies the EPF, CIT or SSF. That leaves open whether the US taxes their yearly growth, or expects Form 3520 for them. ### Counting on an SSF refund as you leave A Nepali citizen who moves abroad generally cannot take Social Security Fund pension savings early, unless they give up Nepali citizenship for another. The Fund’s retirement-benefit savings, by contrast, are paid in a lump sum when your job ends. ### Staying on an F-1 into a sixth calendar year (https://valim.tax/visa-holders/resident-or-nonresident-alien) F-1 days generally stop being exempt after five calendar years, and OPT years and part years both count toward the five. In year six you are usually a resident alien from your first day here that year, so Nepali interest and withdrawals become US-taxable. Social Security and Medicare are then generally withheld from your pay, though on-campus work for your own school can stay exempt. ### Converting rupees at the wrong rate (https://valim.tax/glossary/maximum-account-value) The IRS has no yearly average rate for the Nepali rupee. Income is generally converted at the rate on the day you receive it. The FBAR and Form 8938 generally use Treasury’s rate for the last day of the year. At Treasury’s December 31, 2025 rate of 143.79, the FBAR’s $10,000 threshold was Rs 1,437,900. A 2025 FBAR was due once your accounts’ highest balances together passed it. ## We show when to take your EPF payout, and file the US forms your Nepali savings need. When you move from Nepal, we prepare the US return that reports your EPF, CIT, rupee deposits and funds. A licensed US CPA signs every return we file. - Your first US return is usually dual-status (nonresident for part of the year, resident for the rest). We prepare it and each federal and state return after it. Your Nepali accountant files with Nepal’s Inland Revenue Department, and we work from the same figures. - We weigh the US tax on an EPF or CIT payout before your residency starting date against the tax on one after. We do the same for selling Nepali funds or land. - We prepare an FBAR that lists every Nepali bank, fund, EPF and CIT account, plus Form 8938 when your foreign assets exceed its thresholds. We also prepare each Nepali fund’s yearly Form 8621, and Form 5471 for a Nepali company where one is due. The instant quote prices each account, each fund and each company you own over 20% of. - We use Form 1116 so the Nepali tax on your interest, EPF payout or land sale cuts your US tax, within its limit. We also work out quarterly estimated payments, since no one withholds US tax from income paid in Nepal. - We report gifts from family in Nepal on Form 3520 once one giver, counted with their relatives, passes $100,000 in a year. - We answer IRS or state notices about returns we prepared, such as a letter on your EPF payout, within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What happens to your rupees once the US counts you as resident? ### Does Nepal have a tax treaty with the USA? No. The IRS treaty list, last reviewed January 3, 2026, has no Nepal entry. Relief from double tax therefore comes from credits: the US foreign tax credit and Nepal’s own adjustment for foreign tax. No treaty rate caps what Nepal withholds from your interest, payouts and gains. If both countries count you as resident in the same year, both can tax your worldwide income. The two countries have no Social Security agreement either. ### How much dollar can I carry from Nepal to the USA? The US sets no limit on how much money you can carry in from Nepal. Cash and monetary instruments over $10,000 must be reported when you enter, on FinCEN Form 105. That $10,000 is the total you and your family carry together. Money moved by bank transfer is not covered by this rule. Nepal Rastra Bank’s published notice names no limit for dollars leaving Nepal, so ask your bank before you travel. ### Is my Nepal bank interest taxable in the US? Yes, interest from a Nepali bank account is taxable in the US from your US residency starting date, whatever Nepal withholds. Nepal’s law sets a final 6% on deposit interest paid to individuals, and the US credits the Nepali tax you actually owe. A multi-year fixed deposit that pays at maturity may be taxed in the US each year as the interest builds up. Interest credited before your starting date, including in an F-1 student’s exempt years, stays outside US tax. When you later turn a deposit’s rupees into dollars, any exchange gain or loss can count as ordinary income or loss under IRC 988. ### What happens to my EPF and CIT savings in Nepal when I move to the US? You can usually withdraw your EPF and CIT savings once you leave your job, but moving abroad while still employed does not release them. Nepal withholds a final 5% on the part above half the payout or Rs 5 lakh, whichever is higher. Taken before your US residency starting date, the money is generally outside US tax; taken after, the US may tax nearly all of it. As a US resident, you generally report the accounts on Form 8938 above its thresholds and also on the FBAR. Social Security Fund money is different: a Nepali citizen can generally take its pension part early only after giving up Nepali citizenship for another. ## Sources - Income Tax Act 2058 (2002), consolidated with the Finance Act 2082 amendments (Inland Revenue Department, Nepali text): https://giwmscdnone.gov.np/media/pdf_upload/%E0%A4%86%E0%A4%AF%E0%A4%95%E0%A4%B0%20%E0%A4%90%E0%A4%A8%2C%20%E0%A5%A8%E0%A5%A6%E0%A5%AB%E0%A5%AE%20(%E0%A4%86%E0%A4%B0%E0%A5%8D%E0%A4%A5%E0%A4%BF%E0%A4%95%20%E0%A4%90%E0%A4%A8%2C%E0%A5%A8%E0%A5%A6%E0%A5%AE%E0%A5%A8%20%E0%A4%B2%E0%A5%87%20%E0%A4%97%E0%A4%B0%E0%A5%87%E0%A4%95%E0%A5%8B%20%E0%A4%B8%E0%A4%82%E0%A4%B6%E0%A5%8B%E0%A4%A7%E0%A4%A8%20%E0%A4%B8%E0%A4%B9%E0%A4%BF%E0%A4%A4)_7h85rod.pdf - Income Tax Act 2002 (2058), English translation amended to 2021 (Inland Revenue Department): https://giwmscdnone.gov.np/media/pdf_upload/The%20Income%20Tax%20Act%2C%202002%20(2058)_xnyznu8.pdf - Inland Revenue Department, booklet on the Finance Act 2083 (Nepali): https://giwmscdnone.gov.np/media/pdf_upload/%E0%A4%9C%E0%A4%BE%E0%A4%A8%E0%A4%95%E0%A4%BE%E0%A4%B0%E0%A5%80%E0%A4%AE%E0%A5%81%E0%A4%B2%E0%A4%95%20%E0%A4%AA%E0%A5%81%E0%A4%B8%E0%A5%8D%E0%A4%A4%E0%A4%BF%E0%A4%95%E0%A4%BE_fajpdfq.pdf - Inland Revenue Department, treaties and agreements: https://ird.gov.np/category/treatyandagreement/ - Employees Provident Fund Act 2019 (1962), as amended to 2082 (Employees Provident Fund): https://epf.org.np/wp-content/uploads/2025/07/01_%E0%A4%95%E0%A4%B0%E0%A5%8D%E0%A4%AE%E0%A4%9A%E0%A4%BE%E0%A4%B0%E0%A5%80-%E0%A4%B8%E0%A4%9E%E0%A5%8D%E0%A4%9A%E0%A4%AF-%E0%A4%95%E0%A5%8B%E0%A4%B7-%E0%A4%90%E0%A4%A8-%E0%A5%A8%E0%A5%A6%E0%A5%A7%E0%A5%AF.pdf - Citizen Investment Trust, Employees Saving Growth Retirement Scheme procedure, 2080 (second amendment, 2082): https://www.nlk.org.np/media/KBB_Final_2080_final_2nd_ammendment_2082_05_12_1_N8jPI5DcYd.pdf - Citizen Investment Trust, frequently asked questions: https://www.nlk.org.np/faq - Citizen Investment Trust, Citizen Unit Scheme: https://www.nlk.org.np/program/citizen-unit-scheme - Social Security Fund, Social Security Scheme Operation Procedure, 2075 (fifth amendment): https://ssf.gov.np/images/news/17406520344566_Social%20Security%20Operation%20Procedure%202075%20with%205th%20ammendment.pdf - Local Government Operation Act 2074 (Nepal), section 57 (rent tax): https://giwmscdnone.gov.np/media/app/public/299/posts/1710929876_11.pdf - Nepal Rastra Bank, notice on carrying foreign currency (2083/04/07): https://www.nrb.org.np/contents/uploads/2026/07/208384-notice-1.pdf - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 550 (2025), Investment Income and Expenses: https://www.irs.gov/publications/p550 - 26 U.S.C. § 72, Annuities; certain proceeds of endowment and life insurance contracts: https://www.law.cornell.edu/uscode/text/26/72 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 168, Accelerated cost recovery system (alternative depreciation for property used abroad): https://www.law.cornell.edu/uscode/text/26/168 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 U.S.C. § 988, Treatment of certain foreign currency transactions: https://www.law.cornell.edu/uscode/text/26/988 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 C.F.R. § 301.7701-4, Trusts: https://www.law.cornell.edu/cfr/text/26/301.7701-4 - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 7701, Definitions (resident alien and nonresident alien): https://www.law.cornell.edu/uscode/text/26/7701 - 31 C.F.R. § 1010.340, Reports of transportation of currency or monetary instruments: https://www.ecfr.gov/current/title-31/section-1010.340 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - US Customs and Border Protection, Money and other monetary instruments: https://www.cbp.gov/travel/international-visitors/money-monetary-instruments - FinCEN, FBAR line item filing instructions: https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - IRS, Instructions for Form 8938 (Rev. November 2021): https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - IRS, Instructions for Form 1116: https://www.irs.gov/instructions/i1116 - US Treasury, Fiscal Data, Treasury Reporting Rates of Exchange: https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange - IRS, Yearly average currency exchange rates: https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates --- URL: https://valim.tax/visa-holders/from-colombia Title: Moving to the US from Colombia: taxes, cesantías, FICs and gifts Updated: 2026-10-06 # A spouse or dependent minor child who stays a Colombian tax resident can keep a national resident after moving to the US from Colombia. Taxes back home can then reach your US salary. Family ties can stop counting once half your income or half your assets for the year are in the US. Until then, Colombia can also tax your US pay. Only Colombia’s own credit eases that double tax, because the US credits foreign tax only on foreign income. What Colombia counts and charges in 2026: - Over 183 days: in Colombia in any run of 365 days make you resident, arrival and departure days included. - 35%: is Colombia’s flat tax on a non-resident’s ordinary income from Colombia. - 15%: is Colombia’s tax on a gift or inheritance, and the person who receives it pays. Part of each gift or inheritance is exempt, in amounts set in UVT, a tax unit DIAN updates each year. ## Which ties keep Colombia taxing your worldwide income after you leave? Any one test can make you a Colombian resident for the year. The last three apply only to Colombian nationals. A national can escape all three once half the year’s income comes from the new country, or half their assets sit there. ### 1. More than 183 days in Colombia Colombia counts your days in any 365-day window, and that window can run across two tax years. Colombian law does not split a year at your departure, so the year you leave can still count as resident. Your accountant in Colombia can check if yours does. ### 2. A spouse or minor child still tax resident in Colombia A national is resident for any year in which a spouse or permanent partner, not legally separated, is tax resident in Colombia. Dependent minor children who are tax resident there have the same effect. This test ignores how many days you spend in Colombia. ### 3. Half your income or assets in Colombia A national is also resident when half or more of the year’s income comes from Colombian sources. The same applies when half or more of their assets are held or managed in Colombia, valued for tax on December 31. ### 4. No proof for DIAN that you live abroad When DIAN asks, a national must prove residence abroad with a tax residence certificate, or an equivalent, from the new country. Form 6166, the IRS certificate of US residency, will not usually serve: the IRS issues it only for treaty benefits or a VAT exemption. Ask your accountant in Colombia what DIAN will take instead. ## On COP 400 million from a parent, Colombia’s occasional gains tax can charge you COP 48 million. Colombia taxes a gift as an occasional gain. Once you live abroad, the tax still reaches gifts of assets located in Colombia, under DIAN’s reading of its source rules. In 2026, a parent moves COP 400 million from their Colombian account into yours, after you have moved to the US. - The gift: COP 400M. About $106,000 at Treasury’s exchange rate for December 31, 2025. - Exempt in Colombia: COP 80M. Colombia exempts 20% of a gift, up to 1,625 UVT, or COP 85.1 million in 2026. - Colombian tax, paid by you: COP 48M. The other COP 320 million is taxed at 15%. Most parents are not withholding agents who must take the tax out for you, so you likely file a Colombian return to pay it. - US income tax: $0. A gift is not income in the US. Form 3520 still reports it, since it tops $100,000. Peso figures use the 2026 UVT of COP 52,374. The gift’s dollar amount converts at Treasury’s rate of 3,773.62 pesos per dollar for December 31, 2025. At its September 30, 2026 rate of 3,325.0, the gift is about $120,300. DIAN has ruled on a gift of Colombian shares to a non-resident. The example assumes cash in a Colombian account is treated the same way. A gift paid from money your parent holds outside Colombia is not Colombian income, so Colombia does not tax it. Since the US does not tax the gift, the Colombian tax generally earns no US credit. ## Colombia charges non-residents flat rates on Colombian income, and no US-Colombia tax treaty lowers them. The rates below are for 2026. Once you are a US resident, the US taxes your Colombian income too. Its foreign tax credit on Form 1116 is the only relief, up to that form’s limit. Colombia lets only its residents credit foreign tax. | | Colombia | US | | --- | --- | --- | | Interest on a CDT or savings account | 20% withholding rate (Applied by withholding agents; can be your final Colombian tax) | Taxed each year (A CDT is a bank deposit, so generally not a PFIC) | | Dividends from a Colombian company | 20% (More if the company paid no tax on the profits) | Taxed | | Rent from an apartment in Colombia | 20% withholding rate (If the tenant withholds; otherwise 35% of net income on a return) | Taxed (Generally depreciated over 30 years) | | Gain on property held 2 years or more | 15% (1% of the price is generally withheld at the notary) | Taxed in dollars | | Gain on shares listed in Colombia | Not taxed (If you sell 3% or less of the company in a year) | Taxed | ## Which Colombian habits cost money once the US taxes you? ### Withdrawing cesantías after your residency starts Cesantías you take before your US residency starting date are generally outside US tax, unless a joint-return election makes you resident for the whole year. Once you are resident, Publication 519 says the US taxes foreign income you receive, even if you earned it earlier. No IRS ruling or publication says how that applies to cesantías. The fund must pay in full within 5 days of your request once your Colombian job ends. ### Relying on Colombia’s pass-through rule for FICs (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Colombia taxes a fondo de inversión colectiva (FIC) as if you held its assets. Under US rules, though, it is usually a PFIC (passive foreign investment company). Your FIC then generally needs its own Form 8621 every year. If you sell without having made a PFIC election, the whole gain is taxed as ordinary income. The part of the gain allocated to your earlier US-resident years is taxed at the top rate, plus interest. ### Expecting the US to index your property’s cost Colombia lets you raise a property’s cost by the rise in property values since the year you bought it. US tax law has no such adjustment and generally measures your gain in dollars from what you paid. So the US gain is usually larger than the Colombian one. ### Assuming the IRS cannot see your Colombian accounts (https://valim.tax/expat-tax/fbar) Under a FATCA agreement in force since 2015, Colombian banks report US persons’ accounts to DIAN for the IRS. An FBAR is due for any year in which your foreign accounts, added together, top $10,000 at some point. At Treasury’s December 31, 2025 rate, that line was about COP 37.7 million. ### Counting on Colombian weeks for US Social Security (https://valim.tax/glossary/fica) Weeks paid into Colombia’s pension system add nothing toward US Social Security benefits, and US credits add nothing in Colombia. Because the US and Colombia have no Social Security (totalization) agreement, your US work cannot stay in Colombia’s system through a certificate of coverage. Ley 100 still lets Colombians living abroad pay into Colombia’s system voluntarily. ## We match each Colombian account and fund to the US rules it follows. Valim, a CPA firm, prepares and files the US side of a move from Colombia, including cesantías, FICs and Colombian property. - We file every federal and state return you owe in the US, starting with the dual-status return your arrival year usually needs. Your Colombian returns, DIAN’s Forms 210 and 110, stay with your accountant in Colombia. - We list your CDTs, savings and FIC accounts on the FBAR, and your cesantías fund too, as a precaution. When your foreign assets pass Form 8938’s thresholds, we prepare that form as well. - For every FIC you hold, we prepare the annual Form 8621 whenever the PFIC rules require one. We prepare Form 5471 for a Colombian company where one is due. Our instant quote prices each account, fund and company you own over 20% of separately. - We claim the foreign tax credit on Form 1116 for Colombia’s tax on your CDT interest, rent and dividends, up to the form’s limit. In a year Colombia still counts you as resident, we give your accountant there the US tax figures its own credit needs. - We time your FIC redemptions and cesantías withdrawal against the date your US residency starts, and show what changes if either comes later. Rent and CDT interest from Colombia arrive with no US tax withheld, so we also set your quarterly estimated payments. - We prepare the Form 3520 you file once gifts from a parent in Colombia, with that parent’s relatives, pass $100,000 in a year. - We answer any IRS or state notice about a return we prepared at no added cost, even one about a FIC sale. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How do cesantías and Colombian residence play out after you move? ### Is there double taxation between Colombia and the USA? Yes, double taxation between Colombia and the US can happen, because no treaty divides taxing rights between them. In your year of arrival, Colombia may still count you as resident and tax your US salary. The US taxes that salary too, from your residency starting date. Colombian tax on US wages earns no US credit, so Colombia’s own credit is the only relief. Once Colombia stops counting you as resident, it taxes only your Colombian income, and that tax earns a US credit within its limit. ### What is the 183-day rule in Colombia? The 183-day rule makes you a Colombian tax resident once you spend more than 183 days in Colombia within any 365 consecutive days. Arrival and departure days both count. When the 365 days span two tax years, you are resident from the second one. Colombian nationals can be resident with fewer days, through family, income or assets in Colombia. ### Does Colombia have a tax treaty with the US? No: neither the IRS treaty list, last reviewed January 3, 2026, nor Treasury lists a US-Colombia tax treaty, in force or signed. The two countries do share a 2001 agreement to exchange tax information, in force since April 30, 2014, which lowers no tax. Without a treaty, Colombia’s full rates apply to your Colombian income. If both countries count you as resident, no tie-breaker rule decides which one wins. The US foreign tax credit covers Colombian tax on Colombian income, and Colombia credits US tax only while you are its resident. ### What happens to my cesantías and Colombian pension when I move to the US? Cesantías are released when your Colombian job ends, and Colombia already taxed or exempted deposits made since 2017 as they went in. Your pension stays in Colombia. An AFP pays out only as a pension. If you lack the weeks or savings for one, it refunds your balance at 62 for men and 57 for women. Ley 2381, set to start April 1, 2027, replaces that refund with a life annuity for most members with 300 to 999 contribution weeks. In the US, Colpensiones payments are generally taxed as annuities, and an AFP account is generally a foreign pension on Form 8938. The IRS has yet to say how it taxes the growth inside an AFP account. ### Do I still file a Colombian return? Yes, for the year you leave, if Colombia still counts you as resident and you cross a filing threshold. For tax year 2026, you file once gross income reaches COP 73,323,600 or gross assets pass COP 235,683,000, among other tests. That resident return, Form 210, reports income from everywhere, with a credit for US tax on your foreign income. The same applies, on Form 210, to any later year in which Colombia still counts you as resident. Otherwise, a non-resident files Form 110 for Colombian income only, and may need no return if withholding covered all of it. Returns for 2026 are expected from August to October 2027, by the last two digits of your NIT, your Colombian tax ID. ## Sources - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - US Department of State, Colombia (14-430), Agreement for the Exchange of Tax Information: https://www.state.gov/14-430 - US Treasury, Foreign Account Tax Compliance Act: https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - Colombia, Estatuto Tributario (DIAN official compilation): https://normograma.dian.gov.co/dian/compilacion/docs/estatuto_tributario.htm - Colombia, Decreto 1625 de 2016, Decreto Único Reglamentario en materia tributaria (DIAN compilation): https://normograma.dian.gov.co/dian/compilacion/docs/decreto_1625_2016.htm - Colombia, Ley 50 de 1990 (Función Pública, Gestor Normativo): https://www.funcionpublica.gov.co/eva/gestornormativo/norma.php?i=281 - Colombia, Ley 100 de 1993 (DIAN compilation): https://normograma.dian.gov.co/dian/compilacion/docs/ley_0100_1993.htm - Colombia, Ley 2381 de 2024 (Senate): http://www.secretariasenado.gov.co/senado/basedoc/ley_2381_2024.html - Corte Constitucional (Colombia), Sentencia C-264 de 2026: https://www.corteconstitucional.gov.co/relatoria/2026/C-264-26.htm - Colombia, Decreto 2555 de 2010 (DIAN compilation): https://normograma.dian.gov.co/dian/compilacion/docs/decreto_2555_2010.htm - Superintendencia Financiera de Colombia, Contrato de depósito a término (CDT): https://www.superfinanciera.gov.co/publicaciones/10086059/consumidor-financierofunciones-jurisdiccionales-historico-jurisprudencia-superintendencia-financiera-de-colombiacontrato-de-deposito-a-termino-cdt-10086059/ - DIAN, Concepto 11108 de 2026 (non-residents): https://normograma.dian.gov.co/dian/compilacion/docs/oficio_dian_11108_2026.htm - DIAN, Concepto 14951 de 2025 (foreign tax credit): https://normograma.dian.gov.co/dian/compilacion/docs/oficio_dian_14951_2025.htm - DIAN, Oficio 908351 de 2022 (gifts to non-residents): https://normograma.dian.gov.co/dian/compilacion/docs/oficio_dian_908351_2022.htm - DIAN, Oficio 909173 de 2021 (gifts as the recipient’s occasional gain): https://normograma.dian.gov.co/dian/compilacion/docs/oficio_dian_909173_2021.htm - DIAN, Oficio 74527 de 2013 (gifts to non-residents and withholding): https://normograma.dian.gov.co/dian/compilacion/docs/oficio_dian_74527_2013.htm - DIAN, Comunicado de Prensa 128 de 2025 (2026 UVT and tax calendar): https://www.dian.gov.co/Prensa/Paginas/NG-Comunicado-de-Prensa-128-2025.aspx - DIAN, Resolución 44 de 2024 (Form 210): https://normograma.dian.gov.co/dian/compilacion/docs/resolucion_dian_0044_2024.htm - DIAN, Resolución 22 de 2023 (Form 110): https://normograma.dian.gov.co/dian/compilacion/docs/resolucion_dian_0022_2023.htm - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 861, Income from sources within the United States: https://www.law.cornell.edu/uscode/text/26/861 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 168, Accelerated cost recovery system (bonus depreciation): https://www.law.cornell.edu/uscode/text/26/168 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 C.F.R. § 1010.306, Filing of reports: https://www.law.cornell.edu/cfr/text/31/1010.306 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - IRS, Instructions for Form 8802 (Rev. October 2024): https://www.irs.gov/instructions/i8802 - US Treasury, Fiscal Data, Treasury Reporting Rates of Exchange: https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange --- URL: https://valim.tax/visa-holders/from-vietnam Title: Moving to the US from Vietnam: taxes on BHXH, deposits and funds Updated: 2026-10-06 # Overdue tax of any amount can stop you from leaving Vietnam to settle abroad. After moving to the US from Vietnam, taxes you still owe there can also block your exit after a visit home. Vietnam’s Law on Tax Administration and its decree set this rule, and both have been in force since July 1, 2026. Once you are non-resident, Vietnam taxes only income arising there, such as rent or a share sale. Vietnam’s tax rules from July 1, 2026: - 0%: is Vietnam’s tax on bank deposit interest, so no Vietnamese tax offsets the US tax on it. - 2%: of the sale price is Vietnam’s usual tax on property you sell there, at a gain or a loss. Selling your only home there can be exempt. - 10%: of the value above VND 20 million is Vietnam’s tax on a gift or inheritance of shares, real estate or a car. Real estate within close family is exempt. Gifts and sales before July 1, 2026 fall under the old law. ## Can Vietnam still tax you as a resident in the year you move? A home in Vietnam, registered or rented, or 183 days there in the calendar year can keep you resident for the year you leave. ### 1. You keep a registered or rented home there A registered permanent residence (thường trú) can keep you a Vietnamese resident with fewer than 183 days there. A rented home counts the same way if your leases in Vietnam total 183 days or more in the year. Either way, you stay resident unless you prove residence in another country, usually with a certificate of residence. The IRS issues Form 6166, its certificate of US residency, only for treaty benefits or a VAT exemption. You may therefore have no ready proof, so ask your accountant in Vietnam what the tax office accepts. ### 2. You spend 183 days in Vietnam Spending 183 days or more in Vietnam in the calendar year is enough by itself to make you resident. Your arrival day and your departure day each count, going by your passport stamps. ### 3. A resident can owe Vietnamese tax on US pay A Vietnamese resident is taxed on income from inside and outside Vietnam, which can include your US pay. Vietnam credits foreign tax only under a tax treaty, so expect no credit for the US tax on that pay. If you leave your job and Vietnam, your former employer can no longer file the year-end settlement of your wage tax (the finalization). You then file it yourself by April 30 of the next year, unless an exemption applies. A foreign national whose Vietnamese work contract ends must finalize before departure, or authorize someone to do it. ## Your visa decides when you can take your BHXH payout, and whether the US taxes it. Vietnam’s 2024 Law on Social Insurance lets you cash out your whole BHXH (social insurance) record in one payment when you settle abroad. A US immigrant visa or green card meets that test on its face. On an H-1B, L-1, F-1 or other nonimmigrant visa, you can claim only after 12 months outside Vietnamese social insurance. That route needs contributions from before July 1, 2025, and fewer than 20 years in all. You paid into BHXH for 5 years from 2021, on an average contribution wage of VND 30 million a month. - Your one-time payment: VND 300M. Each year from 2014 earns 2 months of your average contribution wage, so 5 years earn 10 months. Earlier years earn 1.5 months each. VND 300 million is about $11,409. - US income on an immigrant visa, paid before you enter: VND 0. US residency begins the day you enter as a permanent resident, so a BHXH payment received before then is generally outside US tax. - US income as an F-1 student, paid in your exempt years: VND 0. Student days usually do not count toward US residency for five calendar years. Without a green card, you are still a nonresident alien, and the US does not tax you on this foreign payment. - US income on an H-1B, paid after 12 months out: VND 300M. At most the whole payment. A year of H-1B days usually meets the substantial presence test, so the payment generally lands in a US resident year. - US income with a green card, paid after you arrive: VND 300M. At most the whole payment. A BHXH payment received once your green card residency has started is likely US income, taxed under the annuity rules. The $11,409 converts at 26,295 dong per dollar, Treasury’s reporting rate for December 31, 2025. Your return uses the exchange rate on the day you are paid. The IRS has said nothing about BHXH, so its general rule for foreign social security applies and treats it as an annuity. Your contributions came out of your pay before Vietnamese tax, so IRC 72(w) likely gives them no US basis. They do not count as money you were already taxed on. Nearly all the payout is therefore likely US income. Vietnam generally does not tax the payout, since its law leaves social insurance allowances out of taxable wages. ## The US-Vietnam tax treaty signed in 2015 has never entered into force, so none of its relief applies. It would enter into force once both countries confirm ratification to each other, and apply from the next January 1. A separate FATCA agreement on bank reporting has been in force since July 7, 2016. | | Today | If it took effect | | --- | --- | --- | | Both countries treat you as resident | Both may tax all your income (No tie-breaker) | Resident of one only (Article 4 tie-breaker) | | Vietnam’s credit for US tax | Not expected (Decree 253/2026, Article 6(3)) | Allowed (As the agreement provides) | | BHXH paid after your US residency starts | Likely US-taxable (No IRS guidance on BHXH) | Free of US tax (Article 18(2) leaves it to Vietnam) | | US dividends before your residency starts | 30% withheld | Capped at 15% (Article 10, for an individual) | | Pay from a campus job or OPT | Taxed as usual | Still taxed (Article 21 covers only money from abroad for study and upkeep) | Until the treaty takes effect, the only relief from double tax is the US foreign tax credit, on Form 1116. No Social Security agreement links the two countries either, so your work years in each are not added together for benefits. ## Where do Vietnamese deposits, funds and property catch out a new US resident? ### Assuming deposit interest counts only at maturity The US taxes interest on a dong deposit in the year it is credited and open to withdrawal. A deposit that defers interest past a year can fall under the original issue discount rules, which tax interest as it builds. Converting the deposit’s dong into dollars can also give an ordinary exchange gain or loss, under IRC 988. ### Counting on Vietnam’s two-year fund exemption (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Vietnam exempts gains on open-ended fund certificates held two years or more, but the US does not. A Vietnamese fund or ETF usually counts as a PFIC (passive foreign investment company), which generally needs its own Form 8621 every year. The share of a gain that built up in your US-resident years can be taxed at the top US rate, plus an interest charge. ### Selling property in Vietnam after you arrive Vietnam charges its tax on the contract price, or on the province’s land price table where the contract states less. After your US residency begins, the US taxes the gain in dollars too. The home-sale exclusion (section 121) may shelter the gain on a main home. Whether the US credits Vietnam’s tax, which falls on the price rather than the gain, is unsettled. ### Getting the FBAR’s reach wrong (https://valim.tax/expat-tax/fbar) An FBAR listing every Vietnamese deposit, securities and fund account is due once your foreign accounts together exceed $10,000 at any time. At Treasury’s 2025 year-end rate, that line was VND 262,950,000. Your BHXH contribution record generally belongs on neither the FBAR nor Form 8938. ## We time your BHXH claim to your US residency date and put your Vietnamese accounts on the right US forms. At Valim, our licensed CPAs put your BHXH payout, dong deposits, Vietnamese funds and property on your US returns. - We prepare the return for your arrival year, usually dual-status, and each federal and state return in the years that follow. We coordinate with the accountant who files your finalization in Vietnam. - We compare the US tax on claiming BHXH, or selling a Vietnamese fund or property, before and after your residency starting date. - Each Vietnamese bank, securities and fund account goes on your FBAR, with Form 8938 added in years your foreign assets top its thresholds. We file each Vietnamese fund’s yearly Form 8621, plus Form 5471 for a Vietnamese company where one is due. Your instant quote prices each of these accounts, funds and companies separately. - We claim a credit on Form 1116 for the Vietnamese income tax you owe on income from Vietnam, within the form’s limit. We size your quarterly estimated payments to the US tax on dong interest and any rent from Vietnam. - We file Form 3520 in any year one giver in Vietnam, counted together with their relatives, sends you more than $100,000. - We deal with IRS and state notices on the returns we prepared, BHXH questions included, and charge nothing beyond the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## What do Vietnamese newcomers ask about tax in both countries? ### Is there a tax treaty between Vietnam and the US? No US-Vietnam tax treaty is in force. The two governments signed an income tax agreement in Washington on July 7, 2015. It takes effect only after both countries confirm ratification to each other. The IRS treaty list, last reviewed January 3, 2026, still has no Vietnam entry. Vietnam’s own treaty list, last dated 2019, marks it not yet in force. Without a treaty in force, no treaty rate limits withholding on your income, and no tie-breaker decides residence for someone both countries treat as resident. The US foreign tax credit is then the only relief, since Vietnam credits foreign tax only under a treaty. ### Is Vietnam a high tax country? Vietnam taxes high wages heavily but most investment income lightly. From 2026, a resident pays 5% to 35% on taxable wages in five bands, after a VND 15.5 million monthly family deduction. The 35% band starts above VND 100 million a month, about $3,803 at Treasury’s year-end 2025 rate. A non-resident pays a flat 20% on pay for work done in Vietnam, and 5% on dividends. Selling securities costs 0.1% of the price, and interest on bank deposits is exempt for everyone. ### Do Vietnamese pay taxes in America? Yes. You pay US tax on US income from the start, and on income from Vietnam too once you are a US resident for tax. A green card, or enough days to pass the substantial presence test, sets your residency starting date. From your US residency starting date, Vietnamese deposit interest, fund gains and, likely, a BHXH payout are US-taxable. An F-1 student usually turns resident in the sixth calendar year. ### Is money my parents send from Vietnam taxed in either country? A cash gift from your parents is generally taxed in neither country. The US does not treat a gift as income. Once one giver and that giver’s relatives send over $100,000 in a year, the gifts go on Form 3520. Vietnam taxes gifts only of shares, business capital, real estate and registered assets such as cars, at 10% above VND 20 million. Real estate given between close family, such as a parent and child, is exempt. ## Sources - Vietnam, Law on Personal Income Tax No. 109/2025/QH15 (Official Gazette): https://congbaocdn.chinhphu.vn/180507251028987904/2026/1/24/109signed-17692403594311667615452.pdf - Vietnam, Decree 253/2026/ND-CP detailing the Law on Personal Income Tax (Official Gazette): https://congbaocdn.chinhphu.vn/180507251028987904/2026/7/16/469959-1784171413_v1_1784174315_signed.pdf - Vietnam, Law on Tax Administration No. 108/2025/QH15 (Official Gazette): https://congbaocdn.chinhphu.vn/180507251028987904/2026/1/24/108signed-17692413914281416017170.pdf - Vietnam, Decree 252/2026/ND-CP detailing the Law on Tax Administration (Official Gazette): https://congbaocdn.chinhphu.vn/180507251028987904/2026/7/16/469958-1784169386_v1_1784170386_signed.pdf - Vietnam, Law on Social Insurance No. 41/2024/QH15 (Government portal, full text): https://xaydungchinhsach.chinhphu.vn/toan-van-luat-so-41-2024-qh15-bao-hiem-xa-hoi-119240723163650489.htm - General Department of Taxation (Vietnam), list of double tax agreements (archived copy): https://web.archive.org/web/20251221233601id_/https://www.gdt.gov.vn/wps/portal/!ut/p/z0/JcqxDsIgFIXhV3HpSC4FrDAaJxobBxPT3qWBQrHaUBuJ8fFFXU7-LzmA0AJG85qCSdMSzZzdYdVTofRRXs4nvm0E1eWB1o2WJVUcasAwL_Z_nW7rinvAYYnJvxO0waXNDzEV9Gn67IKmNc_1W5WT3EtryMCVJ2KQnCgjPJGKW6aYs7uRweOO3Qd-DCVx/ - US-Vietnam income tax agreement and protocol (signed July 7, 2015; not in force): https://home.treasury.gov/system/files/131/Treaty-Vietnam-7-7-2015.pdf - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - US Department of State, Treaties in Force (2025): https://www.state.gov/wp-content/uploads/2025/08/Treaties-in-Force-2025-FINAL.pdf - US Department of State, 2026 Investment Climate Statement: Vietnam: https://www.state.gov/wp-content/uploads/2026/09/701264_2026-Vietnam-Investment-Climate-Statement.pdf - US Treasury, Foreign Account Tax Compliance Act: https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Publication 550 (2025), Investment Income and Expenses: https://www.irs.gov/publications/p550 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - 26 U.S.C. § 72, Annuities; certain proceeds of endowment and life insurance contracts: https://www.law.cornell.edu/uscode/text/26/72 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 121, Exclusion of gain from sale of principal residence: https://www.law.cornell.edu/uscode/text/26/121 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 U.S.C. § 904, Limitation on credit: https://www.law.cornell.edu/uscode/text/26/904 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - 26 U.S.C. § 988, Treatment of certain foreign currency transactions: https://www.law.cornell.edu/uscode/text/26/988 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 26 U.S.C. § 1441, Withholding of tax on nonresident aliens: https://www.law.cornell.edu/uscode/text/26/1441 - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - 26 U.S.C. § 7701, Definitions (resident alien and nonresident alien): https://www.law.cornell.edu/uscode/text/26/7701 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 C.F.R. § 1010.306, Filing of reports: https://www.law.cornell.edu/cfr/text/31/1010.306 - FinCEN, FBAR line item filing instructions: https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - IRS, Instructions for Form 8938 (Rev. November 2021): https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - IRS, Instructions for Form 1116: https://www.irs.gov/instructions/i1116 - US Treasury, Fiscal Data, Treasury Reporting Rates of Exchange: https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange - IRS, Foreign currency and currency exchange rates: https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates --- URL: https://valim.tax/visa-holders/from-bangladesh Title: Moving to the US from Bangladesh: taxes, treaty and Sanchayapatra Updated: 2026-10-06 # Up to $8,000 a year of pay is free of federal income tax for students moving to the US from Bangladesh. Taxes on that pay start when your studies end or you get a green card or citizenship, not when you become a resident alien. The exemption comes from Article 21(2) of the US-Bangladesh treaty. Students can claim it for any number of years, while business and technical apprentices get two. It covers anyone who was a resident of Bangladesh just before coming to the US mainly to study. Scholarships, grants and money sent from home for your upkeep and studies are exempt as well. A nonresident alien claims it by giving the employer Form 8233, and a resident alien gives the payer Form W-9 with a statement. What Bangladesh can still tax: - 90 days: in a July-to-June income year make you a Bangladeshi resident for all of it, after 365 days in the four years before. - 10%: is the tax Bangladesh deducts from Sanchayapatra profit, the same rate at which the treaty caps its tax on a US resident’s interest. - 15%: of the gain is Bangladesh’s tax on land or a flat held over five years, if you file there. A sale within five years is taxed at regular rates. These are the rules for income year 2026-27, which began on July 1, 2026. A payer may withhold more from a non-resident, so check what was taken. ## What does Bangladesh tax in the year you move, and after? Bangladesh’s income year runs from July 1 to June 30, and residence is decided for the whole year. ### 1. You are still in Bangladesh on September 28 If you are there every day from July 1, your 90th day in Bangladesh is September 28. If you spent 365 days there in the four years before, reaching that date keeps you resident until June 30. The US, meanwhile, may treat you as resident from the day you land. ### 2. You send your US pay home through a bank In a year you are still resident, US pay you send home through a bank should stay free of Bangladeshi tax. Bangladesh excludes foreign earnings a Bangladeshi citizen brings home through legal remittance channels. Bangladesh can tax US pay you keep in the US, with a credit for the US tax on it. ### 3. You go back for a long visit The four-year look-back keeps running after you move. A visit of 90 days or more in any of the next four income years can make you resident again. If the US counts you as resident too, Article 4(2)’s tie-breaker decides which country is your residence for the treaty. Claiming it on a US return takes Form 8833. ### 4. You leave for good If you leave for good and expect to earn nothing in Bangladesh, apply to cancel your tax registration (TIN). After your residence ends, Bangladesh taxes only income that arises there, such as rent, interest and gains on property. Your US salary is not taxed there. If you have no permanent establishment (a fixed place of business) in Bangladesh, you need not file a return there. In that case, from July 1, 2026, the tax deducted at source on that income is your final tax. ## A Bangladeshi student who becomes a resident alien can owe no federal income tax on $20,000 of campus pay. F-1 days usually do not count toward the substantial presence test for five calendar years, and a part year counts as a full one. From the sixth year they usually count, and a student here 183 days that year usually becomes a resident alien. You are single, on an F-1 visa, with $20,000 a year of pay from campus work and no other income. - Years 1 to 5, as a nonresident alien: $12,000. Article 21(2) exempts $8,000. A nonresident alien gets no standard deduction, so the other $12,000 is taxable. - Year 6, as a resident alien on the same F-1: $0. The $8,000 stays exempt for a resident alien still studying, and the standard deduction covers the remaining $12,000. - With a green card: $3,900. A green card ends the Article 21(2) student exemption under the saving clause, so the standard deduction comes off the full $20,000. Each figure is taxable income under 2026 rules, before any tax rate applies. The nonresident figure uses a standard deduction of zero, under IRC 63(c)(6)(B). The resident figures use the $16,100 single standard deduction for 2026 (Rev. Proc. 2025-32). They assume you are in the US on January 1 of year 6. If you return later, that year is likely dual-status, with no standard deduction. The figures leave out state tax. ## What does the US-Bangladesh tax treaty change once only the US counts you as resident? The US-Bangladesh income tax convention was signed in Dhaka on September 26, 2004, and entered into force on August 7, 2006. It applies to most taxes from January 1, 2007. Once you are a US resident, it limits what Bangladesh may tax. Its saving clause lets the US keep taxing you under its own law. | | Bangladesh | US | | --- | --- | --- | | Interest from a payer in Bangladesh | Up to 10% (Article 11(2)) | Taxed (With a credit for Bangladesh’s tax) | | Dividends from a Bangladeshi company | Up to 15% (Article 10(2)) | Taxed (With a credit for Bangladesh’s tax) | | Gain on land or a flat in Bangladesh | Taxed (Article 13(1)) | Taxed (Figured in dollars) | | Gain on listed Bangladeshi shares, unless the company mainly owns property | Not taxed (Article 13(4)) | Taxed (No Bangladeshi tax to credit) | | A private pension from a past employer | Not taxed (Article 19(1)) | Taxed | | A Bangladesh government pension | Exempt (Under Bangladesh’s own law) | Exempt unless you hold a green card or US citizenship (Article 20(2)) | Article 23(1) lets any tax under Bangladesh’s Income Tax Act count toward the US credit, within the Form 1116 limit. Anything a payer withholds above a treaty cap stays outside the US credit, so reclaim it from Bangladesh. No Social Security agreement links the two countries. US Social Security and Medicare therefore generally apply to your US pay once any student exemption ends. ## Which Bangladeshi holdings bring extra US forms or tax? ### Units in a Bangladeshi mutual fund (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Each Bangladeshi mutual fund you own generally needs its own Form 8621 every year. These funds are generally trusts registered with the Bangladesh Securities and Exchange Commission. US rules usually treat such a trust as a corporation, and so as a PFIC (passive foreign investment company). A sale without an election charges the top rate, plus interest, on the gain spread to your earlier US-resident years. ### A provident fund paid out after you arrive (https://valim.tax/visa-holders/resident-or-nonresident-alien) A provident fund balance paid before your US residency starting date is generally outside US tax. If it is paid after that date, the employer’s share and the fund’s growth may be US income. The IRS has issued no guidance on these funds. A recognized fund pays out when you leave your employer, and Bangladesh exempts it after five years of continuous service. ### Certificates and bonds left off the FBAR (https://valim.tax/expat-tax/fbar) A Sanchayapatra or bond held through a bank, post office or savings bureau is likely an FBAR account. One held outside any account can still go on Form 8938 as a foreign bond. A bond bought in a parent’s name may still be yours to report, since ownership decides who files. ### Tax collected when you sell land or a flat (https://valim.tax/expat-tax/foreign-tax-credit) Crediting the registrar’s tax on a property sale in the US is a treaty position you may need to disclose on Form 8833. That tax is based on the property’s area or deed value, not on your gain. The registrar collects it from the seller before registering the sale deed. From July 1, 2026, it is your final Bangladeshi tax if you need not file there. If you do file, your gain is taxed at the 15% or regular rates. Any part of the registrar’s tax above your assessed tax is then refundable. ## From your first Form 8233 to a flat sold in Dhaka, we handle the US side of your move. Valim’s licensed CPAs prepare your US returns, working alongside the accountant who files for you with Bangladesh’s National Board of Revenue. - We prepare every federal and state return you owe, starting with your first. That first return is a Form 1040-NR, or a dual-status return if residency starts mid-year. While you are an exempt student, we add Form 8843. - We prepare the Form 8233 that stops withholding on your first $8,000 of pay, and claim the exemption on every return. - We work out what a green card would add to your US tax while you are still studying. We also time a provident fund payout or a land sale against your residency starting date. - The FBAR we prepare lists your bank, certificate and fund accounts in Bangladesh, and Form 8938 repeats them above its thresholds. We file Form 8621 for each Bangladeshi fund in every year it is required. We also file Form 5471 for a Bangladeshi company where one is due. Your instant quote prices these forms per account, per fund and per company. - We count Bangladesh’s final tax on Sanchayapatra profit, dividends, rent or a land sale toward your Form 1116 credit, up to the US limit. We set your quarterly estimated payments to match the profit your certificates and bonds pay out. - Once you are a US resident, we file Form 3520 whenever gifts from one giver and their relatives pass $100,000 in a year. Tuition your family pays straight to your university does not count toward that line. - We reply to IRS and state notices on any return we prepared, a challenge to your student exemption included, within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## How do the treaty, your salary, Sanchayapatra and family gifts work once you leave Bangladesh? ### What is the double taxation treaty in Bangladesh? For someone moving to the US, it is the US-Bangladesh tax treaty, in force since August 7, 2006. It caps Bangladesh’s tax on a US resident’s interest at 10% and on dividends at 15%. Each country credits the other’s tax where both may tax the same income. Students also keep up to $8,000 a year of US pay free of federal income tax. Under its saving clause, each country still taxes its own residents by domestic law, and the US also taxes its citizens, outside listed exceptions. ### How much tax should I pay on my salary in Bangladesh? Your salary is taxed at Bangladesh’s resident rates for any July-to-June income year in which Bangladesh still counts you as resident. Under the 2026-27 budget proposals, a resident pays no tax on the first Tk 375,000 of income. The proposed bands after that are 10%, 15%, 20% and 25%, with 30% above Tk 3,575,000. For women and anyone 65 or over, the proposed tax-free amount is Tk 425,000. One-third of your salary is excluded first, up to Tk 500,000. Once you are non-resident for the income year, pay for work you do in the US is not Bangladeshi income at all. ### Is interest on my Sanchayapatra or Wage Earner Development Bond taxable in the US? Yes, the US taxes Sanchayapatra, Wage Earner Development Bond and US dollar bond profit as interest from your US residency starting date. Quarterly or half-yearly profit is taxed in the year it is credited. A 5-year Sanchayapatra that pays only at maturity is likely taxed as the profit builds up. The 10% Bangladesh deducts from Sanchayapatra profit can count toward a foreign tax credit, up to the tax you finally owe there. Bangladesh exempts the bonds’ profit, so no Bangladeshi tax offsets the US tax on them. ### Can my parents in Bangladesh send me money tax-free? Yes, for US tax: a gift is not income, and you owe nothing on it. Once you are a US resident, gifts go on Form 3520 when one giver, together with that giver’s relatives, passes $100,000 in a year. In Bangladesh, a parent’s gift carries no gift tax. While you are still a Bangladeshi resident, it is also free of income tax if both of you show it in your returns. Bangladesh Bank’s September 2025 circular let banks send study money against your I-20, while money for upkeep abroad needed Bangladesh Bank’s prior approval. Ask the bank whether that still applies. ## Sources - US-Bangladesh income tax convention (2004): https://home.treasury.gov/system/files/131/Treaty-Bangladesh-1-27-2004.pdf - Treasury, technical explanation of the US-Bangladesh convention: https://home.treasury.gov/system/files/131/Treaty-Bangladesh-TE-1-21-2006.pdf - IRS, Publication 901 (Rev. September 2024), U.S. Tax Treaties: https://www.irs.gov/publications/p901 - Bangladesh, Income Tax Act 2023 (Ministry of Law, consolidated Bangla text): http://bdlaws.minlaw.gov.bd/act-print-1429.html - National Board of Revenue, Income Tax Act 2023 (Authentic English Text): https://nbr.gov.bd/uploads/acts/Income_tax_act_2023.pdf - Bangladesh, Finance Act 2026 (Act No. 96 of 2026): http://bdlaws.minlaw.gov.bd/act-print-1725.html - Bangladesh, Finance (2025-2026 Financial Year) Act 2026 (Act No. 89 of 2026): http://bdlaws.minlaw.gov.bd/act-print-1718.html - Ministry of Finance, Budget Speech 2026-27: https://nbr.gov.bd/uploads/budget/Budget_Speech_English.pdf - Bangladesh, Gift Tax Act 1990: http://bdlaws.minlaw.gov.bd/act-print-743.html - Directorate of National Savings, savings certificates: https://nationalsavings.gov.bd/pages/static-pages/%E0%A6%B8%E0%A6%9E%E0%A7%8D%E0%A6%9A%E0%A7%9F%E0%A6%AA%E0%A6%A4%E0%A7%8D%E0%A6%B0%E0%A6%B8%E0%A6%AE%E0%A7%82%E0%A6%B9-f4u5hn-6a73fa5597bfb19c478c1c10 - Directorate of National Savings, Wage Earner Development Bond: https://nationalsavings.gov.bd/pages/static-pages/6922dfd3933eb65569e242e9 - Bangladesh Bank, FE Circular No. 37 (September 30, 2025): https://www.bb.org.bd/mediaroom/circulars/fepd/sep302025fepd37e.pdf - Bangladesh Securities and Exchange Commission, EDGE Bangladesh Mutual Fund 1 prospectus (archived copy): https://web.archive.org/web/20250421213801id_/https://sec.gov.bd/mutualfund/EDGE_Bangladesh_Mutual_Fund_01.08.2018+9.pdf - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Instructions for Form 8233 (Rev. December 2025): https://www.irs.gov/instructions/i8233 - IRS, Form 8843 (2025), Statement for Exempt Individuals: https://www.irs.gov/pub/irs-pdf/f8843.pdf - IRS, Form W-9 (Rev. March 2024), Request for Taxpayer Identification Number and Certification: https://www.irs.gov/pub/irs-pdf/fw9.pdf - IRS, Form 8833 (Rev. December 2022), Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b): https://www.irs.gov/pub/irs-pdf/f8833.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 63, Taxable income defined: https://www.law.cornell.edu/uscode/text/26/63 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States: https://www.law.cornell.edu/uscode/text/26/901 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 - IRS, Instructions for Form 1116: https://www.irs.gov/instructions/i1116 - IRS, Publication 550 (2025), Investment Income and Expenses: https://www.irs.gov/publications/p550 - 26 U.S.C. § 1272, Current inclusion in income of original issue discount: https://www.law.cornell.edu/uscode/text/26/1272 - 26 U.S.C. § 72, Annuities; certain proceeds of endowment and life insurance contracts: https://www.law.cornell.edu/uscode/text/26/72 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 --- URL: https://valim.tax/visa-holders/from-europe Title: Moving to the US from Europe: taxes, UCITS funds and treaties Updated: 2026-10-06 # The US has no tax treaty with the EU as a whole. After moving to the US from Europe, taxes on your pension and gains depend on your own country’s treaty, where one exists. The US rules for funds you hold directly do not change with the country you leave. Under them, a UCITS fund or ETF usually counts as a passive foreign investment company (PFIC). Europe and the US, in three numbers: - 24: European countries have a Social Security agreement with the US. Each one decides which country’s Social Security tax you pay. - 27 of 30: EU and EEA countries have an income tax treaty with the US in force, as of October 2026. - $10,000: across all your foreign accounts, counted at each one’s peak, makes an FBAR due for the year. A 2026 FBAR is due April 15, 2027, and moves to October 15 without any request. ## How does the US treat the money you keep in Europe? The US counts your days here under the substantial presence test. Once you pass it, your residency starting date is usually your first day in the US that year. With a green card, it is your first day here as a permanent resident. If you meet both tests that year, the earlier date applies. ### 1. Income that arrives after your residency starting date From your residency starting date, the US taxes what you receive from home, even pay you earned before the move. Gains on funds or shares you sell before that date, and payouts you receive before it, are generally outside US tax. ### 2. An account your home country exempts from tax A tax-free account at home is tax-free only in your home country. Unless your treaty covers the account, the US taxes its interest and dividends as they arise and its gains on each sale. Funds held inside it still usually count as PFICs. ### 3. A pension plan at home you keep paying into Some treaties let you deduct what you keep paying into a pension plan at home on your US return, within US limits. You or your employer must have paid into the plan before your US work began, and the US competent authority must accept the plan. Under several treaties, the deduction ends once you hold a green card. ## A $300,000 gift from your parents owes no US tax, yet a Form 3520 filed five months late can cost $75,000. A gift or inheritance is not income for US tax (IRC § 102). A US resident still reports gifts on Form 3520 once one foreign individual and that person’s relatives give more than $100,000 in a year. Your parents live in Europe and are neither US citizens nor green card holders. They give you $300,000 in 2026, after your US residency starts. - Reported on time: $0. Form 3520 for 2026 is due April 15, 2027, or October 15, 2027, if you extend your return. - One month late: $15,000. The penalty counts the whole $300,000, including the first $100,000. - Three months late: $45,000. Each further month the report stays missing adds the same amount again. - Five or more months late: $75,000. The penalty stops at this amount, however late the report is. IRC § 6039F(c) charges 5% of the unreported gifts for each month the failure continues, up to 25% in total. The IRS can waive the penalty for reasonable cause. Your parents’ own country may tax the gift under its law. Most of the country pages below explain that country’s gift or inheritance tax. ## What does a tax treaty with your home country change once you live in the US? Most treaty benefits stop at the saving clause, which keeps you taxable in the US as a resident, with a short list of exceptions. Not every treaty has one, and depending on the treaty, the clause binds only the US or both countries. | | With a treaty | With no treaty | | --- | --- | --- | | A state pension from home | Set by the treaty (It may give the pension to your home country, the US or both) | US tax as a foreign annuity (Your home country can tax it too) | | Growth inside a workplace pension plan | Deferred under some treaties (Funds held in such a plan then need no Form 8621) | No treaty deferral (Funds held in the plan can need Form 8621) | | Dividends and interest from home | Home tax capped at treaty rates | Home tax at its full rates | | Resident in both countries at once | A tie-breaker usually assigns you to one | No tie-breaker (Both can tax you as a resident) | | Relief from double tax | Treaty rules and the foreign tax credit | The foreign tax credit only | Income tax treaties generally leave Social Security tax out. Where a totalization agreement exists, it decides where you pay it. ## Where European savings habits break under US rules. ### Assuming an ETF that never pays out escapes the PFIC rules (https://valim.tax/glossary/passive-foreign-investment-company-pfic) An accumulating UCITS ETF reinvests its income, yet the PFIC rules still reach your gain when you sell. With no election, the part of that gain assigned to your earlier US-resident years is taxed at each year’s top rate, plus interest. ### Treating a pension plan as outside Form 8938 (https://valim.tax/glossary/specified-foreign-financial-asset) Your state pension stays off Form 8938, but a workplace pension plan goes on it next to your accounts. The plan counts toward the form’s thresholds with everything else you hold abroad. ### Accepting too much withholding at home (https://valim.tax/expat-tax/foreign-tax-credit) A payer at home may withhold its full domestic rate on your dividends or interest until you claim the treaty rate. The US gives no credit for the excess, because it treats tax you could have reclaimed as a voluntary payment (Treas. Reg. § 1.901-2(e)(5)). Reclaim it from your home country’s tax office instead. ### Forgetting securities and insurance accounts (https://valim.tax/expat-tax/fbar) An FBAR for your European accounts covers securities accounts, pooled fund accounts and cash-value life insurance, as well as bank accounts. You generally list each one on the form, down to the smallest. With 25 or more accounts, you may give only their number and basic details. ## Whichever European country you left, we prepare the US side and file a Form 8621 for each UCITS fund. Valim is a US CPA firm for people who move from any European country. Your accountant in Europe keeps filing the return there, and we work alongside them. - From the year you arrive, which often needs a dual-status return, we prepare every federal and state income tax return you owe. - Your European accounts go on the FBAR we file, and on Form 8938 when your foreign assets pass its thresholds. Each UCITS fund or ETF gets the Form 8621 it generally needs every year. - We add Form 5471 where a company you own abroad needs one, and Form 3520 once family gifts pass $100,000 in a year. Your quote adds a set amount for each account and each fund, and for each company in which you own more than 20%. - We claim the tax your home country keeps on rent, dividends or a pension as a credit on Form 1116. We count only what its law and any treaty let it keep. - Ahead of your residency starting date, we compare the US tax on selling a fund now with the tax on holding it. We also plan the quarterly estimated tax on rent or a pension paid from home. - A notice from the IRS or a state on a return we prepared gets our answer within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle visa holders: https://valim.tax/visa-holders ## Which European country are you leaving? These nine European countries have a page of their own. For any other, start with its treaty on the IRS list, if it has one. ### Moving from the UK (https://valim.tax/visa-holders/from-the-uk) Start here for the US tax on an ISA and a UK pension, and for how long UK tax can follow you. ### Moving from Switzerland (https://valim.tax/visa-holders/from-switzerland) It shows how to time a pillar 2 payout around your US residency starting date, and how to reclaim Swiss tax. ### Moving from Poland (https://valim.tax/visa-holders/from-poland) It explains why the 1974 treaty still applies, and what that means for a ZUS pension and PPK savings. ### Moving from Germany (https://valim.tax/visa-holders/from-germany) See how Germany’s exit tax works, and how the treaty can raise your US basis to match. ### Moving from France (https://valim.tax/visa-holders/from-france) It tests an assurance vie and a PEA against US rules, and explains when France cancels its exit tax. ### Moving from the Netherlands (https://valim.tax/visa-holders/from-the-netherlands) It covers the Dutch tax bill on a workplace pension, and what box 3 still taxes once you live in the US. ### Moving from Spain (https://valim.tax/visa-holders/from-spain) Learn what a traspaso between funds costs a US resident, and how Spain taxes a flat you keep there. ### Moving from Ireland (https://valim.tax/visa-holders/from-ireland) It sets out how long Irish ordinary residence lasts, how Irish-domiciled ETFs are taxed, and when CAT reaches a gift from your parents. ### Moving from Italy (https://valim.tax/visa-holders/from-italy) Read it before you rely on AIRE registration to end your Italian tax residence, or draw TFR severance. ## Which US tax questions apply wherever in Europe you lived? ### Are European ETFs PFICs? Usually, yes: once you are a US resident, a UCITS fund or ETF counts as a PFIC. It exists only to invest in securities, so its income and assets are passive, and US entity rules usually treat it as a corporation. Each such fund generally needs its own Form 8621 every year. A qualified electing fund (QEF) election needs a PFIC Annual Information Statement from the fund. Mark-to-market fits only regularly traded or qualifying funds, and it taxes each year’s gain as ordinary income. ### How are European pensions taxed after I move to the US? A European pension is taxed under your country’s treaty with the US, which may give it to one country or let both tax it. With no treaty rule, the US taxes a foreign state pension under the annuity rules. A treaty may instead exempt it, or tax it like US Social Security, of which at most 85% is taxable. A treaty can defer US tax on growth inside a workplace plan, but only if the saving clause lists that rule as an exception. Without such a rule, US law alone decides how the plan’s growth is taxed. ### Do I pay an exit tax when I leave Europe for the US? You pay an exit tax on leaving Europe only if your home country has one and you meet its tests. Those tests usually combine years of residence there with the size of your holdings. Several European countries then treat shareholdings, and some fund units, as sold on the day your residence ends. The US still measures a later gain from what you paid, since moving here does not reset your cost basis. Only some treaties let you elect the value your home country taxed as your US basis instead. ### How many European countries have a totalization agreement with the US? As of October 2026, 24 European countries have a totalization (Social Security) agreement with the US, the newest since September 1, 2026. An agreement assigns your Social Security contributions to one country, usually the one where you work. Most also let an employer’s temporary posting keep you in your home system, proven by a certificate of coverage. Eight EU and EEA countries have no agreement. Workers from those countries have no certificate to claim, so they generally pay US Social Security and Medicare tax on US wages. ## Sources - IRS, United States income tax treaties, A to Z: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z - Directive 2009/65/EC (the UCITS Directive), Article 1: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32009L0065 - Social Security Administration, totalization agreements overview: https://www.ssa.gov/international/agreements_overview.html - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 U.S.C. § 1295, Qualified electing fund: https://www.law.cornell.edu/uscode/text/26/1295 - 26 U.S.C. § 1296, Election of mark to market for marketable stock: https://www.law.cornell.edu/uscode/text/26/1296 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting for PFIC shareholders (Form 8621): https://www.law.cornell.edu/cfr/text/26/1.1298-1 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 C.F.R. § 1010.306, Filing of reports: https://www.law.cornell.edu/cfr/text/31/1010.306 - IRS, Instructions for Form 8938: https://www.irs.gov/instructions/i8938 - IRS, Instructions for Form 3520 (Rev. December 2025): https://www.irs.gov/instructions/i3520 - 26 U.S.C. § 6039F, Notice of large gifts received from foreign persons: https://www.law.cornell.edu/uscode/text/26/6039F - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 C.F.R. § 301.7701(b)-4, Residency time periods: https://www.ecfr.gov/current/title-26/section-301.7701(b)-4 - 26 C.F.R. § 301.7701(b)-7, Coordination with income tax treaties: https://www.ecfr.gov/current/title-26/section-301.7701(b)-7 - 26 C.F.R. § 1.901-2, Income, war profits, or excess profits tax paid or accrued: https://www.law.cornell.edu/cfr/text/26/1.901-2 --- URL: https://valim.tax/online-tax-preparation Title: Online tax preparation services: a real CPA and a fixed fee Updated: 2026-09-30 # Online tax preparation services at Valim mean a licensed CPA prepares and signs your personal return. Individual returns start at $195, and that fee covers your federal return and one state return. We are an online CPA firm for individuals, and we quote every fee upfront. Our US-licensed CPAs include ex-Big Four accountants. Valim for individual returns: - $195: is the starting fee, and we never bill by the hour. - 50: states are covered, so we can file in any state that taxes your income. - <1 week: is the usual time from your last form to a filed return. ## What can an online CPA do for your return? ### RSUs, stock options and ESPPs We report the income your equity creates at vesting, exercise or sale, and every share sale after that. On Tax advisory, your CPA also plans exercises around the alternative minimum tax (AMT) before you act. ### Crypto trades and staking We trace each coin’s cost basis through your exchanges and wallets, and check it against every Form 1099-DA. Staking and airdrop income goes on the return too. ### The year you move We prepare the part-year resident returns that both your old state and your new state expect. If you are on Tax advisory, we check which state would tax a stock sale made before or after the move. ### Freelance and side income We report freelance income on Schedule C and the self-employment tax on Schedule SE. We work from your own records or your bookkeeper’s. We also set quarterly estimated payments for income nobody withholds tax from. ### A second look at last year’s return Send us last year’s return, done in software or by another preparer, and we point out deductions or credits it missed. A review starts at $49, with no obligation to file with us. ### A free federal extension We send your Form 4868 at no charge, even if another preparer does your return. State extensions follow each state’s own rules. ## You never visit an office for online tax prep at Valim. ### 1. See the price first Your answers to the instant quote set the price before you share a document. The quote stays valid for 7 days while you decide. If your documents show something your answers missed, we re-quote once, before work starts. ### 2. Your CPA does the return Your uploads go into one portal, where our automation extracts and sorts the figures. Your CPA prepares the return from those figures. ### 3. We answer notices on our returns Upload any IRS or state notice on a return we prepared, and we reply within your fee. ## Our CPA tax services come as the return on its own, or the return with year-round planning. ### Individual return filing From $195 The filing plan takes any individual return, from one W-2 to a year of K-1s and rental property. Your CPA keeps answering your questions in the portal after you file. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as selling your home or timing a bonus. ## Deductions and brackets set what you owe, and an extension can move when you file. ### Most filers get a flat deduction set by filing status (https://valim.tax/glossary/standard-deduction) The standard deduction rises with inflation each year, and it is higher for filers 65 or older or blind. ### Itemizing helps when your deductions are large (https://valim.tax/glossary/itemized-deductions) Itemizing on Schedule A generally pays off when state and local taxes, mortgage interest and charitable gifts exceed the standard deduction. ### Some deductions come off before your AGI (https://valim.tax/glossary/adjusted-gross-income-agi) Deductible IRA contributions, HSA contributions and student loan interest all reduce your adjusted gross income, the figure many limits start from. ### Your marginal rate applies to your next dollar (https://valim.tax/glossary/marginal-tax-rate) A raise that crosses into the next bracket is taxed at the higher rate only on the dollars above the line. ### Your tax is still due in April when you extend (https://valim.tax/tax-extension) Form 4868 gives you six more months to file, and interest runs on any tax you pay after the regular due date. "Switched from TurboTax after 6 years. Valim found $4,200 in rental property insurance deductions I had no idea I was missing." (Property owner in Dallas) ## Hire a CPA for your next return. ## Before you hire a tax professional online, ask who will sign your return and what it will cost. ### How much does a CPA charge to do my taxes? At Valim, a CPA prepares your individual return from $195. Rental properties, K-1s or a second state each add to the fee, and so does higher income. The instant quote sets that fee from your answers before any work starts, and Valim bills nothing by the hour. ### Will a real CPA prepare my return? Yes, at Valim, a licensed US CPA prepares your return, then reviews and signs it before filing. Under IRS rules, anyone with a PTIN can prepare tax returns for pay. The number costs $18.75 for 2026. It is not a credential, so ask any online tax preparer who will sign your return. ### Is TurboTax Live as good as a CPA? It depends on the expert you get, because Intuit’s current product pages do not say every TurboTax expert is a CPA. Intuit now sells the service as TurboTax Expert Assist and TurboTax Expert Full Service. It says its experts average 12 years’ experience, a figure the experts report themselves. A CPA can represent you in an IRS audit under a Form 2848. A preparer with only a PTIN cannot, and one with an AFSP record can do so only for a return they prepared and signed. ### What’s the difference between a CPA and an enrolled agent? An enrolled agent is licensed by the IRS, after passing its three-part exam on federal tax or through past IRS work. A CPA holds a state license and passed an exam on accounting and auditing as well as tax. A CPA, or an EA enrolled by exam, can represent you before the IRS on any matter. Both need a PTIN to prepare returns for pay. ### Can AI do my taxes? AI can read your forms and do the math, but the law makes a person responsible for a paid return. That person signs the return and enters their PTIN. Circular 230 also lets only individuals, not software, practice before the IRS. At Valim, automation handles the data entry, and the judgment stays with the CPA who signs your return. ### Is it safe to upload tax documents online? It can be, when the firm follows the FTC Safeguards Rule, which treats tax preparers as financial institutions. The rule generally requires encryption of client data in transit and at rest, and multi-factor authentication for anyone who logs in. If unencrypted data on 500 or more consumers is taken, the firm must tell the FTC within 30 days of discovery. Valim complies with the Gramm-Leach-Bliley Act (GLBA), the law behind the Safeguards Rule. It never uses client data to train AI models. ### What documents do I need? You need every tax form you received for the year, such as W-2s, 1099s, SSA-1099s and Form 1095-A. Add an SSN or ITIN for each person on the return, last year’s AGI and any IP PIN the IRS issued you. Keep records of crypto transactions that no form reports, and of deductions such as mortgage interest and charitable gifts. If you have lost last year’s return, a free IRS tax transcript shows most of its lines. ## Sources - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications - IRS, PTIN requirements for tax return preparers: https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers - IRS, Annual Filing Season Program: https://www.irs.gov/tax-professionals/annual-filing-season-program - 26 C.F.R. § 301.7701-15, Tax return preparer: https://www.law.cornell.edu/cfr/text/26/301.7701-15 - 26 C.F.R. § 1.6695-1, Other assessable penalties with respect to the preparation of tax returns for other persons: https://www.law.cornell.edu/cfr/text/26/1.6695-1 - 26 U.S.C. § 6109, Identifying numbers: https://www.law.cornell.edu/uscode/text/26/6109 - 31 C.F.R. § 10.3, Who may practice (Circular 230): https://www.law.cornell.edu/cfr/text/31/10.3 - 31 C.F.R. § 10.4, Eligibility to become an enrolled agent (Circular 230): https://www.law.cornell.edu/cfr/text/31/10.4 - IRS, Enrolled agent information: https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information - IRS, Instructions for Form 2848 (Rev. September 2021): https://www.irs.gov/instructions/i2848 - Intuit, TurboTax online tax filing (expert experience footnote): https://turbotax.intuit.com/personal-taxes/online/ - 16 C.F.R. § 314.2, Definitions (FTC Safeguards Rule): https://www.law.cornell.edu/cfr/text/16/314.2 - 16 C.F.R. § 314.4, Elements (FTC Safeguards Rule): https://www.law.cornell.edu/cfr/text/16/314.4 - IRS, Gather your documents: https://www.irs.gov/filing/gather-your-documents - IRS, Transcript types for individuals and ways to order them: https://www.irs.gov/individuals/transcript-types-for-individuals-and-ways-to-order-them - IRS, Form 4868 (2025), Application for Automatic Extension of Time To File U.S. Individual Income Tax Return: https://www.irs.gov/pub/irs-pdf/f4868.pdf - 26 C.F.R. § 1.6081-4, Automatic extension of time for filing individual income tax return: https://www.law.cornell.edu/cfr/text/26/1.6081-4 - 26 U.S.C. § 62, Adjusted gross income defined: https://www.law.cornell.edu/uscode/text/26/62 - 26 U.S.C. § 63, Taxable income defined (standard and itemized deductions): https://www.law.cornell.edu/uscode/text/26/63 - 26 U.S.C. § 213, Medical, dental, etc., expenses: https://www.law.cornell.edu/uscode/text/26/213 - IRS, Federal income tax rates and brackets: https://www.irs.gov/filing/federal-income-tax-rates-and-brackets --- URL: https://valim.tax/tax-extension Title: How to file a tax extension for free, and what you still owe Updated: 2026-09-29 # How to file a tax extension: send the free Form 4868 by April 15 for six more months to file, but not to pay. An IRS tax extension moves your filing deadline from April 15 to October 15. You do not have to say why. Any tax you owe is still due April 15. Unpaid tax draws interest from then, and usually a late payment penalty. Individual federal returns: - 5%: a month of the unpaid tax is the late filing penalty, up to 25%. Filing by your extended date avoids it. - 0.5%: a month, up to 25%, is the usual late payment penalty on tax unpaid after April 15, extension or not. - 90%: of your tax, paid by April 15, removes the late payment penalty on an extension if the rest comes with an on-time return. A tax extension filed in 2026, for a 2025 return, runs to October 15, 2026. An extension on a 2026 return runs to October 15, 2027. ## How do I file an extension with the IRS? You need an extension only if you will file your return after April 15. Form 4868 is the tax extension form for individuals. If you e-file, you get an acknowledgment; otherwise the IRS writes only if it denies the request. ### 1. Estimate your total tax on the extension form Line 4 asks for the total tax you expect your return to show, worked out from the information you have. Enter zero if you expect no tax at all. If the IRS later finds the estimate was not reasonable, the extension is void. ### 2. Subtract what you have paid You still get the extension if you cannot pay the balance in full. Line 5 is the total payments you expect your return to show, such as withholding, estimated tax and refundable credits. Leave out what you pay with this form. Line 6 is the balance due, and line 7 is what you pay now. ### 3. File it online or by mail by April 15 The deadline is your return’s due date, April 15 for most people. You can file online through tax software or a tax professional, or mail the paper form. IRS Free File takes extensions at any income, so anyone can e-file one free. ### 4. Pay online and skip the form You can pay part of your tax online instead, through IRS Direct Pay, your IRS online account or a card. Mark it as an extension payment, and you need no Form 4868. Keep the confirmation number the IRS gives you. Fiscal-year filers must mail a paper Form 4868. Do not use Form 4868 if you want the IRS to figure your tax. You also cannot use Form 4868 if a court has ordered you to file by the due date. ## What an extension and the 90% rule save on an $8,000 balance. Your 2025 return shows $40,000 of tax, and $32,000 was withheld from your pay. That leaves $8,000 due April 15, 2026, and you file on October 15. - No extension: $2,040. The return is six months late, so a late filing penalty of $1,800 joins the $240 for paying late. - Extension, $8,000 paid October 15: $240. The extension removes the filing penalty. Only $32,000, or 80% of the tax, was paid on time, so the payment penalty stays. - Extension, $4,000 paid by April 15: $0. Paying $4,000 more by April 15 puts $36,000, or 90% of the tax, on time. The last $4,000 goes with the return, and the 90% rule removes the payment penalty. Both penalties count each month or part of a month after April 15, and October 15 makes six. The payment penalty is 0.5% a month for all six, or 3% of $8,000. While both run, the filing penalty is 4.5% a month instead of 5%, so it reaches 22.5% of $8,000 after five months and stops. A 2025 return filed more than 60 days late also owes at least $525, or the whole tax if that is less. Interest is added in all three cases on tax unpaid after April 15. The rate was 6% a year from April to June 2026, and 7% from July. ## How do you file a corporate tax extension? A business asks for more time on Form 7004, one application per return, sent by the return’s original due date. The dates are for calendar-year 2026 returns. | | Due date | Extended due date | | --- | --- | --- | | Partnership (Form 1065) | March 15, 2027 | September 15, 2027 | | S corporation (Form 1120-S) | March 15, 2027 | September 15, 2027 | | C corporation (Form 1120) | April 15, 2027 | October 15, 2027 | | Sole proprietor (Schedule C) | April 15, 2027 | October 15, 2027 (With Form 4868, since Schedule C is part of Form 1040) | The tax on each of these returns is still due on the first date shown. Estates and trusts on Form 1041 get 5½ months. For 2025 returns, the first two dates were March 16, 2026, because March 15 fell on a Sunday. ## What can still cost you on an extension? ### Quarterly payments have their own test (https://valim.tax/glossary/safe-harbor-estimated-tax) The underpayment penalty on estimated tax has its own safe harbor, separate from the 90% rule for extensions. Withholding and on-time quarterly payments meet it if they cover 90% of this year’s tax or 100% of last year’s. The 100% becomes 110% if last year’s adjusted gross income (AGI) topped $150,000, or $75,000 for married filing separately. ### Estimated tax dates stay the same An extension does not move any estimated tax due date. The first payment for the new tax year is due April 15, the same day as last year’s balance. ### A state tax extension has its own rules A California tax extension is automatic, with no form to file, but the tax is still due April 15. New York needs its own Form IT-370, and its extension holds only if you pay the tax you expect to owe. ### You live abroad on April 15 (https://valim.tax/expat-tax) A US citizen or resident who lives outside the US and Puerto Rico, with a tax home there too, gets until June 15. You attach a statement to the return saying you qualify, and interest still runs from April 15. ### You cannot pay the whole balance An IRS installment agreement lets you pay over time, and it can lower the late payment penalty to 0.25% a month. The lower rate applies only if you file on time, including any extension. Interest still runs until the balance is paid. ### October 15 is the limit The automatic 6-month extension is generally the most time the IRS can give on an individual return. You can file any time before it runs out. ## A CPA firm files your federal extension for free. Valim files federal extensions free for anyone, whether or not Valim prepares the return: Form 4868 for individuals and Form 7004 for businesses. - After the extension, we prepare your federal and state returns, and we file most within days of receiving your documents. - When we are preparing your return, we work out an April 15 payment that aims to cover 90% of your tax. - We work out next year’s estimated payments using the safe harbor. - For a business, we work from your bookkeeper’s year-end books to prepare the return that Form 7004 extended. - We answer IRS or state notices on returns we prepared, such as a penalty notice, within the fee. - Federal extension: Free - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we prepare individual returns: https://valim.tax/online-tax-preparation ## What do people ask about tax extensions? ### How do I file a tax extension for free? You can file a federal tax extension for free through IRS Free File, which takes extensions at any income. You can also mail a paper Form 4868 by April 15. A third way is to pay part of your tax online through IRS Direct Pay and mark it as an extension payment. That payment counts as your extension. Valim files Form 4868 or Form 7004 free for anyone, even if someone else prepares the return. ### Is there a penalty for filing an extension on taxes? No, filing an extension carries no penalty, and the IRS charges no fee for it. The penalties come from paying late or filing late. Tax unpaid after April 15 draws interest, and usually a late payment penalty of 0.5% a month, even on an extension. If you owe tax, filing after April 15 without an extension, or after October 15 with one, adds a late filing penalty. The late filing and late payment penalties together cost 5% of the unpaid tax a month for the first five months. ### Does an extension give me more time to pay? No, an extension moves only your filing date. Form 4868 is not an extension to pay taxes, which are still due by April 15. Anything unpaid after that date is charged interest, and usually a penalty of 0.5% a month. If you cannot pay in full, pay what you can by April 15 to limit the interest. A separate request on Form 1127 can extend the time to pay, but only for undue hardship, and interest still runs. ### How much should I pay with my extension? Pay enough that at least 90% of your total tax is paid by April 15, counting withholding and estimated payments. If you pay the rest with your return, no late payment penalty applies for the extension period. Interest still runs on the unpaid balance from April 15. The estimated tax safe harbor is a separate test, for the penalty on quarterly payments during the year. ### How much does it cost to file an extension for taxes? Filing a federal extension costs nothing, because the IRS charges no fee. Valim files one free for anyone, too. Tax paid after April 15 does cost money. It is charged interest, at 7% a year for the last quarter of 2026, and usually a late payment penalty as well. ### Can a business get an extension? Yes. Most business returns get six more months on Form 7004, filed by the return’s original due date, and Form 1041 gets 5½. Sole proprietors are the exception: their Schedule C is part of Form 1040, which Form 4868 extends. Neither form gives more time to pay. ## Sources - IRS, Form 4868 (2025), Application for Automatic Extension of Time To File U.S. Individual Income Tax Return: https://www.irs.gov/pub/irs-pdf/f4868.pdf - 26 C.F.R. § 1.6081-4, Automatic extension of time for filing individual income tax return: https://www.law.cornell.edu/cfr/text/26/1.6081-4 - 26 U.S.C. § 6651, Failure to file tax return or to pay tax: https://www.law.cornell.edu/uscode/text/26/6651 - 26 C.F.R. § 301.6651-1, Failure to file or to pay (reasonable cause on extension): https://www.law.cornell.edu/cfr/text/26/301.6651-1 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 C.F.R. § 1.6081-5, Extensions of time in the case of certain partnerships, corporations and U.S. citizens and residents: https://www.law.cornell.edu/cfr/text/26/1.6081-5 - 26 C.F.R. § 1.6161-1, Extension of time for paying tax or deficiency (Form 1127): https://www.law.cornell.edu/cfr/text/26/1.6161-1 - IRS, Get an extension to file your tax return: https://www.irs.gov/filing/get-an-extension-to-file-your-tax-return - IRS, Failure to file penalty: https://www.irs.gov/payments/failure-to-file-penalty - IRS, Quarterly interest rates: https://www.irs.gov/payments/quarterly-interest-rates - IRS, Instructions for Form 7004 (Rev. December 2025): https://www.irs.gov/pub/irs-pdf/i7004.pdf - IRS, Publication 509 (2026), Tax Calendars: https://www.irs.gov/pub/irs-pdf/p509.pdf - California FTB, Extension to file: https://www.ftb.ca.gov/file/when-to-file/extension-to-file.html - New York State Department of Taxation and Finance, Instructions for Form IT-370 (2025): https://www.tax.ny.gov/forms/current-forms/it/it370i.htm --- URL: https://valim.tax/crypto-tax Title: Crypto tax accountant: CPA-prepared crypto and fintech returns # Most CPAs turn away crypto. We built our practice on it. Crypto tax accountants and CPAs advise fintech and cryptocurrency businesses. Across DeFi, staking, mining, NFTs, 1099-DA reconciliation, broker-dealer structures and more, we ensure your return matches what the IRS expects. - A licensed US CPA signs every return - Ex-Big 4 expertise - Flat, upfront pricing - Bank-grade security ## Crypto tax is where good CPAs give up. If any of these sound familiar, you are exactly who we built this for. ### Your CPA said no to crypto Most firms refuse DeFi and digital-asset work outright. You are left reconciling wallets alone, or filing a return your preparer does not actually understand. ### Thousands of transactions, dozens of wallets Exchanges, cold wallets, bridges, LPs. Cost basis breaks somewhere in the middle, and the IRS expects every disposal to be right. ### 1099-DA raised the stakes Brokers now report your digital-asset sales directly to the IRS. If your return does not match what they file, you get the notice. ## Our crypto tax services cover the return and the decisions before it. The IRS taxes crypto as property, so each sale, trade or purchase made with crypto brings a gain or loss. Crypto income, such as staking rewards, is taxed in the year you receive it. We report both on your return. ### 1099-DA & cost-basis reconciliation We reconcile every account and wallet you use, tracking basis wallet by wallet, as required since 2025. Your return then accounts for every sale on each broker’s Form 1099-DA. ### Every kind of digital-asset income We report staking rewards, mining income, DeFi yields, airdrops and NFT income in the right tax year. Every item is reported as ordinary income or a capital gain, whichever applies. Coins airdropped to you after a hard fork are included. ### Exchanges outside the US An exchange based outside the US may send you no Form 1099-DA. Its trades still go on your return, and we reconcile them with the rest. ### Choosing which coins you sell We compare specific identification with first in, first out (FIFO) before you sell. Specific identification lets you pick which units (lots) a sale uses, while FIFO sells the oldest first. If you pick, we help you record your choice by the time of the sale, as the rules require. ### Estimated payments We work out quarterly estimates on your crypto gains. ### Crypto and fintech businesses We prepare the returns of crypto and fintech companies from their year-end books. Bookkeeping and a clean-up of the books can be added to your filing. Valim is a CPA firm and sells no crypto tax software. We file federal and state returns in all 50 states. ## Each exchange sends your crypto tax documents its own way. ### Coinbase (https://valim.tax/crypto-tax/coinbase) Coinbase sends Form 1099-DA to every US customer with sales, but activity in Coinbase Wallet is not on it. ### Crypto.com (https://valim.tax/crypto-tax/crypto-com) Crypto.com left cost basis off its first Form 1099-DA, so your basis must come from your own records. ### Robinhood (https://valim.tax/crypto-tax/robinhood) Robinhood puts crypto sales on Form 1099-DA inside one consolidated 1099, where the 1099-B used to carry them. ### Kraken (https://valim.tax/crypto-tax/kraken) Kraken’s 2025 Form 1099-DA printed a first in, first out (FIFO) basis estimate on your copy that never reached the IRS. ### Gemini exchange (https://valim.tax/crypto-tax/gemini) The Gemini exchange values staking rewards when you can first withdraw them, and keeps credit card rewards off the 1099-MISC as rebates. ## How it works. You share the data once. We handle everything after that. ### 1. Share your data Exchange CSVs, wallet addresses, or access to your crypto tax software. Whatever state it is in, we take it from there. ### 2. We reconcile and prepare AI-assisted reconciliation, then a CPA-prepared return with full workpapers you can actually inspect. ### 3. CPA review, filing & year-round support A licensed US CPA reviews and signs every return. Questions answered all year, not just in April. ## Transparent pricing, before we start. You know the exact price upfront. No hourly billing, no surprise invoices. ### Individual returns from $195 Including crypto activity, equity comp, and multi-state situations. Heavy reconciliation quoted upfront. Year-round CPA access included. ### Business returns from $495 C-Corp, S-Corp, and Partnership returns for fintech and crypto businesses. Year-round CPA access included. ## Get a crypto-fluent CPA on your side. A 30-minute call with our CPA. Bring your messiest wallet. We will tell you exactly what it takes to get it right. ## Frequently asked questions. ### My transactions are a mess across exchanges and wallets. Can you fix it? Yes. This is most of what we do. We rebuild cost basis from exchange exports, wallet addresses, and on-chain data, reconcile everything wallet by wallet, and document it so the numbers hold up if the IRS ever asks. ### What is Form 1099-DA and does it change anything for me? Starting with 2025 transactions, brokers report digital-asset sales to the IRS on Form 1099-DA. If your return does not match what they report, you can expect a notice. We reconcile your records against broker reporting before we file, so there is no mismatch. ### Can the IRS see my crypto wallet? Partly. The IRS sees what US exchanges and other custodial brokers (those that hold your coins for you) report on Form 1099-DA. For earlier years, it has used court-approved John Doe summonses, which cover customers not yet named, to seek exchange records. A self-custody wallet has no broker, so no Form 1099-DA covers it, but you still report that activity. Form 1040 asks every filer whether they received a digital asset as a reward or payment, or sold, traded or disposed of one. ### I have not reported crypto in previous years. Am I in trouble? Usually it is fixable, and fixing it proactively is far cheaper than waiting for the IRS to find it. We assess your exposure, prepare amended returns where needed, and get you current. ### Do I have to report crypto gains under $600? Yes. Current law has no de minimis exemption for small crypto gains, so every taxable crypto transaction must be reported, whatever the amount. The $600 thresholds only decide when a broker or payment processor must send a form, not what you report. A pending bill, H.R. 10357, would ignore gain or loss on crypto spent on fees of $10 or less. The exemption covers network fees, and trading fees paid in the coin traded. It would start in 2028, and traders, brokers and dealers would not qualify. ### Will I be taxed on $1,000 of crypto profit? Yes, once the $1,000 is a realized gain, meaning you sold, traded or spent the crypto. Buying crypto with dollars and holding it is not taxed. Held one year or less, the gain is taxed at your ordinary income rate, from 10% to 37% in 2026. Held more than a year, it is taxed at 0%, 15% or 20%. It can be 0% if your 2026 taxable income stays within $49,450 as a single filer, or $98,900 on a joint return. A 3.8% net investment income tax can also apply above $200,000 of modified AGI for a single filer, or $250,000 jointly. ### Is converting one cryptocurrency to another taxable? Yes, because trading one coin for another is a disposal of the coin you give up. Your gain or loss is the fair market value of the new coin, minus any fees and your basis in the old one. The new coin’s fair market value then becomes its basis. Trading, selling or spending a stablecoin is taxed like any other crypto disposal, though its steady price usually leaves little gain or loss. ### Can you actually handle DeFi, staking, and NFTs? Yes. Liquidity pools, lending protocols, perps and other derivatives, staking rewards, mining income, NFT sales and royalties, airdrops, and forks. We determine the correct income character and timing for each, with the reasoning documented. ### Do accountants do crypto taxes? Yes. Any tax professional with an IRS preparer tax identification number (PTIN) can prepare your federal return, crypto included. There is no separate federal credential for a crypto tax preparer. A CPA who does crypto work, often called a cryptocurrency accountant, is licensed by a state board of accountancy. CPAs, enrolled agents and attorneys can also represent you before the IRS in audits and appeals. ### Should I use crypto tax software or hire a CPA? Crypto tax software can be enough for a simple year, such as buying and selling on one US exchange. A CPA earns the fee when records have gaps, such as coins moved in from another wallet without their basis. A CPA also signs your return, and can represent you if the IRS asks about it. ### Do you work with Koinly, CoinLedger, or CoinTracking? Yes. Bring exports from any major crypto tax platform, or just raw CSVs and wallet addresses. We work with whatever you have and clean it up from there. ### What does it cost? Individual returns start at $195 and business returns at $495. Heavy reconciliation work is quoted upfront before we start. No hourly billing, no surprise invoices. ### Is my data safe? Bank-grade encryption in transit and at rest, private infrastructure, and your data is never shared with third parties or used to train AI models. ## Sources - IRS, Notice 2014-21 (virtual currency is property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - IRS, Understanding your Form 1099-DA: https://www.irs.gov/businesses/understanding-your-form-1099-da - 26 U.S.C. § 1001, Determination of amount of and recognition of gain or loss: https://www.law.cornell.edu/uscode/text/26/1001 - 26 U.S.C. § 1222, Other terms relating to capital gains and losses: https://www.law.cornell.edu/uscode/text/26/1222 - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - 26 C.F.R. § 1.1001-7, Computation of gain or loss for digital assets: https://www.law.cornell.edu/cfr/text/26/1.1001-7 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 6045, Returns of brokers: https://www.law.cornell.edu/uscode/text/26/6045 - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Rev. Proc. 2024-28 (wallet-by-wallet basis transition): https://www.irs.gov/pub/irs-drop/rp-24-28.pdf - IRS, Rev. Rul. 2023-14 (staking rewards): https://www.irs.gov/pub/irs-drop/rr-23-14.pdf - IRS, Rev. Rul. 2019-24 (hard forks and airdrops): https://www.irs.gov/pub/irs-drop/rr-19-24.pdf - IRS, Instructions for Form 1099-DA (2025): https://www.irs.gov/pub/irs-prior/i1099da--2025.pdf - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications - US Department of Justice, John Doe summons to Coinbase (2016): https://www.justice.gov/archives/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used - US Department of Justice, John Doe summonses to Kraken and Circle (2021): https://www.justice.gov/archives/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used-1 - H.R. 10357, Digital Asset Tax Certainty Act (as introduced): https://www.govinfo.gov/content/pkg/BILLS-119hr10357ih/html/BILLS-119hr10357ih.htm - Coinbase Help, Form 1099-DA: https://help.coinbase.com/en/coinbase/taxes/forms-reports/1099da - Coinbase Help, Tax information: https://help.coinbase.com/en/coinbase/taxes/general-information/tax-info - Crypto.com Help Center, 1099 Form for the 2025 Tax Year: https://help.crypto.com/en/articles/5948842-1099-form-for-the-2025-tax-year - Robinhood Support, Taxes and forms: https://robinhood.com/us/en/support/articles/taxes-and-forms/ - Robinhood Support, Crypto tax FAQ: https://robinhood.com/us/en/support/articles/crypto-tax-FAQ/ - Kraken Support, Tax forms frequently asked questions: https://support.kraken.com/articles/360001184966-tax-forms-frequently-asked-questions - Kraken Support, How to read your 2025 combined Form 1099: https://support.kraken.com/articles/how-to-read-your-2025-combined-form-1099 - Gemini Support, What is a form 1099-DA and a tax Gain/Loss Statement: https://support.gemini.com/hc/en-us/articles/20055560379675-What-is-a-form-1099-DA-and-a-tax-Gain-Loss-Statement - Gemini Support, What is a Form 1099-MISC: https://support.gemini.com/hc/en-us/articles/20055671824923-What-is-a-Form-1099-MISC --- URL: https://valim.tax/crypto-tax/coinbase Title: Coinbase taxes: your 1099-DA, other tax documents and cost basis Updated: 2026-09-24 # Your Coinbase taxes come from your gains and rewards, and Form 1099-DA reports your sales to the IRS. Coinbase says it issues Form 1099-DA to all US customers with crypto sales, starting with tax year 2025. The 2025 form shows your proceeds but no cost basis, so the gain on each sale is yours to work out. Staking rewards are income too, valued when you can first sell them. Coinbase tax forms, 2025 and 2026: - Mar. 19: was the date in 2026 by which Coinbase said your 2025 Form 1099-DA would be ready. - 2026: is the first tax year Coinbase’s 1099-DA reports cost basis, and only for some of your crypto. - H or K: is the Form 8949 box for a 2025 Coinbase sale. Use H for crypto held a year or less, and K for crypto held longer. ## Coinbase tax forms cover your Coinbase.com account and leave out Coinbase Wallet. Your forms are in Coinbase Taxes, the Coinbase tax center in your account. Open Documents there to download each form. Coinbase emails you when your 1099-DA is ready. You can choose paper or paperless delivery in the Settings tab of Coinbase Taxes. ### 1. Form 1099-DA, if you sold or traded crypto Coinbase issues Form 1099-DA if you sold crypto on Coinbase.com for dollars or swapped one coin for another. Small trades count too. ### 2. Form 1099-MISC, if your rewards pass the threshold Coinbase reports staking rewards, incentives and other miscellaneous income on Form 1099-MISC. You get one when the year’s total meets the threshold: more than $600 for 2025, and at least $2,000 for 2026. ### 3. Form 1099-B or 1099-DIV, for other investments Futures and securities you sold through Coinbase go on Form 1099-B. Dividends over $10 go on Form 1099-DIV. ### 4. No form for Coinbase Wallet Coinbase Wallet is a self-custody wallet, where you hold your own keys, so Coinbase is not your broker there. No Coinbase form reports its trades on decentralized exchanges, so you report them yourself. From tax year 2025, Coinbase no longer provides Form 8949. It points customers to crypto tax partners such as CoinTracker instead. For your own Coinbase tax report, Coinbase Taxes still has a gain/loss report. ## Adding your Coinbase cost basis can cut the tax on a sale by more than half. For crypto you bought, your cost basis is what you paid, fees included. For staking rewards, it is generally the value you reported as income. A single filer in the top 2026 bracket sells crypto on Coinbase for $50,000. The crypto cost $30,000. - Basis left out, held over a year: $11,900. The whole $50,000 is taxed as long-term capital gain, at 20% plus 3.8%. - Basis added, held a year or less: $8,160. The $20,000 gain is taxed as ordinary income, at 37% plus 3.8%. - Basis added, held over a year: $4,760. Only the $20,000 gain is taxed, at the long-term rate of 20% plus 3.8%. The rates are the 2026 federal rates for taxable income above $640,600. The 3.8% is the net investment income tax, which applies once modified AGI passes $200,000. State tax is extra. ## What changes on your Coinbase 1099 for tax year 2026? From tax year 2026, brokers must report basis, but only for covered crypto. At Coinbase, that means crypto bought or swapped for in your account from January 1, 2026 and kept there until sold. | | Tax year 2025 | Tax year 2026 | | --- | --- | --- | | Sale proceeds | Reported to the IRS | Reported to the IRS | | Cost basis and holding period | Not included | Included for covered crypto | | Crypto bought before 2026, or sent in | No basis | No basis to the IRS (Marked noncovered) | | Form ready | By March 19, 2026 (The date Coinbase gave) | Early 2027 | Coinbase dates each trade in Eastern Time. A trade at 9:30 p.m. Pacific on December 31, 2025 is 12:30 a.m. ET on January 1, so it goes on your 2026 form. ## What your Coinbase tax documents miss is still yours to report. ### Crypto you moved in from elsewhere (https://valim.tax/glossary/covered-digital-asset) A blank basis on your Coinbase form does not make your basis zero. For coins you sent in from another wallet or exchange, you report what you paid from your own records. Coinbase Taxes also leaves out Coinbase Pro, so it may lack what you paid there. ### Rewards under the 1099-MISC threshold Staking rewards below the threshold bring no 1099-MISC but are still taxable income, usually on Schedule 1 of Form 1040. Coinbase Taxes shows all the crypto income you earned, so you can find these rewards there. ### Which units you sold (https://valim.tax/glossary/specific-identification) Unless you identify the units you sell, the oldest units in your Coinbase account count as sold first (first in, first out). Since 2025, that rule applies account by account, so coins you hold elsewhere do not count. A cost basis method chosen in Coinbase Taxes can serve as a standing order, and Coinbase locks your historical method once you confirm it. ### Errors on the form For a wrong name, Social Security number or state, ask Coinbase support for a corrected 1099-DA. Coinbase corrects an address only when your state of residence changed. ## A Valim CPA takes your Coinbase taxes from the 1099-DA to the filed return. Valim’s CPAs prepare returns for Coinbase customers, matching every sale on the 1099-DA to its cost basis. - We trace coins you moved to Coinbase from other exchanges and wallets, so each sale carries the basis your records support. - We report your staking rewards as income on your federal and state returns, including rewards too small for a 1099-MISC. - We show what each choice of units would cost before a large sale, so you know which to sell. - We set estimated payments for big Coinbase gains. - Any IRS or state notice on a return we prepared, such as one questioning your Coinbase basis, gets our reply within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle crypto tax: https://valim.tax/crypto-tax ## Coinbase tax questions. ### Will Coinbase send me a 1099? Yes, if you sold or traded crypto on Coinbase.com, or earned enough in rewards. Coinbase says it sends Form 1099-DA to all US customers with crypto sales, starting with 2025, and files a copy with the IRS. Staking rewards and other crypto income bring a Form 1099-MISC above $600 for 2025, or from $2,000 for 2026. Coinbase Wallet is self-custody, so no Coinbase form reports its activity. If you also traded crypto on Robinhood, expect a second 1099-DA from Robinhood, inside its consolidated 1099. ### Do I have to pay taxes on Coinbase? Yes, on your gains and income, though holding crypto in your Coinbase account is not taxed. Selling crypto for cash, swapping it for another coin and spending it are all taxable events. Staking rewards are ordinary income once you can sell them. Withdrawing crypto to Coinbase Wallet, or another wallet you own, is not a sale. You owe the tax whether or not Coinbase sends you a tax form. ### Coinbase sent me a 1099-DA. What do I do with it? Use your Coinbase 1099-DA to report each sale on Form 8949, with the cost basis from your own records. The 2025 form shows gross proceeds only, and entering those as your gain would overstate your tax. Crypto held a year or less goes in box H, and crypto held longer in box K. The totals then carry to Schedule D. Because you had a sale, answer “Yes” to the digital asset question on page 1 of Form 1040. ### Does my Coinbase 1099-DA show my cost basis? No, your Coinbase 1099-DA for 2025 shows proceeds only, since the IRS did not require basis for 2025 sales. From tax year 2026, it adds basis for covered crypto. Those are coins you bought or swapped for on Coinbase on or after January 1, 2026 and still held there when you sold. Older crypto, and coins sent in from another wallet, stay noncovered, so their basis is still yours to report. For coins you bought on Kraken and moved to Coinbase, your Kraken transaction history shows what you paid. ## Sources - IRS, Instructions for Form 1099-DA (2025): https://www.irs.gov/pub/irs-prior/i1099da--2025.pdf - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - IRS, Instructions for Forms 1099-MISC and 1099-NEC (2026): https://www.irs.gov/instructions/i1099mec - IRS, Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-prior/i8949--2025.pdf - IRS, Rev. Rul. 2023-14 (staking rewards): https://www.irs.gov/pub/irs-drop/rr-23-14.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - 26 C.F.R. § 1.1001-7, Digital assets: https://www.law.cornell.edu/cfr/text/26/1.1001-7 - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Rev. Proc. 2024-28 (wallet-by-wallet basis transition): https://www.irs.gov/pub/irs-drop/rp-24-28.pdf - 26 U.S.C. § 6041, Information at source (1099-MISC threshold): https://www.law.cornell.edu/uscode/text/26/6041 - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - Coinbase Help, Coinbase tax information: https://help.coinbase.com/en/coinbase/taxes/general-information/tax-info - Coinbase Help, IRS Form 1099-DA: https://help.coinbase.com/en/coinbase/taxes/forms-reports/1099da --- URL: https://valim.tax/crypto-tax/crypto-com Title: Crypto.com taxes: find your tax documents and read the 1099-DA Updated: 2026-09-24 # Crypto.com taxes start with a 1099-DA that lists your proceeds and leaves the cost basis to you. The IRS made cost basis optional for 2025 sales, so what you paid comes from your own records. Start with the transaction history you can download in the app. Every sale and every reward that is income belongs on your return, with or without a form. Crypto.com’s tax forms at a glance: - 3: forms can arrive: 1099-DA for crypto sales, 1099-MISC for rewards and 1099-B for futures and options. - $2,000: in 2026 rewards is the new line for a Form 1099-MISC, up from $600 for 2025. - None: of your cost basis appears on the 2025 1099-DA, on the IRS copy or on yours. ## Each Crypto.com tax form comes from a different kind of activity. Crypto.com emails you a link to download each form that applies, at the latest address it has on file. It does not say when the forms will arrive. Brokers had to send the 2025 Form 1099-DA to customers by February 17, 2026. An approved IRS extension can give a broker up to 30 more days. ### 1. You sold, swapped or spent crypto Form 1099-DA reports your crypto sales and other disposals from your Crypto.com account, starting with 2025. Trading one coin for another counts as a sale, and so does spending crypto. ### 2. You earned $600 or more in rewards in 2025 Crypto.com sends a Form 1099-MISC with the year’s total once your rewards reach the yearly threshold. Rewards from Lock-Ups, Earn, referrals and certain other activities all count. ### 3. You traded futures or options Form 1099-B reports the futures and options contracts you traded on Crypto.com. Your coin sales stay on the 1099-DA. ### 4. You hold stocks or ETFs in the app Stocks and ETFs sit with Foris Capital US LLC, a separate broker-dealer that clears through Apex Clearing. It emails you when its tax documents are ready. You will find them in the app under Settings, then Account, then Tax Documents Statement. ## The cost basis you report decides the taxes on Crypto.com sales. You bought 10 coins on Crypto.com for $6,000 in 2024 and 10 more for $9,000 in March 2025. You then sold 10 for $11,000 in June 2026. - No cost basis entered: $1,650. Reporting the $11,000 with no basis taxes all of it as gain. - First in, first out: $750. With no choice recorded, the 2024 coins generally count as sold first, for a $5,000 gain. - You pick the 2025 coins: $300. Naming the $9,000 coins as sold, by the time of the sale, leaves a $2,000 gain. Each figure is federal tax at the 2026 long-term rate of 15%. That rate applies to the whole gain for a single filer whose other taxable income is at least $49,450. Total taxable income, gain included, must stay at or under $545,500. Each lot is more than a year old at the sale. The $11,000 is the proceeds figure on the 1099-DA. Coins bought before 2026 are noncovered, so even the 2026 form need not show their basis. The coins you keep carry the basis you did not use. State tax and any net investment income tax are left out. ## Your return must add what Crypto.com’s tax reporting does not show. From 2025, Form 8949 has separate boxes for digital assets, G through L. Crypto sales no longer go in box C or F. | | Crypto.com’s forms | Your return | | --- | --- | --- | | Each coin sale | Proceeds (On Form 1099-DA) | Gain or loss (Proceeds minus your cost basis) | | Purchase date | Not shown (Only the date sold) | Short or long term (Box H for a year or less, box K if longer) | | Selling fees | Already taken out (Proceeds are net of fees) | Not subtracted again (Doing so understates your gain) | | Rewards | Form 1099-MISC (Only at or above the threshold) | Income, whatever the amount (Lock-Up, Earn and referral rewards) | ## Check these four things before you file a return with Crypto.com sales. ### Stablecoin sales can come as one total (https://valim.tax/glossary/stablecoin) Report each stablecoin sale on your return, even when Crypto.com’s 1099-DA shows a year of one stablecoin’s sales as a single figure. That figure leaves the date of sale blank, and each stablecoin gets its own form. A broker can also leave the sales off when they total $10,000 or less. A sale no form reports goes in box I or L. ### Picking which coins you sell is set to get stricter in 2027 (https://valim.tax/glossary/specific-identification) Through December 31, 2026, IRS relief lets you make your lot choice in your own records, by the time of the sale. Unless the IRS extends that relief again, from 2027 the choice must reach Crypto.com by the time of the sale. It can go as an instruction or a standing order. From then, if Crypto.com offers only one method, that method counts as your standing order. ### A sale or reward means Yes on Form 1040 Form 1040 asks whether you received or disposed of any digital asset in the year. A Crypto.com sale, swap or reward makes the answer Yes. If you only bought with dollars and held, the answer is No. ### A missing or wrong form goes to In-App Chat Report a wrong form, a missing one or one sent in error to Crypto.com through In-App Chat. The IRS cannot correct a 1099-DA for you. Do not hold off filing while you wait for Crypto.com’s fix. ## Valim’s CPAs build your return from Crypto.com’s forms and your own records. Crypto.com’s forms show proceeds net of fees but no purchase dates, so we add each date and basis to your federal and state returns. - We match each 1099-DA sale to your Crypto.com history and report it on Form 8949 with its cost basis. - We pull the basis of coins you moved in from the exchange or wallet where you bought them. - We plan which lots a large sale should use, and how to record that choice. - We figure the estimated payments a big Crypto.com sale calls for. - We reply within the fee to IRS or state notices on returns we prepared, including one about your Crypto.com proceeds. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle crypto tax: https://valim.tax/crypto-tax ## What do Crypto.com users ask about their tax forms? ### Will Crypto.com send me a 1099? Yes, if you are a US customer who sold, swapped or spent crypto, earned rewards, or traded contracts in the year. Sales, swaps and spending come on Form 1099-DA. Rewards come on Form 1099-MISC once they reach $600 for 2025. Futures and options contracts come on Form 1099-B. One account can get all three as separate forms, while Robinhood puts its crypto and stock 1099s in one PDF. ### Where do I find my Crypto.com tax documents? Your Crypto.com tax documents come as a download link, emailed to the latest address on your account. Check your spam folder if it has not arrived, and ask In-App Chat for a paper copy. Download your transaction history in the app too, since it shows what you paid for each coin you sold. It also covers coins you bought on Crypto.com and later sold on another exchange, such as Coinbase. Tax documents for a stock account are in the app under Settings, Account, Tax Documents Statement. ### Does Crypto.com report to the IRS? Yes. Crypto.com’s Forms 1099-DA, 1099-MISC and 1099-B are IRS information returns. The law requires the issuer to file a copy of each with the IRS. For 2025, the IRS copy of your 1099-DA shows proceeds and no cost basis, and so does your copy. Kraken, by contrast, prints a basis estimate on the customer copy. ### At what point do I have to pay taxes on crypto? Tax arises when you sell, swap or spend crypto, or when you receive it as income, such as a reward. A sale can produce a taxable gain or a deductible loss. A realized gain is taxed for the year of the sale, and income for the year you receive it. If you expect to owe $1,000 or more after withholding, you generally pay estimated tax each quarter. For 2026, the due dates are April 15, June 15, September 15 and January 15, 2027. ## Sources - Crypto.com Help Center, 1099 Form for the 2025 Tax Year: https://help.crypto.com/en/articles/5948842-1099-form-for-the-2025-tax-year - Crypto.com Help Center, Stock and ETF Trading via the Crypto.com App: https://help.crypto.com/en/articles/10153377-stock-and-etf-trading-via-the-crypto-com-app - Robinhood Support, Taxes and forms: https://robinhood.com/us/en/support/articles/taxes-and-forms/ - IRS, Instructions for Form 1099-DA (2025): https://www.irs.gov/pub/irs-prior/i1099da--2025.pdf - IRS, General Instructions for Certain Information Returns (2025): https://www.irs.gov/pub/irs-prior/i1099gi--2025.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC (2025): https://www.irs.gov/pub/irs-prior/i1099mec--2025.pdf - IRS, Understanding your Form 1099-DA: https://www.irs.gov/businesses/understanding-your-form-1099-da - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - IRS, Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-prior/i8949--2025.pdf - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Notice 2026-20 (digital asset identification relief): https://www.irs.gov/pub/irs-drop/n-26-20.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 --- URL: https://valim.tax/crypto-tax/robinhood Title: Robinhood tax documents: your crypto 1099 and when it arrives Updated: 2026-09-24 # Crypto sales in your Robinhood tax documents are on Form 1099-DA, inside one consolidated 1099. For 2025 crypto sales, Robinhood reported only your gross proceeds to the IRS. Your own copy adds the basis, and the gain or loss, wherever Robinhood knows what you paid. Any basis Robinhood lacks must come from your records. Robinhood’s dates for tax year 2025: - 6:59 PM: Eastern time (11:59 PM UTC) on December 31 was Robinhood’s cut-off for putting a crypto trade on its 2025 forms. - Jan. 14: was the 2026 deadline to add a cost basis in the app for transferred crypto sold in 2025. - Feb. 17: was Robinhood’s 2026 date for your consolidated 1099 to be ready. ## The Robinhood crypto tax form you get depends on what you sold or earned. The Tax center in the app lists all Robinhood tax documents available to you. ### 1. You sold crypto Form 1099-DA reports the crypto sales in your Robinhood Crypto account, starting with 2025. It replaces Form 1099-B, which Robinhood used for crypto sales before. ### 2. You sold stocks, ETFs or options Form 1099-B reports your sales of stocks, ETFs and options. Your Robinhood stock tax documents and your crypto forms come in one PDF. The PDF is from Robinhood Markets, Inc. and holds the 1099s for Robinhood Securities, Robinhood Crypto, Robinhood Derivatives and Robinhood Money. ### 3. You earned crypto rewards or referral stock For 2025, Robinhood put crypto rewards on Form 1099-MISC once they reached $600, and treated referral stock the same way. The law puts the 1099-MISC line at $2,000 for payments made from January 1, 2026. Rewards below the line bring no form, but they are still income. ### 4. You had no sales and little income For 2025, Robinhood sent no Form 1099 if you sold no stocks, crypto, ETFs or options. That held only while your dividends and interest stayed under $10 and your miscellaneous income under $600. Some forms come outside the PDF: Form 1099-R for a Robinhood IRA, Form 1099-C for canceled debt and Form 1042-S for foreign account holders. ## A missing cost basis raises your Robinhood crypto taxes. A single filer sells $30,000 of crypto on Robinhood. Coins bought there for $15,000 sell for $20,000. Coins transferred in, which cost $8,000 elsewhere, sell for $10,000. - Proceeds taken as gain: $4,500. All $30,000 is taxed, including the $23,000 the coins cost. - Robinhood’s basis only: $2,250. The coins bought on Robinhood show a $5,000 gain, and the transferred coins count as $10,000 of gain. - Every lot with its basis: $1,050. The $8,000 paid elsewhere cuts the transferred coins’ gain to $2,000, for $7,000 in all. Each coin was held over a year, so every gain is long-term. This filer’s other taxable income is above $49,450, and the gain keeps the total within $545,500. In 2026, that puts the whole gain in a single filer’s 15% long-term bracket. The three results are 15% of $30,000, $15,000 and $7,000. The figures exclude state tax and the net investment income tax. ## Your Robinhood crypto 1099 treats transferred coins differently from coins bought there. A transfer moves the coins to Robinhood without their purchase record. | | Bought on Robinhood | Transferred in | | --- | --- | --- | | Basis on your 2025 copy | Shown | Missing (Unknown or zero unless you entered it) | | Order sold | Oldest first (First in, first out) | Sold first (While the basis is unknown or zero) | | Basis to the IRS for 2026 | Required (For coins acquired there in 2026) | Not required (Noncovered, though Robinhood plans to report it) | | Proof of what you paid | Robinhood’s records | Your own records (From where you bought them) | Robinhood marks lots with a basis you entered as “customer-provided.” ## What else should you check in your Robinhood crypto tax documents? ### A basis change brings no corrected form (https://valim.tax/glossary/cost-basis) The 2025 basis on your copy is for your information only, so Robinhood issues no corrected form when it changes. Put the right basis on Form 8949 yourself. The IRS copy had proceeds only, so use box H for coins held a year or less and box K for longer. ### Several sales can share one line Robinhood combines each day’s sales of one coin with the same holding term into a single line on the 1099-DA. Each line also names the coin by its 9-character Digital Token Identifier, or 999999999 if it has none registered. Match your records to the form one day and one coin at a time. ### Stablecoin sales can be left off (https://valim.tax/glossary/stablecoin) Robinhood reports qualifying stablecoin sales only once their combined proceeds pass $10,000, and then as one total per coin. Below that line, you still report every one of those sales. ### The wash sale rule does not name crypto (https://valim.tax/glossary/wash-sale) Robinhood holds your stock and your crypto in one app, but the wash sale rule treats them differently. A loss on stock or other securities is disallowed if you buy substantially identical ones within 30 days before or after the sale. The statute does not expressly cover crypto, and the IRS has issued no guidance applying it there. As a House committee approved it, H.R. 10357 would extend the rule to traded crypto sold after September 14, 2026. ## We file your Robinhood stock and crypto sales on one return. For Robinhood investors, Valim’s CPAs work out the cost basis behind each crypto sale and prepare both the federal and state returns. - We reconcile the 1099-DA and 1099-B in your Robinhood PDF with your records before any sale reaches Form 8949. - For transferred coins that show no basis, we rebuild the cost from the records of the exchange or wallet that sent them. - We weigh taking a gain or loss before Robinhood’s December 31 cut-off against taking it in January. - We size your four estimated payments to your Robinhood gains. - Your fee covers our reply to any IRS or state notice on a return we prepared, whether or not it concerns a Robinhood sale. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle crypto tax: https://valim.tax/crypto-tax ## Robinhood tax questions. ### Do I have to pay taxes on Robinhood gains? Yes, a realized gain on crypto or stock sold on Robinhood is taxed for the year you sell, with or without a form. The tax falls on the gain, which is your proceeds minus the cost basis you report. A gain on anything held a year or less is taxed at your ordinary rate, and a longer holding at the lower long-term rates. A crypto loss can offset a stock gain, and the reverse, since both are capital assets. ### Which tax form does Robinhood send for crypto? Robinhood puts your crypto sales on Form 1099-DA, a form that began with tax year 2025. It sits inside the consolidated 1099, next to Form 1099-B for stock and options sales. Before 2025, crypto sales went on the 1099-B too. For 2025, crypto rewards of $600 or more came on Form 1099-MISC. The IRS gets a copy of each form. From 2026, the 1099-DA must also report basis for covered digital assets. ### When does Robinhood send tax documents? Robinhood said its tax documents for 2025 would be ready by February 17, 2026, and it emails you when they are. February 17 was also the IRS deadline for a consolidated statement. For a Robinhood IRA, Form 1099-R came sooner, by February 2. Form 5498, which reports your IRA contributions, came later, by June 1. If you also trade on Coinbase, its 2025 Form 1099-DA had a later date, March 19, 2026. ### How do I get my Robinhood tax documents? To get Robinhood tax documents, tap Account (the person icon) in the app, then Menu (three bars), then Tax center. On the web, the Tax center is in Robinhood’s web classic view. A closed account keeps its forms there too. The document ID on the cover page of your consolidated 1099 lets tax software such as TurboTax import your forms. Robinhood’s CSV files of your transactions arrive after the consolidated 1099s. If you also trade on Crypto.com, its forms come by email as a download link instead. ## Sources - Robinhood Support, Taxes and forms: https://robinhood.com/us/en/support/articles/taxes-and-forms/ - Robinhood Support, Crypto tax FAQ: https://robinhood.com/us/en/support/articles/crypto-tax-FAQ/ - Robinhood Support, How to read your 1099-DA: https://robinhood.com/us/en/support/articles/how-to-read-your-1099-DA/ - Robinhood Support, How to access your tax documents: https://robinhood.com/us/en/support/articles/how-to-access-your-tax-documents/ - Robinhood Support, Tax documents FAQ: https://robinhood.com/us/en/support/articles/tax-documents-faq/ - IRS, Instructions for Form 1099-DA (2025): https://www.irs.gov/pub/irs-prior/i1099da--2025.pdf - IRS, General Instructions for Certain Information Returns: https://www.irs.gov/instructions/i1099gi - IRS, Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-prior/i8949--2025.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - 26 U.S.C. § 1091, Loss from wash sales of stock or securities: https://www.law.cornell.edu/uscode/text/26/1091 - 26 U.S.C. § 1211, Limitation on capital losses: https://www.law.cornell.edu/uscode/text/26/1211 - H.R. 10357, Digital Asset Tax Certainty Act (as introduced): https://www.govinfo.gov/content/pkg/BILLS-119hr10357ih/html/BILLS-119hr10357ih.htm - House Ways and Means, Markup of H.R. 10357 (September 16, 2026): https://waysandmeans.house.gov/event/markup-of-h-r-10357-h-r-10334-h-r-6130-h-r-5439-h-r-4093-h-r-10346-h-r-10356/ - JCT, Description of H.R. 10357: https://waysandmeans.house.gov/wp-content/uploads/2026/09/JCT-Description-of-HR-10357.pdf --- URL: https://valim.tax/crypto-tax/kraken Title: Kraken tax documents: your combined 1099 and what to report Updated: 2026-09-24 # Kraken tax documents come as one combined statement, and the 2025 basis printed on your copy never reached the IRS. The statement holds Form 1099-DA for your sales and Form 1099-MISC for your rewards. Kraken sent its first 1099-DA for tax year 2025. The basis you report on Form 8949 must come from your own records. Kraken’s combined 1099, tax year 2025: - $600: or more in 2025 rewards brought a Form 1099-MISC. - FIFO: is the method behind the basis and gain printed on your copy. - 24 hours: of trading set the value Kraken reports for each staking reward, on the day it is credited. ## Which Kraken tax forms should you expect for 2025? Both forms come from Payward Interactive, Inc., the Kraken company that serves US customers. If your tax software asks for the payer, enter that name and tax ID 83-0923587. ### 1. Form 1099-DA for crypto you sold or sent Kraken reports every sale on Kraken.com, Kraken Pro or its apps on Form 1099-DA, however small the sale. Trading bitcoin for ether counts as a sale. The form also lists crypto you sent to someone through the Krak app, which counts as a disposal. ### 2. Form 1099-MISC for your yearly rewards Staking, referral, airdrop and deposit rewards all add up to one yearly total. Kraken reports that total in box 3 of Form 1099-MISC, as other income. The threshold was $600 for 2025 and is $2,000 for rewards paid in 2026. ### 3. Kraken Wallet and Ink stay off the 1099-DA Kraken calls Kraken Wallet and Ink its decentralized finance (DeFi) apps, and leaves them off the 1099-DA for now. Trades you make there still go on your return, from your own records. ## What a blank basis on your Kraken 1099-DA costs. Coins you moved to Kraken from another exchange or wallet show no basis, even on your copy of the 1099-DA. Your basis is still what you paid for them, fees included. A single filer with $39,450 of other taxable income sells coins on Kraken in 2026 for $26,000. They were bought in 2023 for $6,000 on one exchange and $10,000 on another, then moved to Kraken. - No purchase records: $2,400. If you cannot show what you paid, the whole $26,000 can be taxed as gain: $10,000 at 0% and $16,000 at 15%. - Records for the $6,000 coins: $1,500. The gain drops to $20,000, and $10,000 of it is taxed at 15%. - Records for every coin: $0. The real gain of $10,000 is all taxed at 0%. All three figures are 2026 federal tax. Both purchases date from 2023, so the 2026 sale is long-term. Long-term gain is taxed at 0% until taxable income passes $49,450, then at 15% up to $545,500. State tax would be added on top. ## Kraken’s tax reporting gives the IRS your proceeds and leaves out your basis. Kraken left box 2 unchecked on its 2025 Form 1099-DA, the box that marks basis as reported. Report each 2025 Kraken sale on Form 8949: box H for coins held a year or less, box K for coins held longer. | | Your copy | IRS copy | | --- | --- | --- | | Proceeds from each sale | Yes | Yes | | Cost basis | FIFO estimate (First in, first out) | No | | Gain or loss | FIFO estimate | No | | Rewards total (1099-MISC) | Yes | At $600 or more (Tax year 2025) | From tax year 2026, Kraken reports basis, acquisition date and gain or loss on coins acquired there from 2026 and held until sold. For older or moved-in coins, basis reporting is not required. ## Kraken taxes often go wrong in four places. ### Assuming no form meant no tax for 2024 Your 2024 Kraken sales belonged on your return even though Kraken sent no 1099 of any kind for 2024. Its US staking had shut in 2023, and the 1099-DA began with tax year 2025. ### Waiting for a late form (https://valim.tax/tax-extension) Kraken’s 2025 forms ran late, so do not let a missing form hold up your return. Their due date was February 17, 2026, but Kraken’s help pages still apologized for 1099-DA delays in late March. Form 4868 moves your filing date, but any tax you owe is due on the regular date. ### Asking the IRS to fix a wrong form If a figure Kraken sent the IRS is wrong, ask Kraken for a corrected 1099-DA. Kraken filed the form, so only Kraken can correct it. A basis estimate you disagree with needs no correction, because the IRS never received it. ### Switching lot methods at tax time (https://valim.tax/glossary/specific-identification) The basis estimate on Kraken’s copy assumes first in, first out (FIFO). A standing order you gave Kraken before a sale, such as highest cost first, can make your Form 8949 differ from that estimate. Through 2026, a note in your own books by the time of the sale can also name the coins sold. A choice made after the sale does not count. ## A CPA can fill in the basis Kraken leaves off the IRS copy. Valim’s CPAs take the FIFO estimate on your copy as a starting point and prepare your federal and state returns from your records. - We check Kraken’s FIFO figures against your full trading history. For coins you moved in, we find what you paid from the accounts they came from. - We add up every reward Kraken credited you, including those below the 1099-MISC threshold, and report them as income. - We plan quarterly estimated tax on your Kraken rewards and gains. - We time large Kraken sales around the one-year mark and the 0% and 15% long-term rates. - If the IRS or your state sends a notice about any return we prepared, Kraken sales included, we answer it within the fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle crypto tax: https://valim.tax/crypto-tax ## Kraken tax questions. ### Does Kraken send a 1099? Yes. For tax year 2025, Kraken sent Form 1099-DA if you sold crypto on its sites or apps, or sent it to someone through Krak. It sent Form 1099-MISC if your rewards reached $600 or more. Kraken sent no 1099 for 2024. An account with an address outside the US on December 31, 2025 got no 1099-DA. From 2026, the 1099-DA also shows basis for covered digital assets: coins acquired on Kraken from January 1, 2026 and held there until sold. ### Where do I download my Kraken tax documents? Your Kraken tax documents are in the Tax Center on Kraken’s website. On Kraken Pro, click your profile icon at the top right, then choose “Statements” or “Tax center.” The “Tax center” option appears only once a tax document is ready for your account. On Kraken.com, Kraken’s help pages point to the profile icon, then “Settings,” then “Tax center,” and the “Crypto” tab. Linking a CoinTracker account in the Tax Center is optional, and the forms download without it. ### How are Kraken staking rewards reported? Kraken reports staking rewards in box 3 of Form 1099-MISC once your 2025 rewards total $600 or more. For rewards paid in 2026, the threshold is $2,000. Kraken values each reward at the 24-hour volume weighted average price on the day it is credited. That is the average price of the day’s trades, weighted by their size. Staking rewards are income even if you never sell them or get a form, and they usually go on Schedule 1, line 8v. Exchanges differ here: the Gemini exchange values its staking rewards when they become available to withdraw. ### Will the IRS know if I sold crypto? Yes: Kraken files Form 1099-DA with the IRS for your sales from tax year 2025, under your full taxpayer ID. Kraken says a copy may also go to the state of residence on your Kraken account. Coinbase and other US exchanges file the same form for sales on their platforms. For older years, a federal court approved an IRS John Doe summons to Kraken in 2021. That kind of summons lets the IRS demand records on customers it cannot yet name. This one covered US customers with $20,000 or more in crypto transactions from 2016 to 2020. ### Do I pay tax if I receive crypto? Yes, when the crypto is income, such as staking rewards, an airdrop or pay for your work. Crypto you receive as income is taxed at its fair market value, as ordinary income, once you can sell or move it. Moving coins into Kraken from a wallet you own is not a taxable event, and neither is receiving crypto as a gift. Kraken’s deposit rewards are income, though, and count toward the 1099-MISC total. ## Sources - Kraken Support, Tax forms frequently asked questions: https://support.kraken.com/articles/360001184966-tax-forms-frequently-asked-questions - Kraken Support, How to read your 2025 combined Form 1099: https://support.kraken.com/articles/how-to-read-your-2025-combined-form-1099 - Kraken Support, Download or request documents on Kraken Pro: https://support.kraken.com/articles/document-center - Kraken Support, US Tax Center FAQ: https://support.kraken.com/articles/us-tax-center-faq - IRS, Instructions for Form 1099-DA (2025): https://www.irs.gov/pub/irs-prior/i1099da--2025.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC (2025): https://www.irs.gov/pub/irs-prior/i1099mec--2025.pdf - IRS, Understanding your Form 1099-DA: https://www.irs.gov/businesses/understanding-your-form-1099-da - IRS, Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-prior/i8949--2025.pdf - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions - IRS, Rev. Rul. 2023-14 (staking rewards): https://www.irs.gov/pub/irs-drop/rr-23-14.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Notice 2026-20 (identifying broker-held digital assets): https://www.irs.gov/pub/irs-drop/n-26-20.pdf - 26 C.F.R. § 1.6045-1, Returns of information of brokers: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - US Department of Justice, John Doe summonses to Kraken and Circle (2021): https://www.justice.gov/archives/opa/pr/court-authorizes-service-john-doe-summons-seeking-identities-us-taxpayers-who-have-used-1 --- URL: https://valim.tax/crypto-tax/gemini Title: Gemini 1099: Gemini exchange tax forms and where to find them Updated: 2026-09-24 # Your Gemini 1099 is a Form 1099-DA for crypto sales, a Form 1099-MISC for rewards, or both. Gemini sends a copy of each 1099 to the IRS. For 2025, the IRS copy of the 1099-DA has your proceeds from each sale and no cost basis. Staking rewards are income as soon as you can sell or move them, even if you keep them. Gemini values them when they become available for withdrawal. Gemini crypto tax forms: - Jan. 31: is the date Gemini’s help page gives for the 1099-MISC, unless Gemini takes an extension. - Feb. 15: is the date Gemini gave for its 2025 Forms 1099-DA. The IRS deadline for those forms was Feb. 17, 2026. - Rebates: is how Gemini treats its credit card rewards, so they never appear on your 1099-MISC. ## Gemini tax forms follow your activity and your account type. Gemini sends no form for crypto you only buy and hold there. Moving coins between Gemini and a wallet you own is not a sale. A network fee you pay in crypto for the move is, though. ### 1. You sold or converted crypto on Gemini Form 1099-DA lists each sale and other disposal of crypto on the exchange. A swap of one coin for another is a sale for tax purposes. ### 2. Your rewards passed the 1099-MISC threshold Gemini reports staking income, refer-a-friend, sign-up and trading bonuses, and stablecoin rewards on Form 1099-MISC, in box 3. Staking rewards themselves do not appear on the 1099-DA, though a later sale of those coins on Gemini does. The form came once rewards passed $600 for 2025, and the law raises that line to $2,000 for 2026 payments. ### 3. The account belongs to a C corporation Gemini says a C corporation, or another taxable entity not eligible for a 1099-DA, gets a tax Gain/Loss Statement instead. Gemini posts it in its Tax Center. The corporation still reports each sale on its own return. ### 4. You earned rewards on the Gemini credit card Gemini leaves card rewards off the 1099-MISC. When you sell crypto you earned as a card reward on Gemini, that sale goes on your 1099-DA like any other. ## A loss on a Gemini sale counts only if you report what you paid. Your other taxable income is $90,000, and you file single. In 2026 you sell crypto on Gemini for an $18,000 long-term gain, then sell another coin, which cost you $9,000, for $5,000. - The first sale alone: $2,700. Before the second sale, the $18,000 gain is the only one to tax. - Second sale with no basis: $3,450. With no basis on your return, the second sale’s $5,000 of proceeds is taxed as though it were all gain. That adds $750. - Second sale with its basis: $2,100. With its $9,000 basis on your return, the second sale is a $4,000 loss. The loss offsets part of the gain and saves $600. The tax is 15% of the net long-term gain. On top of $90,000 of other taxable income, that is the 2026 rate a single filer pays on every dollar of it. Both coins were held more than a year, so the loss is long-term too. State tax would be extra. ## Your Gemini taxes follow one rule for a sale and another for a reward. | | A sale | A reward | | --- | --- | --- | | Taxed as | Capital gain or loss | Ordinary income | | Amount taxed | Proceeds minus basis | Value when received | | Federal rate in 2026 | 0%, 15% or 20% (Held over a year. Otherwise 10% to 37%. The 3.8% net investment income tax may apply at higher incomes.) | 10% to 37% (Your ordinary income rate) | | Tax year | The year you sell | The year you receive it | | On your return | Form 8949 and Schedule D (Box H or K for a 2025 sale, since Gemini reported no basis) | Schedule 1 of Form 1040 (Line 8v, or Schedule C if it is a business) | ## Which mistakes do people make with their Gemini forms? ### Crypto you transferred in (https://valim.tax/glossary/covered-digital-asset) Coins you send to Gemini from another wallet or exchange are noncovered. Under current rules, Gemini does not have to report their basis, even from 2026. Your return still needs what you paid, so keep your purchase records. ### No Form W-9 on file Give Gemini a Form W-9 (or a W-8), so no tax is held back from you. Gemini says that without one, it holds back 24% as backup withholding. IRS relief lifts that requirement only for crypto sales in 2025 and 2026, not for rewards. From 2027, brokers generally must withhold on sales by customers without a certified taxpayer ID. ### Gemini’s first in, first out default (https://valim.tax/glossary/specific-identification) Gemini treats your oldest coins as sold first unless you pick another method. That first in, first out order is also the tax rule when you do not identify which lots (purchases) you sold. To use a different order, set the method with Gemini before the sale, which counts as identifying the lots. Through 2026, a record in your own books by the time of sale also counts. ### Filing with only the 1099-MISC in hand (https://valim.tax/tax-extension) Gemini’s 1099-DA comes after its 1099-MISC, so a return filed with only the first can leave out your sales. If the 1099-DA is late, report the sales from your transaction history, or extend with Form 4868. The extension moves the filing date, not the payment date. ## Our Gemini tax service is run by the CPAs who sign your return. Valim, a US CPA firm, prepares and files returns for Gemini exchange customers, starting from their 1099-DA, 1099-MISC and transaction history. - We match every sale on your Gemini 1099-DA to its purchase, on Gemini or wherever you first bought the coins. - We report your Gemini staking income, bonuses and stablecoin rewards on your return, whether or not a 1099-MISC listed them. - We compare Gemini’s first in, first out default with picking your own lots before a large sale. - We work out estimated payments for Gemini income that has no tax withheld. - Within the fee, we answer any IRS or state notice on a return we prepared, even one that questions a Gemini form. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle crypto tax: https://valim.tax/crypto-tax ## Gemini tax questions. ### Does Gemini send a 1099? Yes, the Gemini exchange sends Form 1099-DA to US customers who sold, converted or otherwise disposed of crypto there, starting with 2025. For 2025, rewards such as staking income and referral bonuses brought a Form 1099-MISC once they passed $600. Copies of both forms go to the IRS. Gemini says a C corporation gets a Gain/Loss Statement instead of a 1099-DA. Coins you trade on another exchange, such as Crypto.com, appear on that exchange’s own forms. ### Where are my Gemini tax documents? Gemini keeps your tax documents in its Tax Center: open Account, then Statements and Taxes, then Taxes. Some versions of Gemini put this menu under Settings instead of Account. For the purchase side of each sale, download your Exchange Transaction History from the Statements and Taxes menu. Your Staking Transaction History downloads from the same menu. For coins you moved to Gemini from Coinbase, the purchase record is in your Coinbase account. ### How does Gemini value staking rewards? Gemini values each staking reward when it becomes available for you to withdraw. Under IRS rules, a staking reward is income at its value when you gain the ability to sell or move it. That income value is generally your cost basis in the coins when you later sell them. Gemini totals the year’s rewards on Form 1099-MISC, and your Staking Transaction History shows each reward. ## Sources - Gemini Support, What is a form 1099-DA and a tax Gain/Loss Statement: https://support.gemini.com/hc/en-us/articles/20055560379675-What-is-a-form-1099-DA-and-a-tax-Gain-Loss-Statement - Gemini Support, What is a Form 1099-MISC: https://support.gemini.com/hc/en-us/articles/20055671824923-What-is-a-Form-1099-MISC - Gemini Support, Tax reporting update for 2025: https://support.gemini.com/hc/en-us/articles/45089246455963-Tax-reporting-update-for-2025 - Gemini Support, Where do I find my tax information?: https://support.gemini.com/hc/en-us/articles/20055321207067-Where-do-I-find-my-tax-information - IRS, Instructions for Form 1099-DA (2025): https://www.irs.gov/pub/irs-prior/i1099da--2025.pdf - IRS, Understanding your Form 1099-DA: https://www.irs.gov/businesses/understanding-your-form-1099-da - IRS, Instructions for Forms 1099-MISC and 1099-NEC (2025): https://www.irs.gov/pub/irs-prior/i1099mec--2025.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/instructions/i1099mec - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - IRS, Instructions for Form 1040 (2025): https://www.irs.gov/instructions/i1040gi - 26 C.F.R. § 1.6045-1, Returns of information of brokers: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - IRS, Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-prior/i8949--2025.pdf - IRS, Rev. Rul. 2023-14 (staking rewards): https://www.irs.gov/pub/irs-drop/rr-23-14.pdf - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions - IRS, About Form 4868: https://www.irs.gov/forms-pubs/about-form-4868 - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Notice 2025-33 (digital asset backup withholding relief): https://www.irs.gov/pub/irs-drop/n-25-33.pdf - IRS, Notice 2026-20 (identifying broker-held digital assets): https://www.irs.gov/pub/irs-drop/n-26-20.pdf - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/crypto-tax/business Title: Crypto tax accounting: CPAs for crypto and fintech companies Updated: 2026-09-24 # Companies that receive crypto, hold it or pay with it can leave their crypto tax accounting to Valim’s CPAs. Crypto startups and fintech companies hire Valim, a US CPA firm with ex-Big Four leadership, on a flat fee set before any work starts. We prepare your company’s federal and state returns and report every crypto sale, payment and reward on them. We also plan with you before your company acts. Valim for crypto companies: - $495: covers a company’s federal return and one state return, at the lowest fee. - 50: states, where we file company returns and founders’ personal returns. - <1 week: is how long most returns take once your company’s year-end close is in. ## Valim’s crypto accounting services take your company’s taxes from each wallet to the filed return. ### Crypto on your company’s return We value each crypto payment your company receives or makes in dollars on the day it happens. We also answer the digital asset question that Forms 1120, 1120-S and 1065 each ask. ### Basis across wallets and exchanges We reconcile your company’s blockchain and accounting records, wallet by wallet. Each coin it sells or spends then carries the right basis. ### Mining, staking and DeFi income Valim’s CPAs prepare the returns of crypto miners and other companies that earn crypto income. We report each reward as company income at its value on the day your company gains control of it. ### Picking lots for a treasury sale We compare the tax on each lot before a treasury sale. A lot is a batch of coins acquired at one time and price. Your company must identify the lots it sells by the time of sale, and we document its choice. ### Estimated tax on crypto gains We project your company’s crypto gains and set quarterly estimated tax to match. A C corporation pays its own estimated tax, while a partnership’s or S corp’s owners usually pay theirs. ### We file from your crypto ledger We prepare your company’s returns from the year-end close in your bookkeeper’s ledger or blockchain accounting system. Your bookkeeper or controller closes the year, and a bookkeeper with crypto clients can refer them to us as a partner. ## Valim works alongside your fintech accounting team in three steps. ### 1. Agree on a fee Your fee is set before any work starts, from the instant quote or a call with a CPA. Nothing is billed by the hour. ### 2. Send the year’s records Your finance team uploads exchange statements and wallet addresses with the year-end close. From those records, a licensed US CPA prepares each return and signs it. ### 3. We reply to notices When a notice from the IRS or a state concerns any return we prepared for your company, we answer it within the fee. ## What does Valim charge a crypto company and its founders? ### Business return filing From $495 The plan covers a company taxed as a partnership, an S corp or a C corp, including an LLC taxed as any of them. ### Individual return filing From $195 Founders and staff with crypto of their own file on this plan, however complex their year. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as a treasury sale or staking your company’s crypto. ## What else does crypto change in a company’s taxes? ### Crypto wages run through payroll (https://valim.tax/glossary/form-941) Crypto paid to employees is wages, taxed like a cash paycheck. The employer withholds income tax, pays FICA and FUTA payroll taxes on it, and reports it on Form W-2. ### DeFi front ends are not brokers (https://valim.tax/glossary/self-custody-wallet) In April 2025, Congress voided an IRS rule that would have made DeFi front ends report as brokers. A front end is the website or app people trade through. The IRS has since removed the rule from its regulations. ### The tax on a SAFT is unsettled (https://valim.tax/glossary/saft) In a SAFT (simple agreement for future tokens), investors fund a token project now and receive the tokens later. No IRS guidance covers SAFTs, so it is unclear when the token issuer has income from one. ## A 30-minute call shows whether Valim is the right crypto accounting firm for your company. On the call, one of our CPAs tells you which crypto tax services your company needs and what they cost. ## What do companies ask about cryptocurrency accounting and tax? ### How does a business pay tax on crypto it receives as payment? Generally, the business counts the crypto as income at its fair market value in dollars on the day it arrives, like cash revenue. That value becomes its basis in the coins. When it later sells, swaps or spends them, its gain or loss is what it gets, less fees, minus that basis. ### Do we issue 1099-NECs to contractors paid in USDC? Yes, USDC payments to contractors go on Form 1099-NEC just as dollar payments do. For payments made in 2026, you generally file one for each contractor paid $2,000 or more. The threshold was $600 for 2025 payments. Each USDC payment counts at its dollar value on the day you make it. Paying in USDC is also a disposal, as if the company sold it, with a gain or loss to report. ### Does a company owe tax on unrealized bitcoin gains? Generally not, because a bitcoin gain becomes taxable income only when the company sells or otherwise disposes of the bitcoin. Under ASU 2023-08, a company’s GAAP books show fair value gains in net income, but those gains are not taxable income. The exception is the 15% corporate AMT, for a corporation that averages over $1 billion of adjusted book income across three years. S corporations are outside it, and the income of related companies in a group counts toward that line. Even under the corporate AMT, Notice 2025-49 lets the corporation elect to leave unrealized gains out until it sells. That relief lasts until the IRS publishes proposed regulations to replace it. ### Is converting USDC to dollars taxable for a company? Yes, converting USDC to dollars is a sale of a digital asset. The company’s gain or loss is the dollars it receives, less any fees, minus its basis in the USDC. USDC rarely strays far from $1, so the gain or loss tends to be small, yet each conversion still goes on the company’s return. As introduced, a pending bill, H.R. 10357, would remove that gain or loss on most conversions of qualified dollar stablecoins from 2027. ### Do we have to issue Form 1099-DA? Probably not, because only brokers file Form 1099-DA, which began with 2025 sales. Brokers include custodial exchanges such as Coinbase, which hold their customers’ crypto, and some crypto payment processors. A company that only receives, holds or pays out crypto in its own business is generally not a broker for that activity. A token issuer is different: if it regularly offers to redeem tokens it issued, it counts as a broker. Your company may still receive one, or a gain/loss statement, from the exchange it uses. ### What would the Digital Asset Tax Certainty Act change for crypto companies? As introduced, the Digital Asset Tax Certainty Act (H.R. 10357) would value qualified dollar stablecoins at their redemption value from 2027. Routine conversions, priced within half a percent of that value, would then bring no gain or loss. From 2028, a de minimis rule would exempt small network fees paid in crypto. Neither rule would cover traders, brokers or dealers. The bill was introduced in the House on September 14, 2026 and is not yet law. The Ways and Means Committee approved an amended version 38 to 5 on September 16, 2026. ## Sources - IRS, Notice 2014-21 (virtual currency is property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - 26 U.S.C. § 1001, Determination of amount of and recognition of gain or loss: https://www.law.cornell.edu/uscode/text/26/1001 - 26 C.F.R. § 1.1001-7, Computation of gain or loss for digital assets: https://www.law.cornell.edu/cfr/text/26/1.1001-7 - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/instructions/i1099mec - FASB, Accounting Standards Update 2023-08, Crypto Assets (Subtopic 350-60): https://storage.fasb.org/ASU%202023-08.pdf - 26 U.S.C. § 55, Alternative minimum tax imposed: https://www.law.cornell.edu/uscode/text/26/55 - 26 U.S.C. § 59, Other definitions and special rules (applicable corporation): https://www.law.cornell.edu/uscode/text/26/59 - IRS, Notice 2025-49 (corporate alternative minimum tax guidance): https://www.irs.gov/pub/irs-drop/n-25-49.pdf - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - IRS, Instructions for Form 1099-DA (2026): https://www.irs.gov/pub/irs-pdf/i1099da.pdf - Public Law 119-5 (H.J. Res. 25), disapproving the IRS rule on DeFi broker reporting: https://www.govinfo.gov/content/pkg/PLAW-119publ5/html/PLAW-119publ5.htm - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Rev. Proc. 2024-28 (allocating basis in digital assets to wallets or accounts): https://www.irs.gov/pub/irs-drop/rp-24-28.pdf - IRS, Rev. Rul. 2023-14 (staking rewards): https://www.irs.gov/pub/irs-drop/rr-23-14.pdf - H.R. 10357, Digital Asset Tax Certainty Act (as introduced): https://www.govinfo.gov/content/pkg/BILLS-119hr10357ih/html/BILLS-119hr10357ih.htm - House Ways and Means, Markup of H.R. 10357 (September 16, 2026): https://waysandmeans.house.gov/event/markup-of-h-r-10357-h-r-10334-h-r-6130-h-r-5439-h-r-4093-h-r-10346-h-r-10356/ - JCT, Description of H.R. 10357 (JCX-47-26): https://waysandmeans.house.gov/wp-content/uploads/2026/09/JCT-Description-of-HR-10357.pdf --- URL: https://valim.tax/content-creators Title: CPA for content creators: taxes on every platform, fixed fees Updated: 2026-09-24 # From YouTube to OnlyFans, Valim’s CPAs for content creators do the taxes on every platform you earn from. Valim is a US CPA firm for YouTubers, streamers, podcasters and influencers, with a licensed CPA signing every return. We match every 1099 your platforms and brands send against your payout records, then prepare your federal and state returns. We also plan your taxes between returns, all year. Valim for content creators: - $195: is the starting price, with your Schedule C and one state return included. - 50: states are covered, so Valim can file your state return in any of them. - <1 week: is how long most returns take once your 1099s and payout reports are uploaded. ## Influencer taxes go past the 1099s, so we also handle brand deals, fan tips and the S corp decision. ### Platform income and brand deals We report income from any platform, including Instagram, podcast networks, Substack, Ko-fi, Fansly and LTK. Brand deals and affiliate commissions go on the return too, from each 1099-NEC, 1099-MISC or 1099-K, or from your own records. ### 1099-Ks that overstate your income A 1099-K shows your gross payments, before fees and refunds. A platform and its payment processor can also both report the same money. We subtract the fees and refunds, and report each payout only once. ### Tips from fans Fan tips can qualify for the deduction for qualified tips. Treasury’s tipped occupation code 209 covers digital content creators, such as streamers and social media influencers. We claim the deduction on your return for tips that meet its tests. ### Quarterly estimated tax We plan all four Form 1040-ES payments for the year. If a brand deal lands late in the year, the annualized income installment method bases each payment on your income to date. Your earlier payments can then stay lower. ### When to become an S corp We check if your profit is high enough for an S corp election to save you tax. If it is, we pick when to make the election. After you elect, we prepare the S corp’s Form 1120-S along with your Form 1040. ### Your bookkeeper or your spreadsheet We prepare your return from your bookkeeper’s numbers or your own payout reports. If a spreadsheet of payouts is all you have, bookkeeping and a clean-up can be added to your filing. ## Three steps take your platform income to a signed return. ### 1. One fee for every platform The instant quote fixes your fee before any work, however many platforms paid you. The fee holds for 7 days, and Valim never bills by the hour. ### 2. A CPA prepares and signs Upload your 1099s and payout reports to our online portal, where our automation reads the figures. Nothing is filed until your CPA has prepared and signed your return. ### 3. Your CPA answers notices Any IRS or state notice on a return we prepared gets your CPA’s reply within your fee, even one about a 1099 mismatch. ## How much does a CPA charge a content creator? ### Individual return filing From $195 This plan files your Form 1040 with Schedules C and SE, and it covers any level of complexity. ### Tax advisory Priced in your quote Your CPA works as your personal tax advisor all year. Talk to them before a big decision, such as signing a large brand deal or becoming an S corp. An S corp’s own Form 1120-S is priced as a business return, from $495. ## How do content creator taxes differ from one platform to the next? ### YouTube (https://valim.tax/content-creators/youtube-taxes) Google asks every YouTube Partner Program creator for US tax info, and withholds from US creators who do not give it. ### TikTok (https://valim.tax/content-creators/tiktok-taxes) LIVE gifts become Diamonds, which cannot be cashed out, and TikTok counts them as one factor in the rewards it pays you. ### Twitch (https://valim.tax/content-creators/twitch-taxes) Twitch collects your tax details in an Amazon tax interview, and can withhold from your payouts if that information is missing or expired. ### Patreon (https://valim.tax/content-creators/patreon-taxes) Patreon itself files the 1099-K for US creators who pass the threshold, with a separate form for each creator page. ### OnlyFans (https://valim.tax/content-creators/onlyfans-taxes) OnlyFans’ terms leave all tax filing and payment to the creator, and they describe no US income tax withholding. ## Bring your payout reports to a 30-minute call with a CPA. ## What do creators ask first about social media influencer taxes? ### What is the $600 rule, and is it gone? Yes, for payments made from 2026. The $600 rule was the threshold for Form 1099-NEC and most 1099-MISC income, and it is now $2,000. That figure can rise with inflation from 2027. The One Big Beautiful Bill Act made the change. It also cancelled a planned $600 threshold for Form 1099-K before it ever applied. A payment app must file a 1099-K only for more than $20,000 and more than 200 transactions in a year. Income under either threshold is still taxable. ### How much tax will I pay as a self-employed creator? A self-employed creator pays two federal taxes on profit: self-employment tax and income tax. Self-employment tax is 15.3%, charged on 92.35% of your net profit. Its Social Security part stops at a yearly cap. A 0.9% Additional Medicare Tax applies once wages and self-employment income together pass $200,000 ($250,000 joint, $125,000 married filing separately). Income tax follows your bracket rates, after you deduct half of that 15.3% tax. You can often also deduct up to 20% of your qualified business income (QBI). ### What is the $2,500 expense rule? The $2,500 expense rule is the de minimis safe harbor. It lets you deduct an item costing $2,500 or less, such as a camera, in the year you buy it, instead of depreciating it. The limit applies per invoice or per item, not per year, and inventory never qualifies. You elect it each year with a statement attached to a return filed on time. You also need a policy, set at the start of the year, of expensing such items on your books. ### Do content creators need to pay taxes? Yes. Under US tax law, podcast sponsorships, YouTube ad revenue, Patreon memberships and brand deals are all income, with or without a 1099. Once your net earnings from self-employment reach $400 in a year, you must file a return and pay self-employment tax. As a sole proprietor, you report that income on Schedule C with your Form 1040. ### What can I claim on tax as a content creator? You can deduct your creator business’s ordinary and necessary costs on Schedule C, such as cameras, software and editors. Personal costs are not deductible, so a phone you also use privately counts only for its business share. A home office can qualify, and business meals are generally 50% deductible. For 2025 through 2028, qualifying voluntary fan tips may be deducted up to $25,000 a year under the deduction for qualified tips. The deduction phases out above $150,000 of modified AGI, or $300,000 on a joint return. ### Which platforms send creators a 1099? YouTube, Twitch and Patreon all send US creators a 1099 when earnings cross a threshold, but on different forms. Google sends a 1099-MISC for YouTube, Patreon sends a 1099-K, and Twitch can send both a 1099-MISC and a 1099-NEC. TikTok Shop sellers over the 1099-K threshold get one, while TikTok’s own pages do not say which form reports Creator Rewards. A 1099-MISC reports royalties from just $10, far below the threshold for other income. ### Can I avoid getting a 1099-K? You can’t count on it, since card processors report card payments on a Form 1099-K whatever the amount. A payment app may also send one even when you fall below the federal threshold. Gifts and repayments from friends and family should not be on the form. Missing the form changes nothing about the tax you owe. ### Do influencers pay taxes on gifts and PR packages? Yes, when a product is payment for your content. A product sent for a post, a review or other agreed content is income at its fair market value. A true gift, sent with no expectation of anything in return, is not income. The IRS has issued no specific guidance on a PR package that arrives unasked, so its treatment depends on the facts. ## Sources - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - 26 C.F.R. § 1.61-2, Compensation for services, including fees, commissions, and similar items: https://www.law.cornell.edu/cfr/text/26/1.61-2 - 26 U.S.C. § 162, Trade or business expenses: https://www.law.cornell.edu/uscode/text/26/162 - 26 U.S.C. § 262, Personal, living, and family expenses: https://www.law.cornell.edu/uscode/text/26/262 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - IRS, Schedule SE (Form 1040), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - 26 U.S.C. § 164, Taxes (deduction for half of self-employment tax): https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - Public Law 119-21 (One Big Beautiful Bill Act), §§ 70432 and 70433: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - 26 U.S.C. § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions: https://www.law.cornell.edu/uscode/text/26/6050W - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - IRS, Instructions for Form 1099-K (Rev. December 2026, draft of May 19, 2026): https://www.irs.gov/pub/irs-pdf/i1099k.pdf - IRS, Understanding your Form 1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k - 26 C.F.R. § 1.263(a)-1, Capital expenditures (the de minimis safe harbor in paragraph (f)): https://www.law.cornell.edu/cfr/text/26/1.263(a)-1 - IRS, Notice 2015-82 (the $2,500 de minimis limit): https://www.irs.gov/pub/irs-drop/n-15-82.pdf - 26 U.S.C. § 224, Qualified tips: https://www.law.cornell.edu/uscode/text/26/224 - 26 C.F.R. § 1.224-1, Qualified tips (Treasury tipped occupation codes): https://www.law.cornell.edu/cfr/text/26/1.224-1 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf - YouTube Help, U.S. tax requirements for YouTube earnings: https://support.google.com/youtube/answer/10391362 - TikTok, Virtual Items Policy (US): https://www.tiktok.com/legal/page/us/virtual-items/en - TikTok, Tax information for creators (archived December 17, 2025): https://web.archive.org/web/20251217121708/https://support.tiktok.com/en/business-and-creator/creator-and-business-accounts/tax-information-for-creators - TikTok Shop Seller University, Form 1099-K for US sellers: https://seller-us.tiktok.com/university/essay?knowledge_id=80339993577259 - Twitch Help, Amazon tax information interview and IRS annual reporting FAQ: https://help.twitch.tv/s/article/amazon-tax-information-interview-and-irs-annual-reporting-faq - Patreon Help Center, Will I receive a 1099-K form?: https://support.patreon.com/hc/en-us/articles/207099566 - OnlyFans, Terms of Service: https://onlyfans.com/terms --- URL: https://valim.tax/content-creators/onlyfans-taxes Title: OnlyFans taxes: what you owe the IRS, and what you can write off Updated: 2026-09-24 # You pay your OnlyFans taxes yourself, because OnlyFans normally takes no tax out of your payouts. OnlyFans’ terms say you alone must file and pay any tax due on your earnings. For a US creator, your profit is usually self-employment income, reported on Schedule C with your Form 1040. That profit carries self-employment tax on top of income tax. OnlyFans payouts to US creators: - 1099-NEC: is the form tax preparers say OnlyFans sends US creators whose earnings pass the threshold. - $2,000: is the 1099-NEC threshold for payments made in 2026. For 2025 payments, it was $600. - 24%: can be withheld as backup withholding if OnlyFans lacks your correct taxpayer ID. ## Are tips and gifts on OnlyFans taxed? Any money a fan pays you through OnlyFans is taxable income, tips included. The deduction for qualified tips runs from 2025 through 2028. What the fan paid for decides whether it can apply. ### 1. Pay-per-view posts and subscriptions A fan who pays to view a post or a message is paying for your services. Treasury’s tip rules say that payment is not a tip. A subscription buys access too, so it is very likely treated the same way. ### 2. Tips for pornographic activity The deduction for qualified tips excludes any amount received for pornographic activity. Those tips are taxed in full, like the rest of your income. ### 3. Voluntary tips for other content A tip a fan chooses to send once they have access, such as in a live stream, can be a qualified tip. What counts is the amount paid out to you, not the fan’s full payment. You can deduct up to $25,000 a return. The limit shrinks once modified AGI passes $150,000, or $300,000 on a joint return. The deduction cannot create a business loss, and a married creator must file jointly to claim it. ### 4. Gifts from fans Money or items a fan sends you because of your content are generally income. An item counts at its fair market value. A present a fan sends after a custom request is payment for it, while a relative’s birthday gift is not income. The deduction for qualified tips lowers income tax only, never self-employment tax. For 2025, tips had to be in a 1099’s total, and records such as a tip log could show which part was tips. From 2026, a tip counts only if the payer reports it separately, usually on your 1099. It is not yet known whether OnlyFans will report tips that way. ## How much should you pay each quarter when your OnlyFans income jumps? OnlyFans creators usually pay their tax in four estimated payments during the year, then settle any balance on Form 1040. Estimated tax is due once you expect to owe $1,000 or more for 2026 after withholding and credits. The 2026 payments are due April 15, June 15 and September 15, 2026, and January 15, 2027. You owe no 2026 penalty if your total 2025 tax was zero and you were a US citizen or resident all 12 months. Your 2025 federal tax was $12,000, and more OnlyFans income will push your 2026 tax to $24,000. - 90% of your 2026 tax: $21,600. Four payments of $5,400. This test depends on an accurate forecast of your year. - 110% of your 2025 tax: $13,200. Four payments of $3,300. This test applies if your 2025 AGI was over $150,000. - 100% of your 2025 tax: $12,000. Four payments of $3,000, with the other $12,000 due when you file. This test applies if your 2025 AGI was $150,000 or less ($75,000 married filing separately). You avoid the penalty by paying, on time, the smaller of 90% of this year’s tax or 100% of last year’s. Last year’s figure works only if that return covered a full 12 months. Self-employment tax counts as part of each year’s tax. Each total is split evenly across the four dates. ## Where OnlyFans creators most often go wrong on their taxes. ### Thinking a UK company means no US tax (https://valim.tax/glossary/us-person) OnlyFans is run by Fenix International Limited, a company registered in England and Wales. A US creator still owes US taxes on OnlyFans payouts, since gross income includes income from anywhere in the world. ### Filing only what a 1099 shows (https://valim.tax/glossary/1099-nec) OnlyFans’ help pages do not say which form it sends, and tax preparers report a 1099-NEC. Report every payout from your own records either way, because the tax is owed with or without the form. ### Paying an editor with no 1099-NEC (https://valim.tax/glossary/1099-nec) You must file a Form 1099-NEC for an editor you pay $2,000 or more for services in 2026. The rule covers individuals and unincorporated businesses, and payments to most corporations are exempt. What you pay them is a write-off on line 11 of Schedule C. Payments made by card or payment app are reported on a 1099-K by the processor instead. ### Leaving out Patreon or Fansly income (https://valim.tax/content-creators/patreon-taxes) Fansly payouts are taxed under the same rules as your OnlyFans payouts, so they belong on your return too. Patreon sends its own Form 1099-K once you pass its threshold, and the form counts payments before fees and refunds. ## A licensed US CPA prepares and files your OnlyFans taxes. Valim is a CPA firm that handles taxes for OnlyFans creators in all 50 states. - We check your OnlyFans earnings against any 1099-NEC, then report them on Schedule C with your federal and state returns. - We work from your bookkeeper’s numbers or the payout records you upload. Your files stay encrypted in transit and at rest. - We work out the smallest quarterly payments that still avoid a penalty. - We test whether and when an S corp election would pay off for your OnlyFans business. - Our reply to any IRS or state notice on a return we prepared is part of your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle content creators: https://valim.tax/content-creators ## OnlyFans tax questions. ### Do I have to pay taxes on my OnlyFans income? Yes. Everything you earn on OnlyFans is taxable income, and you owe the tax whether or not a 1099 arrives. If your OnlyFans profit brings your net earnings from self-employment to $400, you must file a return and owe self-employment tax. Below $400 there is no self-employment tax, though the income still counts toward income tax. ### Will OnlyFans send me a 1099? Probably, if you are a US creator and OnlyFans paid you $2,000 or more in 2026. That is the US threshold for a 1099-NEC, and it was $600 for 2025 payments. Tax preparers say OnlyFans posts a Form 1099-NEC on its payouts screen, or mails one, once it has your W-9. The IRS gets a copy of the form too. ### Does OnlyFans take out taxes? Normally, no. OnlyFans’ terms make each creator responsible for their own tax, and they describe no US income tax withholding. The exception is backup withholding at 24%, which can apply if OnlyFans lacks your correct taxpayer ID. The IRS expects the tax in quarterly estimates instead, with any balance due when you file. You get money back when your estimated payments and any backup withholding come to more than your tax. ### Is OnlyFans income self-employment income? Yes, for most US creators, because regular OnlyFans work done for profit is a business under the tax rules. A sole proprietor or single-member LLC reports it on Schedule C. A partnership or corporation files its own return instead. Self-employment tax is 15.3%, figured on 92.35% of your net profit. The 12.4% Social Security part stops once your 2026 earnings pass $184,500. Half of the tax is deductible for income tax. If you post only now and then, with no aim of profit, it may be hobby income on Schedule 1. ### How do I file my OnlyFans taxes? You file OnlyFans taxes on Form 1040, with Schedule C for earnings and costs and Schedule SE for self-employment tax. Check your OnlyFans payout history against any 1099-NEC before you file. Estimated payments you made during the year count toward the tax on the return. ### What can OnlyFans creators write off? You can write off the ordinary and necessary costs of your OnlyFans business on Schedule C. Typical ones are cameras, lighting, editing software and pay to editors. The de minimis safe harbor lets you deduct any item or invoice of $2,500 or less in the year you pay. You must elect it each year on your return. ## Sources - OnlyFans, Terms of Service: https://onlyfans.com/terms - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - Social Security Administration, Contribution and benefit base: https://www.ssa.gov/oact/cola/cbb.html - 26 U.S.C. § 164, Taxes (the deduction for half of self-employment tax): https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - 26 U.S.C. § 3406, Backup withholding: https://www.law.cornell.edu/uscode/text/26/3406 - 26 U.S.C. § 224, Qualified tips: https://www.law.cornell.edu/uscode/text/26/224 - 26 C.F.R. § 1.224-1, Qualified tips (Treasury tipped occupation codes): https://www.law.cornell.edu/cfr/text/26/1.224-1 - T.D. 10044, 91 FR 19026 (Apr. 13, 2026), final regulations on qualified tips: https://www.govinfo.gov/content/pkg/FR-2026-04-13/pdf/2026-07104.pdf - IRS, Notice 2025-69 (2025 transition rules for qualified tips): https://www.irs.gov/pub/irs-drop/n-25-69.pdf - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - Commissioner v. Duberstein, 363 U.S. 278 (1960): https://www.law.cornell.edu/supremecourt/text/363/278 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf - 26 C.F.R. § 1.263(a)-1 (the de minimis safe harbor election): https://www.law.cornell.edu/cfr/text/26/1.263(a)-1 - IRS, Notice 2015-82 (the $2,500 de minimis limit): https://www.irs.gov/pub/irs-drop/n-15-82.pdf --- URL: https://valim.tax/content-creators/tiktok-taxes Title: TikTok taxes: your 1099, Creator Rewards and TikTok Shop Updated: 2026-09-24 # Creator Rewards and TikTok Shop profit are taxable, so TikTok taxes can be due with or without a 1099. TikTok pays Creator Rewards through PayPal on the 15th of each month, once your balance reaches $50. Its program terms make you responsible for every tax on those rewards. Viewers’ LIVE gifts reach you only as Diamonds, one of the factors TikTok weighs when it sets the rewards it pays you. What TikTok reports and withholds: - January 31: is the date by which TikTok Shop sends a qualifying US seller its 1099-K. - 24%: can be withheld from TikTok Shop payouts without a valid W-9 or TIN, once the year’s sales pass the 1099-K line. - 30%: is the usual withholding on rewards from US engagement for a creator who is not a US person. ## Which TikTok tax forms will you get? The 1099 you get from TikTok, if any, depends on which part of TikTok pays you. Before TikTok pays you anything as a creator, you enter your tax details in your Wallet, under Tax information. ### 1. Creator Rewards and LIVE rewards TikTok’s tax pages do not say which form reports Creator Rewards or the rewards it pays on LIVE gifts. You may get a 1099-MISC or a 1099-NEC for them. ### 2. TikTok Shop sales A US seller gets a Form 1099-K, with a copy to the IRS, once the year’s sales pass $20,000 across more than 200 transactions. You can also download yours in Seller Center, under Finances, then Tax. ### 3. TikTok Shop affiliate commissions The seller whose products you promote sets your commission and owes it to you, and Hyperwallet pays it out. TikTok’s creator terms say TikTok is not responsible for reporting these commissions. They leave any reporting to you, the seller or the payment provider. ## TikTok Shop taxes are figured on your profit, after refunds, fees and the cost of goods. Your 1099-K shows what buyers paid, shipping included, before any refunds or fees come out. On Schedule C, you report that gross first and take each cost off it. A seller’s 1099-K shows $50,000. Buyers got $5,000 back in refunds, TikTok’s fees came to $6,000, and the goods and shipping cost $19,000. - Tax on the 1099-K total: $7,065. All $50,000 is taxed, as if every dollar were profit. - Refunds and fees taken out: $5,511. Only the $39,000 left after refunds and fees is taxed. - Cost of goods taken out too: $2,826. Only the $20,000 profit is taxed, the figure your Schedule C should show. Each row is self-employment tax only: 15.3% of 92.35% of the amount, as Schedule SE figures it. Income tax comes on top at your own bracket, and it also falls as the profit does. The amounts are round figures for illustration, and imply no TikTok fee rate. ## What changes for a creator outside the US? If you are not a US person, TikTok treats only your rewards from US engagement as subject to US tax. It reports them once they show in your account, even before payout. | | US person | Not a US person | | --- | --- | --- | | Form you give TikTok | Form W-9 | Form W-8BEN (W-8BEN-E for an entity) | | Rewards the US taxes | All of them | Those from US engagement (As TikTok treats them) | | Tax TikTok withholds | Generally none (Backup withholding may apply without a W-9) | Usually 30% (A treaty claim may lower it) | | Form for your rewards | Not named by TikTok | Form 1042-S (Generally by March 15, or up to 30 days later) | TikTok’s answers for creators outside the US speak of citizens, but the test is US person status. A green card holder, or someone who meets the substantial presence test, is generally a resident alien. A resident alien gives TikTok a W-9 and is taxed like a citizen. ## What do TikTok creators most often get wrong at tax time? ### Matching the 1099-K to your deposits A TikTok Shop 1099-K counts each sale in the month the buyer paid, and the money settles in your wallet later. So a sale paid in late December can appear on this year’s form but reach you in January. Check the form against your order history instead. ### Treating LIVE gifts as tips (https://valim.tax/glossary/qualified-tips) The tips deduction covers cash tips that fans choose to pay you. After a LIVE gift, the reward you get is one that TikTok sets and pays. So your LIVE rewards may not count as qualified tips. ### Paying nothing until you file (https://valim.tax/glossary/form-1040-es) A viral month can bring a large reward payout, and TikTok generally takes no tax out of it once your W-9 is on file. The IRS usually expects the tax on it during the year, in quarterly estimated payments on Form 1040-ES. Each missed payment can draw a penalty of its own. ## Your TikTok payouts and Shop reports become returns a licensed CPA signs. Valim’s CPAs prepare the federal and state returns of TikTok creators and TikTok Shop sellers, including their Creator Rewards and 1099-K sales. - We report your Creator Rewards, LIVE rewards and affiliate commissions from your payout records, whatever forms arrive. - We match your TikTok Shop 1099-K to your bookkeeper’s figures or Seller Center reports, so only your profit is taxed. - We set quarterly estimated payments that keep pace with your TikTok income. - We model the tax on your TikTok profit as a sole proprietor and as an S corp, before you elect. - We answer any IRS or state notice on a return we prepared, such as a question about your TikTok Shop 1099-K, within your fee. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle content creators: https://valim.tax/content-creators ## TikTok tax questions. ### Do you have to pay taxes on TikTok income? Yes: Creator Rewards, LIVE rewards, TikTok Shop sales and affiliate commissions all count as income. If you post regularly, mainly to make money, the IRS treats it as a business (the test is continuity and regularity). A sole proprietor or single-member LLC reports it on Schedule C. At $400 of net earnings from self-employment, you must file, and self-employment tax is due on all of those earnings. If YouTube also pays you, Google reports its share on a 1099-MISC, a form TikTok names for none of its rewards. ### How much tax do you pay on TikTok? On $20,000 of TikTok profit, self-employment tax comes to about $2,826: 15.3% on 92.35% of the profit, or about 14.1%. Federal income tax then applies at your own bracket, and you can deduct half of the $2,826 in figuring it. A deduction of up to 20% of qualified business income may lower your income tax further. ### Will I get a 1099 from TikTok? You will if you sell on TikTok Shop and your sales top $20,000 over more than 200 transactions in a year. That form is a 1099-K, found in Seller Center under Finances, then Tax. TikTok’s pages name no form for a US creator’s Creator Rewards or LIVE rewards, while creators outside the US get Form 1042-S instead. A payer files a 1099-NEC, or most kinds of 1099-MISC, once its 2026 payments to you reach $2,000, so you may receive one. Other platforms send their own forms: Twitch, for example, reports royalty income on a 1099-MISC and service income on a 1099-NEC. ### How are TikTok Creator Rewards and TikTok Shop income taxed? For most creators, TikTok Creator Rewards and TikTok Shop income are both self-employment income, taxed on the profit left after business costs. Most TikTok creators pay their own tax on this income, through quarterly estimated payments on Form 1040-ES or when they file. Creator Rewards, and what TikTok pays you for LIVE gifts, count in full as business income. TikTok Shop income starts from your gross sales, the unadjusted figure a 1099-K shows, less refunds, fees and the cost of goods sold. Affiliate commissions are income as well, whether or not a form reports them. ### What happens if I don’t file my TikTok taxes? The failure-to-file penalty is 5% of your unpaid tax for each month or part of a month the return is late, up to 25%. If the tax also goes unpaid, a failure-to-pay penalty of 0.5% a month applies too. In a month when both apply, the filing penalty drops by 0.5%, so the two together cost 5% a month, plus interest. For a 2026 return over 60 days late, the filing penalty is at least $535, or the full tax due if that is less. If you need more time, Form 4868 extends the filing deadline, but any tax you owe is still due by the original date. ## Sources - TikTok, Tax information for creators: https://support.tiktok.com/en/business-and-creator/creator-and-business-accounts/tax-information-for-creators - TikTok, Creator Rewards Program Terms (US): https://www.tiktok.com/legal/page/global/creator-rewards-program-us/en - TikTok, Virtual Items Policy (US): https://www.tiktok.com/legal/page/us/virtual-items/en - TikTok Shop Seller University, Form 1099-K for US sellers: https://seller-us.tiktok.com/university/essay?knowledge_id=80339993577259 - TikTok Shop Seller University, TikTok Shop Creator Terms of Use: https://seller-us.tiktok.com/university/essay?knowledge_id=6314510387906350 - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - 26 U.S.C. § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions: https://www.law.cornell.edu/uscode/text/26/6050W - IRS, Instructions for Form 1099-K: https://www.irs.gov/pub/irs-pdf/i1099k.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC: https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - 26 U.S.C. § 3406, Backup withholding: https://www.law.cornell.edu/uscode/text/26/3406 - 26 U.S.C. § 1441, Withholding of tax on nonresident aliens: https://www.law.cornell.edu/uscode/text/26/1441 - 26 U.S.C. § 7701, Definitions (resident alien): https://www.law.cornell.edu/uscode/text/26/7701 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, Schedule SE (Form 1040), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - 26 U.S.C. § 164, Taxes (half of self-employment tax): https://www.law.cornell.edu/uscode/text/26/164 - SSA, Contribution and benefit base: https://www.ssa.gov/oact/cola/cbb.html - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - 26 U.S.C. § 224, Qualified tips: https://www.law.cornell.edu/uscode/text/26/224 - 26 CFR 1.224-1, Qualified tips: https://www.law.cornell.edu/cfr/text/26/1.224-1 - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 6651, Failure to file tax return or to pay tax: https://www.law.cornell.edu/uscode/text/26/6651 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/content-creators/youtube-taxes Title: YouTube taxes: your 1099-MISC and the tax info AdSense asks for Updated: 2026-09-24 # YouTube taxes start in AdSense, where the tax info you give Google decides what it withholds. Every YouTube Partner Program creator, in any country, must give Google US tax info. A US creator who gives a valid Form W-9 has nothing withheld. Google’s tax rules for YouTube creators: - 24%: is withheld from all of a US creator’s earnings, worldwide, when Google has no tax info. - 30%: is withheld from a non-US creator’s earnings from US viewers when their W-8BEN claims no treaty rate. - Dec. 10: is the date each year by which Google wants your tax info, and any treaty claim, in AdSense. ## The YouTube tax form AdSense needs is a W-9 or a W-8BEN. You fill in your W-9 or W-8BEN in AdSense for YouTube, under Payments. It sits in the United States tax info section of your payments profile. ### 1. You are a US citizen or resident alien Give Google Form W-9 with your US taxpayer ID (SSN, ITIN or EIN), even if you live abroad. ### 2. You are not a US person Give Google Form W-8BEN if you are an individual, or Form W-8BEN-E for a non-US company. Either form certifies to Google that you are not a US person. ### 3. Your country has a US tax treaty Claim the treaty on your AdSense W-8BEN, on lines 9 and 10. In Google’s tax tool, YouTube Partner Program earnings count as ‘Other Copyright Royalties’. ### 4. Your TIN matches IRS records Google checks the taxpayer identification number (TIN) on your form against IRS records. If the IRS tells Google your TIN is wrong and you do not correct it, backup withholding can start on later payments. ### 5. Your form is still current Google asks for a new tax form every three years, even if nothing has changed. A change in your circumstances can make a form invalid sooner. ## What Google withholds from $40,000 of YouTube earnings. A creator earns $40,000 from YouTube in a year, and $10,000 of it comes from viewers in the US. - US creator, no tax info: $9,600. Backup withholding takes 24% of the whole $40,000, wherever the viewers were. - Non-US, no treaty claim: $3,000. Google takes 30% of the $10,000 from US viewers, and nothing from the rest. - Non-US, 15% treaty rate: $1,500. A 15% treaty rate, such as India’s in Google’s own example, applies to the same $10,000. - US creator, valid W-9: $0. Nothing is withheld, whatever share of the views came from the US. Backup withholding is set by IRC 3406, and the 30% rate by IRC 1441. A non-US individual who gives Google no tax info can also have up to 24% of worldwide earnings withheld. A US creator’s backup withholding shows on the 1099-MISC, and you claim it as tax paid when you file. The $40,000 and the $10,000 are round figures, chosen to show the rates. ## Will you get a YouTube 1099 or a 1042-S? Google files a copy of each year-end form with the IRS, so the IRS sees the same total you do. | | US creator | Non-US creator | | --- | --- | --- | | Year-end form | Form 1099-MISC | Form 1042-S | | Usually arrives | By early March (Other payers’ 1099s are generally due January 31) | By April 14 | | Taxed by the US | Worldwide earnings | Earnings from US viewers | | How the tax is paid | By you (With your return or in estimated payments) | Through Google’s withholding (Generally in full) | The 1042-S that arrives by April 14 reports last year’s earnings from US viewers and the tax Google withheld from them. ## Each of these YouTube tax mistakes comes from leaning on Google’s forms. ### Holding your return for Google’s form (https://valim.tax/tax-extension) You can file from your own AdSense payment records instead of waiting for Google’s 1099-MISC. We file a free Form 4868 extension for your Form 1040, or Form 7004 for a business return. The extension gives you more time to file, but not to pay. ### Reporting only what AdSense paid (https://valim.tax/content-creators/patreon-taxes) Google’s 1099-MISC leaves out brand deals and other income paid outside AdSense. A US business that pays you $2,000 or more for a 2026 sponsorship generally sends a 1099-NEC. Patreon sends a 1099-K once you pass its threshold. All of it goes on the same Schedule C as your AdSense earnings. ### Missing the tips deduction on Super Chats (https://valim.tax/content-creators/twitch-taxes) Google books Super Chats and Super Thanks from US viewers as royalty revenue. The tip regulations look instead at whether the viewer chose to pay, so a Super Chat may qualify. From 2026, you can generally take the deduction only if the payer reports the tips separately on your form. Google has not said it will do so. ### Thinking income below the 1099 line is tax-free (https://valim.tax/glossary/1099-nec) YouTube income is taxable even when it is too small for a form. Google’s request tool looks for $600 or more in payments, the reporting line for 2025. For payments made in 2026, the One Big Beautiful Bill Act raised the 1099-NEC line and most 1099-MISC lines to $2,000. Royalties stay at $10. ## A CPA for YouTubers turns your AdSense earnings and Google’s 1099-MISC into a signed return. Valim’s CPAs prepare and sign your federal and state returns, reporting your AdSense earnings and sponsorship income. - We reconcile Google’s 1099-MISC with your AdSense payment reports or your bookkeeper’s books before we prepare your return. - We add brand deals paid outside AdSense to the same return, whether or not each sponsor sends a 1099-NEC. - We plan quarterly estimated payments to cover the tax Google does not withhold. - We find the profit at which S corp status starts to save you tax, and time the election. - Your fee covers our reply to any IRS or state notice on a return we prepared, including one about the 1099-MISC Google filed. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle content creators: https://valim.tax/content-creators ## YouTube tax questions. ### Do I need to pay taxes if I make money on YouTube? Yes. Ad revenue, YouTube Premium revenue, channel memberships and Super Chats are all taxable income under US tax law. A US creator with $400 or more of net earnings from self-employment must file a return and generally owes self-employment tax. ### Where do I find my YouTube 1099? Google posts your YouTube 1099-MISC in AdSense for YouTube, under Settings, then Manage tax info. Google says US creators usually get it by early March, later than most 1099s arrive. You can pick online delivery or paper mail, and a paper form is posted online as well. For a copy, a correction or a form that never came, use AdSense’s ‘Request a year-end US Tax form’ tool. That tool also lists Forms 1099-NEC and 1099-K, but Google’s YouTube help names the 1099-MISC as the form US creators get. ### What tax info does AdSense ask for? AdSense needs one US tax form from you, even if you live abroad. US persons, resident aliens included, give Form W-9 and a US taxpayer ID. Most others give Form W-8BEN, or Form W-8BEN-E for a company, and claim any treaty rate on it. Google takes Forms W-8ECI, W-8IMY and W-8EXP in special cases. ### How do I report YouTube income on my taxes? Most creators report YouTube income on Schedule C with Form 1040. The channel counts as a business when you run it for profit, with continuity and regularity. Line 1 takes your gross receipts: the income on Google’s 1099-MISC, plus any YouTube income no form shows. Schedule SE then figures the self-employment tax on your profit. If TikTok also pays you, it names no form for Creator Rewards, so you report them from your payout records. ### How much tax do you pay on YouTube? A US creator generally pays 15.3% self-employment tax on 92.35% of YouTube profit, plus income tax. On $40,000 of profit, self-employment tax comes to $5,652. Income tax is then charged at your bracket rates, after deductions that include half the self-employment tax. With a valid W-9, Google withholds nothing. Estimated payments are then generally due if you expect to owe $1,000 or more after withholding and credits. A non-US creator with a valid W-8BEN generally owes the US only the tax Google withholds on earnings from US viewers. ### What can YouTubers write off? You can deduct any cost that is ordinary and necessary for your channel, as a business expense on Schedule C. Cameras and editing software qualify, and pay to an editor goes on line 11, contract labor. For your phone and internet, only the share you use for the channel is deductible. Driving for the channel is deductible at actual cost or the standard mileage rate, 70 cents a mile for 2025. For 2026 the rate is 72.5 cents through June 30, then 76 cents. With the de minimis safe harbor elected, gear up to $2,500 per item or invoice is deductible when you buy it. ## Sources - YouTube Help, U.S. tax requirements for YouTube earnings: https://support.google.com/youtube/answer/10391362 - YouTube Help, Submitting your U.S. tax info to Google: https://support.google.com/youtube/answer/10390801 - Google AdSense Help, Request a year-end US Tax form: https://support.google.com/adsense/troubleshooter/7542675 - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - IRS, Backup withholding: https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding - 26 U.S.C. § 1441, Withholding of tax on nonresident aliens: https://www.law.cornell.edu/uscode/text/26/1441 - IRS, Form W-9 (Rev. March 2024), Request for Taxpayer Identification Number and Certification: https://www.irs.gov/pub/irs-pdf/fw9.pdf - IRS, Instructions for Form W-8BEN (Rev. October 2021): https://www.irs.gov/pub/irs-pdf/iw8ben.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, Schedule SE (Form 1040), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - 26 C.F.R. § 1.224-1, Qualified tips (Treasury tipped occupation codes): https://www.law.cornell.edu/cfr/text/26/1.224-1 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf - IRS, Standard mileage rates: https://www.irs.gov/tax-professionals/standard-mileage-rates - 26 C.F.R. § 1.263(a)-1, Capital expenditures (the de minimis safe harbor in paragraph (f)): https://www.law.cornell.edu/cfr/text/26/1.263(a)-1 - IRS, Notice 2015-82 (the $2,500 de minimis limit): https://www.irs.gov/pub/irs-drop/n-15-82.pdf - Public Law 119-21 (One Big Beautiful Bill Act), § 70433: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm --- URL: https://valim.tax/content-creators/patreon-taxes Title: Patreon taxes: your 1099-K and what to report Updated: 2026-09-24 # Every pledge goes on your Patreon taxes, and Patreon’s 1099-K counts each one before fees and refunds. The 1099-K comes from Patreon itself, for creators in the US and US citizens living abroad. On Schedule C, refunds, Patreon’s fees and your other costs come off your gross earnings. You pay tax on what remains. Patreon’s tax forms, for 2025 earnings: - $20,000: of earnings brings a 1099-K in most states. Patreon’s table sets lower thresholds for some states and DC. - $600: of earnings in a year is when Patreon requires your W-9. - One: 1099-K goes to each creator page, even when two pages share one W-9. ## Who gets a Patreon tax form? The Patreon 1099 is a Form 1099-K, not a 1099-NEC or 1099-MISC. Patreon needs your W-9 before it can issue a 1099-K. It checks your taxpayer ID against IRS records as you submit the W-9. ### 1. A US creator US citizens and resident aliens give Patreon a W-9. A non-US creator living outside the US generally gives a W-8BEN instead, and gets no 1099-K. ### 2. Earnings past $20,000 Patreon’s 2025 table sets the federal threshold, or line, for a 1099-K at $20,000 of earnings in a calendar year. By law, a platform must file a 1099-K only when the year also has more than 200 transactions. ### 3. A lower line in your state Some places get lower lines in Patreon’s 2025 table: $2,500 in Arkansas, $1,000 in Illinois and $600 in DC. In Oregon, any earnings bring a form. Patreon’s table covers 2025 earnings. Neither federal figure rises with inflation, so the same federal test holds for 2026. ## How much Patreon income do you report when three 1099-Ks arrive? Some creators get a second 1099-K from a payment processor for the same payouts, though Patreon asks processors not to file one. Patreon’s help center says to report that income once. You live in Illinois, where Patreon’s line is $1,000. Your two Patreon pages get 1099-Ks for $30,000 and $6,000, and a processor reports $32,000 of the same payouts. - Every form added up: $68,000. The processor’s form counts the same member money a second time. - Both Patreon forms: $36,000. The gross from your two pages, which is where your Schedule C begins. - The larger page only: $30,000. The second page’s $6,000 goes missing, though it is taxable income too. Add the $30,000 and $6,000 to get the $36,000 gross, and leave out the processor’s $32,000. Ask the processor for a corrected 1099-K showing zero, and keep it with your records. File on time, even if the correction has not come. Each row is income reported, not tax, so no tax rate applies. The dollar amounts are invented round numbers. ## What trips up Patreon creators when they file? ### Starting from your bank deposits Payouts reach you after Patreon’s fees and any refunds, so your deposits usually add up to less than the 1099-K. Report the form’s gross as income, so your return matches what Patreon reported. ### Calling pledges donations (https://valim.tax/content-creators/twitch-taxes) Patrons may think of a pledge as support, but a payment tied to your content is income. Under the Supreme Court’s test in Commissioner v. Duberstein, a gift comes from “detached and disinterested generosity”: the giver expects nothing back. A patron who expects posts or perks in return is paying for them. ### Assuming a move abroad ends US tax (https://valim.tax/expat-tax) A US citizen who moves abroad is still a US person, so Patreon still asks for a W-9. Your Patreon income stays on your US return, wherever you live. ### Forgetting what member rewards cost (https://valim.tax/glossary/schedule-c) Prints, stickers and other rewards you mail to members are costs of running your page, and so is the postage. Deduct them on Schedule C, and keep the receipts. ## We count your Patreon income once, and a licensed CPA signs the return. Patreon creators can hand Valim’s CPAs every 1099-K and payout report, and we prepare and sign their federal and state returns. - We total the 1099-Ks from all your Patreon pages, and never count a processor’s form for the same payouts twice. - We bring Patreon’s gross down to your taxable profit, using your bookkeeper’s ledger or your own records. - We size each Form 1040-ES payment to what your pages earn. - We check if electing S corp status would lower the tax on your membership income, and from which year. - We handle any IRS or state notice on a return we prepared, within your fee, even one about a duplicate 1099-K. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle content creators: https://valim.tax/content-creators ## Patreon tax questions. ### Do I have to pay taxes on Patreon income? Yes. What members pay you through Patreon is income, and you report it even when no 1099-K arrives. In most states, Patreon sends no form below $20,000 of 2025 earnings. A page you keep up regularly to earn money counts as a business, so its income goes on Schedule C. Once its profit passes a small yearly floor, you also owe self-employment tax on it, alongside income tax. ### Does Patreon send a 1099-K? Yes, Patreon sends a Form 1099-K to US creators, including US citizens abroad, whose year’s earnings pass its line. For 2025 earnings, that line was $20,000 in most states. Patreon’s table lists lower lines for some states and DC, down to any earnings in Oregon. Under federal law, a platform must file one only if a year’s payments top $20,000 and number more than 200. If you also earn on YouTube, that income comes on a different form, a 1099-MISC from Google. ### How does Patreon report creator income to the IRS? Patreon reports creator income to the IRS on Form 1099-K, as the third-party settlement organization that pays you. Once you earn $600 in a year, it requires your W-9 and checks your taxpayer ID against IRS records. The form shows members’ gross payments, with nothing taken off for refunds or fees. A payment processor may also send a 1099-K for the same payouts, so report that income only once. ### How do I download my Patreon 1099-K? Open the Documents tab of your Patreon Payouts section. Its Income tax area has a Download button for each year. Patreon generates the forms between January and February, and you can switch to paperless delivery in your payout settings. If you run more than one page, each page has its own form to download. ### Does Patreon take out taxes? Patreon’s US tax pages describe no income tax withheld from US creators’ earnings. Patreon does withhold income tax in some other countries, such as Mexico. Backup withholding, a flat 24% held back by the payer, applies if your W-9 is missing or gives a wrong taxpayer ID. On Patreon payouts, it can start once a year’s payments pass $20,000 and 200 transactions. If last year’s payments passed both, it can start with the first payment. With nothing held back, many US creators pay estimated tax four times a year. ## Sources - Patreon Help Center, Will I receive a 1099-K form?: https://support.patreon.com/hc/en-us/articles/207099566 - Patreon Help Center, US Creator: Frequently Asked Tax Questions: https://support.patreon.com/hc/en-us/articles/207477063 - Patreon Help Center, Submitting a W-9: https://support.patreon.com/hc/en-us/articles/360020687292 - Patreon Help Center, Preparing for US Tax Season: https://support.patreon.com/hc/en-us/articles/360008555051 - 26 U.S.C. § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions: https://www.law.cornell.edu/uscode/text/26/6050W - IRS, Instructions for Form 1099-K (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099k.pdf - IRS, Understanding your Form 1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k - IRS, What to do with Form 1099-K: https://www.irs.gov/businesses/what-to-do-with-form-1099-k - 26 U.S.C. § 3406, Backup withholding: https://www.law.cornell.edu/uscode/text/26/3406 - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - 26 U.S.C. § 102, Gifts and inheritances: https://www.law.cornell.edu/uscode/text/26/102 - Commissioner v. Duberstein, 363 U.S. 278 (1960): https://www.law.cornell.edu/supremecourt/text/363/278 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf --- URL: https://valim.tax/content-creators/twitch-taxes Title: Twitch tax forms: which 1099s you get and where to find them Updated: 2026-09-24 # Each Twitch tax form reports one kind of income: royalties on a 1099-MISC, services on a 1099-NEC. Many streamers get both forms in the same year, though some get only one. Twitch does not say which of your subs, Bits and ad revenue counts as royalties. You can download each form from your Creator Dashboard once you authorize Amazon Tax Central. The numbers in Twitch’s tax process: - Jan. 31: is the date Twitch says it postmarks your paper 1099s, or emails you if you agreed to e-delivery. - 30%: is the most Twitch may withhold by default if your tax interview is missing or has expired. - 180 days: after earnings become payable, you forfeit them month by month if Twitch still has no W-9 or W-8. ## Is your Twitch tax info complete in Amazon Tax Central? Every Twitch payee takes the tax interview, and Twitch’s streamer agreement makes your payouts depend on it. ### 1. US persons give Form W-9 US persons, including resident aliens, give Twitch a W-9, even when they live abroad. ### 2. Non-US persons give a W-8 or Form 8233 If you are not a US person, you give Twitch a W-8 form instead, usually Form W-8BEN. Some give Form 8233. Twitch may then withhold US tax from certain payments. ### 3. Choose individual or business to match who Twitch pays Pick individual/sole proprietor on the W-9 if Twitch pays you in your own name. You can use your SSN, your ITIN or, as a sole proprietor, your EIN. A disregarded single-member LLC goes under your name too. If Twitch pays a corporation you own, such as an S corp, the corporation gives its own W-9 and EIN. ### 4. Each interview Twitch asks for is current Twitch has separate Royalty Tax Interview and Service Tax Interview forms, so check each one it asks you to complete. An expired interview brings the same risk as a missing one: default withholding may apply. ## Streamer tax write-offs can shrink your tips deduction, because it stops at your profit. For a self-employed streamer, the limit is the channel’s profit figured before the tips deduction itself. Gear, software and other Twitch tax write-offs lower that profit, and the limit falls with it. In 2025, a streamer took in $12,000, including $5,000 in tips viewers chose to send during free streams. - Costs of $4,000: $5,000. Profit of $8,000 covers every tip, so all $5,000 is deducted. - Costs of $9,000: $3,000. Profit falls to $3,000, so $2,000 of the tips cannot be deducted. - Costs of $12,000: $0. The channel breaks even, so none of the tips can be deducted. IRC 224(c) sets the limit, and Treasury’s regulations apply it to the self-employed in section 1.224-1(e). Profit in each row is the $12,000 taken in, less costs. The tips are well under the $25,000 cap, and the example assumes modified AGI below $150,000 ($300,000 joint), where the phase-out starts. Self-employment tax is figured on the profit before this deduction, so the deduction never lowers it. The example assumes the tips came by card, so a processor’s 1099-K included them. ## A Twitch 1099 form covers only what Twitch pays you. Donations through PayPal or Stripe, such as those sent with Streamlabs, never pass through Twitch. The thresholds below are for payments made in 2026. | | Through Twitch | Outside Twitch | | --- | --- | --- | | Form | 1099-MISC, 1099-NEC or both | Form 1099-K | | Filed by | Twitch Interactive, Inc. | PayPal (Or Stripe, for card donations) | | Threshold | $10 of royalties (Or $2,000 of service income) | Over $20,000 and over 200 payments (Federal test. Card payments at any amount, and apps may report less.) | | Taxable with no form | Yes | Yes | A donation sent as friends and family stays off a 1099-K, but it is still income. For 2025 payments, the service income line was $600. ## Where streamers lose money on their Twitch taxes. ### Waiting for a form mailed to an old address (https://valim.tax/tax-extension) If you have moved since onboarding, Twitch still mails paper forms to your old address. Download them from your Creator Dashboard instead, or file from your own payout history. If you need more time, Valim files a free Form 4868 extension, or Form 7004 for a business. Any tax owed is still due on the original date. ### Treating ‘royalty’ as a different kind of income (https://valim.tax/glossary/schedule-c) Your Twitch 1099-MISC labels part of your pay as royalties. Twitch’s streamer agreement, though, says it intends to treat everything it pays you as payment for services. The Schedule E instructions send royalties earned by a self-employed artist or writer to Schedule C, so both forms generally belong there. ### Deducting tips that no 1099 includes (https://valim.tax/glossary/qualified-tips) For 2025, tips are deductible only if a 1099’s total includes them, backed by a tip log or similar records. From 2026 the form must list tips separately, and Twitch has not said whether its forms will. If PayPal donations fall below the 1099-K threshold and reach no form, they may not qualify. ### Stopping at the forms Twitch sends (https://valim.tax/content-creators/tiktok-taxes) Clips you post to TikTok can earn Creator Rewards, and TikTok’s own pages name no tax form for them. Report that income from your payout records, alongside your Twitch income on Schedule C. ## Twitch tax help that covers the donations Twitch never sees. Valim, a CPA firm, does taxes for Twitch streamers, and a licensed US CPA signs each federal and state return. - We check each Twitch form against your payout history, or against the books your bookkeeper keeps. - We report donations from Streamlabs or PayPal on the same return, and claim the tips deduction for those that qualify. - We calculate each quarter’s estimated tax on your Twitch pay and donations. - We work out whether Twitch should pay an S corp you own instead of you, and when to elect. - We reply to any IRS or state notice on a return we prepared, within your fee, such as one on a tips deduction. - Individual return: from $195 - Business return: from $495 We quote a flat fee before work starts. We do not bill hourly. How we handle content creators: https://valim.tax/content-creators ## Twitch tax questions. ### Do Twitch streamers have to pay taxes? Yes, Twitch streamers pay tax on subs, Bits, ad revenue and donations, with or without a form. If you stream regularly to make money, it is a business, and you report it on Schedule C. You owe income tax and self-employment tax on its profit. A channel must file once its net earnings from self-employment reach $400, even with no other income. Brand deals and Patreon memberships belong on the same return. ### Will Twitch send me a 1099, and which form? Yes, Twitch sends a 1099-MISC once royalties reach $10 and a 1099-NEC once service income reaches $2,000, for payments made in 2026. A Twitch 1099-NEC for 2025 payments used the old $600 line. Many streamers get both forms, and Twitch has not published which of subs, Bits and ads it treats as royalties. Non-US creators get Form 1042-S from Twitch instead, by March 15. ### How do I get my 1099 from Twitch? Twitch says it mails paper forms to the address you gave at onboarding, postmarked by January 31. If you agreed to e-delivery, Twitch emails you by January 31 instead. Electronic copies of your Twitch tax documents are in your Creator Dashboard: open Insights, then Channel Analytics, View My Payouts and View Tax Forms. There you authorize Amazon Tax Central and download each form, one at a time. ### Are donations to streamers taxable? Donations to streamers are generally taxable income, because a donation prompted by your stream is not a tax-free gift. In the Duberstein case, the Supreme Court held that a payment made in return for services is not a gift. Donations through PayPal or Streamlabs are on neither Twitch form, and may not be on a Form 1099-K either. They are taxable all the same. ### Do Bits and subs count as tips for the no tax on tips deduction? Twitch subscriptions very likely do not count as qualified tips, and no rule yet says whether Bits do. Under Treasury’s final rules, a payment required to see content, such as an OnlyFans pay-per-view post, is payment for services. A sub buys perks at a set price, so the viewer does not choose the amount. Viewers buy Bits from Twitch, and Twitch pays you 1 cent per Bit cheered. Money a viewer chooses to send during a free stream can be a qualified tip, even when chat highlights it. The One Big Beautiful Bill Act created the deduction for 2025 through 2028, and Treasury’s list of tipped occupations includes streamers. ## Sources - Twitch Help, Amazon tax information interview and IRS annual reporting FAQ: https://help.twitch.tv/s/article/amazon-tax-information-interview-and-irs-annual-reporting-faq - Twitch, Monetized Streamer Agreement: https://legal.twitch.com/en/legal/monetized-streamer-agreement/ - Twitch Help, Cheering for Partners and Affiliates: https://help.twitch.tv/s/article/cheering-for-partners-affiliates - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - 26 U.S.C. § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions: https://www.law.cornell.edu/uscode/text/26/6050W - IRS, Understanding your Form 1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k - Commissioner v. Duberstein, 363 U.S. 278 (1960): https://www.law.cornell.edu/supremecourt/text/363/278 - 26 U.S.C. § 224, Qualified tips: https://www.law.cornell.edu/uscode/text/26/224 - 26 C.F.R. § 1.224-1, Qualified tips (Treasury tipped occupation codes): https://www.law.cornell.edu/cfr/text/26/1.224-1 - IRS, Notice 2025-69 (qualified tips received in 2025): https://www.irs.gov/pub/irs-drop/n-25-69.pdf - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - IRS, 2025 Instructions for Schedule E (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040se.pdf - IRS, Schedule SE (Form 1040), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 6017, Self-employment tax returns: https://www.law.cornell.edu/uscode/text/26/6017 - Public Law 119-21 (One Big Beautiful Bill Act), §§ 70201 and 70433: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm --- URL: https://valim.tax/partnerships Title: Operational tax partner # Your operational tax partner. We take over tax for your clients with whitelabelled or co-branded partnerships. - CPA-led delivery teams - Custom workflow integrations - End-to-end support ## Tax is a natural fit to your existing workflows, but there are problems. ### Your clients ask about tax. You cannot serve it. You hold deep relationships in an adjacent space, along with the trust, the context and the data. Tax is the natural next requirement, and today it goes elsewhere. ### In-house tax is operationally heavy Licensed preparers, review layers, software, project management, seasonal staffing and notice handling. A high fixed cost base set against variable revenue. ### The burden reaches the client Slow turnaround, missed follow-ups and no year-round point of contact. Operational strain in tax is visible to the client, and it reflects on your brand. ## The solution: An operational tax partner. Capture your clients' tax workflows, deepen client relationships, and add revenue. ### Deeper relationships, greater retention Handling clients' taxes opens revenue streams you cannot serve today and strengthens the client relationship. ### Tech-enabled quality & speed We leverage tech to provide big-4 grade services at exponentially faster speeds and lower costs. ### Unified client experience Clients get a seamless, unified experience with fast turnarounds and year-round access to a CPA. ### Tax becomes a revenue center Tax shifts to a large revenue center with no hiring, seasonal staffing, or operational burden. ## Partnership models: Whitelabel vs. Co-branded. ### Whitelabel: Valim operates as your firm Delivery runs under your brand, end to end. - Delivery is invisible under your brand - You set client pricing and retain the spread - A single brand across your entire book ### Co-branded: Valim as your named tax partner Tax services for your clients are delivered with Valim co-branding. - Immediate launch for tax services - Close to zero operational overheads - Revenue center creation with no costs ## Two standard workflows. Select how much of the tax function you transfer. Both operate under either partnership model. ### Client Relations, Advisory and Filing WORKFLOW A Full ownership of the tax function: all client-facing communications, year-round advisory and year-end filing. Valim owns: - Client onboarding and engagement - Document collection and follow-up - Year-round client tax queries - Estimated payments and planning - Preparation, review, e-sign and filing - Notices and audit response Delivery time guarantee: Returns delivered after 14 days are not billed. ### Advisory and Filing WORKFLOW B Back-office delivery, with your team maintaining client-facing touchpoints. Valim owns: - Preparation, review, e-sign and filing - Year-round tax queries - Estimated payments and planning - Notices and audit response Delivery time guarantee: Returns delivered after 14 days are not billed. Every partnership is customized: We build deep technical and operational integrations into your firm's existing processes, ensuring smooth delivery and a strong end-client experience. ## Pricing models: Pay as you go vs. Volume blocks. ### Variable per-client rates, marked to return complexity Pay as you go Begin without commitment and scale as the cohort grows. - No minimum volume - Begin with a limited cohort and scale - Cost scales your book - Money-back guarantees for speed and quality ### Preset rates for volume blocks Volume blocks Capacity reserved against your forecast before peak season begins. - Fixed rates you can budget against - Capacity reserved ahead of season - Improved economics at scale - Money-back guarantees for speed and quality ## We support all return types. Individual returns and the full range of business returns, federal and state, across all 50 states. - Individual (1040) - C-corp (1120) - S-corp (1120-S) - Partnership (1065) - Trust and estate (1041) - Non-profit (990) ## Exceptional service delivered to existing partners. ### Rally Tax (CPA partner) Reliable, high-quality tax services delivered at 2x speed Valim manages end-to-end client management and filing for Rally Tax, providing exceptional quality while doubling throughput. ### Cove Professional Services (Tax partner) Peak season capacity for tax work Valim serves as peak season partner to Cove Professional Services, delivering client tax returns to an exacting standard at maximum volume. ## Become a Valim partner. Tell us about your firm. We will reach out within 24 hours. ## Questions firms ask. ### Will you solicit our clients? No. Every partnership agreement includes an explicit non-solicitation clause. We work only on the returns you send us and do not market to your book. ### Who signs the return? A licensed US CPA on the Valim team prepares, reviews and signs. Where you prefer to retain sign-off, we return the completed return to your team for review and signature. Signer disclosure is handled in your engagement terms, and we agree the exact wording with you before launch. ### Under whitelabel, what do our clients see? Your brand, your domain, your engagement letters and your communication conventions. Clients experience it as your tax team. ### What returns and states do you cover? Individual returns and the full range of business returns: C-corps, S-corps, partnerships, trusts and estates, and non-profits. Federal and state, in all 50 states. ### Is there a minimum volume? Pay as you go carries no minimum, so you can begin with a limited cohort and scale. Volume blocks are sized to your book and reserve capacity ahead of peak season. ### Can you absorb our peak season volume? Yes. Volume blocks exist for this purpose, with capacity planned against your forecast before season begins. We also accept last-minute peak season volume, subject to available capacity. ### What happens if there is an error or an IRS notice? We stand behind every return we file. If the IRS or a state issues a notice, our team handles the response end to end and keeps you informed throughout. ### How is client data handled? Bank-grade encryption in transit and at rest, private infrastructure, and no client data used to train AI. Our Written Information Security Plan is published here. ### What if we want to bring tax back in-house later? Transition terms are agreed upfront. Your files, workpapers and client records remain yours, in a format your team can take over. --- URL: https://valim.tax/bookkeeper-partnership Title: Tax partner for bookkeepers: filing, referrals and advisory # Your clients ask about taxes. Now you have an answer. Bookkeepers can partner with a modern CPA firm that handles tax filing for their clients, and earn up to $100,000 a year in the partnership. ## Do these sound familiar? Every bookkeeper hits these moments. They do not have to be awkward anymore. ### “Can you just do my taxes too?” Your client trusts you with their books. When they ask about taxes and you say no, you lose a valuable opportunity with them. ### The CPA you refer them to is slow and expensive You send your client to a CPA. They hear back after 6 weeks and get an extremely expensive quote. Now your client is frustrated. ### You get nothing for the intro You hand off a client you have worked with for years. The CPA collects $2,000, but there are no clear, structured incentives to you. ## How it works. Three steps and thirty seconds of your time. Your client is covered for the entire year. ### 1. Introduce your client A warm intro by email, text, or our partner portal. That is all we need from you. ### 2. We handle everything Document collection, tax prep, CPA review, filing, and year-round support. Your client is in expert hands. ### 3. Everyone wins Your client gets a CPA who does not disappear. You look great for the referral, and you earn on every return. ## What your clients get. You are putting your reputation on the line. Here is exactly what we deliver to your clients. ### Year-round CPA access Not just April. Every month. Estimated payments, life events, questions about a 1099: they reach a real CPA anytime. ### Upfront pricing, no surprises Individual returns start at $195, business returns at $495. Clients know the price before we start. No hourly billing, no surprise invoices. ### Filed in days, not weeks AI handles the gruntwork. A licensed CPA reviews and signs every return. Most returns are done in under a week. ### Unlimited tax questions Your clients stop texting you about taxes. They text us instead. Every question answered by a CPA, included in the price. ### Audit support included If the IRS sends a notice, we handle the response. Every return we file, we stand behind. Your client is covered. ### Bank-grade data security Private infrastructure. Encrypted end-to-end. Never shared with third parties. IRS Publication 4557 compliant. Free, no partnership required ## A free community where bookkeepers support each other. Join our free Facebook community to swap advice, ask questions, and connect with bookkeepers who get it, while also getting help with AI and tech to modernize your practice. ## Three ways to partner. Choose the model that fits your practice. Switch anytime. ### White-label You control the pricing and the relationship. - Individual return cost: Starts at $150 - Business return cost: Starts at $450 - You charge your client: Your own price - Tax filing & advisory included - You set the price. You keep the margin. - Full year-round CPA access for your client - You own the relationship completely ### Referral Refer a client and collect commissions. - Year 1 commission: 20% - Years 2 & 3 commission: 10% - Years 4-10 commission: 5% - Effort required from you: One intro - Tax filing & advisory included - We handle pricing, billing, and support - Commissions paid within 30 days of filing - Partner dashboard to track referrals - No minimum volume required ### Quick Start Upsell tax advisory today. - You pay Valim: $50/mo per client - You charge your client: Your own price - Unlimited tax advisory for your clients - Live in minutes, nothing to set up - You set the price and keep the margin - Cancel anytime, no minimums ## See your upside. Move the slider to the number of clients you would send us in a year. ## Valim vs. traditional CPA firms. Valim is purpose built to overdeliver on clients' tax needs. ## Trusted by bookkeepers nationwide. - "Your workpapers are extraordinary. I did not need to review anything else." (CPA firm partner, New York) - "I say “actually, yes, let me connect you with our tax team” to clients now." (Solo bookkeeper, Texas) - "My clients love having year-round CPA access. They stopped asking me tax questions." (Bookkeeping firm owner, California) - "We white-label Valim across our whole book. Great margins." (Bookkeeping firm owner, Chicago) - "The turnaround time is insanely good." (Solo bookkeeper, Seattle) - "I send one quick intro and they usually take it from there. I get substantial commissions." (Bookkeeper, Atlanta) - "Advisory was a need my clients kept bringing up, glad to partner to solve for it." (Accounting practice owner, Denver) - "I was initially nervous about handing off relationships I built for years. Once the ball got rolling, it’s on auto pilot now." (Bookkeeping firm owner, Miami) - "Commissions show up like clockwork." (Solo bookkeeper, Phoenix) Free for bookkeepers ## A stunning website that converts thrice as many clients, on us. We will launch a brand-new or redesigned website for your practice. A stunning site that typically converts three times as many clients, completely free. ## Sign-up to be a Valim partner. Fill out the form below and we will reach out within 24 hours to get you set up. ## FAQs by our bookkeeping partners. ### Do you have non-solicitation clauses? Our partnership agreement includes a clear non-solicitation clause. We focus on taxes and will not offer bookkeeping services to your clients. ### What if a return has issues or gets audited? If the IRS sends a notice, our CPA team handles the response end-to-end. We stand behind every return we file. ### Do I have to be involved after the intro? One intro and that is it. We handle document collection, tax prep, client communication, filing, and year-round support. You are CC’d on key updates if you prefer. ### How and when do I get paid? White-label: you bill your client directly, so you collect immediately, then pay Valim our wholesale rate after filing. Referral: commission paid within 30 days of the return being filed and paid. ### Is there a minimum number of referrals? No minimums. You can start with one, see how your client likes the experience, then scale. --- URL: https://valim.tax/employee-tax-benefits Title: Employee financial wellness: a personal CPA for your team # Give employees their personal CPA. Valim gives each of your employees their personal CPA for DIY prices. - Licensed US CPAs - Year-round advisory & year-end filing - 24-hour response time - From $20 per employee ## Tax stress does not stay at home. We asked employees at startups and enterprises what weighs on them. Personal taxes came up again and again. ### It peaks when you need focus most Filing season lands on top of planning, reviews and your busiest quarter. Employees lose too much time to paperwork and second-guessing themselves. ### It does not stop in April A new baby, a first home, a move across state lines, a first RSU vest. Every life event raises a tax question, and most people have nobody to ask. ### The usual perks do not answer it A filing discount code or a financial wellness webinar cannot tell someone what to do about their equity. People want a person who knows their situation. ## What your employees get. A tax expert who is genuinely reachable, right where they already work. ### A real CPA, in the tools they already use Reach out on Slack, Teams or email. Nothing new to download. ### Answers within 24 hours, all year A licensed US CPA keeps their context from one question to the next and answers in 24 hours. ### Year-round tax strategy included RSUs and options, multi-state moves, side income, rental property, a spouse with a business. ### Year-end filing included Federal and state individual returns, prepared, reviewed and signed by a CPA. ## We specialize in advising for big life events. Typical employees do not get access to proactively plan for taxes during big life events. - RSUs and options - Multi-state moves - Side income - Rental property - A spouse with a business - A first home - A new baby ## Setting up: Two simple steps. We can get up and running in under 24 hours and start adding value for your employees. ### 1. Pick a plan Company-paid or employee-paid, and tell us your headcount. ### 2. Connect Valim to your Slack/Teams Instant setup. No HRIS project and no IT ticket. Your team starts asking questions, and we take it from there, through to year-end filing. ## Plans: Two ways to offer it. Fund it as a company benefit, or let your team opt in at a discounted rate. ### Company-paid perk Most popular $20-30 per employee per month - Year-round CPA access for every employee - Year-end federal and state filing included - Aggregate usage reporting for HR ### No cost to the company Employee-paid opt-in $0 to the company - Employees enroll and pay themselves - Discounted rate through your company partnership - No budget approval needed to launch ## Register your interest. We will reach out in under 24 hours. ## Questions HR teams ask us. ### How long does setup take? Under a day. We connect to your Slack, Teams or email, send an introductory message to your team, and take it from there. ### Is this a taxable benefit for employees? Employer-paid tax preparation is generally treated as a taxable fringe benefit to the employee. The specifics depend on how you structure it, so we walk your payroll and finance team through the treatment before you launch. ### What is included? Year-round advisory plus year-end filing. Employees can ask their CPA anything, any time of year, and their federal and state individual returns are prepared and signed by a licensed US CPA. That covers equity compensation, multi-state situations, side income and rental property. Genuinely complex cases, such as foreign holdings or a spouse’s business return, are quoted upfront before any work starts. ### Our team is spread across many states. Is that a problem? No. Multi-state returns and mid-year relocations are routine for us, and our CPAs are licensed to file in all US states. ### How is employee data protected? Bank-grade encryption in transit and at rest. Every conversation is with a licensed US CPA, bound by the professional confidentiality rules that apply to any CPA engagement. ### Is employee data used to train AI models? No. Employee data is not used to train AI models. ### What does it cost? $20 to $30 per employee per month. The employee-paid option costs the company nothing, and your employees still get a discounted rate through the company partnership. --- URL: https://valim.tax/glossary Title: Tax glossary: plain definitions of the terms on your return # The tax terms on your return, defined in plain words. Each entry opens with a one-sentence definition. Its figures carry the date they were checked and a link to the primary source. - 1099-K (https://valim.tax/glossary/1099-k): Form 1099-K is the IRS form that card processors, payment apps and online marketplaces file to report the payments they settled for you. - 1099-MISC (https://valim.tax/glossary/1099-misc): Form 1099-MISC is the IRS form a business files to report miscellaneous payments it made to you, such as royalties, rents, prizes and awards. - 1099-NEC (https://valim.tax/glossary/1099-nec): Form 1099-NEC is the IRS form a business files to report nonemployee compensation, what it paid a creator or other nonemployee for services. - 10b5-1 plan (https://valim.tax/glossary/10b5-1-plan): A 10b5-1 plan is a trading plan, set up while you have no inside information, that fixes your future trades in a company’s stock. - 25% foreign-owned corporation (https://valim.tax/glossary/25-foreign-owned-corporation): A 25% foreign-owned corporation is a US corporation at least 25% owned, by vote or value, by one foreign person. - Accountable plan (https://valim.tax/glossary/accountable-plan): An accountable plan is an employer’s expense reimbursement arrangement that meets three IRS requirements, so its payments are not taxable wages. - Accrual basis (https://valim.tax/glossary/accrual-basis): Accrual basis is the accounting method that counts income when it is earned and expenses when they are incurred. - Adjusted gross income (AGI) (https://valim.tax/glossary/adjusted-gross-income-agi): Adjusted gross income (AGI) is your gross income minus specific deductions the tax code lists, such as deductible IRA contributions. - AFSP (Annual Filing Season Program) (https://valim.tax/glossary/afsp-annual-filing-season-program): The Annual Filing Season Program (AFSP) is a voluntary IRS program for paid tax preparers who are not attorneys, CPAs or enrolled agents. - Authorized shares (https://valim.tax/glossary/authorized-shares): Authorized shares are the maximum number of shares a corporation may issue, as stated in its certificate or articles of incorporation. - Backup withholding (https://valim.tax/glossary/backup-withholding): Backup withholding is the 24% federal income tax a payer must take from reportable payments when your taxpayer ID is missing or incorrect. - Bargain element (https://valim.tax/glossary/bargain-element): The bargain element is the fair market value of stock you buy by exercising an option, minus the exercise price you pay. - C corporation (https://valim.tax/glossary/c-corporation): A C corporation is a corporation that pays federal income tax on its own profits, separately from its shareholders. - Capital loss carryover (https://valim.tax/glossary/capital-loss-carryover): A capital loss carryover is the unused part of a net capital loss, carried forward to later tax years. - Cash basis (https://valim.tax/glossary/cash-basis): Cash basis is the accounting method that counts income when it is received and expenses when they are paid. - Certificate of Loss of Nationality (https://valim.tax/glossary/certificate-of-loss-of-nationality): A Certificate of Loss of Nationality (CLN) is the State Department document, Form DS-4083, that certifies a person has lost US nationality. - Chart of accounts (https://valim.tax/glossary/chart-of-accounts): A chart of accounts is the list of every account in a business’s general ledger, grouped as assets, liabilities, equity, income and expenses. - Circular 230 (https://valim.tax/glossary/circular-230): Circular 230 is the Treasury regulation that sets who may practice before the IRS and the standards they must follow. - Closer connection exception (https://valim.tax/glossary/closer-connection-exception): The closer connection exception lets someone who passes the substantial presence test remain a nonresident alien, because their ties to another country are closer. - Controlled foreign corporation (CFC) (https://valim.tax/glossary/controlled-foreign-corporation-cfc): A controlled foreign corporation (CFC) is a foreign corporation whose US shareholders own more than 50% of its vote or value. - Convertible note (https://valim.tax/glossary/convertible-note): A convertible note is a loan from an investor to a startup that can turn into shares at a later funding round. - Cost basis (https://valim.tax/glossary/cost-basis): Cost basis is your investment in an asset for tax purposes, usually what you paid for it. - Cost of goods sold (https://valim.tax/glossary/cost-of-goods-sold): Cost of goods sold (COGS) is the cost of the inventory a business sold during the year. - Covered digital asset (https://valim.tax/glossary/covered-digital-asset): A covered digital asset is crypto acquired in a broker’s custodial account from January 1, 2026, and held there until sold. - Covered expatriate (https://valim.tax/glossary/covered-expatriate): A covered expatriate is a former US citizen or long-term green card holder who meets one of three tests for the exit tax. - De minimis exemption (crypto) (https://valim.tax/glossary/de-minimis-exemption-crypto): A de minimis crypto exemption is a proposed law that would exempt very small crypto transactions from tax. - De minimis safe harbor (https://valim.tax/glossary/de-minimis-safe-harbor): The de minimis safe harbor is a yearly election that lets a business deduct low-cost tangible property at once, instead of capitalizing it. - Dependent care assistance program (DCAP) (https://valim.tax/glossary/dependent-care-assistance-program-dcap): A dependent care assistance program (DCAP) is a written employer plan that pays for employees’ dependent care, tax-free up to a yearly limit. - Depreciation recapture (https://valim.tax/glossary/depreciation-recapture): Depreciation recapture is the rule that taxes part of the gain on a sale of depreciated business property as ordinary income. - Domicile (https://valim.tax/glossary/domicile): Domicile is the place you regard as your permanent home and intend to return to whenever you are away. - Double-trigger RSU (https://valim.tax/glossary/double-trigger-rsu): A double-trigger RSU is a restricted stock unit that vests only after a service period and a liquidity event, usually an IPO or acquisition. - Effective tax rate (https://valim.tax/glossary/effective-tax-rate): An effective tax rate is your total income tax divided by your income, which gives the average rate you paid. - EFIN (https://valim.tax/glossary/efin): An EFIN (Electronic Filing Identification Number) is the number the IRS assigns to a firm it accepts as an Authorized IRS e-file Provider. - EIN (https://valim.tax/glossary/ein): An employer identification number (EIN) is the nine-digit number the IRS assigns to a business or other entity for its tax filings. - Engagement letter (https://valim.tax/glossary/engagement-letter): An engagement letter is a firm’s written agreement with a client on the services, the scope, the fees and each side’s responsibilities. - Enrolled agent (https://valim.tax/glossary/enrolled-agent): An enrolled agent (EA) is a tax practitioner licensed by the IRS, with unlimited rights to represent taxpayers before the IRS. - Exempt individual (https://valim.tax/glossary/exempt-individual): An exempt individual is someone whose US days are left out of the substantial presence test, the day count for US tax residency. - Fair market value (FMV) (https://valim.tax/glossary/fair-market-value-fmv): Fair market value (FMV) is the price at which property, such as stock, would change hands between a willing buyer and a willing seller. - Fair value accounting (https://valim.tax/glossary/fair-value-accounting): Fair value accounting is a method that values an asset at what it would sell for on each reporting date, not at its cost. - FICA (https://valim.tax/glossary/fica): FICA is the federal payroll tax for Social Security and Medicare, named for the Federal Insurance Contributions Act that imposes it. - Foreign housing exclusion (https://valim.tax/glossary/foreign-housing-exclusion): The foreign housing exclusion lets Americans who qualify for the foreign earned income exclusion also exclude housing costs above a base amount. - Form 1040-ES (https://valim.tax/glossary/form-1040-es): Form 1040-ES is the IRS form individuals use to figure and pay estimated tax on income that has no tax withheld. - Form 2848 (power of attorney) (https://valim.tax/glossary/form-2848-power-of-attorney): Form 2848 is the power of attorney you sign to authorize an eligible individual to represent you before the IRS. - Form 4868 (https://valim.tax/glossary/form-4868): Form 4868 is the IRS form you use to get an automatic 6-month extension to file your individual income tax return. - Form 7004 (https://valim.tax/glossary/form-7004): Form 7004 is the IRS application for an automatic extension of time to file business returns such as Forms 1120, 1120-S and 1065. - Form 8879 (https://valim.tax/glossary/form-8879): Form 8879 is the IRS form you sign so the firm that e-files your individual return can enter your PIN as your signature. - Form 940 (https://valim.tax/glossary/form-940): Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is the return on which an employer reports its federal unemployment tax each year. - Form 941 (https://valim.tax/glossary/form-941): Form 941 is the return employers file each quarter to report wages, income tax withheld, and Social Security and Medicare tax. - Franchise tax (https://valim.tax/glossary/franchise-tax): A franchise tax is a state tax on a company’s right to exist, or to do business, in that state. - Fringe benefit (https://valim.tax/glossary/fringe-benefit): A fringe benefit is a form of pay for services, such as a company car or an employee discount. - Grantor trust (https://valim.tax/glossary/grantor-trust): A grantor trust is a trust whose income is taxed to its creator, the grantor, because they keep certain powers or benefits. - Green card test (https://valim.tax/glossary/green-card-test): The green card test makes you a US tax resident in any calendar year you are a lawful permanent resident, even for one day. - Hard fork (https://valim.tax/glossary/hard-fork): A hard fork is a change to a cryptocurrency’s rules that permanently splits its blockchain, sometimes creating a new coin. - Income sourcing (equity compensation) (https://valim.tax/glossary/income-sourcing-equity-compensation): Income sourcing for equity compensation is how a state sets its share of your RSU, option or ESPP income, usually by your workdays there. - Itemized deductions (https://valim.tax/glossary/itemized-deductions): Itemized deductions are the expenses you list one by one on Schedule A, instead of taking the standard deduction. - Lockup period (https://valim.tax/glossary/lockup-period): A lockup period is a set time after an IPO when company insiders, including employees, have agreed not to sell their shares. - Marginal tax rate (https://valim.tax/glossary/marginal-tax-rate): A marginal tax rate is the rate on your next dollar of taxable income, set by your top tax bracket. - Maximum account value (https://valim.tax/glossary/maximum-account-value): On the FBAR, the maximum account value is a reasonable approximation of the highest value a foreign account reached during the calendar year. - Modified adjusted gross income (MAGI) (https://valim.tax/glossary/modified-adjusted-gross-income-magi): Modified adjusted gross income (MAGI) is your adjusted gross income with certain items added back or left out, which vary by rule. - Month-end close (https://valim.tax/glossary/month-end-close): Month-end close is the routine of finishing a month’s books, from recording each transaction to producing that month’s financial statements. - Net CFC tested income (NCTI) (https://valim.tax/glossary/net-cfc-tested-income-ncti): Net CFC tested income (NCTI) is a US shareholder’s share of tested income from the controlled foreign corporations they own, minus those CFCs’ tested losses. - Non-willful (https://valim.tax/glossary/non-willful): For the IRS, non-willful conduct is conduct due to negligence, inadvertence or mistake, or to a good faith misunderstanding of what the law requires. - Pass-through entity (https://valim.tax/glossary/pass-through-entity): A pass-through entity is a business whose income is taxed on its owners’ returns. - Passive foreign investment company (PFIC) (https://valim.tax/glossary/passive-foreign-investment-company-pfic): A passive foreign investment company (PFIC) is a foreign corporation with 75% or more passive gross income, or 50% or more passive assets. - Permanent place of abode (https://valim.tax/glossary/permanent-place-of-abode): A permanent place of abode is a home suitable for year-round use that you maintain, whether or not you own it. - Pro-rata rule (https://valim.tax/glossary/pro-rata-rule): The pro-rata rule treats all your traditional, SEP and SIMPLE IRAs as one, so each dollar you convert carries the same taxable share. - PTIN (https://valim.tax/glossary/ptin): A PTIN (preparer tax identification number) is the IRS number anyone paid to prepare federal tax returns must have. - Qualified dividends (https://valim.tax/glossary/qualified-dividends): Qualified dividends are the dividends taxed at the same 0%, 15% or 20% rates as long-term capital gains. - Qualified research expenses (https://valim.tax/glossary/qualified-research-expenses): Qualified research expenses (QREs) are the costs a business can use to figure its federal research credit under Section 41. - Qualified tips (https://valim.tax/glossary/qualified-tips): Qualified tips are voluntary cash tips you can deduct through 2028, received in an occupation Treasury lists as customarily and regularly tipped before 2025. - QuickBooks ProAdvisor (https://valim.tax/glossary/quickbooks-proadvisor): QuickBooks ProAdvisor is Intuit’s free program for accounting professionals, offering training, product certifications, software and support. - Realized gain (https://valim.tax/glossary/realized-gain): A realized gain is what you receive when you sell or otherwise dispose of an asset, minus your adjusted basis. - Reciprocity agreement (https://valim.tax/glossary/reciprocity-agreement): A reciprocity agreement lets residents of one state who work in another pay income tax on their wages only to their home state. - Reportable transaction (Form 5472) (https://valim.tax/glossary/reportable-transaction-form-5472): A reportable transaction, for Form 5472, is a sale, loan, fee or similar dealing between a foreign-owned company and a related party. - Resident alien (https://valim.tax/glossary/resident-alien): A resident alien is a non-citizen taxed as a US resident, usually because they hold a green card or pass the substantial presence test. - Safe harbor (estimated tax) (https://valim.tax/glossary/safe-harbor-estimated-tax): The estimated tax safe harbor is an amount you can pay during the year that protects you from the underpayment penalty. - SAFE (simple agreement for future equity) (https://valim.tax/glossary/safe-simple-agreement-for-future-equity): A simple agreement for future equity (SAFE) is a contract that sells an investor the right to a startup’s future shares. - SAFT (https://valim.tax/glossary/saft): A SAFT (simple agreement for future tokens) is a contract in which an investor pays now for crypto tokens to be delivered later. - Saving clause (https://valim.tax/glossary/saving-clause): A saving clause is a tax treaty provision that lets the US tax its citizens and residents under its own law, except for listed articles. - Schedule C (https://valim.tax/glossary/schedule-c): Schedule C is the Form 1040 schedule a sole proprietor uses to report the business’s income, expenses and net profit or loss. - Schedule SE (https://valim.tax/glossary/schedule-se): Schedule SE is the Form 1040 schedule that figures self-employment tax, the Social Security and Medicare tax on your net earnings from self-employment. - Section 7216 (https://valim.tax/glossary/section-7216): Section 7216 of the tax code bars preparers from sharing client return information, or using it for another purpose, without consent or legal permission. - Self-custody wallet (https://valim.tax/glossary/self-custody-wallet): A self-custody wallet is a crypto wallet where you hold your own private keys, instead of an exchange holding them. - Specific identification (https://valim.tax/glossary/specific-identification): Specific identification is naming which units of a coin or stock you sell, so their cost and purchase date set your gain or loss. - Specified foreign financial asset (https://valim.tax/glossary/specified-foreign-financial-asset): A specified foreign financial asset is an asset Form 8938 reports: a foreign financial account, or a foreign investment held outside any account. - Stablecoin (https://valim.tax/glossary/stablecoin): A stablecoin is a digital asset designed to hold a fixed value, usually one US dollar per coin. - Standard deduction (https://valim.tax/glossary/standard-deduction): The standard deduction is a flat amount you subtract from your adjusted gross income (AGI) if you do not itemize. - Statutory resident (https://valim.tax/glossary/statutory-resident): A statutory resident is taxed as a state’s resident, though domiciled elsewhere, for keeping a home there and spending over half the year there. - Step-up in basis (https://valim.tax/glossary/step-up-in-basis): A step-up in basis resets inherited property’s tax basis to its fair market value on the day the owner died. - Strike price (https://valim.tax/glossary/strike-price): The strike price is the fixed price per share you pay to buy stock when you exercise an employee stock option. - Supplemental wages (https://valim.tax/glossary/supplemental-wages): Supplemental wages are wages your employer pays apart from your regular pay, such as bonuses and RSU income. - Tax home (https://valim.tax/glossary/tax-home): Your tax home is your regular or main place of business, employment or post of duty, wherever you keep your family home. - Tax transcript (https://valim.tax/glossary/tax-transcript): A tax transcript is a free IRS summary of your tax records, such as the return you filed. - Taxable event (https://valim.tax/glossary/taxable-event): A taxable event is a transaction that gives you income, or a gain or loss, to report on your return. - Third-party settlement organization (https://valim.tax/glossary/third-party-settlement-organization): A third-party settlement organization, such as a payment app or online marketplace, is the company bound by contract to pay its network’s sellers. - US person (https://valim.tax/glossary/us-person): A US person is a US citizen or resident, or a domestic entity such as a US corporation, partnership, trust or estate. - Vesting cliff (https://valim.tax/glossary/vesting-cliff): A vesting cliff is the waiting period before any part of an equity award vests. - W-8BEN (https://valim.tax/glossary/w-8ben): Form W-8BEN is the IRS form a foreign individual gives a payer to certify foreign status and, where eligible, claim a treaty rate. - W-9 (https://valim.tax/glossary/w-9): Form W-9 is the IRS form you use to give your taxpayer identification number to someone who will pay you. - Wallet-by-wallet accounting (https://valim.tax/glossary/wallet-by-wallet-accounting): Wallet-by-wallet accounting is tracking the cost basis of your crypto separately for each wallet and exchange account. - Wash sale (https://valim.tax/glossary/wash-sale): A wash sale is selling stock or securities at a loss and buying substantially identical ones within 30 days before or after the sale. --- URL: https://valim.tax/glossary/double-trigger-rsu Title: Double-trigger RSU: what it means and when it is taxed Updated: 2026-09-24 # Double-trigger RSU A double-trigger RSU is a restricted stock unit that vests only after a service period and a liquidity event, usually an IPO or acquisition. No tax is due on a double-trigger RSU until both triggers are met, because until then the units can still be forfeited. Units that finish their service period simply wait for the liquidity event. Double-trigger is a term from company equity plans, not the tax code. Once both triggers are met, Social Security and Medicare tax is due. Income tax follows when the shares are delivered, on their value that day. That value is taxed as wages, at 2026 federal rates of 10% to 37%. To stay exempt from Section 409A, the shares are generally delivered by March 15 of the year after both triggers are met. That deadline, the short-term deferral rule, assumes a calendar-year employer and employee. If the liquidity event comes years into your grant, several years of units can be taxed in one year. A lockup after the IPO does not delay that tax, even though you cannot sell the shares yet. An 83(b) election cannot move the tax earlier either. An RSU is a promise of future shares, and Section 83 does not count a promise as property you received. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) See how RSUs are taxed at vest and at sale, with a worked example of the withholding gap. ### Lockup period (https://valim.tax/glossary/lockup-period) See why an IPO lockup does not delay the tax on your shares. ### Supplemental wages (https://valim.tax/glossary/supplemental-wages) See the federal withholding rates on RSU income, and why they can fall short. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs plan around a liquidity event and file the return that follows. ## Sources - 26 C.F.R. § 1.409A-1, Definitions and covered plans: https://www.ecfr.gov/current/title-26/section-1.409A-1 - 26 C.F.R. § 31.3121(v)(2)-1, Treatment of amounts deferred under certain nonqualified deferred compensation plans: https://www.ecfr.gov/current/title-26/section-31.3121(v)(2)-1 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/glossary/lockup-period Title: Lockup period: when you can sell your shares after an IPO Updated: 2026-09-24 # Lockup period A lockup period is a set time after an IPO when company insiders, including employees, have agreed not to sell their shares. A lockup comes from a contract, which insiders usually sign with the IPO’s underwriters before the offering. The contract sets the length. Most lockups last 180 days, according to the SEC. The company must disclose the terms in its prospectus, so you can check your dates there. Underwriters can release shares from a lockup early. For officers and directors, the lead underwriter must announce an early release at least 2 business days ahead. A lockup does not delay tax. RSU shares are still taxed as wages when they are delivered. NSOs are still taxed on the spread (the stock’s value minus your strike price) when you exercise. ISOs you exercise during a lockup and hold past year end add the spread to your income for the alternative minimum tax (AMT). You can owe the tax before you are allowed to sell a share to pay it. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) See how RSU shares are taxed on delivery, and again when you sell them. ### Double-trigger RSU (https://valim.tax/glossary/double-trigger-rsu) Some RSUs vest only once the company goes public or is sold. ### 10b5-1 plan (https://valim.tax/glossary/10b5-1-plan) Insiders can set up sales in advance, then wait out a cooling-off period before the first trade. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs time exercises and sales around an IPO and file the return. ## Sources - SEC, Investor.gov: IPO lockup agreements: https://www.investor.gov/introduction-investing/investing-basics/glossary/initial-public-offerings-lockup-agreements - FINRA Rule 5131, New issue allocations and distributions: https://www.finra.org/rules-guidance/rulebooks/finra-rules/5131 - 26 C.F.R. § 1.83-3, Meaning and use of certain terms: https://www.ecfr.gov/current/title-26/section-1.83-3 - IRS, Instructions for Form 6251 (2025): https://www.irs.gov/pub/irs-pdf/i6251.pdf --- URL: https://valim.tax/glossary/fair-market-value-fmv Title: Fair market value (FMV): how stock is valued for tax Updated: 2026-09-24 # Fair market value (FMV) Fair market value (FMV) is the price at which property, such as stock, would change hands between a willing buyer and a willing seller. The test assumes neither side is forced to trade and both know the relevant facts. Most equity pay is taxed on its FMV, minus anything you paid for it. RSU income is the shares’ FMV on the day they are delivered. For an NSO, the taxable spread is the FMV at exercise minus the exercise price. Form 3921 reports the FMV per share on the day you exercise an ISO. Form 3922 reports it on the grant date and the purchase date of ESPP shares. The FMV of public stock comes from actual trades, such as the day’s closing price. Private company stock needs a reasonable valuation method. Under Section 409A, a qualified independent appraisal dated within 12 months is presumed reasonable for pricing options. Startups often call it a 409A valuation. Material information that arises after its date, such as a new patent, can make it unreasonable. Vesting earns no discount. For stock you receive for work, FMV ignores any restriction that will lapse, including vesting. Only a restriction that will never lapse, such as a permanent resale price formula, is taken into account. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) The shares’ value on delivery is taxed as wages and becomes your basis. ### ISO taxes (https://valim.tax/equity-compensation/iso-taxes) The stock’s value at grant and at exercise sets the ISO rules and the AMT. ### Bargain element (https://valim.tax/glossary/bargain-element) The bargain element is the gap between FMV and your exercise price on the day you exercise. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs plan RSU, ISO and NSO decisions and file the return that follows. ## Sources - 26 C.F.R. § 20.2031-1, Definition of gross estate; valuation of property: https://www.ecfr.gov/current/title-26/section-20.2031-1 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.409A-1, Definitions and covered plans: https://www.ecfr.gov/current/title-26/section-1.409A-1 - IRS, Instructions for Forms 3921 and 3922: https://www.irs.gov/pub/irs-pdf/i3921.pdf --- URL: https://valim.tax/glossary/vesting-cliff Title: Vesting cliff: what a one-year cliff means for your equity Updated: 2026-09-24 # Vesting cliff A vesting cliff is the waiting period before any part of an equity award vests. On the cliff date, a block of the award vests at once. The rest vests in installments after it. A common startup schedule is four years with a one-year cliff. Under that schedule, a quarter vests at one year and the rest monthly over 36 months. If you leave before the cliff, nothing has vested. Your grant agreement sets the cliff, and no tax rule requires one. Tax law asks only whether the award can still be forfeited. RSUs that vest at the cliff are taxed as wages when the shares are delivered, usually on the cliff date or soon after. Restricted stock, meaning actual shares you hold from the grant, is taxed on its value on the cliff date, minus what you paid. If you made an 83(b) election, you were taxed when you received the shares, so nothing is taxed at the cliff. Stock options are not taxed when they vest. An NSO is taxed when you exercise it. If you exercise an NSO early, while the shares are unvested, you are taxed as they vest unless you file an 83(b) election. For ISOs without early exercise, the cliff sets the year a block first becomes exercisable. Each year, only $100,000 of stock, valued at grant, can first become exercisable as ISOs. Options above that are treated as NSOs. The retirement plan cliff is a separate rule. For employer contributions to a 401(k), a cliff schedule must fully vest you after no more than 3 years of service. That rule does not apply to stock awards. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) See how RSUs are taxed when the units vest and the shares are delivered. ### 83(b) election (https://valim.tax/equity-compensation/83b-election) An 83(b) election taxes restricted stock when you receive it, instead of at each vesting date. ### ISO taxes (https://valim.tax/equity-compensation/iso-taxes) See how the $100,000 limit and the AMT apply to incentive stock options. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs weigh 83(b) elections and plan RSU, ISO and NSO decisions. ## Sources - 26 C.F.R. § 1.83-3, Meaning and use of certain terms: https://www.ecfr.gov/current/title-26/section-1.83-3 - 26 U.S.C. § 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83 - 26 C.F.R. § 1.422-4, $100,000 limitation for incentive stock options: https://www.ecfr.gov/current/title-26/section-1.422-4 - 26 U.S.C. § 411, Minimum vesting standards: https://www.law.cornell.edu/uscode/text/26/411 --- URL: https://valim.tax/glossary/bargain-element Title: Bargain element: the spread when you exercise stock options Updated: 2026-09-24 # Bargain element The bargain element is the fair market value of stock you buy by exercising an option, minus the exercise price you pay. The bargain element is measured on the exercise date, across all the shares you buy. IRS publications and instructions usually call the same amount the spread. In the IRS’s own example, 100 shares worth $25 each, bought at $10, give a bargain element of $1,500. The strike price and the exercise price are one number, so the bargain element is never the gap between them. For an NSO, the bargain element is ordinary income in the year you exercise. For employees, it is wages on Form W-2, with code V in box 12. For an ISO, the bargain element is not regular income at exercise. It is added to your income for the alternative minimum tax (AMT) if you still hold the shares at year end. An ISO sale within 2 years of grant or 1 year of exercise makes the bargain element ordinary income, usually capped at your gain. ESPP shares have their own holding periods: 2 years from the grant date and 1 year from purchase. A sale before both periods have ended makes the whole bargain element at purchase ordinary income. Unlike with ISOs, that income is not capped at your gain. If you sell after both periods end, the ordinary income is the smaller of your gain and the discount on the grant date. ## Where to go next. ### ISO taxes (https://valim.tax/equity-compensation/iso-taxes) See when the bargain element on incentive stock options brings the AMT, and how the sale is taxed. ### NSO taxes (https://valim.tax/equity-compensation/nso-taxes) See how the spread on non-qualified stock options is taxed and withheld, with a worked example. ### Strike price (https://valim.tax/glossary/strike-price) The strike price is the fixed price you pay per share at exercise, and tax rules set its minimum. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs plan option exercises around the AMT and file the return. ## Sources - 26 C.F.R. § 1.83-2, Election to include in gross income in year of transfer: https://www.ecfr.gov/current/title-26/section-1.83-2 - IRS, Instructions for Form 6251 (2025): https://www.irs.gov/pub/irs-pdf/i6251.pdf - IRS, General Instructions for Forms W-2 and W-3 (2026): https://www.irs.gov/instructions/iw2w3 - 26 U.S.C. § 423, Employee stock purchase plans: https://www.law.cornell.edu/uscode/text/26/423 --- URL: https://valim.tax/glossary/strike-price Title: Strike price: what it means for employee stock options Updated: 2026-09-24 # Strike price The strike price is the fixed price per share you pay to buy stock when you exercise an employee stock option. Your option grant sets the strike price, and tax rules call it the exercise price or the option price. Listed calls and puts use the same term for the price at which the holder can buy or sell the stock. An ISO’s strike price must be at least the stock’s fair market value on the grant date. If you own more than 10% of the company’s voting power, it must be at least 110% of that value. An NSO priced below the stock’s fair market value on the grant date is generally deferred compensation under Section 409A. If the option fails 409A’s rules, the income can be taxed as it vests. An extra 20% tax plus interest is added, and you owe it yourself. An option has a spread only when the stock is worth more than the strike price. That spread, called the bargain element, is the amount the tax rules measure at exercise. When the stock is worth less, the option is underwater and has no spread to tax. After an NSO exercise, your basis is the strike price plus the income taxed at exercise. Using the strike price alone taxes that income twice. ## Where to go next. ### ISO taxes (https://valim.tax/equity-compensation/iso-taxes) See how incentive stock options are taxed, including the AMT on the spread at exercise. ### NSO taxes (https://valim.tax/equity-compensation/nso-taxes) The spread above your strike price is taxed as wages when you exercise NSOs. ### Bargain element (https://valim.tax/glossary/bargain-element) The bargain element is the spread between the stock’s value and your strike price when you exercise. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs plan ISO and NSO exercises and file the return that follows. ## Sources - IRS, Publication 550 (2025), Investment Income and Expenses: https://www.irs.gov/publications/p550 - 26 C.F.R. § 1.421-1, Meaning and use of certain terms: https://www.ecfr.gov/current/title-26/section-1.421-1 - 26 U.S.C. § 422, Incentive stock options: https://www.law.cornell.edu/uscode/text/26/422 - 26 U.S.C. § 409A, Deferred compensation under nonqualified plans: https://www.law.cornell.edu/uscode/text/26/409A --- URL: https://valim.tax/glossary/supplemental-wages Title: Supplemental wages: the 22% and 37% withholding rates Updated: 2026-09-24 # Supplemental wages Supplemental wages are wages your employer pays apart from your regular pay, such as bonuses and RSU income. Federal withholding on supplemental wages, 2026: - 22%: is the optional flat rate of federal income tax withholding on supplemental wages. - 37%: is mandatory on supplemental wages past $1 million in a year, whatever your Form W-4 says. - $1M: is counted each calendar year across your employer and businesses under common control, with no inflation adjustment. The spread on an NSO exercise and income from restricted stock as it vests are supplemental wages too, and the regulation names both. Income from selling ISO or ESPP shares is different: your employer does not have to withhold income tax from it. Below $1 million a year, your employer can choose between two methods. The flat rate method requires the payment to be stated separately from your regular pay. Income tax must also have been withheld from your regular pay this year or last. The aggregate method adds the payment to a regular paycheck and withholds on the total. Social Security and Medicare are withheld under either method. Social Security withholding stops once your 2026 wages from the employer reach $184,500. The 37% applies only to the part of the year’s supplemental wages above $1 million. Once you pass that line, each later payment is withheld at 37% in full. Flat withholding at 22% is only a prepayment, and it can fall short of your tax. In 2026 the 22% bracket ends at $105,700 of taxable income for single filers and $211,400 for joint returns. Above that, 22% is less than the tax on each extra dollar. Unless other withholding or estimated payments cover the gap, the balance is due when you file. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) A worked example shows the gap between RSU withholding and the tax you owe. ### NSO taxes (https://valim.tax/equity-compensation/nso-taxes) A worked example shows the withholding on one NSO exercise, and the tax still to pay. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs plan for RSU and NSO income and file the return that reports it. ## Sources - 26 C.F.R. § 31.3402(g)-1, Supplemental wage payments: https://www.ecfr.gov/current/title-26/section-31.3402(g)-1 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 421, General rules for statutory stock options: https://www.law.cornell.edu/uscode/text/26/421 --- URL: https://valim.tax/glossary/cost-basis Title: Cost basis: how your gain is figured when you sell stock Updated: 2026-09-24 # Cost basis Cost basis is your investment in an asset for tax purposes, usually what you paid for it. When you sell, your gain or loss is the amount you receive minus your basis. If you do not say which shares you sold, the oldest shares in that account count as sold first. This default is called first in, first out (FIFO). To pick specific lots instead (specific identification), name them to your broker by the settlement date and get its written confirmation. The average cost method is allowed only for mutual fund shares and dividend reinvestment plan shares. For shares you get as pay, basis is what you paid plus the income already taxed. RSU shares start with a basis equal to their value when delivered, so their basis is not zero. NSO shares start at the exercise price plus the spread taxed at exercise. Brokers report basis to the IRS for stock acquired since January 1, 2011. For equity awards granted after 2013, though, the broker must leave out the income already taxed. If you use that basis unchanged, the same income is taxed twice. The fix is on Form 8949, with code B in column (f). If the basis was reported to the IRS, keep it in column (e). Enter the missing income in column (g), as a negative number. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) See why your RSU basis is the value you were taxed on, and how to fix the 1099-B. ### NSO taxes (https://valim.tax/equity-compensation/nso-taxes) A worked example corrects Form 8949 for shares from an NSO exercise. ### ESPP taxes (https://valim.tax/equity-compensation/espp-taxes) See how to add ESPP income to your basis, so the discount is taxed only once. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs file returns with RSU, ISO and NSO income and sales. ## Sources - 26 U.S.C. § 1012, Basis of property: cost: https://www.law.cornell.edu/uscode/text/26/1012 - IRS, Publication 551, Basis of Assets: https://www.irs.gov/publications/p551 - 26 C.F.R. § 1.1012-1, Basis of property: https://www.ecfr.gov/current/title-26/section-1.1012-1 - IRS, Instructions for Form 8949: https://www.irs.gov/instructions/i8949 --- URL: https://valim.tax/glossary/10b5-1-plan Title: 10b5-1 plan: the SEC rules for pre-planned stock trades Updated: 2026-09-24 # 10b5-1 plan A 10b5-1 plan is a trading plan, set up while you have no inside information, that fixes your future trades in a company’s stock. Trades that follow a 10b5-1 plan give you an affirmative defense to insider trading claims under SEC Rule 10b5-1. The defense can apply even if you learn material nonpublic information after adopting the plan. The plan must set the trades in advance. It can fix each trade’s amount, price and date, or give a formula for them. It can also leave the decisions to someone else, with no later influence from you. Good faith is required, both when you adopt the plan and while it runs. Since February 27, 2023, a new plan must wait out a cooling-off period before its first trade. Directors and officers wait 90 to 120 days, depending on when the company files that quarter’s 10-Q or 10-K. Other people wait 30 days, and the rule sets none for the company itself. Changing a plan’s amount, price or timing counts as ending it and adopting a new one, so a new cooling-off period starts. Public companies report each quarter which directors and officers adopted or ended a plan. You generally cannot run overlapping plans, and you can use one single-trade plan in any 12 months. A sell-to-cover plan is exempt from both limits. It may sell only the shares needed for tax withholding when an award vests, and you cannot control when it sells. A 10b5-1 plan does not change how your sales are taxed. Each sale is taxed like any other sale of stock, on the price minus your cost basis. Shares sold to cover RSU tax show little gain or loss, because their basis is their value on delivery. ## Where to go next. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) See how RSU shares are taxed on delivery, and how a later sale is taxed. ### Lockup period (https://valim.tax/glossary/lockup-period) A lockup is the contract that keeps insiders from selling for a set time after an IPO. ### Cost basis (https://valim.tax/glossary/cost-basis) See how to find the gain or loss on each share you sell. ### Equity compensation tax (https://valim.tax/equity-compensation) Valim’s CPAs time sales around a liquidity event and file the return. ## Sources - 17 C.F.R. § 240.10b5-1, Trading on the basis of material nonpublic information in insider trading cases: https://www.ecfr.gov/current/title-17/section-240.10b5-1 - SEC Release 33-11138, Insider trading arrangements and related disclosures (87 FR 80362): https://www.govinfo.gov/content/pkg/FR-2022-12-29/pdf/2022-27675.pdf - 17 C.F.R. § 229.408, Insider trading arrangements and policies: https://www.ecfr.gov/current/title-17/section-229.408 - 26 U.S.C. § 1001, Determination of amount of and recognition of gain or loss: https://www.law.cornell.edu/uscode/text/26/1001 --- URL: https://valim.tax/glossary/form-4868 Title: Form 4868: six more months to file your individual tax return Updated: 2026-09-29 # Form 4868 Form 4868 is the IRS form you use to get an automatic 6-month extension to file your individual income tax return. Form 4868 extends Forms 1040, 1040-SR, 1040-NR and 1040-SS. For most 2026 returns, Form 4868 is due April 15, 2027, and the extended return is due October 15, 2027. No reason is needed. The IRS charges nothing for the extension. Form 4868 does not give you more time to pay. It needs a good-faith estimate of your total tax, and an estimate the IRS later finds unreasonable voids the extension. For most people, tax you owe is still due April 15, with interest on any amount paid later. You may also owe a late payment penalty on the unpaid tax. Form 4868 covers only your individual return, which includes a sole proprietor’s Schedule C. Partnerships and corporations extend their returns with Form 7004. A state return follows that state’s own extension rules. California gives individuals the same six months automatically. New York uses its own Form IT-370, not the federal form, and requires full payment of the estimated tax. ## Where to go next. ### How to file a tax extension (https://valim.tax/tax-extension) See the free ways to file, IRS Free File among them, what to pay by April 15, and how Valim files Form 4868 free. ### Form 7004 (https://valim.tax/glossary/form-7004) See which business returns Form 7004 extends, and for how long. ### US expat tax services (https://valim.tax/expat-tax) See the June 15 date for Americans abroad, and when Form 4868 takes it to October 15. ### Safe harbor (estimated tax) (https://valim.tax/glossary/safe-harbor-estimated-tax) See how much estimated tax to pay to avoid the underpayment penalty. An extension does not move the four due dates. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim files federal extensions free for anyone, and its CPAs can prepare the return you extend. ## Sources - IRS, Form 4868 (2025), Application for Automatic Extension of Time To File U.S. Individual Income Tax Return: https://www.irs.gov/pub/irs-pdf/f4868.pdf - IRS, Get an extension to file your tax return: https://www.irs.gov/filing/get-an-extension-to-file-your-tax-return - 26 U.S.C. § 6072, Time for filing income tax returns: https://www.law.cornell.edu/uscode/text/26/6072 - 26 U.S.C. § 7503, Time for performance of acts where last day falls on Saturday, Sunday, or legal holiday: https://www.law.cornell.edu/uscode/text/26/7503 - California Franchise Tax Board, Extension to file: https://www.ftb.ca.gov/file/when-to-file/extension-to-file.html - New York State Department of Taxation and Finance, Instructions for Form IT-370: https://www.tax.ny.gov/forms/current-forms/it/it370i.htm --- URL: https://valim.tax/glossary/form-2848-power-of-attorney Title: Form 2848 (power of attorney): who can deal with the IRS for you Updated: 2026-09-30 # Form 2848 (power of attorney) Form 2848 is the power of attorney you sign to authorize an eligible individual to represent you before the IRS. On Form 2848, you can name an attorney, CPA or enrolled agent to represent you in any tax matter. That covers anything from a notice to an appeal. Part II of the form lists others you can name, such as a family member or a full-time employee. An unenrolled return preparer, a paid preparer with no professional credential, has far narrower rights. They can represent you only in an examination of a return they prepared and signed. Even then, they deal only with revenue agents, customer service staff and similar IRS employees. For a return prepared after 2015, they also need an Annual Filing Season Program record. That record shows they completed the IRS’s voluntary yearly continuing education for preparers. It must cover the year they prepared the return and the year they represent you. You can file Form 2848 online, by fax or by mail. A faxed or mailed form needs a handwritten signature. If you sign first, your representative must sign within 45 days, or 60 days if you live abroad. A representative can also start the request in the IRS Tax Pro Account. You then approve and sign it in your own IRS online account. Most of those requests are recorded right away on the Centralized Authorization File (CAF), the IRS record of who you have authorized. Form 2848 is often confused with Form 8821. Form 8821 lets a person or firm see and receive your tax information, but not represent you. Filing Form 2848 does not revoke a Form 8821 already in effect. A power of attorney also does not relieve you of your own tax obligations. It lets your representative sign your return only in limited cases. ## Where to go next. ### Enrolled agent (https://valim.tax/glossary/enrolled-agent) See how the IRS licenses enrolled agents, and how they keep the status. ### PTIN (https://valim.tax/glossary/ptin) See why a PTIN alone lets a preparer prepare your return but not represent you. ### Circular 230 (https://valim.tax/glossary/circular-230) See the Treasury rules that decide who may practice before the IRS. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim is GLBA-compliant and protects client data with bank-grade encryption in transit and at rest. ## Sources - IRS, Form 2848 (Rev. January 2021), Power of Attorney and Declaration of Representative: https://www.irs.gov/pub/irs-pdf/f2848.pdf - IRS, Instructions for Form 2848 (Rev. September 2021): https://www.irs.gov/instructions/i2848 - IRS, Instructions for Form 8821 (Rev. September 2021): https://www.irs.gov/instructions/i8821 - IRS, Annual Filing Season Program: https://www.irs.gov/tax-professionals/annual-filing-season-program - IRS, Online account for individuals: https://www.irs.gov/payments/online-account-for-individuals --- URL: https://valim.tax/glossary/tax-transcript Title: Tax transcript: which one you need and how to get it free Updated: 2026-09-24 # Tax transcript A tax transcript is a free IRS summary of your tax records, such as the return you filed. The IRS offers five kinds of transcript. A tax return transcript shows most line items of your original return, with no later changes. It usually meets a mortgage lender’s needs. A tax account transcript shows your filing status, taxable income and payments, plus any changes made after you filed. A record of account combines the two. A wage and income transcript lists the data from Forms W-2, 1098, 1099 and 5498 that the IRS has received. A verification of non-filing letter confirms the IRS has no processed Form 1040 for a year. The fastest way to get a transcript is your IRS Individual Online Account, which has every type. Online, account transcripts and wage and income transcripts cover the current year and the nine before it. Return transcripts and records of account cover the current year and three before it. A return or account transcript can also be mailed to the address the IRS has on file. It arrives in 5 to 10 calendar days. Form 4506-T orders any type by mail or fax, and most requests are processed within 10 business days. If you e-filed this year’s return with nothing left to pay, its transcript is ready in 2 to 3 weeks. A transcript is not a copy of your return. For a copy of the return itself, you file Form 4506 and pay a fee. Transcripts partly mask your personal details, but the financial figures stay visible. ## Where to go next. ### Adjusted gross income (AGI) (https://valim.tax/glossary/adjusted-gross-income-agi) See where AGI appears on Form 1040, and why e-filing may ask for last year’s. ### Form 2848 (power of attorney) (https://valim.tax/glossary/form-2848-power-of-attorney) See how to authorize a CPA or enrolled agent to deal with the IRS for you. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim’s automation extracts the figures from your tax documents, and a licensed US CPA prepares, reviews and signs your return. ## Sources - IRS, Transcript types for individuals and ways to order them: https://www.irs.gov/individuals/transcript-types-for-individuals-and-ways-to-order-them - IRS, Get your tax records and transcripts: https://www.irs.gov/individuals/get-transcript - IRS, Transcript availability: https://www.irs.gov/individuals/transcript-availability - IRS, Form 4506-T (Rev. April 2025), Request for Transcript of Tax Return: https://www.irs.gov/pub/irs-pdf/f4506t.pdf --- URL: https://valim.tax/glossary/effective-tax-rate Title: Effective tax rate: your income tax as a share of your income Updated: 2026-09-24 # Effective tax rate An effective tax rate is your total income tax divided by your income, which gives the average rate you paid. The tax code does not define an effective tax rate, so the result depends on the income you divide by. Taxable income, adjusted gross income (AGI) and gross income each give a different rate. When you quote one, say which income you used. Take a single filer with $116,100 of wages and no other income in 2026. The $16,100 standard deduction brings their taxable income to $100,000. At the 2026 rates, their federal income tax is $16,712: $5,800 plus 22% of the $49,600 above $50,400. Divided by taxable income, that is an effective rate of 16.7%. Divided by gross income, it is 14.4%, and AGI gives the same 14.4% because they have no adjustments. These figures count federal income tax only, before credits, with no Social Security, Medicare or state tax. An effective rate is not your tax bracket. The same filer’s marginal rate is 22%, the rate on each extra dollar. Their average is lower because their first dollars are taxed at 10% and 12%. ## Where to go next. ### Marginal tax rate (https://valim.tax/glossary/marginal-tax-rate) See the rate on your next dollar of income, and why moving up a bracket never taxes all your income at the higher rate. ### Adjusted gross income (AGI) (https://valim.tax/glossary/adjusted-gross-income-agi) See which deductions come off your gross income to give your AGI. ### FICA (https://valim.tax/glossary/fica) See the Social Security and Medicare tax on wages, which an income tax rate leaves out. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Fees at Valim are quoted upfront, and nothing is billed by the hour. ## Sources - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 1, Tax imposed: https://www.law.cornell.edu/uscode/text/26/1 - IRS, Federal income tax rates and brackets: https://www.irs.gov/filing/federal-income-tax-rates-and-brackets --- URL: https://valim.tax/glossary/marginal-tax-rate Title: Marginal tax rate: the rate on your next dollar of income Updated: 2026-09-24 # Marginal tax rate A marginal tax rate is the rate on your next dollar of taxable income, set by your top tax bracket. Ordinary income has seven federal tax rates for 2026: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Each applies only to the taxable income inside its bracket, so one return can use several of them. The rates are now permanent, since the One Big Beautiful Bill Act removed their scheduled end after 2025. Use your marginal rate for a first estimate of what a raise or a new deduction is worth. For a single filer in 2026, the 22% bracket covers taxable income from $50,400 to $105,700. On a joint return, it runs from $100,800 to $211,400. A single filer with $90,000 of taxable income has a marginal rate of 22%. For them, a $1,000 raise adds $220 of federal income tax. A deduction that cuts their taxable income by $1,000 saves the same $220. A large change can cross into the next bracket. If that filer’s taxable income rose to $110,000, only the $4,300 above $105,700 would be taxed at 24%. Some deductions also shrink as income rises, so a raise can cost more than the bracket rate suggests. Once you pass the first bracket, your effective tax rate falls below your marginal rate. ## Where to go next. ### Effective tax rate (https://valim.tax/glossary/effective-tax-rate) See how to work out the average rate on all your income, and which income to divide by. ### Supplemental wages (https://valim.tax/glossary/supplemental-wages) See why the flat rate withheld from a bonus or an RSU vest can fall short of your marginal rate. ### Qualified dividends (https://valim.tax/glossary/qualified-dividends) See which dividends are taxed at the lower long-term capital gain rates instead of your bracket rate. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim’s CPAs time decisions such as a stock sale around your tax bracket. ## Sources - IRS, Federal income tax rates and brackets: https://www.irs.gov/filing/federal-income-tax-rates-and-brackets - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 1, Tax imposed: https://www.law.cornell.edu/uscode/text/26/1 --- URL: https://valim.tax/glossary/itemized-deductions Title: Itemized deductions: what you can list on Schedule A in 2026 Updated: 2026-09-24 # Itemized deductions Itemized deductions are the expenses you list one by one on Schedule A, instead of taking the standard deduction. Limits on three itemized deductions, 2026: - $40,400: is the cap on the state and local taxes you can deduct. - $750,000: of mortgage debt on your main and second home is the limit for deducting its interest. - 7.5%: of your AGI comes off your medical costs, and only the rest counts. Married people filing separately get half of the first two: $20,200 and $375,000. Itemizing is a choice you make on each year’s return. It usually pays when your itemized total is larger than your standard deduction. Itemizing gives up the separate charitable deduction for non-itemizers, so add it to the standard deduction when you compare. The state and local tax (SALT) cap covers your income or sales taxes plus property taxes. Property taxes on a business or rental property are not capped. At high incomes the cap shrinks, based on your modified AGI. Mortgage debt taken on by December 15, 2017 keeps the older $1 million limit. Interest on a home equity loan counts only if the loan bought, built or improved the home. These mortgage rules are now permanent, and so is the ban on miscellaneous itemized deductions. That ban keeps tax preparation and investment fees nondeductible as itemized deductions. Two new limits start in 2026. Only the part of your charitable gifts above 0.5% of your AGI counts. If you are in the 37% bracket, each dollar of itemized deductions saves at most 35 cents. ## Where to go next. ### Standard deduction (https://valim.tax/glossary/standard-deduction) See the flat amount you can take instead, and who gets none. ### Adjusted gross income (AGI) (https://valim.tax/glossary/adjusted-gross-income-agi) See what AGI is, and the 7.5% floor it sets for deducting medical costs. ### Modified adjusted gross income (MAGI) (https://valim.tax/glossary/modified-adjusted-gross-income-magi) See the modified AGI that decides whether your SALT cap shrinks. ### Online tax preparation services (https://valim.tax/online-tax-preparation) A review of last year’s return starts at $49, with no obligation to file with Valim. ## Sources - 26 U.S.C. § 63, Taxable income defined: https://www.law.cornell.edu/uscode/text/26/63 - 26 U.S.C. § 164, Taxes (the SALT cap): https://www.law.cornell.edu/uscode/text/26/164 - Public Law 119-21 (One Big Beautiful Bill Act): https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf - IRS, Instructions for Schedule A (Form 1040) (2025): https://www.irs.gov/pub/irs-pdf/i1040sca.pdf --- URL: https://valim.tax/glossary/standard-deduction Title: Standard deduction: the flat amount that replaces itemizing Updated: 2026-09-24 # Standard deduction The standard deduction is a flat amount you subtract from your adjusted gross income (AGI) if you do not itemize. The standard deduction for 2026: - $16,100: is the deduction for a single filer, or for a married person filing separately. - $32,200: is the deduction for a married couple filing jointly, or for a surviving spouse. - $24,150: is the deduction for a head of household. Age 65 and blindness each add $1,650 per person for married filers and surviving spouses. For single filers and heads of household, each adds $2,050. The standard deduction needs no receipts or records. Today’s amounts were scheduled to fall after 2025, and the One Big Beautiful Bill Act made them permanent. They rise with inflation each year. On 2025 returns, filed in 2026, the deduction is $15,750 for a single filer and $31,500 on a joint return. A head of household gets $23,625. Some filers get no standard deduction, or a smaller one. A married person filing separately whose spouse itemizes gets none, and so, generally, does a nonresident alien. For 2026, a dependent’s standard deduction is limited to the greater of $1,350 or earned income plus $450. Several newer deductions can be taken on top of the standard deduction, such as those for tips and overtime. From 2025 through 2028, filers 65 or older can each take a $6,000 senior deduction. It shrinks by 6% of modified AGI over $75,000, or $150,000 on a joint return. Married couples must file jointly to claim it. From 2026, you can also deduct up to $1,000 of cash gifts to public charities without itemizing, or $2,000 on a joint return. Gifts to donor-advised funds do not count. ## Where to go next. ### Itemized deductions (https://valim.tax/glossary/itemized-deductions) See what you can list on Schedule A instead, and the 2026 limits on the main deductions. ### Adjusted gross income (AGI) (https://valim.tax/glossary/adjusted-gross-income-agi) See the income figure the standard deduction comes off, and what lowers it first. ### Form 1040-NR (https://valim.tax/visa-holders/form-1040-nr) See why most nonresidents file with no standard deduction, and what that costs them. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim files federal and state returns in all 50 states, each prepared and signed by a licensed US CPA. ## Sources - 26 U.S.C. § 63, Taxable income defined: https://www.law.cornell.edu/uscode/text/26/63 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 U.S.C. § 151, Allowance of deductions for personal exemptions: https://www.law.cornell.edu/uscode/text/26/151 - 26 U.S.C. § 170, Charitable, etc., contributions and gifts: https://www.law.cornell.edu/uscode/text/26/170 --- URL: https://valim.tax/glossary/ptin Title: PTIN: the number every paid tax preparer needs from the IRS Updated: 2026-09-24 # PTIN A PTIN (preparer tax identification number) is the IRS number anyone paid to prepare federal tax returns must have. The PTIN rule also covers anyone who helps prepare a federal return for pay. They need the PTIN before the work starts. Every enrolled agent must hold one as well. Someone who only types or copies a return does not count as a preparer. Since 2011, every return prepared for pay must show the signing preparer’s PTIN. The signer is the person with primary responsibility for the return’s overall accuracy. If they work for a firm, the firm’s EIN goes on the return too. A PTIN lasts one calendar year, so preparers renew it every year. For 2026, applying or renewing costs $18.75, and the fee is not refundable. Online, most people get one in about 15 minutes, and a paper Form W-12 takes about 6 weeks. A PTIN is an ID number, not a credential. No exam is needed to get one. A preparer with only a PTIN cannot represent you before the IRS on a return prepared after 2015. Representing you takes more, such as a CPA license or enrolled agent status. ## Where to go next. ### Enrolled agent (https://valim.tax/glossary/enrolled-agent) See the IRS credential that starts with a PTIN and a three-part exam. ### Form 2848 (power of attorney) (https://valim.tax/glossary/form-2848-power-of-attorney) See who you can authorize to represent you before the IRS, and how to file the form. ### Circular 230 (https://valim.tax/glossary/circular-230) See the standards, such as due diligence, that bind anyone who practices before the IRS. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim’s returns are prepared by licensed US CPAs, including ex-Big Four accountants. ## Sources - IRS, PTIN requirements for tax return preparers: https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers - 26 C.F.R. § 1.6109-2, Tax return preparers furnishing identifying numbers for returns or claims for refund and related requirements: https://www.law.cornell.edu/cfr/text/26/1.6109-2 - 26 C.F.R. § 301.7701-15, Tax return preparer: https://www.law.cornell.edu/cfr/text/26/301.7701-15 - IRS, Annual Filing Season Program: https://www.irs.gov/tax-professionals/annual-filing-season-program --- URL: https://valim.tax/glossary/circular-230 Title: Circular 230: the Treasury rules for practice before the IRS Updated: 2026-09-30 # Circular 230 Circular 230 is the Treasury regulation that sets who may practice before the IRS and the standards they must follow. Circular 230’s formal name is Treasury Department Circular No. 230, and it is published as 31 CFR Part 10. Practice before the IRS means presenting any matter to the IRS about a taxpayer’s rights or liabilities. It includes preparing and filing documents, writing to the IRS and representing a client at a meeting or hearing. In Loving v. IRS (2014), a federal appeals court held that the IRS cannot regulate return preparation alone as practice. Attorneys and CPAs may practice as long as they are not suspended or disbarred. Enrolled agents may too, and so may enrolled actuaries and enrolled retirement plan agents within their own fields. A few others, such as family members and a company’s officers, may act in limited cases. Only individuals can be enrolled or authorized to practice, not firms. Practitioners owe due diligence and competence on every matter. They may not sign a return with a position that lacks a reasonable basis. A position the return does not disclose generally needs substantial authority, which is a higher bar. Other rules cover fees and conflicts of interest, and require returning a client’s records promptly when asked. Breaking the rules can lead to censure, suspension, disbarment or a monetary penalty. Circular 230 is not a license. A CPA’s license comes from a state board, and Circular 230 governs the CPA’s work before the IRS. Enrolled agents, by contrast, are enrolled by the IRS under Circular 230’s own rules. ## Where to go next. ### Enrolled agent (https://valim.tax/glossary/enrolled-agent) See the two routes to enrollment, by exam or by past IRS work. ### Form 2848 (power of attorney) (https://valim.tax/glossary/form-2848-power-of-attorney) See the form you sign so a practitioner can represent you before the IRS. ### PTIN (https://valim.tax/glossary/ptin) See the number every paid preparer must put on your return. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Valim is a CPA firm, and a licensed US CPA is accountable for every return it files. ## Sources - 31 C.F.R. Part 10 (eCFR), Practice before the Internal Revenue Service: https://www.ecfr.gov/current/title-31/subtitle-A/part-10 - 31 C.F.R. § 10.0, Scope of part (Circular 230): https://www.law.cornell.edu/cfr/text/31/10.0 - 31 C.F.R. § 10.3, Who may practice: https://www.law.cornell.edu/cfr/text/31/10.3 - 31 C.F.R. § 10.4, Eligibility to become an enrolled agent, enrolled retirement plan agent, or registered tax return preparer: https://www.law.cornell.edu/cfr/text/31/10.4 - IRS, Treasury Department Circular No. 230 (Rev. 6-2014), Regulations Governing Practice before the Internal Revenue Service: https://www.irs.gov/pub/irs-pdf/pcir230.pdf - 31 C.F.R. § 10.34, Standards with respect to tax returns and documents: https://www.law.cornell.edu/cfr/text/31/10.34 - 26 U.S.C. § 6694, Understatement of taxpayer’s liability by tax return preparer: https://www.law.cornell.edu/uscode/text/26/6694 - Treasury and IRS, proposed Circular 230 rules (89 FR 104915, December 26, 2024), describing Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014): https://www.govinfo.gov/content/pkg/FR-2024-12-26/html/2024-29371.htm --- URL: https://valim.tax/glossary/enrolled-agent Title: Enrolled agent: the IRS credential with unlimited practice rights Updated: 2026-09-30 # Enrolled agent An enrolled agent (EA) is a tax practitioner licensed by the IRS, with unlimited rights to represent taxpayers before the IRS. The IRS enrolls an agent in one of two ways. The first is to pass all three parts of the Special Enrollment Examination (SEE) within three years. The exam covers individual and business returns. Candidates need a PTIN first, and after passing they apply on Form 23 and pass a suitability check. The second is generally at least five years of continuous IRS work applying the tax code. Former employees must apply within three years of leaving. Their enrollment can be limited to the specialty or IRS unit they worked in. The IRS calls enrolled agent status the highest credential it awards. Like attorneys and CPAs, an EA enrolled by exam can represent any taxpayer in any tax matter. That includes audits and appeals, for business returns as well as individual ones. An EA renews enrollment every three years, after 72 hours of continuing education in that time. An EA’s PTIN must also be renewed every year. Despite the name, an enrolled agent works for taxpayers and is not an IRS employee. ## Where to go next. ### Circular 230 (https://valim.tax/glossary/circular-230) See the duties Circular 230 sets for enrolled agents, and the sanctions for breaking them. ### Form 2848 (power of attorney) (https://valim.tax/glossary/form-2848-power-of-attorney) See the form that names an enrolled agent, or another practitioner, as your representative. ### PTIN (https://valim.tax/glossary/ptin) See who needs a PTIN, and what one costs for 2026. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Every individual return at Valim is prepared, reviewed and signed by a licensed US CPA. ## Sources - IRS, Enrolled agent information: https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information - IRS, Become an enrolled agent: https://www.irs.gov/tax-professionals/enrolled-agents/become-an-enrolled-agent - 31 C.F.R. § 10.4, Eligibility to become an enrolled agent, enrolled retirement plan agent, or registered tax return preparer: https://www.law.cornell.edu/cfr/text/31/10.4 - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications --- URL: https://valim.tax/glossary/adjusted-gross-income-agi Title: Adjusted gross income (AGI): the income many tax limits use Updated: 2026-09-24 # Adjusted gross income (AGI) Adjusted gross income (AGI) is your gross income minus specific deductions the tax code lists, such as deductible IRA contributions. Section 62 of the tax code lists every deduction that comes off gross income to give AGI. Besides IRA contributions, it includes the expenses of a business you own, losses from selling property and contributions to a self-employed retirement plan. A bank’s penalty for cashing in a CD early is on the list too. On the 2025 Form 1040, AGI is line 11a, your total income minus the adjustments from Schedule 1. Line 11b repeats it at the top of page 2. To e-file, you may be asked for last year’s AGI to confirm your identity. Your IRS online account shows it. Taxable income comes after AGI. You subtract the standard deduction or your itemized deductions, then any qualified business income deduction. Last come the new Schedule 1-A deductions for tips, overtime, car loan interest and seniors, so those do not lower your AGI. Many tax limits are measured against AGI. Medical costs, for example, count only above 7.5% of it. Other limits use modified AGI, which starts from AGI and adds back or leaves out certain items. ## Where to go next. ### Modified adjusted gross income (MAGI) (https://valim.tax/glossary/modified-adjusted-gross-income-magi) See how each rule that uses modified AGI changes your AGI in its own way. ### Standard deduction (https://valim.tax/glossary/standard-deduction) See the 2026 amounts that come off your AGI when you do not itemize. ### Tax transcript (https://valim.tax/glossary/tax-transcript) See how to get the free IRS record of a return you filed, AGI included. ### Online tax preparation services (https://valim.tax/online-tax-preparation) Tax advisory at Valim plans moves that lower your AGI, such as retirement contributions. ## Sources - 26 U.S.C. § 62, Adjusted gross income defined: https://www.law.cornell.edu/uscode/text/26/62 - IRS, Form 1040 (2025), U.S. Individual Income Tax Return: https://www.irs.gov/pub/irs-pdf/f1040.pdf - 26 U.S.C. § 213, Medical, dental, etc., expenses: https://www.law.cornell.edu/uscode/text/26/213 - IRS, Get your tax records and transcripts: https://www.irs.gov/individuals/get-transcript --- URL: https://valim.tax/glossary/exempt-individual Title: Exempt individual: days that do not count toward US residency Updated: 2026-09-24 # Exempt individual An exempt individual is someone whose US days are left out of the substantial presence test, the day count for US tax residency. Four groups can be exempt individuals. Students on F, J, M or Q visas, and teachers and trainees on J or Q visas, are the most common. Diplomats and other foreign government-related individuals qualify, as do professional athletes at a charitable sports event. A spouse or unmarried child under 21 in your household can share the status on a dependent visa, such as an F-2 or J-2. A student who works without authorization, or takes less than a full course load, can lose the status. A student gets 5 exempt calendar years, and any part of a year counts as a full one, even if you arrive in December. Years spent as a J or Q teacher or trainee count toward the 5. From the sixth calendar year the days count, unless you prove you do not plan to stay permanently. A teacher or trainee is generally not exempt this year if they were exempt in 2 or more of the previous 6 years. Foreign government-related individuals have no time limit. Exempt days also stay out of the next two years’ counts. The substantial presence test would otherwise count a third of last year’s days and a sixth of the days from the year before that. To leave the days out, file Form 8843 for every exempt year if you are a student, teacher, trainee or athlete. You need one even in a year with no income. Attach it to your Form 1040-NR, or mail it alone if you file no return. Diplomats and most others on A or G visas do not need to file it. The word exempt refers only to the day count, and it gives no exemption from US tax. Pay from a campus job, for example, still goes on Form 1040-NR. A separate rule spares nonresident F, J, M and Q visa holders from FICA on work tied to their visa’s purpose. ## Where to go next. ### Resident or nonresident alien (https://valim.tax/visa-holders/resident-or-nonresident-alien) See the substantial presence test that leaves exempt days out, with a worked day count. ### J-1 visa taxes (https://valim.tax/visa-holders/j-1-visa-taxes) See how many years a J-1 researcher, trainee or student stays exempt, including when a foreign employer pays. ### FICA (https://valim.tax/glossary/fica) See the 2026 Social Security and Medicare rates, and why a campus job or practical training is often exempt from them. ### US tax returns for visa holders (https://valim.tax/visa-holders) Students and scholars can have Valim’s CPAs prepare their Form 1040-NR, with each year’s Form 8843 attached. ## Sources - 26 C.F.R. § 301.7701(b)-3, Days of presence in the United States that are excluded for purposes of section 7701(b): https://www.ecfr.gov/current/title-26/section-301.7701(b)-3 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - IRS, Form 8843 (2025), Statement for Exempt Individuals and Individuals With a Medical Condition: https://www.irs.gov/pub/irs-pdf/f8843.pdf --- URL: https://valim.tax/glossary/green-card-test Title: Green card test: US tax residency for lawful permanent residents Updated: 2026-09-24 # Green card test The green card test makes you a US tax resident in any calendar year you are a lawful permanent resident, even for one day. The test turns on your immigration status, not on how many days you spend in the US. A lawful permanent resident is someone the US has allowed to live here permanently as an immigrant. You generally have that status if USCIS has issued you Form I-551, the Permanent Resident Card. If you were a nonresident the year before, residency begins the first day you are in the US with that status. If you also pass the substantial presence test, the earlier of the two start dates applies. You are a nonresident until that date, which makes the year dual-status. If you hold a green card but do not enter the US that year, your residency starts on January 1 of the next year. Your green card status does not lapse on its own. A card over 10 years old, or years spent abroad, still leave you a resident alien for tax. The status ends when a final order of exclusion or deportation rescinds it, or when you abandon it. To abandon it yourself, you file Form I-407 or a letter of intent with USCIS or a US consular officer. Your card goes with it. A tax treaty can also end the status for tax, if you claim residence in the treaty country and file Form 8833. Ending the status either way may bring the exit tax, if you are a long-term resident. ## Where to go next. ### Resident or nonresident alien (https://valim.tax/visa-holders/resident-or-nonresident-alien) See how the green card test sits beside the substantial presence test, and which return each status files. ### Resident alien (https://valim.tax/glossary/resident-alien) See how a resident alien is taxed, and how the first year can be split. ### Covered expatriate (https://valim.tax/glossary/covered-expatriate) See who counts as a long-term resident, and the three tests that bring the exit tax. ### US tax returns for visa holders (https://valim.tax/visa-holders) Valim’s CPAs prepare the return for your first green card year, dual-status or not, and your Form 1040 every year after. ## Sources - 26 C.F.R. § 301.7701(b)-1, Resident alien: https://www.ecfr.gov/current/title-26/section-301.7701(b)-1 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 - 26 U.S.C. § 877A, Tax responsibilities of expatriation: https://www.law.cornell.edu/uscode/text/26/877A --- URL: https://valim.tax/glossary/resident-alien Title: Resident alien: when the IRS taxes a non-citizen like a citizen Updated: 2026-09-24 # Resident alien A resident alien is a non-citizen taxed as a US resident, usually because they hold a green card or pass the substantial presence test. Your status is decided one calendar year at a time. The green card test makes you a resident alien if you are a lawful permanent resident at any time that year. The substantial presence test does so if you spend enough days in the US. Some new arrivals who pass neither test can elect resident status through the first-year choice. Every other non-citizen is a nonresident alien, generally taxed only on US-source income and income tied to a US business. As a resident alien, you file Form 1040 and report income from every country, as a citizen does. In the year you arrive, you usually become a resident alien on your first day here. Before that day you count as a nonresident alien, which makes the year dual-status. In later years, you are a resident alien from January 1, as long as you were a resident at some point the year before. Resident alien is a tax status, separate from your immigration status. An H-1B worker in the US all year is usually a resident alien, though the visa itself is temporary. The two tests do not apply to estate and gift tax, which look to your domicile instead. ## Where to go next. ### Resident or nonresident alien (https://valim.tax/visa-holders/resident-or-nonresident-alien) See how the two tests work, with a worked day count, and how each status is taxed. ### Green card test (https://valim.tax/glossary/green-card-test) See the test that turns a green card into US tax residency, and what ends it. ### US person (https://valim.tax/glossary/us-person) See why every resident alien is also a US person, who may owe an FBAR. ### US tax returns for visa holders (https://valim.tax/visa-holders) Valim’s CPAs prepare Form 1040 for resident aliens, and the FBAR when your accounts back home need one. ## Sources - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 26 C.F.R. § 301.7701(b)-1, Resident alien: https://www.ecfr.gov/current/title-26/section-301.7701(b)-1 - 26 C.F.R. § 301.7701(b)-4, Residency time periods: https://www.ecfr.gov/current/title-26/section-301.7701(b)-4 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 --- URL: https://valim.tax/glossary/closer-connection-exception Title: Closer connection exception: staying a nonresident under 183 days Updated: 2026-09-24 # Closer connection exception The closer connection exception lets someone who passes the substantial presence test remain a nonresident alien, because their ties to another country are closer. The exception is open only in a year you spend fewer than 183 days in the US. From your 183rd day the exception is closed, and a treaty tie-breaker is the only way left to stay a nonresident. For the whole year, you must keep a tax home in a foreign country and a closer connection to that same country. Your tax home is where your main job or business is, or where you regularly live if you have neither. The IRS compares your ties to each country: your permanent home, your family, your belongings and where you bank. Your driver’s license, where you vote and your business activities count too. So do the forms you file, such as a Form W-8 or W-9, and the residence you state on them. A green card application pending at any point in the year closes the exception, and so does one filed that year. That includes a petition filed on your behalf, such as a relative’s Form I-130 or an employer’s Form I-140. Green card holders cannot claim it at all. The usual mistake is to treat fewer than 183 days as enough on its own. You also have to claim the exception on Form 8840, filed with your Form 1040-NR or sent to the IRS on its own. Missing its deadline usually costs you the exception. A closer connection also matters in the years you arrive and leave, where it can move your residency start or end date. ## Where to go next. ### Resident or nonresident alien (https://valim.tax/visa-holders/resident-or-nonresident-alien) A worked day count shows a founder based in London passing the substantial presence test, with this exception still open to her. ### Tax home (https://valim.tax/glossary/tax-home) See where your tax home is when you have no main place of work, and when a US abode keeps it here. ### TN visa taxes (https://valim.tax/visa-holders/tn-visa-taxes) See how Canadian and Mexican TN workers keep nonresident status, through this exception or the commuter rule. ### US tax returns for visa holders (https://valim.tax/visa-holders) Valim’s CPAs weigh your ties abroad, then prepare Form 1040-NR with Form 8840 attached. ## Sources - 26 C.F.R. § 301.7701(b)-2, Closer connection exception: https://www.ecfr.gov/current/title-26/section-301.7701(b)-2 - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - IRS, Form 8840 (2025), Closer Connection Exception Statement for Aliens: https://www.irs.gov/pub/irs-pdf/f8840.pdf - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 --- URL: https://valim.tax/glossary/fica Title: FICA: the 2026 Social Security and Medicare tax on wages Updated: 2026-09-24 # FICA FICA is the federal payroll tax for Social Security and Medicare, named for the Federal Insurance Contributions Act that imposes it. Withheld from wages in 2026: - 6.2%: goes to Social Security, on up to $184,500 of your wages. - 1.45%: goes to Medicare, on all your wages, with no cap. - 0.9%: more is withheld on wages over $200,000, as Additional Medicare Tax. Your employer pays a matching 6.2% and 1.45%, and none of the 0.9%. As a rule, FICA applies to wages for work done in the US, whatever your citizenship or residence, or your employer’s. An H-1B worker usually pays it the same way a US citizen does. Your employer withholds your share from each paycheck, and your Form W-2 shows the amounts. FICA applies only to wages. Self-employment income carries its own tax, which nonresident aliens generally do not owe. The main exemption is for nonresident students and scholars on F, J, M or Q visas. Their pay is exempt when the work carries out the purpose of the visa, such as a campus job or practical training. A student who becomes a resident alien loses this exemption, though nothing about the visa has changed. Spouses and children on F-2 or J-2 visas pay FICA on any work. FICA taken from exempt pay can be refunded, by the employer or through the IRS. A totalization agreement is a social security treaty between the US and another country. It can let you keep paying into your home country’s system instead of FICA. To claim it, you give your US employer a certificate of coverage from your home country’s social security agency. ## Where to go next. ### J-1 visa taxes (https://valim.tax/visa-holders/j-1-visa-taxes) See the year a J-1 holder starts owing FICA, and how to get back FICA taken by mistake. ### L-1 visa taxes (https://valim.tax/visa-holders/l-1-visa-taxes) A worked example shows the FICA on a $200,000 L-1 salary, with and without a certificate of coverage. ### Form 941 (https://valim.tax/glossary/form-941) See the quarterly return where employers report FICA and the income tax they withheld. ### US tax returns for visa holders (https://valim.tax/visa-holders) For visa holders, Valim’s CPAs prepare each US return, from Form 1040-NR to the dual-status first year. ## Sources - 26 U.S.C. § 3101, Rate of tax (Social Security and Medicare): https://www.law.cornell.edu/uscode/text/26/3101 - 26 U.S.C. § 3121, Definitions (employment for FICA): https://www.law.cornell.edu/uscode/text/26/3121 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/publications/p15 - IRS, Publication 519 (2025), U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519 --- URL: https://valim.tax/glossary/controlled-foreign-corporation-cfc Title: Controlled foreign corporation (CFC): the 10% and 50% tests Updated: 2026-09-24 # Controlled foreign corporation (CFC) A controlled foreign corporation (CFC) is a foreign corporation whose US shareholders own more than 50% of its vote or value. Only US shareholders count toward the 50%. A US shareholder is a US person who owns 10% or more of the vote or value. Shares held indirectly, through other entities, count too. So do shares the tax code treats as yours under the constructive ownership rules. That means ten unrelated Americans with 6% each own 60% between them, and the company is still not a CFC. The test is met if the line is crossed on any day of the company’s tax year. A US shareholder is taxed every year on a share of the CFC’s income, paid out or not. That share includes subpart F income, which covers dividends, interest, royalties and rents, with some exceptions. It also includes net CFC tested income, which reaches most of the CFC’s other income. The share follows only stock you own directly or through foreign entities. Constructive ownership can make you a US shareholder, but it adds no income. Most US shareholders file Form 5471 with their return, by its due date including extensions. The penalty for not filing is $10,000 for each year of each foreign corporation. After an IRS notice, it can grow by up to $50,000 more. The foreign tax you can credit can also be cut, by 10% at first and by more if the failure continues after the notice. The passive foreign investment company (PFIC) rules do not reach a CFC’s US shareholders while it stays a CFC. An owner with less than 10% gets no such exception. For them, the same company is a PFIC if it meets the PFIC income or asset test. ## Where to go next. ### Net CFC tested income (NCTI) (https://valim.tax/glossary/net-cfc-tested-income-ncti) See how most of a CFC’s income beyond subpart F is taxed to its US shareholders each year from 2026. ### Passive foreign investment company (PFIC) (https://valim.tax/glossary/passive-foreign-investment-company-pfic) See the income and asset tests that make a foreign company a PFIC, with no minimum stake. ### US person (https://valim.tax/glossary/us-person) See who counts as a US person, the first condition for being a US shareholder. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs prepare US returns for Americans abroad, and the instant quote counts each foreign company in which you own more than 20%. ## Sources - 26 U.S.C. § 957, Controlled foreign corporations; United States persons: https://www.law.cornell.edu/uscode/text/26/957 - 26 U.S.C. § 951, Amounts included in gross income of United States shareholders: https://www.law.cornell.edu/uscode/text/26/951 - IRS, Instructions for Form 5471 (Rev. December 2025): https://www.irs.gov/instructions/i5471 - 26 U.S.C. § 6038, Information reporting with respect to certain foreign corporations and partnerships: https://www.law.cornell.edu/uscode/text/26/6038 - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 --- URL: https://valim.tax/glossary/net-cfc-tested-income-ncti Title: Net CFC tested income (NCTI): the 2026 rules for CFC owners Updated: 2026-09-24 # Net CFC tested income (NCTI) Net CFC tested income (NCTI) is a US shareholder’s share of tested income from the controlled foreign corporations they own, minus those CFCs’ tested losses. Tax years beginning after December 31, 2025: - 40%: of NCTI is deductible by a domestic corporation under Section 250, down from 50%. - 12.6%: is the resulting US rate before credits: 21% on the 60% left after the deduction. - 90%: of the CFCs’ foreign tax on that income is deemed paid for the corporation’s credit, up from 80%. An individual shareholder gets this treatment only through a Section 962 election. NCTI took the place of global intangible low-taxed income (GILTI) for tax years beginning after December 31, 2025. Public Law 119-21, enacted July 4, 2025, made the change. Each US shareholder of a CFC includes NCTI in income every year, even if the CFC pays out nothing. Tested income is a CFC’s gross income, minus the deductions that go with it, including taxes. It leaves out subpart F income, which is taxed under its own rule. It also leaves out a few other items, such as high-taxed income and dividends from related companies. Until 2025, a 10% return on the CFC’s tangible assets, such as equipment, was exempt. That exemption is repealed from 2026, so all tested income counts. Without a Section 962 election, an individual US shareholder includes NCTI at ordinary rates. There is no deduction, and no credit for the CFC’s foreign tax. The regulations let an electing individual take the Section 250 deduction as well. When those earnings are paid out later, only the part of the dividend above the US tax already paid is taxed. Under GILTI, the old 50% deduction gave a 10.5% rate. The 13.125% once scheduled for 2026 was repealed before it began. IRS forms lag the law: Form 8992, which figures the inclusion, still carries the GILTI title on IRS.gov. ## Where to go next. ### Controlled foreign corporation (CFC) (https://valim.tax/glossary/controlled-foreign-corporation-cfc) See the 10% and 50% tests that decide who has NCTI to report. ### C corporation (https://valim.tax/glossary/c-corporation) See how a C corporation is taxed at a flat 21%, the rate a Section 962 election applies. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs help you with the planning decisions that come with owning a foreign company. ## Sources - 26 U.S.C. § 951A, Net CFC tested income included in gross income of United States shareholders: https://www.law.cornell.edu/uscode/text/26/951A - 26 U.S.C. § 250, Foreign-derived deduction eligible income and net CFC tested income: https://www.law.cornell.edu/uscode/text/26/250 - 26 U.S.C. § 960, Deemed paid credit for subpart F inclusions: https://www.law.cornell.edu/uscode/text/26/960 - 26 U.S.C. § 962, Election by individuals to be subject to tax at corporate rates: https://www.law.cornell.edu/uscode/text/26/962 - 26 C.F.R. § 1.962-1, Limitation of tax for individuals on amounts included in gross income under section 951(a): https://www.law.cornell.edu/cfr/text/26/1.962-1 --- URL: https://valim.tax/glossary/foreign-housing-exclusion Title: Foreign housing exclusion: the 2026 base amount and cap Updated: 2026-09-24 # Foreign housing exclusion The foreign housing exclusion lets Americans who qualify for the foreign earned income exclusion also exclude housing costs above a base amount. Tax year 2026, a full year abroad: - $21,264: is the base amount, 16% of the $132,900 exclusion limit. Costs up to it are never excluded. - $39,870: is the cap on housing costs in most places, 30% of the limit. Listed high-cost cities have their own. - $18,606: is the largest full-year exclusion where the standard cap applies. The base and the cap are set per day, at $58.26 and $109.23, so a part year of qualifying days gets less. Housing costs are the reasonable costs of housing you, and a spouse and dependents who live with you. Rent, utilities and insurance count. Mortgage interest, property taxes and lavish or extravagant costs do not. Only the home nearest your tax home counts. The exception is a separate home abroad for your family, kept because of dangerous or adverse conditions. IRS Notice 2026-25, published April 20, 2026, sets higher caps for about 100 high-cost locations. For 2026, Hong Kong’s cap is $114,300, Singapore’s is $86,700 and Dubai’s is $57,174. The exclusion covers housing paid for with employer-provided amounts, which include your salary. Self-employed people take the amount as a deduction instead, the foreign housing deduction. It cannot exceed their foreign earned income minus the amounts they exclude. The exclusion and the deduction are both claimed on Form 2555. The housing exclusion is its own election, separate from the foreign earned income exclusion. The housing exclusion is taken first. The earned income exclusion can then cover no more than the pay that remains. The base amount is the part people forget. Over a full year under the standard cap, $30,000 of housing costs excludes $8,736. ## Where to go next. ### Foreign earned income exclusion (https://valim.tax/expat-tax/foreign-earned-income-exclusion) A worked example for a London salary takes out the housing costs, then the $132,900 exclusion. ### Americans in Singapore (https://valim.tax/expat-tax/americans-in-singapore) See how Singapore’s $86,700 cap works on a year’s rent, and why the exclusion usually beats the credit there. ### Americans in the UAE (https://valim.tax/expat-tax/americans-in-the-uae) See Dubai’s $57,174 cap worked through a salary, and what applies outside Dubai. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs claim both exclusions on Form 2555 as part of your US expat return. ## Sources - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 C.F.R. § 1.911-4, Determination of housing cost amount eligible for exclusion or deduction: https://www.law.cornell.edu/cfr/text/26/1.911-4 - IRS, Notice 2026-25, Determination of housing cost amounts eligible for exclusion or deduction for 2026: https://www.irs.gov/pub/irs-drop/n-26-25.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/glossary/tax-home Title: Tax home: the IRS definition, and what it means abroad Updated: 2026-09-24 # Tax home Your tax home is your regular or main place of business, employment or post of duty, wherever you keep your family home. A foreign tax home is the first condition for both the foreign earned income exclusion and the housing exclusion. You must also pass the bona fide residence test or the physical presence test. If your work has no regular or main place of business, your tax home is your regular place of abode. That means where you actually live, in a real and substantial sense. Section 911 takes this meaning from Section 162(a)(2), the rule on travel expenses while away from home. In the US, the same meaning decides when a business trip takes you away from home, a condition for deducting its travel costs. A job abroad does not give you a foreign tax home for any period your abode is in the United States. The one exception is service in a designated combat zone, in support of the US Armed Forces. A temporary stay in the US does not necessarily put your abode there. Neither does a US house, even one your spouse and children use. The higher Form 8938 thresholds for people living abroad also need a foreign tax home, plus the residence or presence test. If your tax home and abode are outside the US and Puerto Rico on April 15, you get an automatic extension to June 15. Interest on unpaid tax still runs from April 15. ## Where to go next. ### Foreign earned income exclusion (https://valim.tax/expat-tax/foreign-earned-income-exclusion) See the residence and presence tests that go with a foreign tax home, and the 2026 limit. ### Foreign housing exclusion (https://valim.tax/glossary/foreign-housing-exclusion) See which housing costs near your tax home can be excluded, and the 2026 base and cap. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs check your tax home and days abroad before they claim the exclusion on Form 2555. ## Sources - 26 C.F.R. § 1.911-2, Qualified individuals: https://www.law.cornell.edu/cfr/text/26/1.911-2 - 26 U.S.C. § 911, Citizens or residents of the United States living abroad: https://www.law.cornell.edu/uscode/text/26/911 - 26 U.S.C. § 162, Trade or business expenses: https://www.law.cornell.edu/uscode/text/26/162 - IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad: https://www.irs.gov/publications/p54 --- URL: https://valim.tax/glossary/maximum-account-value Title: Maximum account value: how to report each account on the FBAR Updated: 2026-09-24 # Maximum account value On the FBAR, the maximum account value is a reasonable approximation of the highest value a foreign account reached during the calendar year. The FBAR, FinCEN Form 114, reports each foreign account at its maximum value, in item 15. The same figures decide whether you file at all. Once the maximum values of your foreign accounts total more than $10,000, every one of them is reported. The peaks count even when they came on different days. Periodic statements are enough if they fairly show the account’s maximum value for the year. Value each account separately, in the currency it is held in. Convert a foreign currency account to dollars at the Treasury Reporting Rates of Exchange for the year’s last day. If Treasury has no rate for that currency, use another verifiable rate and state its source. Round up to the next whole dollar, so $15,265.25 becomes $15,266. If the value comes out negative, enter zero. The usual slip is to report the balance on December 31 instead of the year’s peak. December 31 sets only the exchange rate, and that one rate applies to every account, even one that peaked months earlier. ## Where to go next. ### FBAR (FinCEN Form 114) (https://valim.tax/expat-tax/fbar) A worked example adds three accounts’ peaks, each under $10,000, and crosses the threshold. ### US person (https://valim.tax/glossary/us-person) See who counts as a US person, and so who has an FBAR to file. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs work out each account’s peak in dollars, then file your FBAR with FinCEN. ## Sources - FinCEN, BSA Electronic Filing Requirements for FinCEN Form 114 (Release January 2017, v1.4): https://www.fincen.gov/system/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements --- URL: https://valim.tax/glossary/us-person Title: US person: who counts for the FBAR and for US tax Updated: 2026-09-24 # US person A US person is a US citizen or resident, or a domestic entity such as a US corporation, partnership, trust or estate. For US tax, Section 7701(a)(30) sets the definition. An estate counts unless it is foreign. A trust counts if a US court can supervise it and US persons control all its substantial decisions. Green card holders, and people who pass the substantial presence test, are residents for this purpose. The FBAR has its own definition, in 31 C.F.R. 1010.350(b). It covers citizens, residents and any entity formed under US law, including an LLC. For the FBAR, the United States also takes in the territories and Indian lands. The tax code’s United States is only the states and DC. So a company formed in Puerto Rico or Guam is a US person for the FBAR alone. The FBAR also ignores how an entity is taxed, so a disregarded LLC files its own FBAR. Living abroad does not change your status. A citizen who has lived overseas for decades is still a US person. A green card holder abroad generally is too. Form 8938 uses a third term, the specified individual, which also covers some nonresident aliens. ## Where to go next. ### FBAR (FinCEN Form 114) (https://valim.tax/expat-tax/fbar) See the four tests a US person runs to know whether an FBAR is due. ### Resident alien (https://valim.tax/glossary/resident-alien) See the tests that make a non-citizen a US resident, and so a US person. ### Specified foreign financial asset (https://valim.tax/glossary/specified-foreign-financial-asset) See the foreign assets a specified individual lists on Form 8938. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs file FBARs and US returns for citizens and green card holders, wherever they live. ## Sources - 26 U.S.C. § 7701, Definitions: https://www.law.cornell.edu/uscode/text/26/7701 - 31 C.F.R. § 1010.350, Reports of foreign financial accounts: https://www.law.cornell.edu/cfr/text/31/1010.350 - 31 C.F.R. § 1010.100, General definitions: https://www.law.cornell.edu/cfr/text/31/1010.100 - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements --- URL: https://valim.tax/glossary/certificate-of-loss-of-nationality Title: Certificate of Loss of Nationality (CLN): what it means for tax Updated: 2026-09-24 # Certificate of Loss of Nationality A Certificate of Loss of Nationality (CLN) is the State Department document, Form DS-4083, that certifies a person has lost US nationality. You receive a CLN after you renounce or relinquish US citizenship. To renounce, you swear an oath before a US diplomatic or consular officer outside the US. To relinquish, you perform another listed act with intent to give up US citizenship. Naturalizing in another country after 18 is one. A consular officer prepares the CLN and records the act on it. Only the State Department in Washington can approve it. The State Department’s fee for a CLN request is $450, from April 13, 2026. It was $2,350 before that. The $450 fee is the same whether you renounce or relinquish. The tax code accepts a renunciation or relinquishment only once a CLN is issued. Your expatriation date for tax then reaches back to the oath, or to the day you gave the State Department a signed statement. So a relinquishing act from years ago usually counts for tax only from that statement. A CLN is permanent, unless the government later overturns it because the act was involuntary or lacked intent. It does not cancel US taxes you already owe. If you are a covered expatriate, the exit tax can apply as well. ## Where to go next. ### Renouncing US citizenship (https://valim.tax/expat-tax/renounce-us-citizenship) See what renouncing involves, from the oath to the tax tests, and how it differs from relinquishing. ### Covered expatriate (https://valim.tax/glossary/covered-expatriate) See the three tests that decide whether the exit tax applies when you expatriate. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs help you plan the US tax side of giving up citizenship before you act. ## Sources - US Department of State, Form DS-4083, Certificate of Loss of Nationality of the United States: https://eforms.state.gov/Forms/ds4083.pdf - US Department of State, Foreign Affairs Manual, 7 FAM 1210 (loss and restoration of US citizenship): https://fam.state.gov/fam/07fam/07fam1210.html - US Department of State, final rule on the CLN fee (91 FR 12296, March 13, 2026): https://www.govinfo.gov/content/pkg/FR-2026-03-13/pdf/2026-04931.pdf - 26 U.S.C. § 877A, Tax responsibilities of expatriation: https://www.law.cornell.edu/uscode/text/26/877A --- URL: https://valim.tax/glossary/non-willful Title: Non-willful: the IRS standard behind the streamlined procedures Updated: 2026-09-24 # Non-willful For the IRS, non-willful conduct is conduct due to negligence, inadvertence or mistake, or to a good faith misunderstanding of what the law requires. The wording comes from the IRS offshore compliance programs, since the tax code has no general definition. The streamlined filing compliance procedures require non-willful conduct. You certify it yourself, in a signed statement that gives the reasons you missed the returns or FBARs. Willful conduct is the other side of the line. The IRS describes it as “the intentional, purposeful, deliberate act to hide income or assets.” The IRS directs taxpayers whose conduct was willful to its Criminal Investigation Voluntary Disclosure Practice. There, you must sign a statement admitting your conduct was willful. The same line splits FBAR penalties. For penalties assessed on or after January 17, 2025, a non-willful failure is capped at $16,536 per report. A willful one can cost far more. Signing the certification does not settle the question. The IRS can still audit the returns, and a finding of willful conduct exposes you to more penalties or criminal liability. ## Where to go next. ### Streamlined filing compliance procedures (https://valim.tax/expat-tax/streamlined-filing-compliance-procedures) See who can use each version, what you file and what penalty, if any, applies. ### FBAR (FinCEN Form 114) (https://valim.tax/expat-tax/fbar) See the penalties for a late FBAR, and when reasonable cause removes the non-willful one. ### Renouncing US citizenship (https://valim.tax/expat-tax/renounce-us-citizenship) Former citizens who never filed may catch up under the IRS relief procedures. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs prepare late US returns and FBARs for Americans abroad. You sign any non-willful certification yourself. ## Sources - IRS, Streamlined filing compliance procedures: https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures - IRS, Criminal Investigation Voluntary Disclosure Practice: https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice - 31 U.S.C. § 5321, Civil penalties: https://www.law.cornell.edu/uscode/text/31/5321 - 31 C.F.R. § 1010.821, Penalty adjustment and table: https://www.law.cornell.edu/cfr/text/31/1010.821 --- URL: https://valim.tax/glossary/specified-foreign-financial-asset Title: Specified foreign financial asset: what counts, and what does not Updated: 2026-09-24 # Specified foreign financial asset A specified foreign financial asset is an asset Form 8938 reports: a foreign financial account, or a foreign investment held outside any account. Section 6038D sets the reporting rule. A specified individual, such as a US citizen or resident alien, files Form 8938 with their return above a threshold. For an unmarried filer in the US, the thresholds are $50,000 at year end or $75,000 at any time. For one living abroad, they are $200,000 and $300,000. Joint filers’ thresholds are twice those. Foreign bank and brokerage accounts count, and so do foreign pensions and deferred pay plans. Outside an account, foreign stocks and bonds count. So do stakes in foreign partnerships and in foreign hedge or private equity funds. Assets outside an account count only if you hold them for investment. An asset inside a foreign account you report is covered by the account and is not listed again. Foreign real estate you own directly does not count, and neither does foreign cash, gold or art you hold yourself. Accounts at a US branch of a foreign bank are left out, as are US mutual funds that invest abroad. So is foreign stock in a US brokerage account, because a US institution holds it. Form 8938 does not replace the FBAR, and many people file both. The FBAR lists only accounts, not other assets. It also reaches accounts you can sign on but do not own, which Form 8938 leaves out. ## Where to go next. ### FBAR (FinCEN Form 114) (https://valim.tax/expat-tax/fbar) See which foreign accounts go on the FBAR, and how its $10,000 test adds them up. ### Passive foreign investment company (PFIC) (https://valim.tax/glossary/passive-foreign-investment-company-pfic) Most foreign funds you hold are also PFICs, with tax rules of their own. ### Streamlined filing compliance procedures (https://valim.tax/expat-tax/streamlined-filing-compliance-procedures) See how unreported foreign assets set the domestic version’s 5% penalty. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs prepare your US return and FBAR. The instant quote counts each foreign account and fund, and each foreign company in which you own more than 20%. ## Sources - 26 U.S.C. § 6038D, Information with respect to foreign financial assets: https://www.law.cornell.edu/uscode/text/26/6038D - 26 C.F.R. § 1.6038D-3, Specified foreign financial assets: https://www.law.cornell.edu/cfr/text/26/1.6038D-3 - IRS, Instructions for Form 8938 (Rev. November 2021): https://www.irs.gov/instructions/i8938 - IRS, Comparison of Form 8938 and FBAR requirements: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements --- URL: https://valim.tax/glossary/saving-clause Title: Saving clause: how a tax treaty keeps US citizens taxable Updated: 2026-10-06 # Saving clause A saving clause is a tax treaty provision that lets the US tax its citizens and residents under its own law, except for listed articles. Because of the saving clause, the IRS says, a US citizen living in Canada still files a Form 1040 reporting worldwide income. It is Article 1(4) in the 2016 US Model and the US-UK treaty, and Article XXIX(2) in the US-Canada treaty. In most treaties the clause works both ways, since the other country keeps the right to tax its own residents too. The US-France, US-Germany, US-South Africa and US-Switzerland treaties apply it to the US alone. The 1957 US-Pakistan treaty has none: its residence definitions do that work, as IRS Chief Counsel memo AM 2012-002 explains. Each clause lists exceptions, and only those articles still protect US citizens. They include non-discrimination, the mutual agreement procedure between the two tax authorities, and some pension and social security rules. A second, shorter list protects only people who are neither US citizens nor green card holders. For a citizen abroad, the most useful exception is the double tax article. It credits foreign tax against US tax. The foreign earned income exclusion is US law, so the saving clause leaves it in place. The pension exceptions let US tax on growth in an RRSP or a UK pension scheme wait until you draw on it. The usual mistake is to read a treaty as ending US tax for a citizen who lives abroad. A residence tie-breaker, the treaty rule that picks one country for someone both claim as a resident, does not change that. The clause keeps citizens taxable wherever the treaty places their residence. A green card holder can use a tie-breaker to be treated as a resident of the other country. That claim must be disclosed on Form 8833. ## Where to go next. ### US-UK tax treaty (https://valim.tax/expat-tax/us-uk-tax-treaty) See how the US-UK treaty treats a UK pension scheme, and which articles still help a US citizen in the UK. ### US-Canada tax treaty (https://valim.tax/expat-tax/us-canada-tax-treaty) See the articles that still reach a US citizen in Canada, from Article XXIV credits to the RRSP deferral. ### Foreign tax credit (https://valim.tax/expat-tax/foreign-tax-credit) See how the credit for foreign income tax works, and the limit Form 1116 puts on it. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs prepare your US return and credit your foreign tax on Form 1116. ## Sources - US Treasury, United States Model Income Tax Convention (2016): https://home.treasury.gov/system/files/131/Treaty-US-Model-2016_1.pdf - US-UK income tax convention (2001): https://home.treasury.gov/system/files/131/Treaty-UK-7-24-2001.pdf - Fifth protocol to the US-Canada convention (2007): https://home.treasury.gov/system/files/131/Treaty-Canada-Pr2-9-21-2007.pdf - IRS, Publication 597 (10/2015), Information on the United States-Canada Income Tax Treaty: https://www.irs.gov/publications/p597 --- URL: https://valim.tax/glossary/passive-foreign-investment-company-pfic Title: Passive foreign investment company (PFIC): why funds qualify Updated: 2026-10-07 # Passive foreign investment company (PFIC) A passive foreign investment company (PFIC) is a foreign corporation with 75% or more passive gross income, or 50% or more passive assets. Passive income means dividends, interest, royalties, rents, annuities and gains on property that produces them. Passive assets are those that produce passive income, or are held to. A foreign fund set up as a company is a corporation for US tax. Its income and assets are almost all passive. So most foreign mutual funds, UCITS funds and ETFs organized outside the US are PFICs. A US fund is not a PFIC, even if it holds only foreign stocks. The rules reach every US person who owns shares, however small the stake, unlike the CFC rules, which start at 10%. Shares that were ever PFIC stock in your hands generally stay that way, unless you elect a deemed sale. An excess distribution is a year’s payouts above 125% of the average for the prior 3 years, or for a shorter holding period. Without an election, a gain on sale or an excess distribution is spread over the years you held the shares. The part for earlier PFIC years is taxed at each year’s top rate, plus interest. The rest is ordinary income. A qualified electing fund (QEF) election, or a mark-to-market election for marketable stock, replaces this with income each year. A QEF election works only if the fund sends you an annual information statement. Dividends from a PFIC do not get the qualified dividend rate. Each PFIC generally needs its own Form 8621, filed with your return every year. A fund with no election is excepted when all your PFIC stock is worth $25,000 or less at year end. The limit is $50,000 on a joint return. It applies only in a year with no excess distribution or gain from the fund. PFIC stock held in an IRA or a 401(a) plan needs no Form 8621. ## Where to go next. ### US-Canada tax treaty (https://valim.tax/expat-tax/us-canada-tax-treaty) Canadian funds held in a TFSA are often PFICs, and the treaty does not cover the account. ### Qualified dividends (https://valim.tax/glossary/qualified-dividends) See which dividends get the 0%, 15% and 20% rates. ### Controlled foreign corporation (CFC) (https://valim.tax/glossary/controlled-foreign-corporation-cfc) A US shareholder with 10% or more of a CFC is outside the PFIC rules while it stays a CFC. ### Moving to the US from Europe (https://valim.tax/visa-holders/from-europe) How UCITS funds and ETFs are treated once you live in the US. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs prepare US returns with foreign funds, and the instant quote counts each fund you hold. ## Sources - 26 U.S.C. § 1297, Passive foreign investment company: https://www.law.cornell.edu/uscode/text/26/1297 - 26 U.S.C. § 1291, Interest on tax deferral: https://www.law.cornell.edu/uscode/text/26/1291 - 26 C.F.R. § 1.1298-1, Section 1298(f) annual reporting requirements for United States persons that are shareholders of a passive foreign investment company: https://www.law.cornell.edu/cfr/text/26/1.1298-1 - IRS, Instructions for Form 8621 (Rev. December 2025): https://www.irs.gov/instructions/i8621 --- URL: https://valim.tax/glossary/covered-expatriate Title: Covered expatriate: the three tests and the 2026 figures Updated: 2026-09-24 # Covered expatriate A covered expatriate is a former US citizen or long-term green card holder who meets one of three tests for the exit tax. Expatriating in 2026: - $211,000: is the 2026 tax test. It is met when your average annual net income tax for the 5 years before you expatriate is higher. - $2M: is the net worth test, met at that amount or more on the day you expatriate. It has no inflation adjustment. - 5 years: of US tax compliance must be certified on Form 8854. Anyone who cannot certify is covered, whatever their income or wealth. The tax test was $206,000 for 2025. Only an expatriate in the tax code’s sense can be covered. That means a citizen who gives up citizenship, or a long-term resident who gives up a green card. A long-term resident held a green card in at least 8 of the last 15 tax years, counting the year that status ends. Living abroad, on its own, makes no one an expatriate. You make the certification under penalty of perjury on Form 8854, which every expatriate files for the year they leave. Two exceptions lift the tax and net worth tests. One covers some people who were dual citizens at birth. The other covers some who give up citizenship before age 18½. Neither lifts the certification, so a dual citizen who never files Form 8854 is still covered. Covered status brings the exit tax: all your property is treated as sold at fair market value on the day before you expatriate. For 2026, the first $910,000 of net gain is excluded. The rest is taxed that year, unless you elect to defer the tax and post security. Your later gifts and bequests to US citizens or residents can cost them 40% of the value above the annual exclusion. The $2 million test only decides who is covered. What you owe depends on your gains, plus separate rules for IRAs and deferred pay. ## Where to go next. ### Renouncing US citizenship (https://valim.tax/expat-tax/renounce-us-citizenship) A worked example taxes a covered expatriate’s shares and IRA when they renounce in 2026. ### Certificate of Loss of Nationality (https://valim.tax/glossary/certificate-of-loss-of-nationality) See how the CLN sets your expatriation date, the date the three tests are measured from. ### US-Canada tax treaty (https://valim.tax/expat-tax/us-canada-tax-treaty) A long-term green card holder who claims Canadian residence under the treaty can be treated as expatriating. ### US expat tax services (https://valim.tax/expat-tax) Valim’s CPAs run the three tests with you before you expatriate. ## Sources - 26 U.S.C. § 877A, Tax responsibilities of expatriation: https://www.law.cornell.edu/uscode/text/26/877A - 26 U.S.C. § 877, Expatriation to avoid tax: https://www.law.cornell.edu/uscode/text/26/877 - 26 U.S.C. § 2801, Imposition of tax: https://www.law.cornell.edu/uscode/text/26/2801 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Instructions for Form 8854 (2025): https://www.irs.gov/instructions/i8854 --- URL: https://valim.tax/glossary/domicile Title: Domicile: how your permanent home sets your state tax residency Updated: 2026-09-24 # Domicile Domicile is the place you regard as your permanent home and intend to return to whenever you are away. Your domicile usually decides which state taxes you as a resident. A resident is taxed on all income, including income earned in other states. New York treats anyone domiciled there as a resident, apart from two narrow exceptions for people who spend little time in the state. California keeps taxing people domiciled there as residents while they are away for a temporary or transitory purpose. You can have only one domicile at a time, and you keep it until you acquire a new one. Married couples usually share one domicile, but spouses who are separated in fact may each have their own. A domicile changes when you move somewhere new, intending to stay there indefinitely. An absence of any length leaves it in place while you still mean to return. Whoever claims the change has to prove it. In New York, your own statements count, but not if the way you live contradicts them. Domicile and residence are separate tests, and they can point to different states. California’s regulation says you can be a resident without being domiciled there, and domiciled there without being a resident. New York’s statutory resident test ignores domicile altogether. It looks at whether you keep a home in the state and spend more than 183 days there. Domicile itself has no day count. ## Where to go next. ### Leaving California (https://valim.tax/multi-state-tax/leaving-california) See when California residency ends, and the ties the FTB compares in a residency audit. ### Moving from New York to Florida (https://valim.tax/multi-state-tax/moving-from-new-york-to-florida) New York weighs five factors before it accepts that your domicile has moved. ### Statutory resident (https://valim.tax/glossary/statutory-resident) See how New York counts a day, with a worked example that lands on day 185. ### Multi-state tax returns (https://valim.tax/multi-state-tax) Valim’s CPAs plan a move with you, then file a return for each state that taxes you. ## Sources - Cal. Code Regs. tit. 18, § 17014, Who are residents and nonresidents: https://www.law.cornell.edu/regulations/california/18-CCR-17014 - Cal. Rev. & Tax. Code § 17014, Resident defined: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17014 - 20 NYCRR § 105.20, Resident individual: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-105.20 - New York Tax Law § 605, Resident and nonresident individuals: https://www.nysenate.gov/legislation/laws/TAX/605 --- URL: https://valim.tax/glossary/permanent-place-of-abode Title: Permanent place of abode: the home test for New York residency Updated: 2026-09-24 # Permanent place of abode A permanent place of abode is a home suitable for year-round use that you maintain, whether or not you own it. A permanent place of abode is half of New York’s statutory resident test. The other half is more than 183 days in the state. Together they make you a resident, even when your domicile is in another state. A day in New York counts toward the test whether or not you spend it at the home. Passing through the state does not count. New York’s regulation adds that you must keep the home for substantially all of the year. In a year you acquire or give up the home, its auditors generally read that as more than 10 months. So a lease that starts in March will not usually make you a resident that year. A home you rent out for a few summer months still counts as kept for substantially all of the year. Most homes you could live in all year count, including ones you do not own. A dwelling your spouse owns or leases generally counts, and so does an apartment you rent. A camp or cottage suitable only for vacations, and used only for them, does not. A place without cooking and bathing facilities generally does not count either, and neither does a full-time undergraduate’s housing at school. Owning a New York home does not by itself make it your permanent place of abode. New York’s highest court looked at a man who owned the Staten Island building where his parents lived. He paid its costs and stayed there occasionally, and it still did not count. The court held that you need a residential interest of your own in the home. Auditors weigh facts such as your right to use it and whether you keep your own things there. ## Where to go next. ### New York nonresident tax return (https://valim.tax/multi-state-tax/new-york-nonresident) See New York’s residency tests, and how Form IT-203 taxes a nonresident’s New York income. ### Statutory resident (https://valim.tax/glossary/statutory-resident) See how a statutory resident is taxed, and why two states can tax the same investment income. ### Domicile (https://valim.tax/glossary/domicile) Domicile is the other way to become a New York resident, and it has no day count. ### Multi-state tax returns (https://valim.tax/multi-state-tax) Valim’s CPAs check your New York home and days against the residency tests, then file the returns you owe. ## Sources - 20 NYCRR § 105.20, Resident individual: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-105.20 - New York Tax Law § 605, Resident and nonresident individuals: https://www.nysenate.gov/legislation/laws/TAX/605 - New York State DTF, Nonresident Audit Guidelines (December 2021): https://www.tax.ny.gov/pdf/2021/misc/nonresident-audit-guidelines-2021.pdf - New York State DTF, FAQs on filing requirements, residency and telecommuting: https://www.tax.ny.gov/pit/file/nonresident-faqs.htm --- URL: https://valim.tax/glossary/statutory-resident Title: Statutory resident: when a second state taxes all your income Updated: 2026-09-24 # Statutory resident A statutory resident is taxed as a state’s resident, though domiciled elsewhere, for keeping a home there and spending over half the year there. New York and Connecticut both tax statutory residents, and so do some other states. In both, you must meet two conditions: a home that qualifies as a permanent place of abode, and more than 183 days in the state. New York counts any part of a day in the state as a full day. Traveling through, or boarding a plane, train, bus or ship to leave, does not count. Say your domicile is New Jersey and you lease a Manhattan apartment all year. You spend 150 workdays and 20 weekend days in the city. On 15 more days, you work from home in New Jersey and come into the city for dinner. That makes 185 days, so New York taxes you as a resident. New York City does too, since the apartment and the days are in the city. Without the dinners, you would stay a nonresident at 170. As a statutory resident, you file Form IT-201, New York’s resident return, and New York taxes all your income. Your domicile state, if it has an income tax, taxes you as a resident too. Each state’s credit for the other’s tax covers only income sourced to that other state, such as pay for days worked there. Interest, dividends and stock gains are not sourced to either state, so both may tax them in full. Connecticut offers its statutory residents a credit for the domicile state’s tax on investment income. It applies only if the domicile state gives people domiciled in Connecticut a matching credit. ## Where to go next. ### New York nonresident tax return (https://valim.tax/multi-state-tax/new-york-nonresident) See who must file Form IT-203, and how New York figures a nonresident’s tax. ### Permanent place of abode (https://valim.tax/glossary/permanent-place-of-abode) New York counts only a home you keep for substantially all of the year. See which homes qualify. ### Domicile (https://valim.tax/glossary/domicile) Your domicile is the place you intend to return to, and changing it takes more than a move. ### Multi-state tax returns (https://valim.tax/multi-state-tax) Valim’s CPAs file your returns in both states, and answer any residency letter on a return they prepared. ## Sources - New York Tax Law § 605, Resident and nonresident individuals: https://www.nysenate.gov/legislation/laws/TAX/605 - 20 NYCRR § 105.20, Resident individual: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-105.20 - New York Tax Law § 620, Credit for income tax of another state: https://www.nysenate.gov/legislation/laws/TAX/620 - Conn. Gen. Stat. chapter 229, §§ 12-701 and 12-704 (income tax): https://www.cga.ct.gov/current/pub/chap_229.htm --- URL: https://valim.tax/glossary/income-sourcing-equity-compensation Title: Income sourcing (equity compensation): how states split stock pay Updated: 2026-09-24 # Income sourcing for stock pay Income sourcing for equity compensation is how a state sets its share of your RSU, option or ESPP income, usually by your workdays there. Equity pay usually counts as wages, so states source it to where you did the job. If you live in a state on the day the income is taxed, it taxes all of it. A state you have left, or only worked in, taxes the share you earned there. New York’s rule taxes the same share of the income as your share of workdays in the state over a set period. California’s Franchise Tax Board uses the same method, which it calls one reasonable way to split the income. Each state sets its own period. The Franchise Tax Board counts from grant to vesting for RSUs, and from grant to exercise for nonqualified stock options. If your job ends before the vest or exercise, the count stops at your last day. New York counts options from grant to vesting, and restricted stock from receipt to vesting. So one option can give each state a different share, and one state’s credit may not cover all of the other’s tax. New York’s rule does not name RSUs, so how it splits them is less settled. Moving to a state that does not tax wages, such as Texas or Washington, does not end California’s claim on its share. If 300 of your 490 workdays from grant to vest were in California, it taxes about 61% of the vest. Each later vest or exercise can mean another nonresident return there. Growth after the shares are yours is investment income, taxed where you live when you sell. California also treats the whole gain on a qualifying ISO sale made after you leave as investment income, so it taxes none of it. ## Where to go next. ### Leaving California (https://valim.tax/multi-state-tax/leaving-california) See how California taxes RSUs and options that vest or are exercised after you leave. ### Moving from California to Texas (https://valim.tax/multi-state-tax/moving-from-california-to-texas) A worked example splits a $200,000 RSU vest a year after the move. ### New York nonresident tax return (https://valim.tax/multi-state-tax/new-york-nonresident) See how New York taxes a nonresident’s stock pay, and the return it goes on. ### Multi-state tax returns (https://valim.tax/multi-state-tax) Valim’s CPAs count your workdays in each state for every vest and exercise, and file each state’s return. ## Sources - California FTB, Publication 1004, Equity-Based Compensation Guidelines (revised 01/2015): https://www.ftb.ca.gov/forms/misc/1004.html - California FTB, Residency and Sourcing Technical Manual (Rev. 01/2026): https://www.ftb.ca.gov/tax-pros/procedures/residency-and-sourcing-technical-manual-disclosure.pdf - 20 NYCRR § 132.24, Stock options, stock appreciation rights and restricted stock: https://www.law.cornell.edu/regulations/new-york/20-NYCRR-132.24 - Cal. Rev. & Tax. Code § 17951, Gross income of nonresidents: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17951 --- URL: https://valim.tax/glossary/reciprocity-agreement Title: Reciprocity agreement: the states where you pay tax only at home Updated: 2026-09-24 # Reciprocity agreement A reciprocity agreement lets residents of one state who work in another pay income tax on their wages only to their home state. A reciprocity agreement works through your employer’s payroll. You give your employer the work state’s exemption certificate, so it stops withholding that state’s tax. Some certificates must be renewed each year, such as Virginia’s Form VA-4 and Minnesota’s Form MWR. If the work state’s tax is withheld anyway, you file with that state to get it back. In 2026, the main agreements link the District of Columbia and 15 states. They are Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, West Virginia and Wisconsin. An agreement must be between the two states you live and work in. Minnesota and Wisconsin, both on the list, have none with each other. New Jersey’s only agreement is with Pennsylvania. New Jersey residents who work in New York owe New York tax on that pay. An agreement covers only what you earn as an employee, such as wages and bonuses. Self-employment income and gains on property in the work state can still need a nonresident return there. Local income taxes can fall outside an agreement: Indiana’s agreements do not cover its county taxes. Some agreements add conditions. Virginia exempts Maryland, Pennsylvania and West Virginia residents only if their Virginia income is all wages. They must also spend 183 days or fewer in Virginia and keep no home there. ## Where to go next. ### Moving from Massachusetts to New Hampshire (https://valim.tax/multi-state-tax/moving-from-massachusetts-to-new-hampshire) See how Massachusetts taxes New Hampshire commuters, with no agreement between the two states. ### New York nonresident tax return (https://valim.tax/multi-state-tax/new-york-nonresident) See how New York taxes a commuter’s pay on Form IT-203, and the credit the home state gives. ### Statutory resident (https://valim.tax/glossary/statutory-resident) See how a home and over 183 days in your work state can make it tax all your income. ### Multi-state tax returns (https://valim.tax/multi-state-tax) Valim’s CPAs file your home-state return, and any nonresident return you still owe, in all 50 states. ## Sources - Virginia Tax, Reciprocity: https://www.tax.virginia.gov/reciprocity - New Jersey Division of Taxation, PA/NJ Reciprocal Income Tax Agreement: https://www.nj.gov/treasury/taxation/njit25.shtml - Minnesota Department of Revenue, Form MWR, Reciprocity Exemption/Affidavit of Residency for Tax Year 2026: https://www.revenue.state.mn.us/sites/default/files/2025-12/mwr.pdf - Indiana Department of Revenue, Income Tax Information Bulletin #28 (December 2024): https://www.in.gov/dor/files/ib28.pdf --- URL: https://valim.tax/glossary/qualified-dividends Title: Qualified dividends: when a dividend is taxed at 0%, 15% or 20% Updated: 2026-09-24 # Qualified dividends Qualified dividends are the dividends taxed at the same 0%, 15% or 20% rates as long-term capital gains. Federal rates on qualified dividends, 2026: - 0%: is the rate on qualified dividends within the first $49,450 of taxable income for a single filer, or $98,900 joint. - 15%: is the rate on the part above that, up to $545,500 for a single filer, or $613,700 joint. - 20%: is the top rate, on qualified dividends above those amounts. Head of household filers pay 0% up to $66,200 of taxable income and 15% up to $579,600. Married couples filing separately share the single filer’s 0% limit and pay 15% up to $306,850. The thresholds are adjusted for inflation each year. A dividend qualifies if it comes from a US or qualified foreign corporation and you held the shares long enough. A foreign company counts if the stock paying the dividend trades on a US securities market. The company also counts if it is incorporated in a US possession or can claim an approved US income tax treaty. Dividends from a passive foreign investment company (PFIC) do not qualify. Qualified dividends are stacked after your other taxable income, so some can be taxed at 0% and the rest at 15%. Ordinary dividends that do not qualify are taxed at ordinary rates, 10% to 37% for 2026. A fund’s capital gain distributions are taxed at long-term capital gain rates instead. The holding period trips up quick trades. For common stock, you must hold the shares more than 60 days of the 121-day period that begins 60 days before the ex-dividend date. Count the day you sell, and leave out the day you buy. If you buy just before the ex-dividend date and sell within 60 days, the dividend is taxed at ordinary rates. Days you hedge the shares, as with a put option or a short sale, do not count. Some preferred stock needs more than 90 days of a 181-day period. Some payouts called dividends are not qualified dividends. Credit union and savings bank “dividends” are interest. Most ordinary dividends from a REIT do not qualify. A mutual fund’s dividends qualify only as far as the fund designates them. Money market funds hold debt, so little or none of what they pay is qualified. ## Where to go next. ### Net investment income tax (https://valim.tax/high-earners/net-investment-income-tax) See when the 3.8% net investment income tax is added to your dividends and gains, and the ways to reduce it. ### Alternative minimum tax (https://valim.tax/high-earners/alternative-minimum-tax) See why qualified dividends keep their low rates under the AMT but can still shrink your exemption. ### Tax strategist for high earners (https://valim.tax/high-earners) Valim’s CPAs file returns with dividend and brokerage income, and plan the year with you under Tax advisory. ## Sources - 26 U.S.C. § 1(h)(11), Dividends taxed as net capital gain: https://www.law.cornell.edu/uscode/text/26/1 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - IRS, Publication 550 (2025), Investment Income and Expenses: https://www.irs.gov/publications/p550 - 26 U.S.C. § 857, Taxation of real estate investment trusts and their beneficiaries: https://www.law.cornell.edu/uscode/text/26/857 --- URL: https://valim.tax/glossary/step-up-in-basis Title: Step-up in basis: how inherited assets get a new cost basis Updated: 2026-09-24 # Step-up in basis A step-up in basis resets inherited property’s tax basis to its fair market value on the day the owner died. For assets that get the step-up under Section 1014, gain built up during the owner’s life is never taxed as income. Heirs get the step-up whether or not the estate owes estate tax. The rule also works in reverse, so property worth less than its basis at death steps down. If the estate owes estate tax, the executor can instead elect the alternate valuation date under Section 2032, six months after death. The election is allowed only if it lowers both the value of the estate and the estate tax. Married couples in community property states get a larger step-up. When the first spouse dies, both halves of their community property take a new basis. Elsewhere, only the part of a jointly held asset included in the first spouse’s estate is stepped up. Not everything you inherit gets a step-up. Inherited traditional IRAs and 401(k)s get none. They are income in respect of a decedent: income the owner earned but never paid tax on. The heir pays income tax on withdrawals. Assets in an irrevocable grantor trust that sit outside the owner’s estate keep their old basis too. A lifetime gift keeps the giver’s basis, so the recipient owes tax on the giver’s gain when they sell. Property you gave someone within a year of their death gets no step-up if it comes back to you or your spouse. ## Where to go next. ### Estate tax exemption (https://valim.tax/high-earners/estate-tax-exemption) See who owes federal estate tax in 2026, and when holding an asset until death beats giving it away. ### Cost basis (https://valim.tax/glossary/cost-basis) See how basis sets your gain or loss when you sell, and which shares count as sold first. ### Grantor trust (https://valim.tax/glossary/grantor-trust) See which trust powers make a trust’s income taxable to its creator. ### Tax strategist for high earners (https://valim.tax/high-earners) Valim’s CPAs prepare an estate’s income tax returns, and the heirs’ own returns when they sell what they inherited. ## Sources - 26 U.S.C. § 1014, Basis of property acquired from a decedent: https://www.law.cornell.edu/uscode/text/26/1014 - 26 U.S.C. § 1015, Basis of property acquired by gifts and transfers in trust: https://www.law.cornell.edu/uscode/text/26/1015 - 26 U.S.C. § 691, Recipients of income in respect of decedents: https://www.law.cornell.edu/uscode/text/26/691 - 26 U.S.C. § 2032, Alternate valuation: https://www.law.cornell.edu/uscode/text/26/2032 - IRS, Rev. Rul. 2023-2 (basis of assets in an irrevocable grantor trust): https://www.irs.gov/pub/irs-drop/rr-23-02.pdf --- URL: https://valim.tax/glossary/modified-adjusted-gross-income-magi Title: Modified adjusted gross income (MAGI): what gets added back Updated: 2026-09-24 # Modified adjusted gross income (MAGI) Modified adjusted gross income (MAGI) is your adjusted gross income with certain items added back or left out, which vary by rule. Your adjusted gross income (AGI) is the total on line 11a of the 2025 Form 1040. Each rule that uses MAGI makes its own changes to AGI, so you can have several MAGIs in one year. If none of a rule’s changes apply to you, your MAGI for that rule equals your AGI. For the 3.8% net investment income tax, MAGI is AGI plus any foreign earned income you excluded. The tax can apply above $200,000 of that MAGI, $250,000 on a joint return, or $125,000 filing separately. None of these amounts rises with inflation. The cap on the state and local tax (SALT) deduction uses the same MAGI. It also adds back income excluded by residents of Puerto Rico and certain US possessions. For 2026, the cap starts to shrink above $505,000 of MAGI, or $252,500 filing separately. For Roth IRA contributions, MAGI adds back items such as a traditional IRA deduction and excluded foreign earned income. In 2026, a single filer’s Roth IRA contribution limit phases out as this MAGI rises from $153,000 to $168,000. On a joint return, the range is $242,000 to $252,000. The usual mistake is to use one MAGI for every rule. Roth conversion income is left out when testing Roth contributions. It still raises your MAGI for the 3.8% tax. A large bonus or RSU vest raises every version, because each one starts from AGI. ## Where to go next. ### Net investment income tax (https://valim.tax/high-earners/net-investment-income-tax) See how modified AGI and investment income set the 3.8% tax, with a worked example. ### Pro-rata rule (https://valim.tax/glossary/pro-rata-rule) Above the Roth income limit, a backdoor Roth conversion can be partly taxable under the pro-rata rule. ### Adjusted gross income (AGI) (https://valim.tax/glossary/adjusted-gross-income-agi) See which deductions come off gross income to give the AGI every MAGI starts from. ### Tax strategist for high earners (https://valim.tax/high-earners) Valim’s CPAs plan the year around your MAGI under Tax advisory, and file your federal and state returns. ## Sources - 26 U.S.C. § 1411, Imposition of tax (net investment income tax): https://www.law.cornell.edu/uscode/text/26/1411 - 26 U.S.C. § 164, Taxes (the SALT cap): https://www.law.cornell.edu/uscode/text/26/164 - 26 U.S.C. § 408A, Roth IRAs: https://www.law.cornell.edu/uscode/text/26/408A - IRS, IR-2025-111 (2026 IRA limits and Roth IRA phase-out ranges): https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500 --- URL: https://valim.tax/glossary/wash-sale Title: Wash sale: the 30-day rule that disallows a loss on stock Updated: 2026-09-24 # Wash sale A wash sale is selling stock or securities at a loss and buying substantially identical ones within 30 days before or after the sale. A wash sale usually postpones your loss. Section 1091 of the tax code disallows the loss now and adds it to the cost basis of the new shares. The time you held the old shares carries over to the new ones. When you sell the new shares, the higher basis gives you a smaller gain or a larger loss. Counting the day of the sale, the window is 61 days. A contract or option to buy counts as a purchase. Your broker reports wash sales only for identical securities in the same account. A purchase in another of your accounts still counts, and so does one by your spouse or a corporation you control. You have to catch these yourself. An ESPP purchase of employer stock inside the window can also turn a loss sale into a wash sale. No statute or IRS guidance says whether shares you receive when RSUs vest count as a purchase. The costliest case is buying the stock back in your IRA or Roth IRA. The loss is still disallowed, and the IRA gets no basis for it, so the loss is gone for good. The IRS treats crypto as property, not as stock or a security. Under current law, the rule does not reach crypto you hold directly. Shares of a crypto fund taxed as a corporation are securities, so the rule covers them. For spot ETFs set up as grantor trusts, the answer is unsettled. A bill now in Congress could extend the rule to crypto. ## Where to go next. ### Cost basis (https://valim.tax/glossary/cost-basis) See how basis, raised by any disallowed loss, sets your gain or loss when you sell. ### ESPP taxes (https://valim.tax/equity-compensation/espp-taxes) See how ESPP sales are taxed, and how a qualifying sale differs from a disqualifying one. ### Crypto tax (https://valim.tax/crypto-tax) See how crypto cost basis is reconciled across exchanges and on Form 1099-DA. ### Tax strategist for high earners (https://valim.tax/high-earners) Valim’s CPAs file returns with wash sale adjustments across your accounts, and plan loss sales with you under Tax advisory. ## Sources - 26 U.S.C. § 1091, Loss from wash sales of stock or securities: https://www.law.cornell.edu/uscode/text/26/1091 - IRS, Rev. Rul. 2008-5, Internal Revenue Bulletin 2008-3 (wash sales through an IRA): https://www.irs.gov/pub/irs-irbs/irb08-03.pdf - IRS, Notice 2014-21 (virtual currency treated as property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf - H.R. 10357, Digital Asset Tax Certainty Act (as introduced): https://www.govinfo.gov/content/pkg/BILLS-119hr10357ih/html/BILLS-119hr10357ih.htm --- URL: https://valim.tax/glossary/pro-rata-rule Title: Pro-rata rule: how your IRAs set the tax on a Roth conversion Updated: 2026-09-24 # Pro-rata rule The pro-rata rule treats all your traditional, SEP and SIMPLE IRAs as one, so each dollar you convert carries the same taxable share. The rule matters most for a backdoor Roth, where you convert a traditional IRA contribution you did not deduct. After-tax money in an IRA is your basis, and it comes out tax-free. The tax-free part of each dollar you withdraw or convert is your basis divided by the total in all your IRAs. Section 408(d)(2) of the tax code sets out this rule, and you work it out on Form 8606. The total uses your IRA balances on December 31 of the year you convert, plus what you took out that year. Say you make a $7,500 nondeductible contribution, the 2026 limit under age 50, and convert it in February. If a rollover IRA holds $92,500 of pre-tax money on December 31, only 7.5% of the conversion is tax-free. That 7.5% is $7,500 of basis divided by $100,000: the $92,500 in the rollover IRA plus the $7,500 you converted. You owe tax on $6,937.50 of the $7,500, and the unused basis carries forward to later years. The usual fix is to roll all pre-tax IRA money into your 401(k) by December 31, if the plan accepts it. The rule leaves out 401(k)s, 403(b)s and other workplace plans that are not IRAs. Once the pre-tax IRA money is gone, only the conversion’s earnings stay taxable. Roth IRAs and IRAs you inherited stay out of the count too. ## Where to go next. ### Modified adjusted gross income (MAGI) (https://valim.tax/glossary/modified-adjusted-gross-income-magi) See the MAGI that decides how much you can contribute straight to a Roth IRA. ### Tax strategist for high earners (https://valim.tax/high-earners) Valim’s CPAs plan backdoor Roth conversions under Tax advisory, and file the Form 8606 that reports them. ## Sources - 26 U.S.C. § 408, Individual retirement accounts: https://www.law.cornell.edu/uscode/text/26/408 - 26 U.S.C. § 408A, Roth IRAs: https://www.law.cornell.edu/uscode/text/26/408A - IRS, Instructions for Form 8606 (2025): https://www.irs.gov/pub/irs-pdf/i8606.pdf - IRS, IR-2025-111 (2026 IRA limits and Roth IRA phase-out ranges): https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500 --- URL: https://valim.tax/glossary/grantor-trust Title: Grantor trust: when a trust’s income is taxed to its creator Updated: 2026-09-24 # Grantor trust A grantor trust is a trust whose income is taxed to its creator, the grantor, because they keep certain powers or benefits. Sections 671 to 679 of the tax code list the powers and benefits that make a trust a grantor trust. The most common are your power to revoke the trust and your right to receive its income. A power to swap the trust’s assets for others of equal value also counts, if it is held outside any role as trustee. Income that can go to your spouse counts the same as income for you. A grantor trust’s income is taxed at your own rates, which are often lower than a trust’s. A trust that pays its own income tax reaches the top 37% rate above $16,000 of taxable income in 2026. A single filer reaches that rate only above $640,600. Under Revenue Ruling 2004-64, paying the tax on the trust’s income yourself is not a gift to its beneficiaries. Grantor trust status is an income tax rule, and the estate tax has its own tests. A revocable living trust is a grantor trust, and its assets stay in your estate. An irrevocable trust can be a grantor trust for income tax and still sit outside your estate. Planners call such a trust an intentionally defective grantor trust (IDGT). Grantor retained annuity trusts (GRATs) and spousal lifetime access trusts (SLATs) are usually grantor trusts. Under Revenue Ruling 2023-2, assets in an irrevocable grantor trust outside your estate miss the step-up at your death. Their basis stays what it was before your death, so the trust or its beneficiaries owe tax on the gain when they sell. ## Where to go next. ### Estate tax exemption (https://valim.tax/high-earners/estate-tax-exemption) See where GRATs and SLATs fit in estate planning under the 2026 exemption. ### Step-up in basis (https://valim.tax/glossary/step-up-in-basis) See which inherited assets take a new basis at death, and which keep the old one. ### Gift tax (https://valim.tax/high-earners/gift-tax) See why a gift to a trust usually goes on Form 709, whatever its size. ### Tax strategist for high earners (https://valim.tax/high-earners) Valim’s CPAs prepare trust returns and your federal gift tax return. Your estate attorney drafts the trust. ## Sources - 26 U.S.C. § 671, Trust income, deductions, and credits attributable to grantors and others as substantial owners: https://www.law.cornell.edu/uscode/text/26/671 - IRS, Rev. Rul. 2023-2 (basis of assets in an irrevocable grantor trust): https://www.irs.gov/pub/irs-drop/rr-23-02.pdf - IRS, Rev. Rul. 2004-64, Internal Revenue Bulletin 2004-27 (income tax paid by the grantor): https://www.irs.gov/pub/irs-irbs/irb04-27.pdf - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/glossary/month-end-close Title: Month-end close: what it involves, and what it means for tax Updated: 2026-09-24 # Month-end close Month-end close is the routine of finishing a month’s books, from recording each transaction to producing that month’s financial statements. In practice, a close runs through the same steps each month. Once the month’s transactions are recorded, each bank, card and loan account is reconciled to its statement. Books kept on the accrual method also record that month’s accruals and other adjustments. Accruals are income earned but not yet received, and expenses incurred but not yet paid. The ledger is reviewed before the statements are produced. No tax rule requires a monthly close. IRS Publication 583 does advise reconciling your checking account each month. It also says to update the books for items that appear only on the bank statement, such as service charges. Your monthly closes matter for tax because your return is built from the books. Under the tax code, taxable income is computed under the method the business uses to keep its books. For a calendar-year business, the December close also helps total what each contractor was paid in the year. On accrual books, count each payment in the year it was made. Forms 1099-NEC for 2026 payments are due February 1, 2027, generally for each contractor paid $2,000 or more. Closing a month is not the same as closing the accounts. Publication 583 describes closing the income and expense accounts at the end of each tax year. Until then, income and expenses keep adding up, so mid-year books show the year to date. Asset, liability and net worth (equity) accounts stay open from one year to the next. ## Where to go next. ### Chart of accounts (https://valim.tax/glossary/chart-of-accounts) See how the accounts a close reconciles are listed and grouped. ### Accrual basis (https://valim.tax/glossary/accrual-basis) See how the accrual method times income and expenses, and which businesses must use it. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) See how bookkeepers who run clients’ monthly closes can partner with Valim on the returns built on them. ### Business tax services (https://valim.tax/business) Your bookkeeper closes the books, and Valim’s CPAs prepare your return from them and advise you on the tax. ## Sources - IRS, Publication 583 (Rev. December 2024), Starting a Business and Keeping Records: https://www.irs.gov/publications/p583 - 26 U.S.C. § 446, General rule for methods of accounting: https://www.law.cornell.edu/uscode/text/26/446 - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/instructions/i1099mec --- URL: https://valim.tax/glossary/accrual-basis Title: Accrual basis: how the accrual method works, and who must use it Updated: 2026-09-24 # Accrual basis Accrual basis is the accounting method that counts income when it is earned and expenses when they are incurred. Income counts once all events have fixed your right to receive it, under what is called the all events test. Its amount must also be determinable with reasonable accuracy. The date the cash arrives usually does not decide the year. Advance payments are an exception: they are generally taxed when received, or partly in the next year by election. An expense counts once the liability is fixed, its amount can be determined and economic performance has occurred. For goods or services you buy, that generally happens as they are provided. For example, a calendar-year business receives office supplies and their bill in December 2026, then pays in January 2027. On the accrual method, it deducts the cost for 2026, the year the supplies and the bill arrived. On the cash method, the deduction waits until 2027. A C corporation generally must use the accrual method unless it passes a gross receipts test. The same rule applies to a partnership with a C corporation partner. For tax years beginning in 2026, the limit is $32 million of average annual gross receipts for the three prior years. A qualified personal service corporation, such as a consulting firm owned by the consultants it employs, may use the cash method however large its receipts. The cash basis entry covers the other exceptions. The rule follows tax classification, so a business’s legal form does not settle it. An S corporation is not a C corporation, so it can generally use the cash method. An LLC taxed as a C corporation falls under the rule. So does an LLC taxed as a partnership with a C corporation member, or one that is a tax shelter. Any other LLC is outside the rule. ## Where to go next. ### Cash basis (https://valim.tax/glossary/cash-basis) See how the cash method counts income once it is received, and who may use it. ### C corporation (https://valim.tax/glossary/c-corporation) See what makes a corporation a C corporation, and how its profits are taxed. ### Month-end close (https://valim.tax/glossary/month-end-close) See the monthly routine in which accrual books post their accruals and adjustments. ### Business tax services (https://valim.tax/business) Valim’s CPAs prepare returns for every business entity type, and advise on planning choices such as the accounting method. ## Sources - 26 C.F.R. § 1.446-1, General rule for methods of accounting: https://www.ecfr.gov/current/title-26/section-1.446-1 - 26 U.S.C. § 448, Limitation on use of cash method of accounting: https://www.law.cornell.edu/uscode/text/26/448 - 26 U.S.C. § 447, Method of accounting for corporations engaged in farming: https://www.law.cornell.edu/uscode/text/26/447 - 26 U.S.C. § 451, General rule for taxable year of inclusion: https://www.law.cornell.edu/uscode/text/26/451 - 26 U.S.C. § 461, General rule for taxable year of deduction: https://www.law.cornell.edu/uscode/text/26/461 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/glossary/cash-basis Title: Cash basis: when income counts as received, and who can use it Updated: 2026-09-24 # Cash basis Cash basis is the accounting method that counts income when it is received and expenses when they are paid. Income you have not withdrawn can still count as received. It is constructively received once it is credited to your account or made available for you to draw on. It does not count while your access to it is subject to substantial limits or restrictions. Interest your bank credits in December is generally income for that year, even if you leave it there. Payment in property or services counts as income too. Three kinds of taxpayers are barred from the cash method: C corporations, partnerships with a C corporation partner, and tax shelters. The corporations and partnerships can still use it in any year they pass a gross receipts test. A qualified personal service corporation can use it at any size, and farming businesses follow separate rules. No test or exemption lets a tax shelter use it. A barred corporation or partnership that fails the test must generally switch to accrual for that year. Changing methods needs the IRS’s consent, which usually means filing Form 3115. For tax years beginning in 2026, a business passes the test if its average annual gross receipts are $32 million or less. The average covers the three tax years before the year being tested. Businesses under common control count their receipts together. A company less than three years old averages the years it has existed. The statute’s $25 million base rises with inflation each year, so older sources show lower limits. Inventory brings rules of its own for when costs count, and a small business taxpayer can use simpler ones. Paying a bill does not always bring an immediate deduction, even on the cash method. The cost of equipment, and prepaid costs that cover later years, may be deducted over several years instead. ## Where to go next. ### Accrual basis (https://valim.tax/glossary/accrual-basis) See how the accrual method counts income when it is earned, with one December bill worked both ways. ### Cost of goods sold (https://valim.tax/glossary/cost-of-goods-sold) See the simpler inventory methods a small business taxpayer can use. ### C corporation (https://valim.tax/glossary/c-corporation) See how a C corporation pays tax on its own profits, and why startups choose one. ### Business tax services (https://valim.tax/business) Valim’s CPAs answer entity and planning questions year-round, then prepare your federal and state business returns. ## Sources - 26 C.F.R. § 1.446-1, General rule for methods of accounting: https://www.ecfr.gov/current/title-26/section-1.446-1 - 26 C.F.R. § 1.451-2, Constructive receipt of income: https://www.ecfr.gov/current/title-26/section-1.451-2 - 26 U.S.C. § 448, Limitation on use of cash method of accounting: https://www.law.cornell.edu/uscode/text/26/448 - 26 U.S.C. § 447, Method of accounting for corporations engaged in farming: https://www.law.cornell.edu/uscode/text/26/447 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/glossary/chart-of-accounts Title: Chart of accounts: the five account types, and your tax return Updated: 2026-09-24 # Chart of accounts A chart of accounts is the list of every account in a business’s general ledger, grouped as assets, liabilities, equity, income and expenses. No statute or regulation defines a chart of accounts, so each business sets up its own. In practice, the accounts are usually numbered by type, and new ones are added as the business needs them. IRS Publication 583 describes the same five types of ledger account. Its name for equity is net worth, meaning the excess of assets over liabilities. The chart is only the list, and the general ledger is where each account’s entries and totals are kept. In double-entry books, every transaction is a debit in one account and a credit in another. Total debits must equal total credits, and totals that do not match point to an error. In practice, a return is easiest to prepare when each cost it reports on its own line has its own account. For cost of goods sold, Schedule C asks for four cost lines: purchases, cost of labor, materials and supplies, and other costs. Publication 583 says your books must show your gross income, deductions and credits. Asset accounts carry the cost of equipment and property from year to year. The return needs those records for depreciation and for the gain or loss on a sale. The IRS says to keep them until the period of limitations ends for the year of a taxable disposition, such as a sale. That period is the time in which the IRS can assess more tax, generally three years after the return is filed. ## Where to go next. ### Month-end close (https://valim.tax/glossary/month-end-close) See the monthly routine that records and reconciles what these accounts hold. ### Cost of goods sold (https://valim.tax/glossary/cost-of-goods-sold) See how a business with inventory works out the cost of what it sold in the year. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) Valim’s CPAs prepare the tax returns for clients whose accounts you set up and keep. ### Business tax services (https://valim.tax/business) Valim’s CPAs prepare business returns and give tax advice alongside your bookkeeper, with the fee quoted upfront. ## Sources - IRS, Publication 583 (Rev. December 2024), Starting a Business and Keeping Records: https://www.irs.gov/publications/p583 - IRS, Schedule C (Form 1040) (2025), Profit or Loss From Business: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf --- URL: https://valim.tax/glossary/ein Title: EIN: what an employer identification number is, and who needs one Updated: 2026-09-24 # EIN An employer identification number (EIN) is the nine-digit number the IRS assigns to a business or other entity for its tax filings. An EIN takes the form 12-3456789. It is for business use only. An owner still uses their own Social Security number or ITIN on their personal return. A business keeps the same EIN when it changes its name or elects a new tax classification. Corporations and partnerships must have an EIN, even with no employees. An LLC with two or more members is a partnership by default, so it needs one as well. A business without an EIN that starts paying wages must apply for one by the seventh day after its first payday. Not every LLC needs an EIN of its own. A single-member LLC is disregarded by default, and it can use its owner’s number for income tax. It generally needs its own EIN only if it has employees, owes excise tax, elects corporate tax treatment or is foreign-owned. It may still get one for a bank account or a state filing. The IRS issues EINs for free and warns against websites that charge for one. Form the LLC or corporation with your state first, then apply with the IRS online tool. An approved application gets its number at once. To apply online, the business must be formed and based in the US or a US territory. The application also needs the responsible party’s SSN or ITIN. On weekdays, the tool is open from 6 a.m. to 1 a.m. Eastern time. By fax, Form SS-4 takes about four business days. ## Where to go next. ### LLC taxes (https://valim.tax/small-business/llc-taxes) See how the IRS taxes single-member and multi-member LLCs, and which return each one files. ### Form 941 (https://valim.tax/glossary/form-941) See who files Form 941, the quarterly return for the taxes on an employer’s payroll. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs prepare your business’s federal and state returns, and your own, in all 50 states. ## Sources - 26 C.F.R. § 301.6109-1, Identifying numbers: https://www.law.cornell.edu/cfr/text/26/301.6109-1 - 26 C.F.R. § 31.6011(b)-1, Employers’ identification numbers: https://www.law.cornell.edu/cfr/text/26/31.6011(b)-1 - IRS, Instructions for Form SS-4 (Rev. December 2025): https://www.irs.gov/pub/irs-pdf/iss4.pdf - IRS, Get an employer identification number: https://www.irs.gov/businesses/small-businesses-self-employed/get-an-employer-identification-number --- URL: https://valim.tax/glossary/depreciation-recapture Title: Depreciation recapture: when a sale is taxed as ordinary income Updated: 2026-09-24 # Depreciation recapture Depreciation recapture is the rule that taxes part of the gain on a sale of depreciated business property as ordinary income. Depreciation deductions lower your ordinary income while you own business property. They also lower the property’s basis, so a later sale shows a larger gain. Recapture rules decide how much of that extra gain is taxed as ordinary income. The recapture is figured on Form 4797. For equipment and other Section 1245 property, gain up to the depreciation allowed or allowable is ordinary income. That counts depreciation you could have claimed but did not. It also includes Section 179 deductions and bonus depreciation. For example, a $100,000 machine written off in full with bonus depreciation has a basis of $0. If it sells for $60,000, all $60,000 of gain is ordinary income. If it sells for $120,000 after more than a year, $100,000 is ordinary income and $20,000 is Section 1231 gain. Rental and commercial buildings are Section 1250 property, and their rules are gentler. A building placed in service after 1986 and depreciated on the straight line usually has no ordinary-income recapture. For an individual owner, the gain that comes from its depreciation is unrecaptured Section 1250 gain instead. It is taxed at no more than 25%. A C corporation that sells the building generally treats 20% of that depreciation as ordinary income. Section 179 deductions can be recaptured even without a sale. That happens when business use falls to 50% or less before the property’s recovery period ends. You then report as income the deduction minus the regular depreciation you could have taken. ## Where to go next. ### Cost basis (https://valim.tax/glossary/cost-basis) See how basis sets the gain or loss when you sell an asset. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) See how a sole proprietor is taxed on Schedule C, and what happens when equipment gets less business use. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs prepare your business returns, and can work out the tax on a sale before you make it. ## Sources - 26 U.S.C. § 1245, Gain from dispositions of certain depreciable property: https://www.law.cornell.edu/uscode/text/26/1245 - 26 U.S.C. § 1250, Gain from dispositions of certain depreciable realty: https://www.law.cornell.edu/uscode/text/26/1250 - 26 U.S.C. § 291, Special rules relating to corporate preference items: https://www.law.cornell.edu/uscode/text/26/291 - 26 U.S.C. § 1(h), Maximum capital gains rate: https://www.law.cornell.edu/uscode/text/26/1 - IRS, Instructions for Form 4797 (2025): https://www.irs.gov/pub/irs-pdf/i4797.pdf --- URL: https://valim.tax/glossary/pass-through-entity Title: Pass-through entity: a business taxed on its owners’ returns Updated: 2026-09-24 # Pass-through entity A pass-through entity is a business whose income is taxed on its owners’ returns. The business itself generally pays no federal income tax. It files a return, and each owner gets a Schedule K-1 showing their share of the income, deductions and credits. The owners pay tax on those shares whether or not any cash is paid out. S corporations and partnerships are the main pass-through entities. An LLC’s income is taxed to its owners unless it elects to be taxed as a C corporation. With two or more members, it is a partnership by default and files Form 1065. A single-member LLC is disregarded by default. The IRS treats its business as the owner’s own, so its income goes straight onto the owner’s return. A C corporation is the opposite case. It pays 21% on its own taxable income, and its shareholders pay tax again on dividends. For the capital gain rules, the tax code also counts estates, trusts, REITs and regulated investment companies as pass-through entities. Owners of pass-through businesses may deduct up to 20% of their qualified business income under Section 199A, subject to limits. From 2026, an owner with at least $1,000 of that income from businesses they actively run gets at least $400. The deduction no longer has an end date. A pass-through entity tax (PTET) is something else: a state tax that a partnership or S corporation elects to pay itself. Because the entity pays it, the tax can stay outside the federal cap on each owner’s state and local tax (SALT) deduction. Each state that offers one sets its own election and rate. ## Where to go next. ### LLC taxes (https://valim.tax/small-business/llc-taxes) See the four ways the IRS can classify an LLC, and what each one files. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See why most S corps pay no federal income tax, and what the election saves an owner. ### C corporation (https://valim.tax/glossary/c-corporation) See why venture-backed startups are set up as C corporations. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs prepare the business’s return and the owners’ returns its income flows onto. ## Sources - 26 U.S.C. § 1(h)(10), Pass-thru entity defined: https://www.law.cornell.edu/uscode/text/26/1 - 26 C.F.R. § 301.7701-3, Classification of certain business entities: https://www.law.cornell.edu/cfr/text/26/301.7701-3 - 26 U.S.C. § 702, Income and credits of partner: https://www.law.cornell.edu/uscode/text/26/702 - 26 U.S.C. § 1363, Effect of election on corporation: https://www.law.cornell.edu/uscode/text/26/1363 - 26 U.S.C. § 199A, Qualified business income: https://www.law.cornell.edu/uscode/text/26/199A - IRS, Notice 2020-75, State and local income taxes paid by partnerships and S corporations: https://www.irs.gov/pub/irs-drop/n-20-75.pdf --- URL: https://valim.tax/glossary/form-941 Title: Form 941: the employer’s quarterly tax return, and its due dates Updated: 2026-09-24 # Form 941 Form 941 is the return employers file each quarter to report wages, income tax withheld, and Social Security and Medicare tax. Form 941 due dates, 2026: - April 30: is the first-quarter due date. Each return is due on the last day of the month after its quarter. - November 2: is the third-quarter due date for 2026, because October 31 falls on a Saturday. - February 1: is the fourth-quarter due date, because January 31, 2027 is a Sunday. The second quarter is due July 31, 2026. An employer that made every deposit on time and in full may file by the 10th of the following month. A weekend moves that date too, so the first quarter’s was May 11. You file it from the first quarter in which you pay wages subject to income tax withholding or Social Security and Medicare tax. After that, you file every quarter, even with no wages, until you file a final return. A seasonal employer can skip the quarters when it pays no wages. The IRS can tell an employer with $1,000 or less of yearly employment tax to file Form 944, once a year, instead. Household employers use Schedule H, and farm employers use Form 943. The return reports both halves of Social Security and Medicare tax, the employee’s and the employer’s. For 2026, each half is 6.2% for Social Security, on wages up to $184,500, and 1.45% for Medicare. A qualified small business can elect to use its research credit against the employer’s half. It claims that credit on Form 941, with Form 8974 attached. Filing the return is separate from paying the tax. Most employers deposit the tax during the quarter by electronic funds transfer, on a monthly or semiweekly schedule. Your schedule depends on the tax you reported in a 12-month lookback period. For 2026, that period runs from July 1, 2024 through June 30, 2025. More than $50,000 in it makes you a semiweekly depositor. How often you run payroll does not change your schedule. ## Where to go next. ### Form 940 (https://valim.tax/glossary/form-940) See who owes federal unemployment tax, and what it costs per employee. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See why an S corp that pays its owner a salary files payroll returns. ### R&D tax credit (https://valim.tax/startups/r-and-d-tax-credit) See how a qualified small business can use its research credit against payroll tax. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs help an S corp owner settle on a salary, and prepare the company’s return. ## Sources - IRS, Instructions for Form 941 (Rev. March 2026): https://www.irs.gov/pub/irs-pdf/i941.pdf - IRS, Publication 509 (2026), Tax Calendars: https://www.irs.gov/pub/irs-pdf/p509.pdf - 26 C.F.R. § 31.6302-1, Deposit rules for taxes under the Federal Insurance Contributions Act (FICA) and withheld income taxes: https://www.law.cornell.edu/cfr/text/26/31.6302-1 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf --- URL: https://valim.tax/glossary/safe-harbor-estimated-tax Title: Safe harbor (estimated tax): the payments that avoid a penalty Updated: 2026-09-24 # Safe harbor (estimated tax) The estimated tax safe harbor is an amount you can pay during the year that protects you from the underpayment penalty. The safe harbor for individuals, 2026: - 90%: of your 2026 tax, paid on time, meets the safe harbor. - 100%: of the tax on your 2025 return also meets it, if you filed that return and 2025 was a full 12-month year. - 110%: replaces that 100% if your 2025 adjusted gross income was over $150,000. You need only the smaller of the two amounts. The $150,000 line is $75,000 if you are married filing separately. Neither figure is adjusted for inflation. The protection holds even if your tax for the year turns out higher. You pay the safe harbor amount in four equal installments. Any tax still owed is due by April 15, even if you extend your return. For 2026, the installments are due April 15, June 15 and September 15, 2026, and January 15, 2027. Tax withheld from your pay counts toward them. Some people owe no penalty at all. That includes anyone whose tax after withholding is under $1,000. It also includes someone who owed no tax for last year, if that was a full 12-month year. That person must have been a US citizen or resident all year. A C corporation has a safe harbor of its own: 100% of this year’s tax, or 100% of last year’s. Last year counts only if it was a full 12-month year that showed tax, and a large corporation faces tighter limits. The four due dates are not evenly spaced: the second comes two months after the first, and the last falls in the next January. The 100% and 110% tests look back at 2025, so a jump in 2026 income does not change them. That jump can raise the 2027 test to 110%. ## Where to go next. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) See how a sole proprietor sets the four payments, and when 110% of last year’s tax applies. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See how an S corp owner covers the tax on a share of profit that has nothing withheld. ### Form 1120 (https://valim.tax/startups/form-1120) See when a C corporation owes estimated tax, and when last year’s tax is not enough. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs set the four payments that meet the safe harbor. ## Sources - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 - 26 U.S.C. § 6655, Failure by corporation to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6655 - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf --- URL: https://valim.tax/glossary/accountable-plan Title: Accountable plan: the rules for tax-free expense reimbursements Updated: 2026-09-24 # Accountable plan An accountable plan is an employer’s expense reimbursement arrangement that meets three IRS requirements, so its payments are not taxable wages. A plan can cover any employee, including an S corp owner on the payroll. It must meet all three requirements. First, it pays only for deductible business expenses the employee incurs while working for the employer. Second, the employee accounts for (substantiates) each expense to the employer within a reasonable period. Third, the employee returns any amount beyond those expenses within a reasonable period. A reimbursement paid with wages must be shown separately. Travel and vehicle costs need the detail Section 274(d) requires. For travel away from home, that is the amount, time, place and business purpose of each expense. A broad label such as “travel” or “miscellaneous business expenses” is not enough. The regulation gives a safe harbor for what counts as a reasonable period. An advance paid within 30 days of the expense qualifies. So does substantiation within 60 days after it, and returning any excess within 120 days. Outside those windows, the facts decide. Reimbursements under an accountable plan stay off the employee’s W-2. They are also free of income tax withholding, Social Security, Medicare and FUTA tax. If the plan fails any requirement, everything paid under it becomes taxable wages. If only an excess is kept too long, just that excess is wages. An employee under a failed plan generally cannot deduct the expenses. Miscellaneous itemized deductions are disallowed, with no end date in the law. ## Where to go next. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See how an S corp pays its owner a reasonable salary through payroll, and what the election saves. ### Supplemental wages (https://valim.tax/glossary/supplemental-wages) Payments under a failed plan count as supplemental wages. See how employers withhold income tax on them. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs prepare your business return and advise you all year, on questions such as how to reimburse an owner. ## Sources - 26 U.S.C. § 62, Adjusted gross income defined: https://www.law.cornell.edu/uscode/text/26/62 - 26 C.F.R. § 1.62-2, Reimbursements and other expense allowance arrangements: https://www.law.cornell.edu/cfr/text/26/1.62-2 - 26 U.S.C. § 67, 2-percent floor on miscellaneous itemized deductions: https://www.law.cornell.edu/uscode/text/26/67 - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf --- URL: https://valim.tax/glossary/cost-of-goods-sold Title: Cost of goods sold (COGS): how inventory costs are deducted Updated: 2026-09-24 # Cost of goods sold Cost of goods sold (COGS) is the cost of the inventory a business sold during the year. A business subtracts cost of goods sold from its gross receipts to find its gross profit. The formula begins with the inventory on hand at the start of the year. It adds purchases, labor, materials and other production costs, then subtracts the inventory left at year end. A sole proprietor works it out in Part III of Schedule C. Corporations, S corporations and partnerships attach Form 1125-A to their returns instead. On Schedule C, the cost of labor leaves out anything you pay yourself. A business that makes, buys or sells merchandise generally must keep inventories. The regulation requires them whenever merchandise is an income-producing factor in the business. A business that must keep them generally uses the accrual method for its inventory purchases and sales. Small business taxpayers can skip those inventory rules. A business qualifies for 2026 if its average annual gross receipts for the prior three years are $32 million or less. The 2025 limit was $31 million. The receipts of related businesses are added together, and a tax shelter cannot qualify. A qualifying business can follow its financial statements or books. It can also treat inventory as non-incidental materials and supplies, deducting each item’s cost in the year it goes to a customer. If the business pays for the item later, the deduction waits until that year. ## Where to go next. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) See how a sole proprietor reports business income on Schedule C, and the two taxes on the profit. ### Accrual basis (https://valim.tax/glossary/accrual-basis) See how the accrual method times income and expenses, and which businesses must use it. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) See how bookkeepers who keep clients’ inventory records can partner with Valim on their returns. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs prepare your returns and advise you on tax, working from your bookkeeper’s year-end figures. ## Sources - IRS, Form 1125-A (Rev. November 2024), Cost of Goods Sold: https://www.irs.gov/pub/irs-pdf/f1125a.pdf - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - 26 C.F.R. § 1.471-1, Need for inventories: https://www.law.cornell.edu/cfr/text/26/1.471-1 - 26 U.S.C. § 448, Limitation on use of cash method of accounting: https://www.law.cornell.edu/uscode/text/26/448 - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf --- URL: https://valim.tax/glossary/form-7004 Title: Form 7004: the automatic extension for business tax returns Updated: 2026-09-24 # Form 7004 Form 7004 is the IRS application for an automatic extension of time to file business returns such as Forms 1120, 1120-S and 1065. To extend a business tax return, you file a separate Form 7004 for it by the return’s original due date. It needs no signature, and most applications can be filed electronically. The IRS no longer sends approval notices. It writes only to deny a request. The automatic extension lasts 6 months for partnerships and corporations, S corporations included. That covers an LLC taxed as a partnership or a corporation. Estates and trusts that file Form 1041 get 5½ months. A C corporation whose tax year ends June 30 and began before 2026 gets 7 months. For calendar-year 2026 returns, Forms 1065 and 1120-S move from March 15 to September 15, 2027. Form 1120 moves from April 15 to October 15, 2027. Form 7004 extends only the time to file. The tax is still due on the original date. Tax paid after that draws interest, and usually a late payment penalty. Form 7004 does not extend Form 1040. A sole proprietor extends Form 1040 with Form 4868, because the business is reported on that return. State returns follow their own extension rules. California extends an LLC’s Form 568 automatically, with no form to file. Texas franchise tax needs its own extension request. ## Where to go next. ### Form 1120 (https://valim.tax/startups/form-1120) See when a C corporation’s return is due, and what paying late costs on an extended return. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See when Form 1120-S is due, and what a late return costs for each shareholder. ### How to file a tax extension (https://valim.tax/tax-extension) See how to file a corporate tax extension, and how Valim files Form 7004 free. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs file most returns within days of receiving your documents, in all 50 states. ## Sources - IRS, Instructions for Form 7004 (Rev. December 2025): https://www.irs.gov/pub/irs-pdf/i7004.pdf - 26 C.F.R. § 1.6081-2, Automatic extension of time to file certain returns filed by partnerships: https://www.law.cornell.edu/cfr/text/26/1.6081-2 - 26 C.F.R. § 1.6081-3, Automatic extension of time for filing corporation income tax returns: https://www.ecfr.gov/current/title-26/section-1.6081-3 - IRS, Publication 509 (2026), Tax Calendars: https://www.irs.gov/pub/irs-pdf/p509.pdf --- URL: https://valim.tax/glossary/form-940 Title: Form 940: the annual federal unemployment (FUTA) tax return Updated: 2026-09-24 # Form 940 Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is the return on which an employer reports its federal unemployment tax each year. FUTA tax, 2026: - 6.0%: is the FUTA rate, charged on the first $7,000 you pay each employee in the year. - 5.4%: is the most you can take off as a credit for state unemployment tax paid in full and on time. - $42: is the most FUTA then costs per employee for the year, a net rate of 0.6%. The credit is smaller in a credit reduction state. For 2025, it was cut by 1.2% in California and by 4.5% in the US Virgin Islands. The 2026 reductions are set after November 10, 2026. Most employers owe FUTA if they paid $1,500 or more in wages in any calendar quarter, this year or last. Employing someone for part of a day in 20 different weeks of either year also counts. Household and farm employers have tests of their own. Charities exempt under Section 501(c)(3) owe no FUTA. Only the employer pays FUTA, so nothing is withheld from employees’ pay. State unemployment tax paid after the Form 940 due date earns only 90% of the credit it would have earned. FUTA is figured each quarter. Once the amount owed, plus any carryover, passes $500, you deposit it by the end of the month after the quarter. A smaller amount carries forward to the next quarter. In the fourth quarter, $500 or less can be paid with the return instead. The 2026 Form 940 is due February 1, 2027, or February 10 if every deposit was on time. FUTA never goes on Form 941. ## Where to go next. ### Form 941 (https://valim.tax/glossary/form-941) See the quarterly return for income tax withholding and Social Security and Medicare tax. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See what changes when an LLC files as an S corp, payroll returns included. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) See the forms a sole proprietor files, including the payroll returns that start with a first hire. ### Small business CPA (https://valim.tax/small-business) Valim’s CPAs weigh the payroll costs of an S corp election before you file Form 2553. ## Sources - IRS, Instructions for Form 940 (2025): https://www.irs.gov/pub/irs-pdf/i940.pdf - 26 U.S.C. § 3306, Definitions (FUTA employers and wages): https://www.law.cornell.edu/uscode/text/26/3306 - IRS, Schedule A (Form 940) for 2025, Multi-State Employer and Credit Reduction Information: https://www.irs.gov/pub/irs-pdf/f940sa.pdf - IRS, Publication 15 (2026), Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf --- URL: https://valim.tax/glossary/authorized-shares Title: Authorized shares: how they differ from issued and outstanding Updated: 2026-09-24 # Authorized shares Authorized shares are the maximum number of shares a corporation may issue, as stated in its certificate or articles of incorporation. In Delaware, the certificate of incorporation must state how many shares of each class may be issued. It must also give each class’s par value, or say that the shares have none. The board of directors can issue shares up to that number. Raising or lowering it takes an amendment to the certificate. A company that needs more shares for a new funding round amends its certificate first. Authorized shares are often confused with issued and outstanding shares. Issued shares are the shares the company has sold or granted, including treasury shares it bought back but has not retired. Outstanding shares are the issued shares that stockholders hold, so they leave out treasury shares. An option, SAFE or convertible note adds to issued shares only on the day it is exercised or converts. Delaware’s franchise tax notice counts authorized shares alone, so a startup with millions of them is often billed far more than it owes. ## Where to go next. ### Delaware franchise tax (https://valim.tax/startups/delaware-franchise-tax) See both methods worked for a seed startup, and the figures to report so you pay the lower one. ### SAFE (simple agreement for future equity) (https://valim.tax/glossary/safe-simple-agreement-for-future-equity) See how a SAFE converts into shares at a later funding round. ### Convertible note (https://valim.tax/glossary/convertible-note) See how a startup loan turns into shares, and when it counts as issued. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs prepare and sign a startup’s federal and state returns. ## Sources - 8 Del. C. § 102, Contents of certificate of incorporation: https://delcode.delaware.gov/title8/c001/sc01/index.html - 8 Del. C. § 161, Issuance of stock: https://delcode.delaware.gov/title8/c001/sc05/index.html - 8 Del. C. § 242, Amendment of certificate of incorporation: https://delcode.delaware.gov/title8/c001/sc08/index.html - 8 Del. C. §§ 501 to 518, Corporation franchise tax: https://delcode.delaware.gov/title8/c005/index.html --- URL: https://valim.tax/glossary/c-corporation Title: C corporation: why venture-backed startups are set up as one Updated: 2026-09-24 # C corporation A C corporation is a corporation that pays federal income tax on its own profits, separately from its shareholders. Every corporation is a C corporation unless it has a valid S corporation election for the year. C and S are federal tax labels, so a state charter does not say which one a company is. An LLC can elect on Form 8832 to be taxed as a corporation. Unless it also elects S status, it is then a C corporation. A C corporation files Form 1120 every year, with or without revenue. Its taxable income is taxed at a flat 21%, the federal rate since 2018. Profit paid out as dividends is taxed a second time, on the shareholders’ own returns. Qualified dividends are taxed at up to 20%, plus the 3.8% net investment income tax for higher earners. Profit the corporation reinvests faces no second tax until it is paid out or shareholders sell. Startups that plan to raise from venture funds are usually C corporations. A venture round typically brings in preferred stock, bought by a fund set up as a partnership or LLC. An S corporation can have only one class of stock and no partnership shareholders. Preferred stock or a fund investor would therefore end its S status. Only stock in a US C corporation can be qualified small business stock (QSBS), whose gain can be excluded from federal tax. ## Where to go next. ### Form 1120 (https://valim.tax/startups/form-1120) See who files the C corporation return, when it is due and how to extend it. ### S corp taxes (https://valim.tax/small-business/s-corp-taxes) See how an S corporation passes its income through to its shareholders instead. ### QSBS (https://valim.tax/equity-compensation/qsbs) See the tests C corporation stock must pass for the gain on a sale to be excluded. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs prepare and sign C corporation returns in all 50 states. ## Sources - 26 U.S.C. § 1361, S corporation defined: https://www.law.cornell.edu/uscode/text/26/1361 - 26 U.S.C. § 11, Tax imposed (corporations): https://www.law.cornell.edu/uscode/text/26/11 - 26 U.S.C. § 1(h)(11), Dividends taxed as net capital gain: https://www.law.cornell.edu/uscode/text/26/1 - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 - 26 C.F.R. § 1.6012-2, Corporations required to make returns of income: https://www.ecfr.gov/current/title-26/section-1.6012-2 - IRS, Instructions for Form 1120 (2025): https://www.irs.gov/pub/irs-pdf/i1120.pdf --- URL: https://valim.tax/glossary/franchise-tax Title: Franchise tax: why a company can owe it with no income Updated: 2026-09-24 # Franchise tax A franchise tax is a state tax on a company’s right to exist, or to do business, in that state. The state grants a company its franchise, the right to exist as a company. Because the tax is often not based on income, a company can owe it in a year with no revenue. States measure their franchise taxes in different ways. Delaware bases its corporate franchise tax on authorized shares or assumed par value capital. Texas taxes each entity’s margin, which is its revenue minus certain deductions, and its franchise tax reaches LLCs as well. California’s corporate franchise tax is 8.84% of net income, with a minimum of $800 a year. A corporation that incorporates or qualifies (registers to do business) in California does not owe the minimum for its first taxable year. Every for-profit Delaware corporation owes Delaware’s franchise tax each year, with or without income. ## Where to go next. ### Delaware franchise tax (https://valim.tax/startups/delaware-franchise-tax) See why a startup’s Delaware notice can say $85,165, and how to pay the lower amount. ### Texas franchise tax (https://valim.tax/small-business/texas-franchise-tax) See who owes Texas franchise tax, and the no-tax-due threshold. ### Authorized shares (https://valim.tax/glossary/authorized-shares) Delaware’s franchise tax notice is based on the number of shares a corporation’s charter authorizes. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs prepare a startup’s federal and state returns in all 50 states. ## Sources - 8 Del. C. §§ 501 to 518, Corporation franchise tax: https://delcode.delaware.gov/title8/c005/index.html - Cal. Rev. & Tax. Code § 23151, Franchise tax rate: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23151 - Cal. Rev. & Tax. Code § 23153, Minimum franchise tax: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=23153 - Texas Comptroller of Public Accounts, Franchise tax: https://comptroller.texas.gov/taxes/franchise/ --- URL: https://valim.tax/glossary/qualified-research-expenses Title: Qualified research expenses (QREs): the costs the R&D credit uses Updated: 2026-09-24 # Qualified research expenses Qualified research expenses (QREs) are the costs a business can use to figure its federal research credit under Section 41. QREs fall into four kinds, set out in Section 41(b), and a cost outside them never counts. Wages count when they are paid to employees who do qualified research, or who directly supervise or support it. An employee’s wages count in proportion to time spent on qualified work, and in full once that share reaches 80%. Supplies count when they are tangible items used in the research, other than land and depreciable property. Rent for someone else’s computers counts if the owner runs them off the business’s premises and the business is not their main user. Payments to outside contractors for qualified research count at 65% of the amount paid. Where and how the work is done also matters. Research outside the United States and its territories never counts, whoever does it. Contract research counts only if the business agreed to it before the work began. Its payment also cannot depend on the research succeeding. Cloud computing may count on the computer rental terms when used in the research itself, but not for hosting a released product. A startup that has not begun business yet can still count its in-house research costs. It must plan to use the results in its own business. Contract research paid for before the business begins does not count. QREs are a narrower set than the research costs a business deducts under Section 174A. Patent costs and depreciation on research equipment are Section 174A costs, and they are never QREs. QREs also leave out office rent, overhead and most utilities. ## Where to go next. ### R&D tax credit (https://valim.tax/startups/r-and-d-tax-credit) See how the credit is figured from QREs, with a worked example for a startup with no sales. ### Form 941 (https://valim.tax/glossary/form-941) A qualified small business can elect to use up to $500,000 of its research credit a year against employer payroll taxes on Form 941. ### Form 1120 (https://valim.tax/startups/form-1120) A C corporation claims the credit on Form 6765, filed with its Form 1120. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs prepare a startup’s returns and answer its tax questions year-round. ## Sources - 26 U.S.C. § 41, Credit for increasing research activities: https://www.law.cornell.edu/uscode/text/26/41 - 26 C.F.R. § 1.41-2, Qualified research expenses: https://www.law.cornell.edu/cfr/text/26/1.41-2 - 26 U.S.C. § 174A, Domestic research or experimental expenditures: https://www.law.cornell.edu/uscode/text/26/174A - IRS, Instructions for Form 6765 (Rev. December 2025): https://www.irs.gov/pub/irs-pdf/i6765.pdf --- URL: https://valim.tax/glossary/convertible-note Title: Convertible note: a startup loan that turns into shares Updated: 2026-09-24 # Convertible note A convertible note is a loan from an investor to a startup that can turn into shares at a later funding round. Until it converts, a convertible note is debt. The investor gets a promise of repayment, interest and the right to convert the balance into shares when a set event occurs. The note also has a maturity date, when the balance falls due if it has not converted. In a liquidation, debt is repaid before SAFEs and stock. The tax code also treats an unconverted note as a debt instrument. Interest that builds up unpaid until maturity or conversion is original issue discount (OID). On a note longer than one year, the investor is taxed on OID as it accrues, even though no cash is paid. For example, a $100,000 two-year note at 6% simple interest, paid at maturity, carries $12,000 of OID. The investor reports $5,830 of it for the note’s first 12 months, at a constant yield of 5.83%. That is the yearly rate that compounds to $12,000 of interest over two years. Two tax questions have no settled answer. The first is the company’s interest deduction, which it normally takes as the interest accrues. Section 163(l) denies that deduction on debt payable in the company’s own stock. No regulation says whether a note that converts automatically at the next round is covered. The second question is conversion. No Code section says outright that it is tax-free to the investor, and the answer can turn on the note’s terms. For qualified small business stock (QSBS), the holding period starts when the note converts, so time spent holding the note adds nothing. The gross asset test also applies at conversion. For stock issued after July 4, 2025, the limit is $75 million, which may be adjusted for inflation after 2026. ## Where to go next. ### SAFE (simple agreement for future equity) (https://valim.tax/glossary/safe-simple-agreement-for-future-equity) A SAFE also turns into shares at a later round, but YC’s form carries no interest and has no maturity date. ### QSBS (https://valim.tax/equity-compensation/qsbs) See the tests and holding periods that decide whether shares from a converted note are QSBS. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs advise founders through events such as a funding round, and file the company’s returns. ## Sources - SEC Investor Bulletin, Be cautious of SAFEs in crowdfunding (2017): https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-52 - 26 U.S.C. § 1275, Other definitions and special rules (debt instrument): https://www.law.cornell.edu/uscode/text/26/1275 - 26 U.S.C. § 1272, Current inclusion in income of original issue discount: https://www.law.cornell.edu/uscode/text/26/1272 - 26 U.S.C. § 163, Interest: https://www.law.cornell.edu/uscode/text/26/163 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 --- URL: https://valim.tax/glossary/safe-simple-agreement-for-future-equity Title: SAFE (simple agreement for future equity): how it converts Updated: 2026-09-24 # SAFE (simple agreement for future equity) A simple agreement for future equity (SAFE) is a contract that sells an investor the right to a startup’s future shares. Y Combinator (YC) created the SAFE in 2013, and its post-money SAFE has been YC’s standard form since 2018. YC’s SAFE carries no interest and has no maturity date, and its holder has no vote. Until it converts, the holder owns no shares. A SAFE converts when a set event occurs, usually a priced round in which the company sells preferred stock. If no such event happens, a SAFE may never convert. The number of shares is usually set by a valuation cap, a discount on the new round’s price, or both. The cap is the highest company value the conversion price can be based on. Take a $500,000 SAFE with a $10 million cap. If the round is priced above the cap, the SAFE converts into 5% of the company. That 5% is measured just before the new round’s shares are issued. Under YC’s forms, a sale or wind-down before a round puts the SAFE behind debt and ahead of common stock. How a SAFE is taxed is unsettled, because no statute, regulation or IRS ruling addresses SAFEs. Advisers generally weigh two readings: the SAFE may be stock, or it may be a prepaid forward contract. Under a forward contract, the investor pays now for shares delivered later. YC’s form says the parties intend the SAFE to be stock for tax purposes. That label does not bind the IRS. Under either reading, the company is generally not taxed on the money it raises. What the reading changes is when the investor’s holding period starts, including for qualified small business stock (QSBS). If the SAFE is stock, the holding period may start at purchase. If it is a forward contract, the period starts at conversion. For a SAFE bought on or before July 4, 2025 and converted later, the reading can decide which QSBS rules apply. ## Where to go next. ### Convertible note (https://valim.tax/glossary/convertible-note) A convertible note also turns into shares later, but it is a loan, with interest and a maturity date. ### QSBS (https://valim.tax/equity-compensation/qsbs) See the tests and holding periods that decide whether shares from a SAFE qualify. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs plan founders’ 83(b) elections and QSBS, and file the company’s returns. ## Sources - SEC Investor Bulletin, Be cautious of SAFEs in crowdfunding (2017): https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-52 - Y Combinator, Safe financing documents: https://www.ycombinator.com/safe - 26 U.S.C. § 385, Treatment of certain interests in corporations as stock or indebtedness: https://www.law.cornell.edu/uscode/text/26/385 - 26 U.S.C. § 1032, Exchange of stock for property: https://www.law.cornell.edu/uscode/text/26/1032 - 26 U.S.C. § 1202, Partial exclusion for gain from certain small business stock: https://www.law.cornell.edu/uscode/text/26/1202 --- URL: https://valim.tax/glossary/25-foreign-owned-corporation Title: 25% foreign-owned corporation: who counts, and what it must file Updated: 2026-09-24 # 25% foreign-owned corporation A 25% foreign-owned corporation is a US corporation at least 25% owned, by vote or value, by one foreign person. What the 25% test triggers: - 25%: is the test, met if one foreign person holds that stake at any time in the tax year. - $25,000: is the penalty for each year a required Form 5472 is missing, for each related party. - 90 days: is how long you have to file after an IRS notice. Each 30 days after that, or part of 30 days, adds $25,000 per related party. The added 30-day penalty has no cap. Reasonable cause can excuse either penalty. Before the 2017 tax act, the $25,000 penalty was $10,000. A foreign person is anyone who is not a US person, such as a nonresident alien or a foreign company. Shares that person owns indirectly, such as through family members or other companies, also count toward the 25% test. The attribution rules of Section 318, as modified by Section 6038A(c)(5), decide what counts. Unrelated foreign owners are not added together, so two with 15% each do not make the company 25% foreign-owned. Under Section 6038A, a 25% foreign-owned US corporation is a reporting corporation. It files a separate Form 5472 for each related party, such as the foreign owner, that it had a reportable transaction with. The 2025 Form 1120 asks about 25% foreign ownership in Schedule K, question 7. Form 5472 is attached to the income tax return and is due with it. For a calendar-year 2026 return, that is April 15, 2027, or October 15, 2027 on extension. The penalty is a fixed amount, so it applies even in a year when no income tax is due. A US LLC wholly owned by one foreign person counts as a US corporation for Form 5472, and may have to file one. ## Where to go next. ### Form 1120 (https://valim.tax/startups/form-1120) See who files Form 1120 and when, including a company with no revenue. ### Reportable transaction (Form 5472) (https://valim.tax/glossary/reportable-transaction-form-5472) See which dealings with a related party go on Form 5472, and what a foreign-owned LLC must file. ### Form 7004 (https://valim.tax/glossary/form-7004) Form 7004 extends the time to file a business return, though any tax is still due on the original date. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs prepare startup returns and advise on cross-border operations. ## Sources - 26 U.S.C. § 6038A, Information with respect to certain foreign-owned corporations: https://www.law.cornell.edu/uscode/text/26/6038A - 26 C.F.R. § 1.6038A-1, General requirements and definitions: https://www.ecfr.gov/current/title-26/section-1.6038A-1 - IRS, Instructions for Form 5472 (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/i5472.pdf - IRS, Instructions for Form 1120 (2025): https://www.irs.gov/pub/irs-pdf/i1120.pdf --- URL: https://valim.tax/glossary/reportable-transaction-form-5472 Title: Reportable transaction (Form 5472): which dealings go on the form Updated: 2026-09-24 # Reportable transaction (Form 5472) A reportable transaction, for Form 5472, is a sale, loan, fee or similar dealing between a foreign-owned company and a related party. A reporting corporation is a US corporation that is 25% foreign-owned, or a foreign corporation with a US trade or business. Its related parties include any 25% foreign shareholder, and anyone related to that shareholder or to the corporation. Reportable transactions are mainly the income, deduction and loan items between the corporation and a related party. The regulations list sales and purchases of goods and intangible property, rents, royalties, service fees, commissions, loans, interest and insurance premiums. The same dealings count when paid in something other than money, or for less than full value. For an ordinary corporation, a shareholder buying its stock is not on the list. Dealings with a US related party go on the form, though they need not be itemized. A US LLC wholly owned by one foreign person is usually disregarded for tax, meaning the IRS treats it as part of its owner. For Form 5472, though, it is a reporting corporation. Its owner’s capital contributions and distributions are reportable, and so are other payments made in forming or closing it. An LLC whose owner only put money in that year still files. It sends Form 5472 with a pro forma Form 1120, a cover return with only its identifying details. It must fax or mail them, not file electronically. The Form 5472 meaning differs from the reportable and listed transactions disclosed on Form 8886, which the IRS flags for potential tax avoidance. ## Where to go next. ### 25% foreign-owned corporation (https://valim.tax/glossary/25-foreign-owned-corporation) See the ownership test that makes a US corporation a reporting corporation, and the $25,000 penalty. ### Form 1120 (https://valim.tax/startups/form-1120) See who files Form 1120 and when it is due, including in a year with no revenue. ### Startup accountant (https://valim.tax/startups) Valim’s CPAs advise on inbound planning for foreign founders, and prepare and sign the company’s returns. ## Sources - 26 C.F.R. § 1.6038A-2, Requirement of return: https://www.ecfr.gov/current/title-26/section-1.6038A-2 - IRS, Instructions for Form 5472 (Rev. December 2024): https://www.irs.gov/pub/irs-pdf/i5472.pdf - 26 U.S.C. § 6038A, Information with respect to certain foreign-owned corporations: https://www.law.cornell.edu/uscode/text/26/6038A - 26 C.F.R. § 1.6011-4, Requirement of statement disclosing participation in certain transactions by taxpayers: https://www.ecfr.gov/current/title-26/section-1.6011-4 --- URL: https://valim.tax/glossary/de-minimis-exemption-crypto Title: De minimis crypto exemption: why small gains are still taxed Updated: 2026-09-24 # De minimis crypto exemption A de minimis crypto exemption is a proposed law that would exempt very small crypto transactions from tax. No de minimis exemption for crypto exists in US law as of September 2026. The IRS requires you to report every taxable crypto transaction, whether or not a form reports it. If you spend $20 of bitcoin that cost you $15, you have a $5 taxable gain. The $600 and $10,000 figures in the Form 1099-DA rules are reporting thresholds. They decide only when a broker must report certain sales to the IRS, and they have no effect on what you owe. Two pending bills would create narrow exemptions. The House bill is H.R. 10357, the Digital Asset Tax Certainty Act, introduced on September 14, 2026. Starting in 2028, it would exempt the gain or loss on crypto spent on a network fee of $10 or less. A trading fee would qualify only if paid in the coin traded. Crypto traders, brokers and dealers could not use it, and neither could anyone with more than 5,000 transfers the year before. The Senate bill, S. 2207, was introduced on June 30, 2025. It would exempt the gain or loss on crypto spent on a personal purchase of $300 or less. Exempt gains would be capped at $5,000 a year. ## Where to go next. ### Taxable event (https://valim.tax/glossary/taxable-event) See which crypto transactions are taxed, including fees you pay in crypto. ### Stablecoin (https://valim.tax/glossary/stablecoin) See why stablecoin sales that a broker leaves off Form 1099-DA still go on your return. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs put each crypto sale, swap and fee on your return, however small. ## Sources - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - H.R. 10357, Digital Asset Tax Certainty Act (as introduced): https://www.govinfo.gov/content/pkg/BILLS-119hr10357ih/html/BILLS-119hr10357ih.htm - S. 2207, to reform the treatment of digital assets (as introduced): https://www.govinfo.gov/content/pkg/BILLS-119s2207is/html/BILLS-119s2207is.htm --- URL: https://valim.tax/glossary/realized-gain Title: Realized gain: when a crypto or stock gain becomes taxable Updated: 2026-09-24 # Realized gain A realized gain is what you receive when you sell or otherwise dispose of an asset, minus your adjusted basis. The amount you receive is the cash plus the fair market value of any property or services you get, minus selling fees. Your adjusted basis is usually what you paid for the asset. When the basis is the larger number, you have a realized loss instead. Nothing is realized while you hold an asset, however far its price rises. That rise is an unrealized gain, and it is not taxed. Trading one coin for another realizes the gain on the coin you give up, though no dollars reach you. A realized gain is usually also a recognized gain, which is the part counted in your income. Section 1001 of the tax code recognizes the whole gain on a sale or exchange, unless another rule says otherwise. Most recognized gains are taxed in the year of the sale. How long you held a capital asset sets the rate. A gain on an asset held more than one year is long-term. Most long-term gains are taxed at 0%, 15% or 20% for 2026. A gain on an asset held one year or less is short-term, taxed at ordinary rates of 10% to 37%. A 3.8% net investment income tax can apply on top at higher incomes. ## Where to go next. ### Taxable event (https://valim.tax/glossary/taxable-event) See which crypto transactions realize a gain or loss, and which realize nothing. ### Cost basis (https://valim.tax/glossary/cost-basis) See how to work out the basis you subtract from what you receive. ### Capital loss carryover (https://valim.tax/glossary/capital-loss-carryover) See how realized losses offset your gains, and what happens to a loss you cannot use. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs figure the gain or loss on every crypto sale and swap, and file your return. ## Sources - 26 U.S.C. § 1001, Determination of amount of and recognition of gain or loss: https://www.law.cornell.edu/uscode/text/26/1001 - 26 U.S.C. § 1222, Other terms relating to capital gains and losses: https://www.law.cornell.edu/uscode/text/26/1222 - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions - IRS, Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf - 26 C.F.R. § 1.1001-7, Computation of gain or loss for digital assets: https://www.law.cornell.edu/cfr/text/26/1.1001-7 - 26 U.S.C. § 1411, Net investment income tax: https://www.law.cornell.edu/uscode/text/26/1411 --- URL: https://valim.tax/glossary/stablecoin Title: Stablecoin: what it is, and how the IRS taxes one Updated: 2026-09-24 # Stablecoin A stablecoin is a digital asset designed to hold a fixed value, usually one US dollar per coin. The GENIUS Act, signed on July 18, 2025, sets federal rules for payment stablecoins, but it contains no income tax rules. It defines a payment stablecoin as a digital asset used, or designed to be used, for payments. The issuer must redeem it for a fixed amount of money and represents that its value will stay stable. For tax, the IRS lists stablecoins as digital assets, which it treats as property. No tax is due when you buy a stablecoin with dollars. Every sale or swap of one is a disposition, with its own gain or loss. That gain or loss is usually small, because the price stays close to $1. Moving into a stablecoin is not a tax-free way to cash out. Swapping bitcoin for a stablecoin is a sale of the bitcoin, and its whole gain is taxed that year. Under an optional rule, a broker need not report your qualifying stablecoin sales for a year if they total $10,000 or less. The same rule lets a broker leave out swaps of a stablecoin for other crypto at any amount. The rule covers only what the broker reports, so each sale still goes on your return. ## Where to go next. ### Crypto.com taxes (https://valim.tax/crypto-tax/crypto-com) See how stablecoin sales can arrive as one figure on Form 1099-DA, and where each goes on Form 8949. ### Taxable event (https://valim.tax/glossary/taxable-event) See the other crypto transactions that are taxed, and the moves that are not. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs report your stablecoin trades alongside the rest of your crypto on your federal and state returns. ## Sources - Public Law 119-27, Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act: https://www.govinfo.gov/content/pkg/PLAW-119publ27/html/PLAW-119publ27.htm - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 --- URL: https://valim.tax/glossary/covered-digital-asset Title: Covered digital asset: when your 1099-DA must show cost basis Updated: 2026-09-24 # Covered digital asset A covered digital asset is crypto acquired in a broker’s custodial account from January 1, 2026, and held there until sold. Whether an asset is covered decides what your Form 1099-DA shows. For 2025 sales, brokers had to report only gross proceeds. For sales from January 1, 2026, a broker must report a covered asset’s basis and the date you acquired it. The form must also say whether the gain or loss is short-term or long-term. Any other crypto is noncovered. That includes crypto acquired before 2026 and coins moved in from another wallet or exchange. It also includes crypto the broker was not holding for you when you acquired it. A broker may report a noncovered asset’s basis, but it does not have to. Noncovered does not mean untaxed. You report each sale either way, using the basis from your own records when the form has none. ## Where to go next. ### Coinbase taxes (https://valim.tax/crypto-tax/coinbase) See how Coinbase’s Form 1099-DA changes from tax year 2025 to 2026, and what it shows for covered crypto. ### Wallet-by-wallet accounting (https://valim.tax/glossary/wallet-by-wallet-accounting) See why the basis you use on a sale comes only from the wallet or account you sell from. ### Cost basis (https://valim.tax/glossary/cost-basis) See what cost basis is, and why it is usually what you paid for the asset. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs fill in the basis your Form 1099-DA leaves out, from each exchange’s and wallet’s records. ## Sources - 26 C.F.R. § 1.6045-1, Returns of information of brokers and barter exchanges: https://www.law.cornell.edu/cfr/text/26/1.6045-1 - IRS, Instructions for Form 1099-DA (2026): https://www.irs.gov/pub/irs-pdf/i1099da.pdf - IRS, Understanding your Form 1099-DA: https://www.irs.gov/businesses/understanding-your-form-1099-da --- URL: https://valim.tax/glossary/self-custody-wallet Title: Self-custody wallet: how crypto in your own wallet is taxed Updated: 2026-09-24 # Self-custody wallet A self-custody wallet is a crypto wallet where you hold your own private keys, instead of an exchange holding them. Tax rules call a self-custody wallet an unhosted wallet: a non-custodial way to store the private keys to your crypto. It can be software connected to the internet, called a hot wallet. It can also be hardware kept offline, called a cold wallet. No broker holds your coins there, so swaps inside the wallet get no Form 1099-DA. A crypto kiosk or payment processor may still report a sale you fund from the wallet. A 2024 IRS rule would have made decentralized finance (DeFi) platforms file the form too, but Congress overturned it in April 2025. The tax is the same as anywhere else: you report each sale or swap from the wallet yourself. You also keep the records, including each coin’s basis and purchase date. Moving coins between your own exchange account and wallet is not taxed. A network fee paid in crypto is different, because spending the coins on the fee disposes of them. ## Where to go next. ### Wallet-by-wallet accounting (https://valim.tax/glossary/wallet-by-wallet-accounting) See how basis has been tracked separately for each wallet and account since January 1, 2025. ### Coinbase taxes (https://valim.tax/crypto-tax/coinbase) See why Coinbase Wallet, which is self-custody, sits outside Coinbase’s tax forms. ### Crypto tax accountant (https://valim.tax/crypto-tax) See what the IRS learns about your crypto, and how Valim’s CPAs report activity no broker covers. ## Sources - 26 C.F.R. § 1.6045-1(a)(25), Wallet, hosted wallet, unhosted wallet: https://www.ecfr.gov/current/title-26/section-1.6045-1#p-1.6045-1(a)(25)(iii) - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - Public Law 119-5 (H.J. Res. 25), disapproving the IRS rule on DeFi broker reporting: https://www.govinfo.gov/content/pkg/PLAW-119publ5/html/PLAW-119publ5.htm - IRS, Digital assets: https://www.irs.gov/filing/digital-assets --- URL: https://valim.tax/glossary/capital-loss-carryover Title: Capital loss carryover: the $3,000 limit and what carries forward Updated: 2026-09-24 # Capital loss carryover A capital loss carryover is the unused part of a net capital loss, carried forward to later tax years. Capital loss limits for individuals, 2026: - $3,000: of net capital loss can come off your other income, such as wages, each year. - $1,500: is the yearly limit instead for a married person filing a separate return. - No expiry: for an individual’s carryover, which moves forward until it is used up or the owner dies. Both dollar limits are set in the tax code and are not adjusted for inflation. Your capital losses first offset your capital gains for the year. If the losses are larger, you have a net capital loss. Some or all of it comes off your other income, within the yearly limit, and anything left carries over. The carryover keeps its character. Unused short-term loss arrives in the next year as a short-term loss, and unused long-term loss as long-term. That year it offsets capital gains first, then other income within the same yearly limit. Crypto held as an investment is a capital asset, so its losses follow these rules too. A coin that has only dropped in price gives you no loss to deduct. The loss counts once you dispose of the coin, for example by selling it. ## Where to go next. ### Wash sale (https://valim.tax/glossary/wash-sale) See when buying back stock disallows a loss, and the pending bill that would apply the rule to crypto. ### RSU taxes (https://valim.tax/equity-compensation/rsu-taxes) See why the tax at vesting stands when the share price later falls, and when a sale turns the drop into a capital loss. ### Realized gain (https://valim.tax/glossary/realized-gain) See how a gain or loss is realized, and why a price change alone is not taxed. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs net your crypto gains and losses across exchanges and carry any unused loss forward on your return. ## Sources - 26 U.S.C. § 1212, Capital loss carrybacks and carryovers: https://www.law.cornell.edu/uscode/text/26/1212 - 26 U.S.C. § 1211, Limitation on capital losses: https://www.law.cornell.edu/uscode/text/26/1211 - IRS, Notice 2014-21 (virtual currency is property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf - IRS, Publication 559, Survivors, Executors, and Administrators: https://www.irs.gov/publications/p559 --- URL: https://valim.tax/glossary/taxable-event Title: Taxable event: crypto transactions that bring a tax bill Updated: 2026-09-24 # Taxable event A taxable event is a transaction that gives you income, or a gain or loss, to report on your return. For crypto, taxable events come in two kinds. The first is disposing of crypto: selling it, trading it for another coin, or spending it. Paying a network or transaction fee in crypto is a disposal too. Each disposal brings a gain or loss. The second is receiving crypto as income, such as mining and staking rewards or crypto paid to you for work. Coins airdropped to you after a hard fork count too. Each is ordinary income at its fair market value when you receive it. For tax purposes, you receive staking rewards and airdropped coins once you gain control of them. Buying crypto with dollars and holding it are not taxable events. Moving coins between wallets or accounts you own is also untaxed, apart from any network fee you pay in crypto. An exchange may still send a form for that move, but the form does not make it taxable. Receiving a bona fide gift of crypto brings you no income. You have a gain or loss only when you later sell, swap or spend the coins. ## Where to go next. ### Realized gain (https://valim.tax/glossary/realized-gain) See how the gain or loss on a crypto disposal is worked out, and when it is taxed. ### Hard fork (https://valim.tax/glossary/hard-fork) See when coins from a blockchain split are income, and when a fork brings none. ### De minimis exemption (crypto) (https://valim.tax/glossary/de-minimis-exemption-crypto) See why no crypto transaction is too small to tax, and what a pending bill would change for fees. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs report your crypto sales and income on your return, each in the year it is taxed. ## Sources - IRS, Digital assets: https://www.irs.gov/filing/digital-assets - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions - IRS, Notice 2014-21 (virtual currency is property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf - IRS, Rev. Rul. 2023-14 (staking rewards): https://www.irs.gov/pub/irs-drop/rr-23-14.pdf --- URL: https://valim.tax/glossary/specific-identification Title: Specific identification: picking which crypto or shares you sell Updated: 2026-09-24 # Specific identification Specific identification is naming which units of a coin or stock you sell, so their cost and purchase date set your gain or loss. For crypto, how you identify units depends on who holds them. In a self-custody wallet, you record the units in your own books no later than the date and time of the sale. Any identifier that pins them down works, such as the purchase date and price. At an exchange, you tell the broker which units to sell by the time of the sale, and a standing order counts. If your broker offers only one method, you are treated as having chosen it by standing order. Through December 31, 2026, IRS relief also lets you record your choice for broker-held units in your own books. If you identify nothing, the default is first in, first out (FIFO): the earliest units you acquired count as sold first. You can instead set a standing rule, such as highest cost first. Averaging the cost of all your units is generally not an option for crypto. Switching rules is not a change in accounting method. Picking lots at tax time, after the sale, is too late. ## Where to go next. ### Crypto.com taxes (https://valim.tax/crypto-tax/crypto-com) See a worked example that sets first in, first out against a chosen lot on the same sale. ### Wallet-by-wallet accounting (https://valim.tax/glossary/wallet-by-wallet-accounting) See why your choice can draw only on the units in the wallet or account you sell from. ### Cost basis (https://valim.tax/glossary/cost-basis) See how to pick specific shares at a stock broker, and what goes into their basis. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs help you choose the lots to sell before a large sale. ## Sources - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Notice 2025-7 (temporary relief for identifying digital assets held by a broker): https://www.irs.gov/pub/irs-drop/n-25-07.pdf - IRS, Notice 2026-20 (that relief extended through December 31, 2026): https://www.irs.gov/pub/irs-drop/n-26-20.pdf --- URL: https://valim.tax/glossary/wallet-by-wallet-accounting Title: Wallet-by-wallet accounting: the crypto basis rule since 2025 Updated: 2026-09-24 # Wallet-by-wallet accounting Wallet-by-wallet accounting is tracking the cost basis of your crypto separately for each wallet and exchange account. Treasury regulations have required wallet-by-wallet accounting for every crypto purchase and sale since January 1, 2025. When you sell part of a holding, the units sold come from that wallet or account alone. Their basis and holding period go with them. Units of the same coin held elsewhere do not count. Before 2025, many people pooled all their wallets, reading the IRS FAQs as allowing it. Rev. Proc. 2024-28 calls that the universal or multi-wallet approach. From 2025 the regulation governs, even though the IRS FAQs still state first in, first out without limiting it to one wallet. Rev. Proc. 2024-28 gave a one-time safe harbor for the switch to wallet-by-wallet accounting. A safe harbor is a method the IRS agrees to accept. This one let you assign the basis of coins held on January 1, 2025 to the wallets and accounts holding them. The safe harbor offered two methods, each with its own deadline. A specific-unit allocation assigns basis to particular units in each wallet or account. It must be recorded before your first sale or transfer of that coin in 2025 or later. It must also be recorded by your 2025 return’s due date, with extensions. A global allocation assigns basis by a rule instead, and it had to be written into your records before January 1, 2025. ## Where to go next. ### Specific identification (https://valim.tax/glossary/specific-identification) See how to choose the units you sell within a wallet or account, and by when. ### Self-custody wallet (https://valim.tax/glossary/self-custody-wallet) See what changes when you hold your own keys, from missing forms to the records you keep. ### Covered digital asset (https://valim.tax/glossary/covered-digital-asset) See which coins’ basis a broker must report, and why coins you move in are left out. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs reconcile your cost basis across your wallets and exchange accounts, then file your return. ## Sources - IRS, Rev. Proc. 2024-28 (allocating basis in digital assets to wallets or accounts as of January 1, 2025): https://www.irs.gov/pub/irs-drop/rp-24-28.pdf - 26 C.F.R. § 1.1012-1, Basis of property: https://www.law.cornell.edu/cfr/text/26/1.1012-1 - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions --- URL: https://valim.tax/glossary/hard-fork Title: Hard fork: when a blockchain split gives you taxable coins Updated: 2026-09-24 # Hard fork A hard fork is a change to a cryptocurrency’s rules that permanently splits its blockchain, sometimes creating a new coin. Revenue Ruling 2019-24 defines a hard fork as a protocol change that permanently splits a blockchain from its original ledger. After the split, the old coin stays on its ledger, and any new coin is recorded on a new one. A soft fork changes the protocol without splitting the ledger or creating a coin, so it brings no income. A hard fork brings income only if new coins are airdropped to you. Their fair market value is ordinary income, generally measured when the airdrop is recorded on the ledger, provided you can control the coins then. That value also becomes your basis in the new coins. The control test can delay hard fork income. If your exchange does not support the new coin, you have no income from it yet. For tax purposes, you receive the coins once you can sell or move them. ## Where to go next. ### Taxable event (https://valim.tax/glossary/taxable-event) See the other ways crypto brings income or a gain, from staking rewards to swaps. ### Fair market value (FMV) (https://valim.tax/glossary/fair-market-value-fmv) See what fair market value means, since it sets both your income and your basis in the new coins. ### Crypto tax accountant (https://valim.tax/crypto-tax) Valim’s CPAs report airdrop and hard fork income on your return, valued when you gained control of the coins. ## Sources - IRS, Rev. Rul. 2019-24 (hard forks and airdrops): https://www.irs.gov/pub/irs-drop/rr-19-24.pdf - IRS, Frequently asked questions on virtual currency transactions: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions --- URL: https://valim.tax/glossary/fair-value-accounting Title: Fair value accounting: how companies value the crypto they hold Updated: 2026-09-24 # Fair value accounting Fair value accounting is a method that values an asset at what it would sell for on each reporting date, not at its cost. US generally accepted accounting principles (GAAP) define fair value as the price an asset would bring in an orderly sale between market participants. Tax rules use a separate measure, fair market value, for example when a company is paid in crypto. For crypto, fair value became the rule with ASU 2023-08, which the Financial Accounting Standards Board issued in December 2023. It took effect for fiscal years beginning after December 15, 2024. For crypto the standard covers, the change in value since the last reporting date goes into net income as a gain or loss. Before the ASU, most companies used cost less impairment. That model recorded drops in value, but no rise until the crypto was sold. The standard applies to any company that holds crypto, but only to crypto that passes six tests. The crypto must be intangible and fungible, meaning each unit is interchangeable with another. It must be secured by cryptography and recorded on a blockchain or similar ledger. It must give the holder no enforceable right to underlying goods, services or other assets. The holder, or a party related to it, cannot have created or issued it. A token project’s own tokens are therefore outside the standard on its own books. An unrelated investor holding them may still apply it. NFTs (non-fungible tokens) fail the fungibility test, because each is unique. Stablecoins redeemable for dollars are likely outside the standard too. The ASU does not name them, but a right to redeem them can fail the enforceable right test. Regular federal income tax generally does not count fair value gains until the crypto is sold or otherwise disposed of. So a company’s books and tax return can show different income from the same crypto. The corporate alternative minimum tax (CAMT) is the exception, because it starts from the income on a company’s financial statements, called book income. It reaches only corporations averaging over $1 billion of book income, never S corporations, and they can elect to leave crypto fair value changes out. ## Where to go next. ### Realized gain (https://valim.tax/glossary/realized-gain) See why a price rise is not taxed while you hold an asset, and when the gain is realized. ### Fair market value (FMV) (https://valim.tax/glossary/fair-market-value-fmv) See how tax rules define fair market value, and how they apply it to stock. ### Crypto tax accounting (https://valim.tax/crypto-tax/business) See whether a company owes tax on unrealized crypto gains, and how Valim’s CPAs prepare the return from its books. ## Sources - FASB, ASU 2023-08, Accounting for and Disclosure of Crypto Assets (Subtopic 350-60): https://storage.fasb.org/ASU%202023-08.pdf - 26 U.S.C. § 1001, Determination of amount of and recognition of gain or loss: https://www.law.cornell.edu/uscode/text/26/1001 - 26 U.S.C. § 59, Other definitions and special rules (the corporate AMT’s applicable corporation): https://www.law.cornell.edu/uscode/text/26/59 - IRS, Notice 2025-49 (the FVI exclusion option for the corporate AMT): https://www.irs.gov/pub/irs-drop/n-25-49.pdf - IRS, Notice 2014-21 (virtual currency is property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf --- URL: https://valim.tax/glossary/saft Title: SAFT (simple agreement for future tokens): SEC and tax status Updated: 2026-09-24 # SAFT A SAFT (simple agreement for future tokens) is a contract in which an investor pays now for crypto tokens to be delivered later. Crypto projects sell SAFTs to raise money before their tokens exist. The tokens usually arrive when the project’s network launches. A SAFE is the startup-equity version: it converts into shares, not tokens. A SAFT sale can be a securities offering, which must be registered with the SEC unless an exemption applies. In 2017, Kik Interactive offered discounted Kin tokens through SAFTs to investment funds and other wealthy investors. It also offered Kin to the general public. On September 30, 2020, a federal court ruled for the SEC in its case against Kik. The court treated the SAFT sale and the public sale as one offering of investment contracts, which are securities. No exemption from registration covered that offering. Telegram also sold tokens before delivering them: about 2.9 billion Grams, to 171 buyers. A federal court barred the delivery in March 2020. In June 2020, Telegram agreed to return more than $1.2 billion to investors. As of September 2026, no Code section, regulation, IRS notice or ruling addresses SAFTs, so their tax treatment is unsettled. For the project, one open question is when it has income: when the investor pays, or when the tokens are delivered. For the investor, the open questions are the basis in the tokens and when the holding period starts. Once delivered, the tokens are property like any other crypto, so selling or swapping them is taxable. ## Where to go next. ### SAFE (simple agreement for future equity) (https://valim.tax/glossary/safe-simple-agreement-for-future-equity) See how a SAFE converts into a startup’s shares, and why its tax treatment is unsettled too. ### Fair value accounting (https://valim.tax/glossary/fair-value-accounting) See how a company values the crypto on its books, and why a project’s own tokens are left out. ### Taxable event (https://valim.tax/glossary/taxable-event) See which crypto transactions are taxed, from a sale for dollars to a coin-for-coin swap. ### Crypto tax accounting (https://valim.tax/crypto-tax/business) Valim’s CPAs answer a token project’s planning questions as they arise, and file its federal and state returns. ## Sources - SEC, Kik Interactive Inc. (the SEC’s description of Kik’s SAFTs): https://www.sec.gov/enforcement-litigation/distributions-for-harmed-investors/kik - SEC, Press Release 2020-262, SEC obtains final judgment against Kik Interactive for unregistered offering: https://www.sec.gov/newsroom/press-releases/2020-262 - SEC, Press Release 2020-146, Telegram to return $1.2 billion to investors and pay $18.5 million penalty: https://www.sec.gov/newsroom/press-releases/2020-146 - IRS, Digital assets (digital assets are property): https://www.irs.gov/filing/digital-assets - IRS, Notice 2014-21 (virtual currency is property): https://www.irs.gov/pub/irs-drop/n-14-21.pdf --- URL: https://valim.tax/glossary/1099-k Title: 1099-K: what payment apps and card processors report to the IRS Updated: 2026-09-24 # 1099-K Form 1099-K is the IRS form that card processors, payment apps and online marketplaces file to report the payments they settled for you. Who must file a 1099-K, for 2026: - $20,000: in payments for goods or services in a year is the threshold a payment app or marketplace must pass before it files a 1099-K. - 200: transactions in the same year is the second test. The app files only when you pass both. - Any: amount of card payments you accept is reported by the card processor. Neither the $20,000 nor the 200 rises with inflation. The One Big Beautiful Bill Act restored the payment app test as if the 2021 cut to $600 had never taken effect. The $5,000 and $2,500 transition thresholds the IRS set for 2024 and 2025 no longer apply either. A payment app may still send you a 1099-K below the thresholds. Box 1a reports the gross amount, before any fees, refunds or shipping are subtracted. Boxes 5a to 5l split that gross by month, which helps when you match the form to your own records. On your return, refunds and fees come off, so the income you are taxed on can be lower than the form’s total. New for 2026, box 1c reports the cash tips within the gross, with the code for your tipped occupation in box 1d. Box 4 shows any backup withholding taken from your payouts. The tests set only the payer’s duty to file. Income from selling goods or services is taxable whether or not a 1099-K arrives. Money from friends and family, such as a gift or a repayment, is not income, and it should not appear on the form. ## Where to go next. ### Patreon taxes (https://valim.tax/content-creators/patreon-taxes) See who gets a Patreon 1099-K, and how to report the income once when a processor’s form repeats it. ### TikTok taxes (https://valim.tax/content-creators/tiktok-taxes) A worked example takes a TikTok Shop 1099-K down to the profit that is taxed. ### Third-party settlement organization (https://valim.tax/glossary/third-party-settlement-organization) See which companies count as one, and why that decides who files your 1099-K. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs reconcile your 1099-Ks with your payout records, and deduct the fees and refunds their totals include. ## Sources - 26 U.S.C. § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions: https://www.law.cornell.edu/uscode/text/26/6050W - Public Law 119-21 (One Big Beautiful Bill Act), § 70432: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - IRS, Instructions for Form 1099-K (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099k.pdf - IRS, Understanding your Form 1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k --- URL: https://valim.tax/glossary/third-party-settlement-organization Title: Third-party settlement organization (TPSO): who files a 1099-K Updated: 2026-09-24 # Third-party settlement organization A third-party settlement organization, such as a payment app or online marketplace, is the company bound by contract to pay its network’s sellers. Many sellers who are unrelated to the TPSO hold accounts with it and settle their sales through it. Each seller it pays is a participating payee. An automated clearing house does not qualify as a TPSO, so a plain bank transfer is not a TPSO payment. Whether a payment runs through a TPSO decides who reports it. A payment a brand sends you through a TPSO is the TPSO’s to report, on Form 1099-K. The brand files no 1099-NEC or 1099-MISC for it. A TPSO files only for sellers who pass both of the 1099-K’s yearly tests, one for dollars and one for transactions. A payment card processor is a separate kind of filer, called a merchant acquiring entity, and it reports card payments of any amount. Both are payment settlement entities, the rules’ name for the filers of Form 1099-K. Some creator platforms act as a TPSO for the fan money they pay out. Patreon, for one, files its US creators’ 1099-Ks itself. It asks US creators for Form W-9, and non-US creators for Form W-8BEN or W-8BEN-E. ## Where to go next. ### 1099-K (https://valim.tax/glossary/1099-k) See the two yearly tests a TPSO applies before it files, and what the form reports. ### Patreon taxes (https://valim.tax/content-creators/patreon-taxes) See how Patreon reports creator income on Form 1099-K, with one form for each creator page. ### W-8BEN (https://valim.tax/glossary/w-8ben) See the form a foreign creator gives a TPSO or other payer to show foreign status. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs total your payouts from every platform and payment app, and report each dollar once on your return. ## Sources - 26 U.S.C. § 6050W, Returns relating to payments made in settlement of payment card and third party network transactions: https://www.law.cornell.edu/uscode/text/26/6050W - IRS, Instructions for Form 1099-K (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099k.pdf - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - IRS, Understanding your Form 1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k --- URL: https://valim.tax/glossary/1099-misc Title: 1099-MISC: royalties, prizes and other income a payer reports Updated: 2026-09-24 # 1099-MISC Form 1099-MISC is the IRS form a business files to report miscellaneous payments it made to you, such as royalties, rents, prizes and awards. When a 1099-MISC is filed, for 2026 payments: - $2,000: of rents, prizes and awards or other income a business pays you in a year generally means it must file. - $10: of royalties a business pays you in a year generally means it must file. A 1099-MISC reports the income a business pays you that is not pay for services, which goes on Form 1099-NEC. The payer adds up what it paid you in the calendar year to see whether a threshold is crossed. The $2,000 threshold is new for 2026: payments made in 2025 were still reported from $600. From 2027 payments, it is indexed for inflation, as the 1099-NEC threshold is. For creators, the best-known 1099-MISC is the one Google sends US creators for their YouTube earnings. Google reports a non-US creator’s earnings on Form 1042-S in its place. Income from your creator business belongs in the gross receipts on Schedule C, whichever form reports it. There it counts toward both income tax and self-employment tax. Your costs are not on the 1099-MISC, so you deduct them on Schedule C. The form gained two boxes for 2026. Box 13a holds any cash tips paid to you, and box 13b the Treasury code for the occupation you earned them in. Those two boxes back up a claim for the deduction for qualified tips. ## Where to go next. ### YouTube taxes (https://valim.tax/content-creators/youtube-taxes) See where to find your YouTube 1099-MISC in AdSense, and when Google says it arrives. ### 1099-NEC (https://valim.tax/glossary/1099-nec) See the form that reports pay for services, and when a business must file one. ### Qualified tips (https://valim.tax/glossary/qualified-tips) See which fan tips can be deducted, and what the deduction needs from your 1099. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs bring the 1099s from all your platforms onto one return, with the income no form shows. ## Sources - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - YouTube Help, U.S. tax requirements for YouTube earnings: https://support.google.com/youtube/answer/10391362 --- URL: https://valim.tax/glossary/1099-nec Title: 1099-NEC: the form that reports nonemployee compensation Updated: 2026-09-24 # 1099-NEC Form 1099-NEC is the IRS form a business files to report nonemployee compensation, what it paid a creator or other nonemployee for services. Form 1099-NEC for 2026 payments: - $2,000: paid to one person for services in 2026 generally means the business must file a 1099-NEC. - $600: was the threshold for payments made in 2025, reported on the forms filed in early 2026. - Feb. 1: is the 2027 due date for 2026 forms, to you and to the IRS, since January 31 falls on a Sunday. A brand that pays you $2,000 or more in a year by check or bank transfer generally reports it on a 1099-NEC. So does a creator who pays an editor that much. Pay sent through a payment app is reported on a 1099-K instead. The payer asks for a W-9 first, to get the number the form needs. The One Big Beautiful Bill Act raised the threshold for payments made after December 31, 2025. From 2027 payments, the $2,000 is indexed for inflation and rounded to the nearest $100, so it may rise. A sponsor that pays you $1,500 in 2026 files no 1099-NEC, but the $1,500 is still income. Box 1a shows the pay itself. From 2026, box 1b shows any cash tips included in that pay, and box 1c the code for your tipped occupation. Payers generally withhold nothing from this pay, backup withholding aside, so the tax on it is yours to pay. You generally pay it through estimated payments during the year. Paying it all with your return can bring an underpayment penalty. ## Where to go next. ### OnlyFans taxes (https://valim.tax/content-creators/onlyfans-taxes) See the 1099-NEC OnlyFans reportedly sends, and how to file if yours has not come. ### Third-party settlement organization (https://valim.tax/glossary/third-party-settlement-organization) See why the app, not the brand, reports the pay it settles for you. ### W-9 (https://valim.tax/glossary/w-9) See the form a business asks you for before it can file your 1099-NEC. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs check each 1099-NEC against what your sponsors paid you, then report the income on your return. ## Sources - 26 U.S.C. § 6041, Information at source: https://www.law.cornell.edu/uscode/text/26/6041 - Public Law 119-21 (One Big Beautiful Bill Act), § 70433: https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.htm - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - IRS, Backup withholding: https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding --- URL: https://valim.tax/glossary/w-8ben Title: W-8BEN: the form that shows a US payer you are not a US person Updated: 2026-09-24 # W-8BEN Form W-8BEN is the IRS form a foreign individual gives a payer to certify foreign status and, where eligible, claim a treaty rate. You give it when a payer asks and you are a nonresident alien who is the beneficial owner of the income. A payment app or other payment settlement entity may ask for one too. A US citizen gives Form W-9 instead, even while living abroad, and so does a resident alien. A foreign company uses Form W-8BEN-E, and income tied to a US trade or business calls for Form W-8ECI. A foreign person’s US-source income not tied to a US business, such as royalties, is generally taxed at 30%. The payer collects it by withholding. A treaty claim in Part II can lower that rate or remove it. YouTube, for example, withholds only from a non-US creator’s earnings from US viewers, once valid tax info is on file. The form stays valid from the day you sign it to the end of the third calendar year after that. So a form signed in 2026 lasts through December 31, 2029, unless your circumstances change. If you become a resident alien, for example by passing the substantial presence test, tell the payer within 30 days. It may then ask you for a W-9. A move to a US address also means telling the payer within 30 days and giving it a new form. Without a valid form, a payer may withhold 30%, or 24% as backup withholding. ## Where to go next. ### YouTube taxes (https://valim.tax/content-creators/youtube-taxes) A worked example shows what Google withholds from a non-US creator, with and without a treaty claim. ### W-9 (https://valim.tax/glossary/w-9) See what a W-9 certifies, and when a payer can start backup withholding without one. ### US person (https://valim.tax/glossary/us-person) See who counts as a US person for tax, and so never gives a W-8BEN. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs prepare US returns for creators in the US and abroad, from Form 1040 to Form 1040-NR. ## Sources - IRS, Instructions for Form W-8BEN (Rev. October 2021): https://www.irs.gov/pub/irs-pdf/iw8ben.pdf - 26 U.S.C. § 1441, Withholding of tax on nonresident aliens: https://www.law.cornell.edu/uscode/text/26/1441 - YouTube Help, U.S. tax requirements for YouTube earnings: https://support.google.com/youtube/answer/10391362 --- URL: https://valim.tax/glossary/w-9 Title: W-9 form: how you give a payer your taxpayer ID number Updated: 2026-09-24 # W-9 Form W-9 is the IRS form you use to give your taxpayer identification number to someone who will pay you. A payer that must file an information return, such as Form 1099-NEC, 1099-MISC or 1099-K, asks you for a W-9. You give your number when you begin to receive payments a 1099 will report. The form goes to the payer, and you do not send it to the IRS. Only a US person uses a W-9, including a resident alien or a citizen living abroad. A foreign individual gives Form W-8BEN instead. The number can be a Social Security number, an ITIN or an EIN. For a single-member LLC that is disregarded for tax, your own name goes on line 1 and the LLC’s on line 2. By signing, you certify under penalties of perjury that the number is correct and that you are a US person. A platform may use its own online tax form instead, when that form is substantially similar to the W-9. Some platforms check the number against IRS records as you submit it. Without a W-9 that carries your number, the payer may start backup withholding at 24%. It can also start when the IRS notifies the payer that the number you gave is incorrect. ## Where to go next. ### YouTube taxes (https://valim.tax/content-creators/youtube-taxes) See the W-9 Google asks US creators for in AdSense, and what it withholds without one. ### Backup withholding (https://valim.tax/glossary/backup-withholding) See every case that makes a payer hold back 24%, and how to stop it. ### W-8BEN (https://valim.tax/glossary/w-8ben) See how long a W-8BEN stays valid, and how a treaty claim can lower the 30% withholding. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs prepare and sign the federal and state returns of creators paid by US platforms. ## Sources - IRS, Form W-9 (Rev. March 2024), Request for Taxpayer Identification Number and Certification: https://www.irs.gov/pub/irs-pdf/fw9.pdf - 26 U.S.C. § 3406, Backup withholding: https://www.law.cornell.edu/uscode/text/26/3406 - IRS, Backup withholding: https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding --- URL: https://valim.tax/glossary/form-1040-es Title: Form 1040-ES: how to pay estimated tax, and the 2026 due dates Updated: 2026-09-24 # Form 1040-ES Form 1040-ES is the IRS form individuals use to figure and pay estimated tax on income that has no tax withheld. Estimated tax for 2026: - $1,000: of tax still owed after withholding and refundable credits is where the duty to pay estimated tax generally begins. - Four: payments are due for 2026, on April 15, June 15 and September 15, 2026, then January 15, 2027. - Feb. 1: is the 2027 date by which you can file your 2026 return and pay in full, and skip the January payment. A creator platform usually withholds nothing once it has your W-9, so you prepay the tax on your payouts yourself. Self-employment tax counts toward the estimate, along with income tax. A nonresident alien uses Form 1040-ES (NR) instead. The form holds a worksheet for estimating the year’s tax, plus four payment vouchers. You send a voucher only when you pay by check or money order, and a payment made online needs none. If your income changes during the year, you refigure the estimate on the worksheet and adjust the payments still to come. You can pay the year’s estimate in four equal amounts, all of it by April 15, or in more than four payments. If your income arrives late in the year, the annualized income installment method bases each payment on the income earned by then. You file Form 2210 with Schedule AI to use it. ## Where to go next. ### Safe harbor (estimated tax) (https://valim.tax/glossary/safe-harbor-estimated-tax) See how much to pay to avoid the underpayment penalty, from the 90%, 100% and 110% tests. ### OnlyFans taxes (https://valim.tax/content-creators/onlyfans-taxes) A worked example sets four payments for a creator whose tax doubles from one year to the next. ### Schedule SE (https://valim.tax/glossary/schedule-se) See how the self-employment tax in your estimate is figured. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs plan your estimated payments around when your platforms pay you. ## Sources - IRS, Form 1040-ES (2026), Estimated Tax for Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf - 26 U.S.C. § 6654, Failure by individual to pay estimated income tax: https://www.law.cornell.edu/uscode/text/26/6654 --- URL: https://valim.tax/glossary/qualified-tips Title: Qualified tips deduction: up to $25,000 a year through 2028 Updated: 2026-09-24 # Qualified tips Qualified tips are voluntary cash tips you can deduct through 2028, received in an occupation Treasury lists as customarily and regularly tipped before 2025. The deduction for qualified tips: - $25,000: is the most you can deduct on one return in a year, whatever your filing status. - $150,000: of modified AGI starts the phase-out, or $300,000 on a joint return. Each $1,000 over it cuts $100. - 2028: is the last tax year the deduction covers. It began with 2025. No inflation adjustment applies to these amounts. A tip qualifies only if the payer chooses to give it and sets the amount, with nothing negotiated and no consequence for not paying. Card, check and payment app tips count as cash, while non-cash items and digital assets do not. Digital content creators are on Treasury’s list as occupation code 209, which names streamers, podcasters and social media influencers among its example titles. Treasury’s final regulations turn on whether a payment was required. A fee to see content is pay for services, while a voluntary payment during a free live stream can be a qualified tip. To claim the deduction, a married couple must file jointly, and your Social Security number must be on the return. For the self-employed, the deduction cannot create or increase a business loss. It lowers your income tax only, so your self-employment tax stays the same. You claim the deduction on Schedule 1-A, whether or not you itemize. From 2026, it generally needs the tips reported separately on your 1099 or W-2. For 2025, the tips had to be in a 1099 or W-2 total, and a tip log could show which part was tips. For 2025 and 2026, an IRS notice treats listed creators as outside a specified service trade or business (SSTB). Tips earned in an SSTB would otherwise not qualify. ## Where to go next. ### Twitch taxes (https://valim.tax/content-creators/twitch-taxes) See whether Bits, subs and donations count as qualified tips for a Twitch streamer. ### OnlyFans taxes (https://valim.tax/content-creators/onlyfans-taxes) See which OnlyFans payments the deduction leaves out, and which fan tips may still qualify. ### YouTube taxes (https://valim.tax/content-creators/youtube-taxes) See why a Super Chat may be a qualified tip, though Google calls it royalty revenue. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs separate the fan tips that pass the tests from your other platform income, and claim the deduction. ## Sources - 26 U.S.C. § 224, Qualified tips: https://www.law.cornell.edu/uscode/text/26/224 - 26 C.F.R. § 1.224-1, Qualified tips (Treasury tipped occupation codes): https://www.law.cornell.edu/cfr/text/26/1.224-1 - T.D. 10044, Qualified tips (91 FR 19026, April 13, 2026): https://www.govinfo.gov/content/pkg/FR-2026-04-13/pdf/2026-07104.pdf - IRS, Notice 2025-69 (transition relief for the deduction for qualified tips): https://www.irs.gov/pub/irs-drop/n-25-69.pdf --- URL: https://valim.tax/glossary/schedule-c Title: Schedule C: reporting business income and expenses on Form 1040 Updated: 2026-09-24 # Schedule C Schedule C is the Form 1040 schedule a sole proprietor uses to report the business’s income, expenses and net profit or loss. An activity counts as a business when your main purpose is income or profit and you work at it with continuity and regularity. A hobby or an occasional activity does not count, and its income goes on Schedule 1 instead. A single-member LLC’s business goes on Schedule C as well, unless the LLC has elected corporate tax treatment. Line 1 takes your gross receipts, meaning all the business’s income from every source. For a creator, that includes ad revenue, sponsorships, affiliate commissions, memberships and fan payments. Forms 1099-NEC, 1099-MISC and 1099-K report much of it, and income no form reports belongs on line 1 too. Business costs are deducted from your gross receipts when they are ordinary and necessary for the business. Personal, living and family costs are never deductible. Mixed-use costs, such as a phone, internet or car, are deductible only for the share the business uses. Your net profit is taxed two ways: as income on Form 1040, and as self-employment tax, which Schedule SE figures. The profit may also qualify for the deduction of up to 20% of qualified business income. ## Where to go next. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) See which forms a sole proprietor files, with the federal tax on an extra $10,000 of profit worked out by bracket. ### Schedule SE (https://valim.tax/glossary/schedule-se) See how your Schedule C profit becomes self-employment tax. ### De minimis safe harbor (https://valim.tax/glossary/de-minimis-safe-harbor) See how to deduct a camera or other gear of up to $2,500 in the year you buy it. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs prepare your Schedule C with your federal and state returns, from your payout reports or your bookkeeper’s numbers. ## Sources - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - 26 U.S.C. § 162, Trade or business expenses: https://www.law.cornell.edu/uscode/text/26/162 - 26 U.S.C. § 262, Personal, living, and family expenses: https://www.law.cornell.edu/uscode/text/26/262 --- URL: https://valim.tax/glossary/backup-withholding Title: Backup withholding: when a payer must hold back 24% of your pay Updated: 2026-09-24 # Backup withholding Backup withholding is the 24% federal income tax a payer must take from reportable payments when your taxpayer ID is missing or incorrect. Two triggers apply to any reportable payment: you gave the payer no taxpayer ID, or the IRS told the payer your ID is wrong. Two more concern only interest and dividends. They are an IRS finding that you underreported them, and a missing certification that you are not subject to backup withholding. It can reach most payments reported on a 1099, including pay for services, royalties and 1099-K payouts. Google, for one, applies it to a US creator’s YouTube earnings from every country when AdSense has no tax info. When it is taken from pay for services or other income, a 1099-NEC or 1099-MISC must be filed, however small the payment. On payment app or marketplace payouts, it generally starts only once the year’s payouts pass $20,000 and 200 transactions, the 1099-K’s two tests. It can start sooner if last year’s payouts from that app were reportable. On pay for services, it generally starts once a payer’s total to you for the year reaches $2,000. To stop it, fix the cause, which usually means giving the payer your correct taxpayer ID on Form W-9. The amount withheld is a prepayment of your income tax. Report it on your return as federal tax withheld, for the year you received the income. ## Where to go next. ### YouTube taxes (https://valim.tax/content-creators/youtube-taxes) A worked example shows what Google withholds from $40,000 of YouTube earnings with no tax info. ### W-9 (https://valim.tax/glossary/w-9) See who gives a W-9, and what you certify when you sign one. ### OnlyFans taxes (https://valim.tax/content-creators/onlyfans-taxes) See why backup withholding is the one withholding that can reach OnlyFans payouts. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs credit the backup withholding on your 1099s against the tax on your return. ## Sources - 26 U.S.C. § 3406, Backup withholding: https://www.law.cornell.edu/uscode/text/26/3406 - IRS, Backup withholding: https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding - IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf - YouTube Help, U.S. tax requirements for YouTube earnings: https://support.google.com/youtube/answer/10391362 --- URL: https://valim.tax/glossary/de-minimis-safe-harbor Title: De minimis safe harbor: the $2,500 rule for business purchases Updated: 2026-09-24 # De minimis safe harbor The de minimis safe harbor is a yearly election that lets a business deduct low-cost tangible property at once, instead of capitalizing it. The limit per invoice or item: - $2,500: is the limit without an applicable financial statement, the usual case for a creator. - $5,000: is the limit with one, such as a certified audited statement or an SEC filing. With the election, a camera or laptop that costs no more than the limit is deducted in the year you pay for it. The cost goes on Schedule C with your other business expenses. Without the election, gear that lasts beyond the year is generally capitalized, then recovered through depreciation or a Section 179 deduction. Items of $200 or less can often be deducted as supplies, in the year you first use them. Each year’s election is a statement you attach to that year’s original return, filed on time, including extensions. The statement is titled “Section 1.263(a)-1(f) de minimis safe harbor election” and gives your name, address and taxpayer ID. The election covers every qualifying item that year. You cannot make it on an amended return or revoke it. You also need accounting procedures, in place when the year starts, that expense such items, and your books must expense them too. The limit applies per invoice, or per item when the invoice shows each item’s cost, and never to the year’s total. Inventory and land never qualify, and neither do certain spare parts. The regulation’s text still says $500. Notice 2015-82 raised the limit to $2,500 for tax years beginning on or after January 1, 2016. ## Where to go next. ### YouTube taxes (https://valim.tax/content-creators/youtube-taxes) See which costs YouTubers can write off, from cameras to what they pay an editor. ### Schedule C (https://valim.tax/glossary/schedule-c) See where business costs, gear included, come off your income on the return. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) See how a Section 179 deduction can come back as income if business use drops. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs attach the election statement to your return in each year you choose the safe harbor. ## Sources - 26 C.F.R. § 1.263(a)-1, Capital expenditures (the de minimis safe harbor in paragraph (f)): https://www.law.cornell.edu/cfr/text/26/1.263(a)-1 - IRS, Notice 2015-82 (the $2,500 de minimis limit): https://www.irs.gov/pub/irs-drop/n-15-82.pdf - 26 C.F.R. § 1.162-3, Materials and supplies: https://www.law.cornell.edu/cfr/text/26/1.162-3 - IRS, 2025 Instructions for Schedule C (Form 1040): https://www.irs.gov/pub/irs-pdf/i1040sc.pdf --- URL: https://valim.tax/glossary/schedule-se Title: Schedule SE: how the 15.3% on your net earnings is figured Updated: 2026-09-24 # Schedule SE Schedule SE is the Form 1040 schedule that figures self-employment tax, the Social Security and Medicare tax on your net earnings from self-employment. Schedule SE, tax year 2026: - 15.3%: is the rate: 12.4% for Social Security and 2.9% for Medicare. - 92.35%: of net profit is what the rate applies to, after a 7.65% reduction. - $184,500: of 2026 earnings is the Social Security wage base, where the 12.4% part stops. Wages taxed for Social Security use it up first. Net earnings from self-employment start from your Schedule C profit. Once they reach $400 for the year, the whole amount is taxed. You then file Schedule SE with your return, even if you owe no income tax. Below $400, you owe none. The wage base is set each year, and for 2025 returns it was $176,100. The Medicare part has no such limit. A further 0.9% Additional Medicare Tax applies once wages and self-employment income together pass $200,000. The threshold is $250,000 on a joint return and $125,000 filing separately. That tax is figured on Form 8959, not Schedule SE. None of these thresholds rises with inflation. The tax itself goes on Schedule 2, where it is added to what you owe with Form 1040. Half of it, leaving out the 0.9%, is deducted on Schedule 1 in figuring your adjusted gross income. That deduction lowers your income tax only. Below the wage base, the tax comes to about 14.1% of profit, since the rate applies to 92.35% of it. The 15.3% often quoted overstates it. Deductions that lower only income tax, such as the one for qualified tips, leave it unchanged. ## Where to go next. ### Sole proprietorship taxes (https://valim.tax/small-business/sole-proprietorship-taxes) A worked example adds income tax to self-employment tax on each extra $10,000 of profit. ### Schedule C (https://valim.tax/glossary/schedule-c) See how the business profit that Schedule SE starts from is reported. ### FICA (https://valim.tax/glossary/fica) See the matching tax on wages, which employees and employers split between them. ### CPA for content creators (https://valim.tax/content-creators) Valim’s CPAs answer entity questions as they come up, such as when to elect S corp status. ## Sources - 26 U.S.C. § 1401, Rate of tax on self-employment income: https://www.law.cornell.edu/uscode/text/26/1401 - 26 U.S.C. § 1402, Definitions (net earnings from self-employment): https://www.law.cornell.edu/uscode/text/26/1402 - 26 U.S.C. § 164, Taxes (deduction for half of self-employment tax): https://www.law.cornell.edu/uscode/text/26/164 - IRS, Instructions for Form 8959, Additional Medicare Tax: https://www.irs.gov/instructions/i8959 - IRS, Schedule SE (Form 1040) (2025), Self-Employment Tax: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf - Social Security Administration, Contribution and benefit base: https://www.ssa.gov/oact/cola/cbb.html --- URL: https://valim.tax/glossary/form-8879 Title: Form 8879: how you sign a return your preparer e-files Updated: 2026-09-24 # Form 8879 Form 8879 is the IRS form you sign so the firm that e-files your individual return can enter your PIN as your signature. Form 8879’s full name is IRS e-file Signature Authorization. It covers Forms 1040, 1040-SR, 1040-NR, 1040-SS and 1040-X. The firm that e-files your return is the electronic return originator (ERO). You use the form with the Practitioner PIN method, where you and the ERO each sign with a PIN. You also use it when you let the ERO enter or generate your PIN. You sign and date Form 8879 after you review the return and before the ERO transmits it. By signing, you declare the return true, correct and complete to the best of your knowledge. The preparer who signs your return must give you the form along with all the information to be transmitted. You sign it by hand or electronically. You can return it in person, by mail, fax or email, or through a website. The signing preparer is the individual with primary responsibility for your return’s accuracy. They sign it electronically, and their PTIN appears on it. For a Practitioner PIN return, the ERO also completes Part III with its six-digit EFIN and a five-digit PIN. It may sign that part with a rubber stamp, a signature pen or software. Form 8879 does not go to the IRS unless the IRS asks for it. The ERO keeps it for 3 years from the return’s due date or the IRS received date, whichever is later. It may keep the form electronically. When an ERO enters your PIN on an e-filed extension, Form 4868 or Form 2350, you sign a separate authorization, Form 8878. For Form 4868, it is needed only when you pay by electronic funds withdrawal. ## Where to go next. ### Outsourced tax preparation (https://valim.tax/partnerships) See who signs a return that an accounting firm outsources to Valim, and how the firm can keep sign-off. ### EFIN (https://valim.tax/glossary/efin) The IRS issues each e-file firm the number it enters in Part III, and the firm may never share it. ### Form 4868 (https://valim.tax/glossary/form-4868) See how Form 4868 extends your time to file, and why tax you owe is still due in April. ## Sources - IRS, Form 8879 (Rev. January 2021), IRS e-file Signature Authorization: https://www.irs.gov/pub/irs-pdf/f8879.pdf - IRS, Publication 1345 (Rev. December 2025), Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns: https://www.irs.gov/pub/irs-pdf/p1345.pdf - 26 C.F.R. § 1.6695-1, Other assessable penalties with respect to the preparation of tax returns for other persons: https://www.law.cornell.edu/cfr/text/26/1.6695-1 - 26 C.F.R. § 1.6109-2, Tax return preparers furnishing identifying numbers for returns or claims for refund: https://www.law.cornell.edu/cfr/text/26/1.6109-2 --- URL: https://valim.tax/glossary/efin Title: EFIN: the IRS number a firm needs to e-file tax returns Updated: 2026-09-24 # EFIN An EFIN (Electronic Filing Identification Number) is the number the IRS assigns to a firm it accepts as an Authorized IRS e-file Provider. A firm applies for an EFIN by filing an IRS e-file application. It must meet the IRS’s eligibility rules and pass a suitability check, a review of the firm and its principals. Its principals and responsible officials must also be fingerprinted, unless they prove a professional status. That status covers attorneys, CPAs, enrolled agents, officers of public companies, and bank officials bonded and fingerprinted in the last two years. Approval can take up to 45 days. A firm that e-files its clients’ returns acts as an electronic return originator (ERO). An ERO starts the electronic filing of returns it prepared, or collected from a taxpayer or another ERO. The IRS also accepts other roles, including transmitter and software developer. A firm needs a separate EFIN for each fixed location where it starts e-filing returns. Paid preparers must generally e-file individual returns, through an authorized provider. A preparer is exempt only if they reasonably expect to file 10 or fewer such returns in the year. For a preparer in a firm, the firm’s returns are counted together. A preparer without an EFIN can have an ERO e-file their returns. The ERO then attests that the preparer signed the return and that the electronic data matches it. An EFIN belongs to the firm that received it. The IRS bars sharing, renting, leasing or selling one, and a firm that shares its EFIN can face sanctions. A buyer of a business must get its own. An EFIN is also separate from a PTIN, the number each individual paid preparer needs. ## Where to go next. ### Outsourced tax preparation (https://valim.tax/partnerships) See how Valim’s CPAs prepare and file returns for accounting and advisory firms, white-label or co-branded. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) See what a bookkeeping firm needs to e-file returns in-house, and how partnering with a CPA firm compares. ### Form 8879 (https://valim.tax/glossary/form-8879) See the form a taxpayer signs so that an ERO can e-file their individual return with a PIN. ## Sources - IRS, Publication 3112 (Rev. November 2025), IRS e-file Application and Participation: https://www.irs.gov/pub/irs-pdf/p3112.pdf - IRS, Become an authorized e-file provider: https://www.irs.gov/e-file-providers/become-an-authorized-e-file-provider - IRS, Publication 1345 (Rev. December 2025), Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns: https://www.irs.gov/pub/irs-pdf/p1345.pdf - 26 U.S.C. § 6011, General requirement of return, statement, or list: https://www.law.cornell.edu/uscode/text/26/6011 - 26 C.F.R. § 301.6011-7, Specified tax return preparers required to file individual income tax returns using magnetic media: https://www.law.cornell.edu/cfr/text/26/301.6011-7 --- URL: https://valim.tax/glossary/engagement-letter Title: Engagement letter: the written terms of a tax engagement Updated: 2026-09-24 # Engagement letter An engagement letter is a firm’s written agreement with a client on the services, the scope, the fees and each side’s responsibilities. No federal rule requires an engagement letter for preparing a tax return, so its contents are a matter of practice. Beyond the services, scope and fees, a letter commonly covers deadlines, record retention and who signs the return. The AICPA’s Statements on Standards for Tax Services, in force since January 1, 2024, do not require one either. For representation before a taxing authority, they say an AICPA member should consider a written understanding with the client. It would set out the engagement’s objectives, along with the services, responsibilities and limits a letter covers. A Section 7216 consent, which lets a preparer share or use a client’s tax information, can be attached to an engagement letter. For a Form 1040 filer, Rev. Proc. 2013-14 requires the consent to be a separate document, signed and dated before anything is shared. For other clients, such as a corporation, the consent may sit inside the letter itself. A letter can also tell clients about outside service providers, as the AICPA Code asks. Before a member shares confidential client information with one, they should tell the client, preferably in writing. The Code does not ask for this notice for administrative support, such as record storage or e-file transmission. ## Where to go next. ### Outsourced tax preparation (https://valim.tax/partnerships) See the rules a firm follows when it outsources its clients’ returns to Valim, from consent to e-filing. ### Section 7216 (https://valim.tax/glossary/section-7216) See what a valid consent must contain, and what a violation can cost. ### Form 8879 (https://valim.tax/glossary/form-8879) Clients sign Form 8879 before a preparer e-files their individual return. ## Sources - AICPA, Statements on Standards for Tax Services No. 1 to 4 (effective January 1, 2024): https://www.aicpa-cima.com/resources/download/revised-statements-on-standards-for-tax-services-no-1-4-1-1-2024 - IRS, Rev. Proc. 2013-14 (Section 7216 consents): https://www.irs.gov/pub/irs-drop/rp-13-14.pdf - 26 C.F.R. § 301.7216-3, Disclosure or use permitted only with the taxpayer’s consent: https://www.law.cornell.edu/cfr/text/26/301.7216-3 - AICPA Code of Professional Conduct, 1.150.040 and 1.700.040 (third-party service providers): https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf --- URL: https://valim.tax/glossary/section-7216 Title: Section 7216: the rule on sharing a client’s tax information Updated: 2026-09-24 # Section 7216 Section 7216 of the tax code bars preparers from sharing client return information, or using it for another purpose, without consent or legal permission. Penalties for improper disclosure or use: - $250: is the civil penalty for each improper disclosure or use, under IRC 6713. - $10,000: is the most that civil penalty can reach in a calendar year. - 1 year: in prison, a $1,000 fine, or both, is the most a knowing or reckless violation can bring. Disclosures tied to identity theft carry higher limits. The fine can reach $100,000, and the civil penalty is $1,000 per disclosure, up to $50,000 a year. Section 7216 reaches anyone in the business of preparing income tax returns. It also reaches businesses that provide services in connection with returns, such as tax software developers and e-file providers. It covers anyone paid to prepare a return, even casually, and the employees who help. Tax return information means anything furnished for a return, even a name or an address, and what the preparer derives from it. Some uses and disclosures need no consent. A preparer may use the information for the same client’s state and local returns. They may also disclose information under another provision of the Code or under a court order. The regulations add more exceptions, such as sharing inside a US firm to prepare the return. Anything else needs the client’s written consent first. A valid consent is written, knowing and voluntary, and the client signs and dates it before any disclosure or use. It names the preparer, the client, the purpose, the recipients and the information. For a Form 1040 filer, a consent to use and a consent to disclose need separate documents. A consent with no stated duration lasts one year from signing. A consent is void if the preparer makes its service depend on it. The one exception is a consent to share the return with another preparer who helps prepare it. ## Where to go next. ### Outsourced tax preparation (https://valim.tax/partnerships) See when a firm needs its clients’ consent before outsourcing their returns, including to a preparer outside the US. ### Engagement letter (https://valim.tax/glossary/engagement-letter) See what a firm’s written terms with a client cover, and how a consent can be attached to them. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) See why a bookkeeper’s white-label client signs a Section 7216 consent before their data reaches Valim. ## Sources - 26 U.S.C. § 7216, Disclosure or use of information by preparers of returns: https://www.law.cornell.edu/uscode/text/26/7216 - 26 U.S.C. § 6713, Disclosure or use of information by preparers of returns (civil penalty): https://www.law.cornell.edu/uscode/text/26/6713 - 26 C.F.R. § 301.7216-1, Penalty for disclosure or use of tax return information: https://www.law.cornell.edu/cfr/text/26/301.7216-1 - 26 C.F.R. § 301.7216-2, Permissible disclosures or uses without consent of the taxpayer: https://www.law.cornell.edu/cfr/text/26/301.7216-2 - 26 C.F.R. § 301.7216-3, Disclosure or use permitted only with the taxpayer’s consent: https://www.law.cornell.edu/cfr/text/26/301.7216-3 --- URL: https://valim.tax/glossary/afsp-annual-filing-season-program Title: AFSP (Annual Filing Season Program): what it takes each year Updated: 2026-09-24 # AFSP (Annual Filing Season Program) The Annual Filing Season Program (AFSP) is a voluntary IRS program for paid tax preparers who are not attorneys, CPAs or enrolled agents. For a 2027 Record of Completion: - 18 hours: of continuing education must be completed in calendar 2026, by most preparers. - 70%: is the pass mark on the refresher course’s test of at least 100 questions. - April 15: is the 2027 deadline for the IRS to receive the application. Preparers exempt from the refresher course, such as those who passed the former Registered Tax Return Preparer test, need 15 hours. Each year, a participant takes continuing education from IRS-approved providers. The education covers 2 hours of ethics, 10 hours of federal tax law and the 6-hour Annual Federal Tax Refresher course. A participant also needs a PTIN for the year. They must agree to follow parts of Circular 230, the Treasury rules for practice before the IRS. The IRS then issues a Record of Completion and lists the preparer in its public directory. The record covers returns prepared and signed from January 1, or from its issue date if later, through December 31. The record brings limited rights to represent clients. A holder can represent a client in an IRS examination of a return they prepared and signed. They need a record for the year they prepared it and for the year of the exam. They can deal with revenue agents (who examine returns), customer service staff and the Taxpayer Advocate Service. They cannot appear before appeals officers, revenue officers (who collect unpaid tax) or IRS Counsel. The record shows completed education, and the IRS does not treat it as a credential. A holder may not describe it as certified, enrolled or licensed, or suggest that the IRS endorses them. ## Where to go next. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) See whether a bookkeeper can legally prepare tax returns, and how partnering with Valim’s CPAs works instead. ### QuickBooks ProAdvisor (https://valim.tax/glossary/quickbooks-proadvisor) Intuit’s program for accounting professionals trains them on its software and gives no status with the IRS. ### EFIN (https://valim.tax/glossary/efin) See the separate IRS approval a firm needs before it can e-file its clients’ returns. ## Sources - IRS, Annual Filing Season Program: https://www.irs.gov/tax-professionals/annual-filing-season-program - IRS, Rev. Proc. 2014-42 (Annual Filing Season Program): https://www.irs.gov/pub/irs-drop/rp-14-42.pdf - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications --- URL: https://valim.tax/glossary/quickbooks-proadvisor Title: QuickBooks ProAdvisor: how Intuit’s free program works Updated: 2026-09-24 # QuickBooks ProAdvisor QuickBooks ProAdvisor is Intuit’s free program for accounting professionals, offering training, product certifications, software and support. Accounting professionals join ProAdvisor by signing up for Intuit Accountant Suite. Members earn points, which move them up four tiers. Silver runs from 0 to 499 points and Gold from 500 to 2,399. Platinum runs from 2,400 to 6,999, and Elite starts at 7,000. Intuit says the program’s benefits and tiers can change without notice. Membership includes QuickBooks Online Advanced and QuickBooks Workforce Elite at no charge. Members also get premium customer care, and discounts for themselves and their eligible clients. Desktop software bundles are optional and cost extra. Training and certifications sit in the ProAdvisor Academy, which awards badges and continuing professional education (CPE) credits. Each certification a member earns adds points. QuickBooks Online Level 1 adds 100 and Level 2 adds 200. QuickBooks Desktop Enterprise adds 100, and QuickBooks Workforce adds 200. QuickBooks Workforce is Intuit’s current name for its payroll product. A ProAdvisor certification is a product certification from Intuit. It gives no tax credential and no status with the IRS. Anyone paid to prepare federal returns needs a PTIN from the IRS, whatever software they use. CPAs, attorneys and enrolled agents can represent clients before the IRS, and an AFSP record gives narrower rights. ## Where to go next. ### Tax partnership for bookkeepers (https://valim.tax/bookkeeper-partnership) See how a bookkeeper can offer clients tax returns that Valim’s CPAs prepare and sign, white-label or by referral. ### AFSP (Annual Filing Season Program) (https://valim.tax/glossary/afsp-annual-filing-season-program) See the IRS record that paid preparers who are not CPAs, attorneys or enrolled agents earn each year. ### Chart of accounts (https://valim.tax/glossary/chart-of-accounts) See how a business’s ledger accounts are listed and grouped, and how they reach its tax return. ### Month-end close (https://valim.tax/glossary/month-end-close) Each month’s close reconciles the books a tax return is built from. ## Sources - Intuit, QuickBooks ProAdvisor program: https://quickbooks.intuit.com/accountants/proadvisor/ - IRS, PTIN requirements for tax return preparers: https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers - IRS, Understanding tax return preparer credentials and qualifications: https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications --- URL: https://valim.tax/glossary/dependent-care-assistance-program-dcap Title: Dependent care assistance program (DCAP): rules for employers Updated: 2026-09-24 # Dependent care assistance program (DCAP) A dependent care assistance program (DCAP) is a written employer plan that pays for employees’ dependent care, tax-free up to a yearly limit. The tax-free limit, 2026: - $7,500: a year can be excluded on one return, however many children are in care. - $3,750: is the limit for a married person filing separately. - $5,000: was the limit for 2025, before the One Big Beautiful Bill Act raised it. The limit is not indexed for inflation, so it stays until Congress changes it. The usual DCAP is a dependent care flexible spending account (FSA). Employees fund it with pre-tax pay under a section 125 cafeteria plan, the plan that lets them take benefits in place of taxable pay. A plan can also provide care on site or pay a provider directly. The limit covers all of these together. Section 129 requires a separate written plan for the exclusive benefit of employees. It counts self-employed people as employees, so a sole proprietor is their own employer and a partnership employs its partners. The plan may not favor highly compensated employees, who are generally 5% owners and staff paid above a threshold the IRS sets each year. Together, owners of more than 5% and their spouses and dependents may receive no more than 25% of a year’s benefits. If a written plan fails these rules, employees who are not highly compensated keep their exclusion. The employer must give eligible employees reasonable notice of the plan. By January 31, it must also give each employee a written statement of the prior year’s benefits. It reports all DCAP benefits in box 10 of Form W-2. Any amount over the limit is also taxable wages, reported in boxes 1, 3 and 5. The employee figures the exclusion in Part III of Form 2441. Part I lists each care provider’s name, address and taxpayer identification number, with limited exceptions. An amount excluded under the plan cannot also be claimed as a credit or deduction, such as the child and dependent care credit. ## Where to go next. ### Employee tax benefits (https://valim.tax/employee-tax-benefits) See how the 2026 limit applies to your plan, and how a personal CPA benefit is taxed. ### Fringe benefit (https://valim.tax/glossary/fringe-benefit) See why a benefit is taxable pay unless a Code section, such as section 129, excludes it. ### FICA (https://valim.tax/glossary/fica) See the Social Security and Medicare tax on wages, which reaches any benefits above the limit. ## Sources - 26 U.S.C. § 129, Dependent care assistance programs: https://www.law.cornell.edu/uscode/text/26/129 - IRS, Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: https://www.irs.gov/publications/p15b - IRS, Instructions for Form 2441 (2025): https://www.irs.gov/instructions/i2441 --- URL: https://valim.tax/glossary/fringe-benefit Title: Fringe benefit: what counts as one, and how it is valued Updated: 2026-09-24 # Fringe benefit A fringe benefit is a form of pay for services, such as a company car or an employee discount. Any fringe benefit is taxable, and belongs in the recipient’s pay, unless the law specifically excludes it. The tax code lists fringe benefits in gross income, alongside fees and commissions. The recipient need not be an employee. Contractors, partners and directors can receive fringe benefits too. A benefit given to a worker’s family member for the worker’s services generally counts as the worker’s. Section 132(a) lists eight kinds of excluded fringe benefit, and section 132(j) adds on-premises gyms. The eight include working condition and de minimis fringes, qualified employee discounts and qualified transportation fringes. A working condition fringe is something the employee could have deducted as a business expense, had they paid for it. A de minimis fringe, such as occasional coffee or doughnuts, is worth too little to account for, and cash almost never qualifies. Other sections exclude their own benefits, such as dependent care assistance under section 129. A taxable benefit is generally valued at fair market value, the price the person would pay a third party for it at arm’s length. Special rules can apply instead, such as the cents-per-mile rule for personal use of a company car. The taxable amount is the value, minus any part the law excludes and anything the person paid. So an employee who pays full value has no income from it. The employer generally sets the value by January 31 of the next year. It reports an employee’s taxable benefits on Form W-2, in box 1 and, where they apply, boxes 3 and 5. ## Where to go next. ### Employee tax benefits (https://valim.tax/employee-tax-benefits) See how a personal CPA works as an employee benefit, and how it is taxed. ### Dependent care assistance program (DCAP) (https://valim.tax/glossary/dependent-care-assistance-program-dcap) See the written employer plan that pays for dependent care tax-free, up to a yearly limit. ### Fair market value (FMV) (https://valim.tax/glossary/fair-market-value-fmv) See how fair market value is used to value stock and other property for tax. ### Supplemental wages (https://valim.tax/glossary/supplemental-wages) See the 22% flat rate an employer can use to withhold on a taxable benefit or a bonus. ## Sources - IRS, Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits: https://www.irs.gov/publications/p15b - 26 U.S.C. § 61, Gross income defined: https://www.law.cornell.edu/uscode/text/26/61 - 26 U.S.C. § 132, Certain fringe benefits: https://www.law.cornell.edu/uscode/text/26/132 - 26 C.F.R. § 1.132-6, De minimis fringes: https://www.law.cornell.edu/cfr/text/26/1.132-6 --- URL: https://valim.tax/wisp Title: Written Information Security Plan (WISP) # Written Information Security Plan Operated by Valim Inc. Effective date: 21 July 2025. Last reviewed: 10 August 2026. ## 1. Purpose and scope This Written Information Security Plan exists to ensure the security, confidentiality and integrity of client tax data; to protect against anticipated threats to that data; and to protect against unauthorised access to or use of it that could result in harm or inconvenience to a client. It applies to all data, systems, personnel and contractors associated with Valim's tax preparation, filing and advisory services, including the client portal at app.valim.tax and the internal systems our CPAs use to prepare returns. The plan is designed to comply with the Gramm-Leach-Bliley Act Safeguards Rule, which applies to Valim because a paid tax return preparer is a financial institution under that rule, and with IRS Publication 4557, Safeguarding Taxpayer Data. It also takes account of the Federal Trade Commission's Safeguards Rule amendments and applicable state data protection laws. ## 2. WISP Coordinator As the GLBA Safeguards Rule requires, Valim designates a single qualified individual responsible for developing, implementing, maintaining and monitoring this plan. - Coordinator: Kora Rohan, Chief Executive Officer. - The Coordinator owns the annual risk assessment, the incident response plan, vendor security review, and the security training programme. - The Coordinator reports on the state of the programme to Valim leadership at least annually. ## 3. Data governance ### 3.1 What we classify as most sensitive All taxpayer-provided documents, extracted data, prepared returns, workpapers and correspondence are treated as the highest sensitivity class. This includes Social Security Numbers and ITINs, dates of birth, addresses, dependants, bank details, and income and asset information for clients and their families. ### 3.2 Ownership Clients retain ownership of the documents and information they provide. Valim holds and processes that information to deliver the engagement and to meet the record retention obligations that federal law places on a preparer. ### 3.3 Data minimisation We collect what a return or an advisory question genuinely requires and no more. Where a document contains more than we need, we work from the parts that are relevant to the engagement. ### 3.4 Artificial intelligence It is the strict policy of Valim that no client data, metadata or derived data is ever used to train or fine-tune any artificial intelligence model, whether operated by Valim or by a third party. Automated processing is performed inside Valim's controlled environment, and every return is reviewed and signed by a licensed US CPA before filing. ## 4. Risk assessment The Coordinator conducts a formal written risk assessment at least annually, and additionally whenever there is a significant change to Valim's infrastructure, technology, service offering or personnel. - Risk identification: unauthorised access, credential compromise, data exfiltration, ransomware, insider misuse, vendor compromise, phishing and business email compromise, and system failure or data loss. - Risk evaluation: the likelihood and the potential impact of each identified risk on the confidentiality, integrity and availability of client data. - Control implementation: designing, implementing and testing the safeguards in section 5 against each evaluated risk. - Documentation: the assessment, the decisions taken, and the residual risk accepted are recorded in writing and retained. ## 5. Safeguards ### 5.1 Encryption - In transit: all data moving between a client, the portal and Valim's internal systems is encrypted using TLS. Client documents are transferred through the portal rather than by email. - At rest: all client tax data is protected with AES-256 encryption. Encryption keys are managed in a dedicated key management service, separately from the data they protect. ### 5.2 Infrastructure - Production data and systems are hosted in a private, logically isolated cloud environment located within the United States. - Environments are segregated. Production data is not copied into development or test environments. ### 5.3 Access control - Least privilege: internal access to production systems and client data is restricted to named, authorised personnel whose role requires it, and is granted for the narrowest scope that allows the work to be done. - Multi-factor authentication is required for access to systems holding client data, in line with the Safeguards Rule. - Passwords must meet complexity requirements and are stored hashed and salted. Shared accounts are not permitted. - Access is reviewed periodically, and is revoked promptly when a person changes role or leaves. - Access to client data is logged, and logs are retained and monitored. ### 5.4 Network and endpoint security - Systems are protected by firewalls and network controls that restrict inbound access to what is required. - Devices used to access client data are managed, encrypted at the disk level, and require screen lock and current security patches. - Software and dependencies are kept current, and security patches are applied on a defined schedule. ### 5.5 Backup and continuity - Client data is backed up, backups are encrypted, and restoration is tested so that a failure or ransomware event does not become a loss of client records. ## 6. Personnel and training Everyone with access to client data is subject to background screening appropriate to the role, signs confidentiality obligations, and completes security awareness training on joining and at least annually thereafter. Training covers phishing and business email compromise, safe handling of taxpayer data, and how to report a suspected incident. Access is provisioned on the Coordinator's authorisation and removed promptly on departure. ## 7. Vendors and service providers Vendors with access to client data are assessed for security before engagement, are bound by written confidentiality and security obligations, and are reviewed periodically. Vendors are given the minimum access their service requires. ## 8. Incident response Valim maintains a written incident response plan. On a suspected incident: contain and isolate the affected systems; preserve evidence; assess the nature and scope of any data involved; remediate; and notify. Where taxpayer data is or may be involved, Valim notifies affected clients, the IRS Stakeholder Liaison, the appropriate state tax agencies and attorneys general, and other authorities as federal and state breach notification law and IRS guidance for tax professionals require. Notification is made without unreasonable delay. Every incident is followed by a written review, and the findings feed back into the risk assessment and the safeguards above. ## 9. Retention and disposal Valim retains returns and supporting records for at least the period federal law requires of a preparer, and longer where an open matter, notice or examination makes it necessary. Data held beyond that is reviewed and disposed of. Clients may request permanent deletion of data Valim is not legally required to retain. Where deletion is possible the data is cryptographically erased, and backups age out under the backup retention schedule. Hardware is securely wiped or destroyed at end of life. ## 10. Review of this plan This plan is reviewed at least annually by the Coordinator, and whenever a material change to Valim's systems, services or risk profile warrants it. The review date at the top of this page reflects the last such review. ## 11. Contact Security questions, or to report a suspected vulnerability or incident: kora@valim.tax, marked for the attention of the WISP Coordinator. --- URL: https://valim.tax/privacy Title: Privacy Policy # Privacy Policy Valim Inc is a US tax firm. This policy explains what we collect when we prepare your return or advise you, how we protect it, and the strict limits on what we may do with it. Effective date: 10 September 2026. Operated by Valim Inc ("Valim", "we", "us"). ## 1. Who this policy covers This policy applies to individuals and businesses who engage Valim to prepare, review or file a tax return, or to provide tax advisory, and to visitors of valim.tax. Where Valim acts as an operational tax partner to another firm, that firm remains the client of record and this policy applies to the taxpayer data we process on their behalf. ## 2. Information we collect ### 2.1 Information you give us To prepare a return we necessarily collect the information a return requires. This includes identifying information such as your name, address, date of birth, Social Security Number or ITIN, and the same for your spouse and dependants; income and financial information including W-2s, 1099s, K-1s, brokerage statements, mortgage interest statements and business records; and any documents, questionnaires, messages or voice notes you send us. For business engagements this also includes entity formation documents, ownership and shareholder details, payroll records and books of account. ### 2.2 Information collected automatically When you use valim.tax or the client portal we collect standard technical information: IP address, browser and device type, pages viewed, and referring source. We use analytics to understand how the site is used. We do not use this information to build advertising profiles. ### 2.3 Information from third parties With your authorisation we may receive information from the IRS or a state authority, from a prior preparer, or from a partner firm that referred you. ## 3. How we use your information We use your information to prepare, review, sign and file your returns; to provide tax advisory; to respond to notices from the IRS or a state on returns we filed; to communicate with you about your engagement; to quote and bill for our services; and to meet our own legal, regulatory and professional obligations as a tax return preparer. ## 4. Tax return information is specially protected Internal Revenue Code section 7216 and section 6713 restrict what a tax return preparer may do with tax return information. Under those rules we may use and disclose your tax return information to prepare your return and for the limited purposes the regulations permit. For anything else we must obtain your written, informed consent in advance, in the specific form the regulations require. We do not sell tax return information. We do not disclose it for marketing. We do not use it to market other products to you without the separate consent those rules demand. ## 5. When we share information We share your information only in these circumstances: with the IRS and state tax authorities in order to file your return and respond on your behalf; with the electronic filing transmitters and service providers who process filings; with service providers who host our infrastructure and communications under written confidentiality and security obligations; with a partner firm where that firm engaged us on your behalf; with your explicit authorisation; and where compelled by law, subpoena or court order. We do not sell your personal information, and we do not share it with data brokers or advertisers. ## 6. Artificial intelligence and your data Valim uses automation to extract and organise information from the documents you provide, so that our CPAs spend their time on judgement rather than data entry. This processing happens inside our own controlled environment. It is our strict policy that no client data, metadata or derived data is ever used to train or fine-tune any artificial intelligence model, whether ours or a third party's. Every return is reviewed and signed by a licensed US CPA. No return is filed on the output of automation alone. ## 7. How we protect your information As a tax return preparer Valim is a financial institution under the Gramm-Leach-Bliley Act and maintains a Written Information Security Plan in line with the GLBA Safeguards Rule and IRS Publication 4557. Our WISP is published at valim.tax/wisp. In summary: data is encrypted in transit using TLS and at rest using AES-256; production systems run in a private, logically isolated cloud environment located within the contiguous United States; internal access follows least privilege and is restricted to named, authorised personnel; and access is logged. No system is perfectly secure. If a breach affects your information we will notify you and the relevant authorities as required by the applicable federal and state breach notification laws, and by IRS guidance for tax professionals. ## 8. How long we keep it Tax return preparers are required to retain copies of returns and supporting records for a minimum period set by federal law, and professional standards require us to keep records of the work behind a signed return. We therefore retain your engagement records for at least the period required by law, and longer where an open matter, notice or audit makes it necessary. Where you did not proceed to an engagement, we retain what you sent us only as long as needed to answer your enquiry and to meet our own record-keeping obligations. Quotes generated on this site expire 7 days after they are issued. You may request permanent deletion of data we are not legally required to retain. Where deletion is possible, the data is cryptographically erased. ## 9. Your rights You may request a copy of the personal information we hold about you, ask us to correct information that is wrong, request deletion of information we are not required to keep, and withdraw a consent you previously gave. Contact us at hello@valim.tax and we will respond within the time the applicable law allows. Residents of California, and of other states with comprehensive privacy laws, may have additional rights including the right to know, to delete, to correct, and to opt out of sale or sharing. Valim does not sell or share personal information as those laws define it. Exercising any of these rights will never result in discriminatory treatment. ## 10. Children Valim does not provide services directly to children. We do process information about dependants, including minors, where it is necessary to prepare a client's return, on the instruction of the parent or guardian who engaged us. ## 11. Changes to this policy We will post any change to this policy on this page and update the effective date above. Where a change materially affects how we handle your information, we will tell you directly. ## 12. Contact Questions about this policy, or about the information we hold: hello@valim.tax, or write to Valim Inc. --- URL: https://valim.tax/terms Title: Terms of Service # Terms of Service These terms govern your engagement with Valim Inc for tax preparation, filing and advisory. They set out what we do, what we need from you, how fees work, and the limits of what we can promise. Effective date: 10 September 2026. These terms are between you and Valim Inc ("Valim", "we", "us"). ## 1. What we do Valim is a US tax firm. We prepare, review, sign and file federal and state tax returns, and provide tax advisory. Every return we file is prepared, reviewed and signed by a licensed US CPA, who carries professional responsibility for it. Valim does not sell software. There is no product for you to license, operate or maintain. ## 2. Scope of an engagement Your engagement covers the specific returns and services described in the quote or engagement letter you accept. Anything not described there, including additional entities, additional tax years, additional states, bookkeeping clean-up, representation in an audit, or amended returns, is a separate engagement and is quoted separately. We prepare returns from the information you provide. We are not engaged to audit, review or verify that information, and our work should not be relied on to detect fraud, error or theft. ## 3. What we need from you You are responsible for the completeness and accuracy of the information you give us, including income from every source, foreign accounts and assets, entities you own or control, states in which you have a filing obligation, and the substantiation for any deduction or credit claimed. You must keep the records that support your return. The law places that obligation on the taxpayer, not the preparer. We will tell you what to retain. You must review your return before it is filed and tell us about anything that looks wrong. No return is electronically filed until you sign the authorisation permitting it. ## 4. Fees, quotes and the quote lock Our fees are flat and quoted upfront. We do not bill hourly. A quote generated on this site or issued by us is itemised, so you can see what each part of the fee is for. A quote is locked, provided the facts you gave us are complete. We will re-quote once, and only before work begins, if we discover a form, an entity, a state or a year we were not told about, or if books turn out to be unreconciled. We do not change a fee after work has started. If a re-quote is not acceptable to you, you may withdraw and owe nothing. Quotes expire 7 days after they are issued. Some situations are deliberately not quoted instantly and are priced by a CPA instead; where that happens we will tell you rather than guess. Fees are payable as set out in your engagement. We may pause work on an overdue account, and we may decline to release work product until fees due for it are paid, to the extent professional standards permit. ## 5. What we cannot promise We cannot guarantee a particular refund, tax liability or outcome. Tax positions depend on facts and on law that changes, and the IRS or a state may take a different view of a reasonable position. A filed return may be selected for examination. Selection is not evidence that the return is wrong, and it is not a failure of our work. We can only meet a filing deadline if we receive what we need in time. Where we cannot, we will tell you and, where appropriate, help you extend. ## 6. Notices and examinations If the IRS or a state sends a notice about a return we prepared and filed, we will handle the response as part of that engagement. Representation in a full examination, appeal or litigation is a separate engagement. If a penalty or interest arises because we made an error, tell us promptly and we will work with you to correct it. Penalties and interest arising from information you did not give us, from late payment, or from a position you instructed us to take against our advice, remain yours. ## 7. Professional standards Our CPAs practise under Treasury Department Circular 230 and applicable state licensing rules. Those standards can require us to decline a position, to disclose one, or to withdraw from an engagement. Where they conflict with an instruction from you, the professional standard governs. ## 8. Confidentiality and your data How we collect, use, protect and retain your information is set out in our Privacy Policy, and our security programme is published in our Written Information Security Plan. Tax return information carries an additional protection under federal law. We use it to prepare, review, sign and file your returns, and for the other purposes the law expressly permits. Anything beyond that requires your consent first, given on a separate signed form that we will present to you at the time and explain. These terms are not that form and do not act as consent. You are never required to give it, and declining does not affect the service you receive or the price you pay. We do not sell tax return information and we do not disclose it for marketing. The automated processing we use to extract and organise figures from your documents is part of preparing your return and runs inside our own controlled environment. Client data is never used to train or fine-tune any artificial intelligence model. ## 9. Communications We will communicate with you through the client portal, email, and the channels agreed in your engagement. Email is not a secure medium; please send documents and anything containing a Social Security Number through the portal rather than by email. ## 10. Ending an engagement You may end an engagement at any time. We may end one where fees are unpaid, where we are not given the information needed to do the work properly, where continuing would breach a professional standard, or where the working relationship has broken down. On termination you are charged for work performed to that point, and we will return your original documents and provide the copies the law requires. ## 11. Limitation of liability To the fullest extent permitted by law, and except in cases of fraud, wilful misconduct, or any liability that cannot lawfully be limited, Valim's total liability arising out of an engagement is limited to the fees you paid for that engagement. Neither party is liable for indirect, incidental, special or consequential loss. Nothing in these terms limits any liability that the law does not permit us to limit, and nothing here restricts any right you have under professional licensing rules. ## 12. Website content Content on valim.tax, including the pricing calculator, blog posts and any tool published here, is general information and not tax advice for your situation. A quote is an offer of price, not an opinion on your tax position. Nothing on this site creates a client relationship; that begins only when we both accept an engagement. ## 13. Changes to these terms We may update these terms and will post any change on this page with a new effective date. The terms in force when you accepted your engagement govern that engagement. ## 14. Governing law These terms are governed by the laws of the State of Delaware, without regard to conflict of law principles. This choice of venue is under review by counsel and will be confirmed before it is relied on. ## 15. Contact Questions about these terms: hello@valim.tax.