Who needs to file a US Tax Return?

The USA is one of only three countries which ties tax residency to citizenship and permanent resident status (a US person). This means that a US person is required to file tax returns to the IRS each year, reporting their worldwide income, regardless of where they reside. 

​

For US persons residing in New Zealand, this in essence means you are subject to two overlapping tax systems, both New Zealand tax and US. These laws create the requirement to file tax returns to the IRS annually, no different than someone who lives in the United States. The implications of not filing can be severe.

​

Fortunately, double taxation is not common, due to the Double Taxation Treaty in place between New Zealand and the United States.

​

For those interested in learning more, read on.

​

To understand this a little better, we need to understand some US (and general) terminology.

 

Firstly, there is the term "US person". A US person is any citizen, green card holder, an individual who meets the substantial presence test, or any US based entity. 

​

Secondly, there is the term "tax resident". A tax resident of a country has no link to immigration status, but rather means that you've met the full criteria for your income to be taxable in that country. 

​

Whilst most countries impose their laws on individuals within their national territory, the US instead imposes its laws on US persons, regardless of where in the world they are located. It is through these means that the US is able to prevent its companies operating in certain countries, and prevent its citizens from trading with certain countries.

​

The US tax code is also imposed on US persons, and treats every US person as a tax resident of the United States. 

​

Whilst these laws have existed for many decades, it is only fairly recently that the IRS has gained greater enforcement ability worldwide, through the FATCA laws. New Zealand signed up to the FATCA information sharing an enforcement regime in 2014. 

​

Never filed before or behind on filing? Click here

Looking for a new accountant? Click here

Or just want to understand this better and arrange an appointment. Click here.