INTRODUCTION TO U.S. INDIVIDUAL TAXATION

AND TAX REFUNDS

One thing you definitely notice during a WAT summer in the States is the portion of what you were supposed to earn missing from your paycheck. Unless you’re paid in cash (note: working illegally), an average of 10 to 15 percent of your income is retained(see table below), depending on how you file yourself and, of course, on your total earnings.

The 10-15 percent figure is made of both state and federal income taxes. It could be around 5 percent lower though, exempting the state tax, if one works in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington (note: state, not D.C.), and Wyoming.

 However, being on a J1-visa status could save one a little more. An average American pays no less than 30 percent in taxes throughout the year, including social security and medicare taxes. The WAT company you applied with must have supplied you with a manual, which, among other things, states that a J1 is exempt from Medicare and social security taxes, which make up another 7.65 percent of taxable income, and urges you to remind your employer to file you as such.

Once a summer in the U.S. is over, time comes for one to enjoy the fruits of hard labor. As in many cases, most of what's earened will go to cover the AUBG tuition, and the rest… well, whatever is left of it is pretty much pocket money. Not all of it is lost though, as paid taxes – some of them – are refunded by the end of the year. Senior Teymur Guliyev, graduating in Business Administration, will give an insight on how it works with the Taxback issue.

 - How do I apply for tax refund?

There are various options: 1) do it yourself; 2) use one of the local tax-refund offices (which charge an average of 10 percent of the sum you’re entitled); 3) if you know someone who did it for himself/herself ask them to do it for you; 4) use one of the online commercial services (problem with them is that most of them serve only permanent US residents and they might charge as well)

 - What documents do I need for a tax refund?

Main document that you will need is your W2 form (electronic/scanned copy is as good as the original), but also you will need information like your Social Security Number (SSN), and dates you entered and left the USA in the last three years. Note, if you have more than one W2 form, you should wait until you get all of them.

-How much of the actual sum will I get back?

It depends on your total income, and how much you paid in Federal and State taxes. Shortly I can say that, if you made less than $3,400 of gross income, then you are entitled to 100% tax refund of Federal taxes. In case of State taxes, it differs from state to state. In the case of Massachusetts you are entitled to 100% tax refund if your gross income was less than $8,000

- In how long, how and where do I get the money?

There is no single answer. Since I cannot tell you how long after you submit the documents the tax-refund agency/agent actually files your documents, I am only going to comment on how long it takes after your documents actually reach IRS (Internal Revenue Service – for federal taxes) or Department of Revenue of the corresponding State (for State taxes).

There are two options for receiving your tax money back: 1) Direct Deposit; 2) Wait for a check

Direct Deposit. The tax money owed to you gets directly deposited to your bank account (you need to have an open USA bank account) – and then you use your ATM card to withdraw the amounts. It is much faster (on average 2 week) and secure (you do not have to worry about your check getting lost or stolen). Even if you do not have a bank account of your own, you can ask to use one of your friends’ accounts (there are additional minor conditions that have to be met though)

What additional minor conditions have to be met?

In case of Federal taxes it is not a problem. Some states might enforce only one direct deposit to be done per bank account. The State of Massachusetts does not allow more than one direct deposit per bank account.

Another condition, depending on the bank, some banks will not allow the direct deposit if the last names on bank account and the refund receiver do not match. For Sovereign Bank, a major bank in New England, I know it is not an issue.

Wait for a check. If you cannot make a Direct Deposit, you are going to have to wait for a check (actually two of them, one for federal taxes, and one for state taxes). Processing time is the same, but you additionally have to wait for the check to come here (take into consideration it is not going to be sent by the next-day delivery). And even after receiving the USA check, in most cases you will not be able to cash it in right away, and chances are high it is going to cost you additional money just to cash the check.

- Are there specific deadlines?

You are supposed to file both of them, Federal and State taxes, by April 15, 2008.

- How and when does my W2 come here?

Every employer is obliged by law to send out the W2 form to the employee by the January 31st. What can happen though is that when you were in States you gave your employer only your temporary residency address in the USA, and did not provide him with your Bulgarian address. What is going to happen is that, he is going to send it to your US address, and it will get bounced back to him. If you are not sure whether you provided your employer with your Bulgarian address or not, you should get in touch with him/her and make sure that he has the right address.

- Where do I start if I want to file my taxes myself?

Since there are two different types of taxes – Federal and State, there are two different forms to file.

Federal Taxes. Most of your total refund money comes from Federal taxes. Also, this form is much easier to fill in (2 pages only). Your starting point will be www.irs.gov – the official website of Internal Revenue Services. Here you can get the form, and additionally all the instructions that you will need to fill it out – for free. Once you open the website type in “1040NR-EZ” to the Search box (top right corner). The first two links that will come up are the form itself and the instructions to it. There are also a bunch of additional schedules and forms available – most of which you will not need. If you have any questions or doubts feel free to leave a question at the FAQ section, average response time is 5-6 days.

State Taxes. Depending on the State you worked in, forms differ too. To find the website for your State, you can type-in “State Taxes” to the same Search box on the www.irs.gov website. If you follow the links, it will bring you up a list of all the States where you should choose the one that you worked in.