Tax in United States

Who is the tax authority?

The Internal Revenue Service (IRS) is the federal tax authority of the United States. It operates as a bureau of the Department of the Treasury.

The IRS administers the Internal Revenue Code — Title 26 of the United States Code. It processes returns, issues refunds, and runs the federal compliance and enforcement function.

State-level taxes are administered by separate state Departments of Revenue. Each of the 41 states with an income tax plus the District of Columbia has its own agency.

What is the tax year and when are returns due?

The federal tax year for individuals is the calendar year — 1 January to 31 December.

Who is a US tax resident?

US federal tax follows a citizenship-and-residency rule. US citizens owe tax on worldwide income wherever they live.

Non-citizens fall into two groups:

• Resident aliens — taxed on worldwide income, same as citizens
• Non-resident aliens — taxed only on US-source income and effectively connected income

The key test for non-citizens is the Substantial Presence Test (IRC §7701(b)). You are a resident for the year if you spent 31+ days in the US in the current year and 183+ days across a weighted three-year formula.

What are the federal income tax rates?

The federal individual income tax uses seven brackets. Tax year 2025 brackets are inflation-indexed under Rev. Proc. 2024-40.

The 2025 standard deduction is approximately USD 15,000 single, USD 22,500 head of household, and USD 30,000 married filing jointly. Itemized deductions are an alternative — common items include state and local taxes (capped at USD 40,000 for tax year 2025 under the July 2025 tax act, rising 1 percent per year through 2029 with a phase-down above USD 500,000 of income that floors at USD 10,000 - the previous flat USD 10,000 TCJA cap returns in 2030) and mortgage interest on up to USD 750,000 of acquisition debt.

Long-term capital gains (held over 12 months) are taxed at 0%, 15%, or 20% with an additional 3.8% Net Investment Income Tax for higher earners.

How does federal corporate tax work?

The federal corporate income tax under IRC §11 is a flat 21% on taxable income. The rate was set by the Tax Cuts and Jobs Act of 2017 and has been unchanged since.

The Inflation Reduction Act of 2022 introduced a 15% Corporate Alternative Minimum Tax (CAMT) for corporations with three-year average financial-statement income above USD 1 billion. A 1% excise tax also applies to certain stock buybacks.

State corporate tax stacks on top in most states. Combined federal-plus-state rates land between roughly 22% and 28% depending on state and apportionment.

What about sales tax and indirect taxes?

The United States has no federal VAT or general sales tax. Indirect tax is set at the state and local level.

Nexus rules changed after the Supreme Court decision in South Dakota v. Wayfair (2018). States can require out-of-state sellers to collect sales tax once they cross economic-nexus thresholds — commonly USD 100,000 in sales or 200 transactions per year.

How is crypto taxed?

The IRS classifies virtual currency as property for federal tax under Notice 2014-21. It is not treated as currency.

Each disposal of a crypto asset triggers a taxable event:

• Sale for fiat
• Exchange for another crypto asset
• Payment for goods or services

Gain or loss equals fair market value at disposal minus adjusted basis. Holdings of more than 12 months qualify for long-term capital-gains rates.

Receipt of crypto as compensation, mining rewards, or staking rewards is taxable as ordinary income at fair market value on receipt. That value becomes the basis for any later disposal. FBAR and Form 8938 reporting may apply for foreign-held crypto in some scenarios.

How does the US handle tax treaties?

The US maintains approximately 70 bilateral income tax treaties, plus estate-and-gift treaties and totalization agreements for social-security coordination.

US treaties include a saving clause — the US retains the right to tax its citizens and residents as if no treaty applied. That is why a US citizen abroad cannot use treaty residency to escape US tax.

Most treaties reduce withholding tax on cross-border dividends, interest, and royalties. They include Limitation on Benefits (LOB) provisions to prevent treaty shopping.

The Foreign Earned Income Exclusion (FEIE, IRC §911) and Foreign Tax Credit (FTC, IRC §901) are domestic relief mechanisms. They operate alongside treaty relief. Expat filers commonly use FEIE + FTC rather than treaty residency.

Common penalties and pitfalls

When should you talk to a US tax pro?

Some situations are simple enough to handle through TurboTax or H&R Block. Others get complicated fast:

• Foreign income or accounts — FBAR / FATCA / FEIE / FTC interactions
• Self-employed or pass-through entity — Schedule C / K-1 / QBI deduction math
• Top bracket / high earner — NIIT / AMT / SALT cap interactions
• Active crypto trading — many disposals / DeFi / mining income
• IRS notice received — CP2000, audit letter, or back-tax assessment
• Multi-state nexus — Wayfair / remote workforce questions
• Mid-year move or immigration event — split-year / dual-status return
• Inheritance or large gift — Form 3520 / step-up basis questions

You can find vetted US practitioners through the directory below.

This page is general information. It is not personal guidance for your specific situation. Tax rules change. Always check current figures on the IRS website or with a US-licensed practitioner before filing.