Are non-resident aliens escaping taxes? on bank interest avoiding tax?

Question

I'm reading where banks don't withhold or report tax on interest earned by non-resident aliens. If that's the case, do they get to avoid paying tax?

Answer 1

An easy answer to this question requires more info, but I'll still give it a shot.

The USA has tax treaties with most countries. These treaties determine which country gets first shot at taxation and who gets the rest. If I earn money in Honduras, for example, I will pay Honduran taxes and then take that as a deduction from my USA taxes. If the Honduran taxes exceed what I would have paid the USA if I earned the money in the USA, I walk on USA taxation. Where the alien is from and what our treaty is with that country has a lot to do with a comprehensive answer to your question.

Next, neither banks nor employers are required to report any type of income until it exceeds a certain level. Not sure what the magic number is this year, but I think it is $800. That would require a nice little bank account with interest rates as they are right now.

Banks do not withhold for tax purposes (except on their employees). Just because you make some interest on your accounts with them does not mean you are making money overall, and it is overall income that is taxed. This is true of both Americans and aliens.

Illegal aliens are yet a different matter. They are likely not paying taxes in their home countries on American income, but they are also not likely to be making enough to provoke required reporting. This because if they had enough savings to require reporting, they likely have enough to meet the investment standards that would allow them legal immigration status.

The whole matter of untaxed aliens is largely smoke and mirrors that makes good copy for a side trying to make a point. The fact is that anyone who employs an illegal alien cannot deduct what he pays them in wages, so he will pay additional taxes in place of what the alien should pay -- and assuming the employer makes more than the employee, he will pay at a higher rate. While the vast majority of illegal aliens do not buy or own homes, they do pay rent and their landlords pay property taxes on the rental property, thus funding schools.

The one place we might get shorted is on social security because the employer does not pay social security taxes after a certain income level. I do not consider this much of a problem, because the illegal alien is not racking up work history quarters while being paid under the table, so he will not gain a social security benefit enhancement while working under the table. I am not sure if our social security money funds any of the state programs such as medicaid. If so, we are short changed. We are also short changed by the fact that only some percentage of our citizens may qualify for subsidized medical care, while virtually all under the table workers qualify for nothing else. It is the difference in those percentages that get to us. Overall, it is a fairly small problem.

Answer 2

That is false.

Non resident aliens -- those with work visas, student visas -- have SSN numbers. They may not be permanent residents, but when they have bank accounts, banks tax them like any US citizens. Banks report on the interest earned from their savings, checking or other accounts. It's not as if there is a special form for non-resident aliens compared to residents and citizens.

Answer 3

You're generalizing too much. They don't always get a reward, they aren't all single moms, etc. The purpose of the stimulus package is to stimulate the economy. Putting money in the hands of the illegals will accomplish this probably better than giving the same amount to anyone else. And if they paid taxes, I think they should be entitled to the same refunds.

Answer 4

No, that's not true. That interest is subject to source taxation, generally at 30%. Taxes are withheld by the bank or other paying institution such as stock brokerage, etc.

Answer 5

course not they steal your social and pay that way.