Taxes in the United States

Taxation in the United States is one of the most complex and critical issues that any Vietnamese individual living, working, or investing in the country must understand. With a multi-layered system comprising federal, state, and local taxes, tax obligations can vary significantly depending on one’s place of residence and sources of income. Properly understanding this mechanism not only ensures legal compliance but also helps optimise personal and family finances. This article provides a comprehensive analysis of the tax system, the main types of taxes, and the obligations of residents under the latest regulations.

Overview of the United States tax system

The United States tax system operates on a multi-layered principle, reflecting the country’s federal structure. Taxpayers are generally required to meet obligations at three levels: federal, state, and sometimes local.

The agency responsible for collecting federal taxes is the Internal Revenue Service (IRS). Each state has its own tax authority with independent regulations and tax rates. This creates significant variation in the tax burden between different states.

A key principle to remember is that the United States taxes based on tax residency status and citizenship, not solely on where income is generated. Citizens and permanent residents must report their global income, including income generated outside the country. This is a crucial point for Vietnamese individuals with assets or income in their home country.

Federal income tax

Federal income tax is the most significant tax in the United States system. The country applies a progressive tax schedule, meaning that higher income levels are subject to higher marginal tax rates.

According to the regulations for the 2026 tax year from the United States Internal Revenue Service (IRS), there are seven federal income tax brackets with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets are adjusted annually for inflation and have been codified into law permanently.

Standard deduction

A key concept is the standard deduction, which is the amount of income exempt from tax before the tax schedule is applied. For the 2026 tax year, the standard deduction is US$16,100 for single filers and US$32,200 for married couples filing jointly.

Taxpayers can choose between the standard deduction or itemising individual deductions, depending on which is more beneficial. Most taxpayers currently choose the standard deduction because this amount has been significantly increased.

Social Security and Medicare taxes

In addition to income tax, employees must pay Social Security and Medicare taxes, commonly referred to as payroll taxes. These amounts are deducted directly from wages and fund government retirement and healthcare programmes.

Employees and employers share the burden of these taxes. Self-employed individuals must cover the entire contribution themselves, so they need to calculate this carefully when planning their finances.

State taxes and regional differences

One of the notable features of taxation in the United States is the significant difference in state taxes. Each state has its own tax policy, creating substantial disparities in financial burden depending on where one resides.

Some states such as Texas, Florida, Nevada, and Washington do not levy state personal income tax. This is a major reason why many individuals and businesses choose to relocate to these states for tax optimisation.

Conversely, states such as California and New York have high state income taxes, with marginal rates that can exceed 10% for high earners. This disparity can result in a difference of thousands of dollars per year in a family’s actual income.

Sales tax and property tax

Beyond income tax, states also levy sales tax on consumer goods and services. Sales tax rates vary by state and locality, typically ranging from a few percent to nearly 10% depending on the location.

Property tax is a key revenue source for local governments, used to fund public schools and public services. This tax rate varies by region and directly affects the cost of home ownership. When considering where to settle, it is necessary to look at the total burden of all taxes, not just income tax.

Tax filing obligations for residents

Understanding tax filing obligations is mandatory for everyone living in the United States. Failure to comply can lead to heavy fines and affect legal records, especially for those in the process of applying for permanent residency or citizenship.

The tax year in the United States coincides with the calendar year, and the filing deadline is typically in mid-April of the following year. Taxpayers must report all income, apply valid deductions and tax credits, and submit their returns to the IRS and the relevant state tax authority.

For new arrivals from Vietnam, determining the correct tax residency status is an important first step. Those considered tax residents must report global income, while non-residents only report income generated within the United States. Due to the complexity of the regulations, many families choose to hire tax professionals to ensure proper compliance.

Key tax deductions and credits

The United States tax system offers various deductions and credits that help reduce the tax burden for filers. Understanding and properly utilising these can lead to significant savings.

Some common deductions include mortgage interest, charitable contributions, and a portion of state and local taxes. The deduction for state and local taxes is currently capped at a certain limit under existing regulations.

In addition to deductions, tax credits directly reduce the amount of tax owed. The Child Tax Credit and the Earned Income Tax Credit are important forms of support for families. Understanding these benefits helps taxpayers optimise their financial obligations legally.

Tax considerations for investors and those with assets in Vietnam

For Vietnamese individuals with assets or income sources in their home country, tax issues become more complex. As mentioned, United States citizens and permanent residents must report global income, including income from Vietnam.

This means that income from property rentals, savings interest, or investments in Vietnam must be reported. However, treaties and mechanisms to avoid double taxation can help reduce the burden in some cases.

Furthermore, individuals with foreign financial accounts exceeding a certain threshold must also comply with separate reporting obligations. Failure to report can lead to serious legal consequences. Therefore, investors and those with assets in Vietnam should consult tax experts familiar with both systems before settling.

Taxes on businesses and investment activities

Beyond personal taxes, Vietnamese individuals planning to conduct business or invest need to understand corporate tax. This tax applies to company profits and has a structure distinct from personal tax.

Businesses here can be organised under various legal forms, each with its own tax treatment. Some forms are taxed at the corporate level, while others pass profits directly to owners to be reported on personal tax returns.

For investment activities, profits from the sale of assets such as stocks or real estate are subject to capital gains tax. This tax rate depends on the duration the asset was held, with long-term assets typically enjoying more favourable tax rates compared to short-term transactions.

Choosing the right business structure and investment strategy can make a significant difference in tax obligations. Therefore, investors should consult tax and legal experts to optimise their financial structure from the outset, especially when starting operations in an unfamiliar legal environment.

Preparation and filing process

Preparing tax returns correctly helps avoid errors and makes the most of legal benefits. This process requires care and the maintenance of complete records throughout the year.

Taxpayers need to collect important documents such as income forms from employers, investment income statements, invoices for deductions, and other relevant paperwork. Organising records scientifically helps the filing process proceed smoothly.

Many people choose to use tax software or hire an accountant, especially when their financial situation is complex. For new arrivals from Vietnam or those with income from multiple sources, including back home, professional support is a worthwhile investment to ensure compliance and avoid the risk of penalties.

Conclusion: Mastering taxation for sustainable settlement

Taxation in the United States is a complex, multi-layered system, with burdens that vary significantly depending on the state of residence and the source of income. Understanding the federal and state tax mechanisms and reporting obligations is the foundation for sustainable settlement and avoiding legal risks.

The key point to remember is the principle of global income taxation for citizens and permanent residents, along with the significant disparity in state taxes. Choosing a state with a favourable tax regime can make a significant financial difference year after year.

Practical advice is for Vietnamese individuals to research thoroughly before settling, especially regarding the obligation to declare assets in Vietnam, and to consider hiring a professional tax expert. For a more complete financial picture, you should read more about the United States financial system as well as an overview of life in the United States.