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I am a non-resident alien having lived in the USA 2017-2019. I received today by postal mail a check for less then $10 due to some class action settlement I had no idea about (apparently my bank failed to timely graduate me to some other type of account contrary to representations).

Having exited the US tax system since 2020, I am worried that if I cash the check I'll have to file taxes (there's no minimum filing requirement for non-resident aliens). As such, I am thinking that if I simply shred the check I won't have any tax filing obligations.

In case it makes any difference, the class action settlement was "seeking monetary damages from arising from its improper business practices in connection with consumer credit card accounts". Apparently the Court has not decided in favor of either Party (Plaintiffs or the Bank) and, instead, the two sides agreed to a Settlement.

Is my understanding correct and / or am I being paranoid?

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  • How does one "exit the US tax system"?
    – DJohnM
    Commented May 23, 2023 at 16:08
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    I don't think shredding the check will make a difference as to whether it's income that must be reported or not. You're in constructive receipt of the money. Now, there could be other reasons it is or is not taxable, and I agree that if it is taxable the IRS is never going to chase you down over it, so I'd just cash it.
    – blm
    Commented May 23, 2023 at 20:18
  • @DJohnM: OP says they lived in US through 2019, and apparently were tax-resident (i.e. not an exempted student, scholar, researcher or government official); in 2020 they were no longer living in US (and I presume not citizen or LPR) and thus no longer subject to 'resident' tax. Commented May 24, 2023 at 2:18
  • @DJohnM I exited by virtue of leaving the country, not being a US citizen or a Green Card holder, and having lawfully resided and worked in the Status only as a resident alien under an H1B visa program. I.e. what dave_thompson_085 says. Commented May 24, 2023 at 13:03

2 Answers 2

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While it is true that there's no minimum amount on filing tax returns and the $10 is in fact taxable income, I'd say you're being overly cautious. No-one is going to chase you for taxes on $10, and the IRS knows perfectly well that the cost of your compliance and their processing of your (likely paper) return will be more than the income and the taxes it generated. On top of that, the $10 is probably taxable income in your home country, so you'll be claiming foreign tax credit for the taxes paid at home, which will likely reduce or even eliminate the US tax liability.

Just cash the check.

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  • The $10 probably is NOT taxable income, as described it was a “physical” (aka non-emotional) harm and the settlement almost certainly did not include punitive awards, and such are generally considered non-taxable.
    – jmoreno
    Commented May 22, 2023 at 22:23
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    @jmoreno no, these types of settlements are usually taxable income. I've gotten those before. What you're referring to is medical settlements, or alternatively settlements for a specific injury (i.e.: car accident - settlement for the loss of your car, or the neighbor burned down your house - costs of rebuilding the house). "Improper practice" is not an actual quantifiable injury that the OP has sustained, in fact it is likely that the OP has sustained no loss at all.
    – littleadv
    Commented May 22, 2023 at 22:41
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Obligations or not, it's common for US citizens whose income is below taxable amounts not to file income tax returns. The system is set up to encourage them to file anyway, for data analysis purposes, and there are some social programs implemented as refundable tax credits so filing may actually be advantageous for folks in the lowest brackets. But it's accepted that if the numbers are too small to result in any tax being due, you can get away with not filing a return. The worst that is likely to happen is that they audit you and ask you to file the form to prove it.

But I have no idea how taxes are handled for non-citizens in this non-bracket, or if the same approach of "ignore it until they ask me, and odds are they never will" can be applied. So I'm afraid this is more context than solid answer.

Personally, given the cost of filing vs. the risk that they demand a percentage plus proportional penalty, I'd say ignore it. But I don't have a visa status to worry about.

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  • Wouldn't the $12K standard deduction more than negate this?
    – RonJohn
    Commented May 23, 2023 at 18:29
  • All else being equal, I would certainly assume so for a citizen or resident. I have no idea what the nonresident forms even look like, never mind their details.
    – keshlam
    Commented May 23, 2023 at 20:32
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    @RonJohn+ most nonresident aliens don't get the standard deduction on US tax (there's a few treaty-based exceptions) -- and they can get only a few of the usual itemized deductions and those only if they have a US trade or business (which this asker does not). Commented May 24, 2023 at 2:28
  • keshlam: what do you think 'encourage[s]' unnecessary filing? Pages 8-10 of the 1040 instructions -- the first 'real' content -- are all about 'do you need to file at all?' It's true most wageearners have withholding, and must file to get that refunded even if owing no tax, but if you expect no tax liability you can request exemption from withholding -- although there's no longer a line item prompting you and you need to actually read the instructions, which of course absolutely no Murrican ever does. Commented May 24, 2023 at 2:31
  • There is necessary, there is unnecessary, and there is "If I file, I may be eligible for one of the few refundable tax credits." I believe that last category does exist, though I can't cite a specific right now. If here are any such, filing in that case would not be necessary (there's no active penalty for not filing), but could be worth doing anyway.
    – keshlam
    Commented May 24, 2023 at 2:58

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