Tax Tips for Resident and Nonresident Aliens

Tax Tips for Resident and Nonresident Aliens

Tax Tips for Resident and Nonresident Aliens

What is a nonresident alien? A nonresident alien isĀ a person who is not a U.S. citizen and does not pass the green card or substantial presence tests used to determine tax status. Nonresident aliens must pay taxes on income they earn in the U.S. Even if you are not a U.S. citizen, you still have to pay U.S. income tax if you live in the United States or spend a significant amount of time there.

Resident or Nonresident Aliens

The IRS (Internal Revenue Service) uses the green card test and the substantial presence test to assess your foreign status. If you meet the requirements of any of them, you are considered a resident alien for tax purposes. Otherwise, you are considered a nonresident alien.

If you are a foreigner with a residence card (green card), when the United States Citizenship and Immigration Services allow you to reside in the country legally, you are a resident alien. However, suppose you do not have a green card, and you spend at least 31 days in the U.S. during the current tax year and 183 days during the last three tax years (including the current tax year). You will most likely satisfy the physical presence requirement and be treated as a resident alien for tax purposes.

Counting the 183 days

When counting the number of days you are present in the U.S. during the three years, and you do not have to include every day. Instead, you trust only a fraction of the days in two of the three years. Suppose, for example, that you are trying to find out your status for the tax year 2021 since you lived in the U.S. for 60 days.

Count the 60 days to 2021, one-third of the days in 2019, and one-sixth in 2019. So, if you were in the U.S. for 120 days in 2020 and 180 days in 2019, it only includes 40 days for 2020 and 30 days in 2019, with the total for the three years being 130 days. In this scenario, you will pay taxes on your income as a nonresident alien.

Also, days you are physically present in the U.S. under the following circumstances are not counted:

  • Days you travel to work in the United States from a residence in Canada or Mexico if you regularly travel from Canada or Mexico.
  • Days that you are in the United States for less than 24 hours when you are in transit between two places outside the United States.
  • The Days you are in the United States as a member of the crew of a foreign vessel.
  • Days that you cannot leave the United States due to a medical condition that arose during your stay.
  • Days that you are an “exempt individual.”

An “exempt individual” for purposes of this test means the following persons:

  • An individual temporarily present in the United States as an individual for a foreign government under an “A” or “G” visa.
  • A teacher or apprentice temporarily in the United States under a “J” or “Q” visa substantially meets the visa requirements.
  • A student temporarily in the United States under an “F,” “J,” “M,” or “Q” visa substantially meets the visa requirements.
  • A professional athlete temporarily in the United States to compete in a charity sporting event.

Still not sure if you are a resident or Nonresident Aliens for tax purposes? You can verify it with our tax partner for nonresident aliens, Sprintax, where you will find help to determine your residence status and, if necessary, file your tax return for nonresidents.

Taxes on foreign residents

As a legal resident of the US, you are subject to the tax rules of US citizens. It means that you have to report all the income you earn on your annual tax returns, regardless of the country in which you make it.

Taxes on Nonresident Aliens

A nonresident must also pay income taxes to the IRS, but only on income effectively tied to the US, which generally includes money you earn while in the US. However, the IRS does not Have the authority to impose taxes on the income that nonresidents earn in their home countries or any foreign country.

When preparing your US tax return, you must use Form 1040NR or the shorter Form 1040NR-EZ if you are eligible.

  • Regardless of which form you use, you will only report amounts that are considered US source income.
  • Just like US citizens and resident aliens, there are deductions and credits you can claim to reduce your taxable income.

All nonresident alien tax return forms, such as 1040NR, 1040NR-EZ, or 8843, are available with their instructions on the IRS website. You can also use software like Sprintax to guide you through the process of preparing your nonresident alien tax return.

Foreigners with double residence

You are generally considered a dual-resident alien in the transition year between being a Nonresident Aliens and a resident for tax purposes. A dual resident alien files two tax returns for the year, one return for the year they were considered a nonresident, and one for the portion of the year thought a resident. In some situations, the taxpayer may choose to be treated as a year-round resident in the transition year to avoid filing two separate returns.

Do your taxes your way with TurboTax. Do them yourself, with the help of an expert, or have an expert do them for you from start to finish. Your taxes will be well done.

What taxes do non-US residents pay?

The income tax law distinguishes between foreign taxpayers: residents and nonresident aliens. Residents must report all their income to the Internal Revenue Service (IRS) and pay the appropriate taxes. The tax return must include income from US sources and income generated in the foreign country.

But don’t panic. It does not always mean that the resident foreign taxpayer will pay more taxes. If there is a tax treaty between the US and the foreign government, this will result in lower tax payments. Nonresident Aliens are only required to pay taxes if they are in the United States for more than six months in a tax year.

If you have a green card, you declare taxes as a resident.

If you are a permanent resident of the US, you have a green card or “green card,” then you automatically fall into the category of resident alien. Thus, you must report your income in the United States.

There is an erroneous belief that if a foreign person does not spend much time in the United States, they will not be considered a resident and will not have to pay income taxes. It only applies to those in the United States on nonimmigrant visas.

Permanent residents must submit Form 1040 each year by April 15. The rules are the same for US citizens and residents who have a social security number to be able to pay taxes.

If you are a resident and do not pay your taxes, you may be denied citizenship later. Also, not filing your federal taxes is a crime that could cost you your green card and expose you to deportation.

Do you have to pay taxes if you have a nonimmigrant visa or are undocumented?

Foreign nationals with nonimmigrant visas, and those in the country undocumented, do not always have to pay taxes. They should only do so if they spend at least 183 days in the United States in the corresponding tax year. It is approximately six months.

If these individuals do not qualify for a social security number, they must obtain an individual identification number (ITIN). In this case, the payment of taxes is made by filling out the 1040nr form for nonresident aliens.

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