Nonresident Alien Taxation
Who is considered a nonresident alien (NRA)?
A nonresident alien is an alien who has not passed the Green Card Test or the Substantial Presence Test.
When must a nonresident alien file an income tax return?
As a nonresident alien, you must file a return in the following situations. If you are engaged or considered to be engaged in a trade or business in the United States during the year. The filing requirement to file is met even if:
• The income you received or earned did not come from a trade or business conducted in the United States.
• You receive no income from U.S. sources during the tax year.
• The income you receive is exempt from income tax.
• If you are a nonresident alien individual not engaged in a trade or business in the United States with U.S. income whose tax liability was not paid in full by withholding at the source.
• A representative or agent responsible for filing the return of an individual described in the previous two situations.
• A fiduciary for a nonresident alien estate or trust.
• A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)).
• If you are a Nonresident alien student, teacher, or trainee who was temporarily present in the United States on an "F,""J,""M," or "Q" visa and only if you have income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc.
• If you wish to claim a refund of overwithheld or overpaid tax.
• You wish to claim the benefit of any deductions or credits.
You are not required to file if:
• If your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501 for personal exemption amounts for the tax year)
Which income for a nonresident alien is taxable?
A nonresident alien is generally only taxed on their US source income. Nonresident aliens are subject to tax at the the normal graduated US tax rates on the following types of income:
• Income that is effectively connected with a US business • Capital gains from the sale of US real property interests (real estate)
Other capital gains are nontaxable unless:
• The nonresident alien has a US business or
• Is physically present in the US for at least 183 days
Investment income for US sources in generally subject to withholding at a 30% rate unless a treaty is provided by a treaty.
Which income for a nonresident alien is reportable?
A nonresident alien must report the following types of income on Form 1040NR:
• Effectively Connected Income from a trade or business in the United States.
• U.S. sourced Fixed, Determinable, Annual, or Periodical (FDAP) income.
Nonresident Alien Filing Deadlines:
• 15th day of the 4th month following your tax year end (for an individual April 15th)
• 15th day of the 6th month following your tax year end (for an individual June 15th) if you are not an employee or self-employed person who receives wages or non-employee compensation subject to U.S. income tax withholding, or if you do not have an office or place of business in the United States
• An extension can be filed by the original due date of the return to extend the filing period by 6 months (4 months if you meet fall under the 15th day of the 6th month rule)
Green Card Test
You meet the green card test if you are a “Lawful Permanent Resident” of the United States at any time during the calendar year. You are considered a Lawful Permanent Resident if you have been granted the privilege of residing permanently in the US. Normally, you will have been issued a green card (alien registration form, Form I-551).
You will remain a US resident under the green card test and will continue to have a US filing obligation unless:
• You voluntarily renounce and abandon this status in writing to the USCIS, or
• Your immigrant status is administratively terminated by the USCIS, or
• Your immigrant status is judicially terminated by a U.S. federal court
What if I am a green card holder only for part of the year?
If you receive your green card during the year and do not meet the substantial presence test, the date on which your residency begins is the first day you are in the U.S. as a Lawful Permanent Resident. You can choose to be treated as resident alien for the whole calendar year, but contact a tax expert to determine if this is the best solution for you.
Substantial Presence Test
You meet the substantial presence test and are considered a US resident for tax purposes if you are physical present in the US on at least:
1) 31 days during the current year, and
2) 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
• All the days you were present in the current year, and
• 1/3 of the days you were present in the first year before the current year, and
• 1/6 of the days you were present in the second year before the current year.
Which days count as being physically present in the United States?
Each day, even if only for part of the day, for which you are physically present in the country, you are considered present in the US. There are exceptions to this rule. They include:
• Days you commute to work in the United States from a residence in Canada or Mexico, if you regularly commute from Canada or Mexico.
• Days you are in the United States for less than 24 hours, when you are in transit between two places outside the United States.
• Days you are in the United States as a crew member of a foreign vessel.
• Days you are unable to leave the United States because of a medical condition that develops while you are in the United States.
• Days you are an exempt individual.
Who is considered an exempt individual?
An exempt individual does not mean that you are exempt from US tax but you are exempt from counting those days for the physical presence test. The following individuals are exempt from counting days:
• An individual temporarily present in the United States as a foreign government-related individual.
• A teacher or trainee temporarily present in the United States under a "J " or "Q " visa, who substantially complies with the requirements of the visa.
• A student temporarily present in the United States under an "F, " "J, " "M, " or "Q " visa, who substantially complies with the requirements of the visa.
• A professional athlete temporarily in the United States to compete in a charitable sports event.