Two Types Of Non-Resident Tax Return
Filing a non-resident tax return generally means one of two things: filing a non-resident state return and/or filing a non-resident alien return. A non-resident state return is for those who are not residents of the state but have income from a state that has an income tax and have met the minimum filing requirements to file a non resident tax return. Meanwhile, a non-resident alien return is for non-US citizens who have US source income and must file a federal tax return with the IRS. Filing tax as either a resident or non-resident alien are a similar process but with added complexities when filing a non-resident return.
For federal returns, an alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.
Non-Resident State Tax Returns
The definition of residency differs from state to state and adds an additional layer of complexity as not all states are the same. A nonresident state tax return is a return to a state that you are not a resident of. If you’ve generated income in another state during the year, you may have to file a nonresident state tax return in addition to the tax return to your home state.
Generally, you’ll need to file a nonresident state return if you had income from sources in a state you that you are not considered a resident. Some examples include:
- Wages or income you earned while working in that state, but not residing/living in the state,
- Out-of-state rental income or capital gains from property sales
- Gambling winnings
- S Corporation or partnership income
Every state has its own rules regarding nonresident returns. For example, nonresidents with more than $33 in Pennsylvania-sourced income must file a return, while nonresidents with less than $600 in Missouri income don’t have to file. If you’re not sure, your best bet is to contact the Department of Revenue in that state, or visit their website. Most state websites have a section devoted to nonresidents and part-year residents.
In general, you must meet a certain threshold of income within the state in order to be required to file. The best practice is to work with a tax professional that is familiar with state tax filing requirements so that they can advise of when a return is required, whether you are considered a resident or non-resident and in turn able to prepare required returns as well when required.
Some states require that you file if you are a non-resident and have made over $50, others over $100, and still others will require filing at any amount.
Non-Resident Alien Tax Returns
Non-resident alien tax returns are generally more complex than resident tax returns filed with the IRS as there are unique rules for claiming deductions, credits, dependents and tax treaty benefits that may apply that are not normally considered for a US resident tax return. Non-resident alien tax returns are required for any non-resident aliens who have US source income and meet the minimum filing requirements to file a non-resident tax return.
Who Must Or Should File A Non-Resident Tax Return
If you are any of the following, you must file a return:
- A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. However, if your only U.S. source income is wages in an amount less than the personal exemption amount, you are not required to file.
- A nonresident alien individual who is not engaged in a trade or business in the United States and has U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
- If you were a nonresident alien student, teacher, or trainee who was temporarily present in the United States on an “F,””J,””M,” or “Q” visa, you are considered engaged in a trade or business in the United States. You must file Form 1040NR, U.S. Nonresident Alien Income Tax Return (or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents) only if you have income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc.
If there were mandatory withholdings that exceed the amount of US tax due, filing a non-resident alien tax return gives a non-resident alien the potential ability to claim a refund of these taxes and should be filed. Non-resident aliens are also eligible to claim certain deductions, credits and tax treaty benefits. Thus, it is possible that filing a non-resident tax return can be ultimately beneficial to the non-resident alien in question.
Income in the United States is considered to be taxable if it’s sourced in the United States. This can be a difficult determination to make whether the income is US source, foreign source and whether it is sourced in a specific state – an Enrolled Agent such as Tax Samaritan can advise if you the source of your income and how the US tax code and state tax code treat such income. However, is is important to note that if you have received a tax form, such as a Form 1099, Form W2, Form 1042-S or other form, the income is generally US-source.
Non-resident aliens must file a Form 1040 NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, which is an abbreviated form of the return intended for those with a simpler tax situation and no dependents.
Both forms of non-resident tax returns are generally considered to be more complex than the standard return for a resident taxpayer. For that reason, individuals and families who need to file these returns may want to look into hiring a tax professional that has extensive experience and knowledge preparing and filing non-resident tax returns. Studies have shown that most non-resident aliens who are required to file a US tax return, either do not file a return or file incorrectly. Further, it has also been shown that oftentimes there is an overpayment of U.S. taxes, rather than an underpayment. You could have a sizeable refund waiting to be claimed by filing your non-resident tax return! A tax firm, such as Tax Samaritan, will be able to review your situation and determine exactly which forms you need and to prepare and file so that you maintain compliance with your filing requirements.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
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