AM I A NON RESIDENT FOR TAX PURPOSES?
If you are a non resident alien (not a U.S. citizen), you are considered a non resident tax payer and file a non resident tax return (if required to do so) unless you meet one of two tests: the green card test or the substantial presence test for the calendar year (January 1 – December 31). If you do not meet either the Green Card Test or the Substantial Presence Test, then you are a non resident alien and are considered a non resident for tax purposes.
Green Card Test
You are a Lawful Permanent Resident of the United States, at any time, if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Service (USCIS) issued you an alien registration card, also known as a “green card” . You continue to have resident status, under this test, 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.
Substantial Presence Test
You will also be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
- 31 days during the current year, and
- 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.
Resident aliens are generally taxed in the same way as U.S. citizens. This means that their worldwide income is subject to U.S. tax and must be reported on their U.S. tax return.
Non Resident Tax Filing Requirements
Non resident aliens are generally subject to U.S. income tax only on their U.S. source income. They are subject to two different tax rates, one for effectively connected income, and one for fixed or determinable, annual, or periodic (FDAP) income. Effectively connected income (ECI) is earned in the U.S. from the operation of a business in the U.S. or is personal service income earned in the U.S. (such as wages or self-employment income). It is taxed for a non resident at the same graduated rates as for a U.S. person. FDAP income is passive income such as interest, dividends, rents or royalties. This income is taxed at a flat 30% rate, unless a tax treaty specifies a lower rate.
Non resident aliens must file and pay any tax due using Form 1040NR, U.S. Non Resident Tax Return.
Non Resident Tax Treaties
The United States has income tax treaties with a number of foreign countries. For non resident alien tax, these treaties can often reduce or eliminate U.S. tax on various types of personal services and other income, such as pensions, interest, dividends, royalties, and capital gains. Each individual treaty must be reviewed to determine whether specific types of income are exempt from U.S. tax or taxed at a reduced rate.
Free Tax Consultation For Non Resident Tax Preparation
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US non resident tax return 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.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.