What is a Nonresident Alien?
An example of a nonresident alien
An example of a nonresident alien is a professor who is visiting from another country to teach for a semester, or international students studying in the US for a semester.
Nonresident Alien Definition
A nonresident alien is an individual who is neither a US citizen nor US resident alien. A nonresident alien has not passed either the green card test or the substantial presence test. This is different to a resident alien.
Foreign nationals can qualify as resident aliens if they pass the substantial presence test. They can pass this through being in the US for at least 31 days in a given year and resided in the US for over 183 days in a three-year period (including the current year). If you cannot pass this test and do not qualify for a green card, you must file your taxes as a nonresident alien.
An exception to this rule is if a foreign national is married to a US citizen or permanent resident, who may then file jointly with their spouse.
Nonresident aliens must pay taxes on any income earned in the US or relating to a trade or business in the US, that exceed the annual personal exemption amount. For example, rent payments on properties they own within the US.
Tax obligations for US nonresident aliens
Nonresident aliens engaged in trade or business in the US pay tax on the amount of effectively connected to the US, after qualifying deductions. Any income that is connected to US trade or business is taxed at the same rates applying to US citizens and US residents.
In comparison, the IRS states that:
“If you are not engaged in a trade or business, the payment of US source income that is fixed, determinable, annual, or periodical is taxed at a flat 30% (or lower treaty rate) and no deductions are allowed against such income. You may earn both effectively connected income and fixed determinable, annual, or periodical income in the same year and they will be taxed accordingly.”
Nonresident aliens are required to submit filings regarding their US income-generating activities to the IRS.
State tax obligations for nonresident aliens
Depending on the state that you reside in, you may have state tax filing requirements.
There are 9 states that don’t have any requirements:
- New Hampshire (taxes are only on investment income, not earned income)
- South Dakota
- Tennessee (taxes are only on investment income, not earned income)
Are there any exemptions for nonresident aliens?
A nonresident alien may be exempt from FICA tax.
International students, scholars, professors, teachers, trainees, au pairs, summer camp workers, and other non-students who are on F-1, J-1, M-1, Q-1 or Q-2 visas can claim a FICA exemption.
Full-time students are exempt for the first 5 calendar years of their physical presence in the US. Non full-time students are only covered for their first two calendar years.
What tax forms do nonresident aliens use?
Nonresident aliens use Form 1040NR or 1040NR-EX to file taxes. If a nonresident alien does not qualify for a Social Security number, they can file under an individual taxpayer identification number instead.
Form 1040-NR needs to be filed by the representatives of a deceased nonresident alien.
Completing Form 1040-NR is vital if you are wanting to return to the US. If you are looking to modify your visa terms, you will most likely have to show that you submitted any required tax forms.
Form W-2 will be given to you by your employer if you work on or off-campus.
You will likely receive Form 1099 if you received income from US sources other than an employee salary. There are several types of 1099’s, which report the different types of income you received throughout the year. These include:
- 1099-NEC: this records any income from self-employment. You should be issued a 1099-NEC by your clients if they have paid you more than $600 in that year.
- 1099-DIV: this reports dividends and distributions from investments you received throughout the year.
- 1099-INT: you will receive this form if you have other investments such as interest payments.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
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Who needs Form 1040-NR?
You need to file Form 1040-NR if any of the following applies to you:
- You were a nonresident alien engaged in a trade or business in the US during the tax year.
- You were a nonresident alien not engaged in a trade or business in the US who generated income from US sources, and any tax owed was not withheld from that income.
- You received distributions from a health savings account (HSA), an Archer medical savings accounts (MSA), or a Medicare Advantage MSA.
- You are serving as the representative for a deceased person who would have been required to file the form.
- You owe special taxes, such as the alternative minimum tax (AMT) or household employment taxes.
- Your self-employment net earnings totalled to $400 or more and you live in a country with which the US has a Social Security agreement.
Do I need to file Form 1040 if I file Form 1040-NR?
Nonresident aliens who go on to become a resident alien in the same calendar year (a dual status alien), will need to file 1040 with a 1040-NR attached.
Departing nonresident aliens
Before a nonresident alien leaves the US, they may need to file Form 1040-C, which confirms they have paid all of their tax obligations. By filing this form, the nonresident alien will receive a certificate of compliance – also known as a departure permit. The departing nonresident alien will still need to file Form 1040NR for annual tax filing purposes.
What happens if a nonresident alien does not file their taxes?
It’s really important to get your tax affairs in order before the deadline approaches, as many nonresidents in the US become overwhelmed with the unfamiliar process.
By not filing or by filing late, you will face penalties or fines from the IRS.
The penalty for late filing is generally 5% of the unpaid taxes for each month that it is late, and this will not exceed 25% of your unpaid taxes, until you file more than 60 days after the due date. If you are more than 60 days late to filing, the penalty can be 100% of the unpaid tax, and negatively impact any success you will have in the future when trying to obtain a visa or Green Card.
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