Who is a Nonresident Alien?
A nonresident alien is a noncitizen who does not meet the criteria of the Green Card test or the substantial presence test set forth by the U.S. Internal Revenue Service (IRS). Nonresident aliens are required to pay taxes on income they earn within the United States. Typical nonresident aliens include international students, visiting teachers, and individuals seeking medical treatment.
Key Takeaways
- Definition and Classification: Nonresident aliens are non-U.S. citizens who either do not pass the substantial presence test or are not Green Card holders.
- Resident vs. Nonresident Aliens: For tax purposes, foreign nationals are classified either as resident aliens or nonresident aliens.
- Substantial Presence Test: Individuals who have been present in the U.S for at least 31 days in the current year and a total of 183 days over the past three years may classify as resident aliens.
- Tax Obligations: Nonresident aliens need to pay taxes only on income that is effectively connected to a trade or business within the U.S.
Tax Responsibilities of Nonresident Aliens
Once someone has been in the U.S. for a certain period, they may qualify as a resident alien through the substantial presence test, which involves specific thresholds related to the number and duration of stays in the U.S. Nonresident aliens, on the other hand, do not pass this test or do not hold a Green Card, and therefore file their taxes based on their U.S.-source income.
Taxes for Nonresident Aliens
Nonresident aliens have tax responsibilities that differ from those of U.S. citizens and resident aliens. Here’s how it breaks down:
- Effective Connection to U.S. Trade or Business: Nonresident aliens are taxed on income that’s effectively connected with a U.S. trade or business. This can include personal service income like wages and salaries, specific investment income, and certain business incomes. These incomes are taxed at the same rates as those applied to U.S. citizens and residents.
- Tax on Non-Connected Income: Any income that is not effectively connected to a trade or business in the U.S. is taxed at a flat rate of 30%. Nonresident aliens might also benefit from tax exemptions due to international treaties.
Some income types, such as rent from U.S. property or royalties from natural resource extraction, are also taxable for nonresident aliens. To comply, nonresident aliens must file tax returns for their U.S. income.
Filing Your Taxes
Nonresident aliens are required to file Form 1040NR or, if they have no dependents, Form 1040NR-EZ. The deadlines are April 15th for those who received employment wages subject to U.S. income tax withholding or June 15th for individuals not falling into that category.
Form 1040-C for Departing Nonresident Aliens
Before leaving the U.S., nonresident aliens must submit Form 1040-C, which verifies that all tax obligations have been settled. This form is necessary to obtain a certificate of compliance (also known as a sailing or departure permit). While filing Form 1040-C, nonresident aliens must then also remember to file Form 1040NR for their annual tax reporting.
Related Terms: resident alien, Green Card, substantial presence test, earned income, royalties.
References
- Internal Revenue Service. “Nonresident Aliens.”
- Internal Revenue Service. “Topic No. 851: Resident and Nonresident Aliens.”
- Internal Revenue Service. “Publication 519: U.S. Tax Guide for Aliens,” Pages 18–22.
- Internal Revenue Service. “Publication 519: U.S. Tax Guide for Aliens,” Pages 11 & 12.
- Internal Revenue Service. “Publication 519: U.S. Tax Guide for Aliens,” Pages 36 & 37.
- Internal Revenue Service. “Publication 519: U.S. Tax Guide for Aliens,” Pages 51–53.
