What is a 'Nonresident Alien'

A nonresident alien is a classification assigned to a non-U.S. citizen, or foreign national, who doesn't pass the green card test or the substantial presence test. If a non-citizen currently has a green card or has had a green card in the past calendar year, he or she would pass the green card test and would be classified as a resident alien.

BREAKING DOWN 'Nonresident Alien'

If the individual has resided in the U.S. for more than 31 days in the current year and has resided in the U.S. for more than 183 days over a three-year period, including the current year, he or she would pass the substantial presence test and also be classified as a resident alien.

Resident aliens are taxed on all earned income as if they were U.S. citizens, but a nonresident alien is subject to taxation only under specific circumstances. For a nonresident alien, only income that is generated from U.S. sources, excluding certain investments, is subject to taxation.

For example, if you live in England and own a company that operates in the U.S., but you have not been to the U.S. for five years and don't have a green card, the income generated by the business will be subject to U.S. tax based on the applicable nonresident alien status. Additionally, dividends from U.S. based corporations are taxed at 30% for every nonresident alien, while capital gains are not subject to U.S. tax.

Examples of Taxable Income

Nonresident alien income sources may be taxable should the source be determined to fall within the U.S. For example, rent payments on properties located within the U.S. would be taxable, as well as any royalties associated with the extraction of natural resources from property within the U.S.

Nonresident Alien Tax Filings

Nonresident aliens are required to submit tax filings in regards to their income-generating activities within the U.S. If cases where a nonresident alien had wages that were subject to income tax requirements, such as investment dividends, they must file a Form 1040NR or Form 1040NR-EZ to complete the assessment of any taxes or refunds due no later than April 15th of the year following the tax year. In cases where no income was subject to withholdings, such as income within the personal filing exemption amount, the filing must be completed by June 15th of the year following the tax year.

Departing Nonresident Aliens

In order to leave the U.S., a nonresident alien must file a Form 1040-C, along with all taxes due, in order to obtain a certificate of compliance. The aforementioned certificate asserts that the nonresident alien is in compliance with applicable tax law as of the date of departure. A Form 1040-C does not remove the requirement to file an appropriate Form 1040NR for annual tax filing purposes.

RELATED TERMS
  1. IRS Publication 519 - U.S. Tax ...

    A document published by the Internal Revenue Service (IRS) that ...
  2. IRS Publication 513

    A document published by the Internal Revenue Service that details ...
  3. Resident Alien

    A foreigner who is a permanent resident of the country in which ...
  4. Dual-Status Taxpayer

    A taxpayer that has met the criteria to be both a resident and ...
  5. IRS Publication 54

    A document published by the Internal Revenue Service that outlines ...
  6. Alien

    Any person who is not a citizen of the country in which he or ...
Related Articles
  1. Taxes

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  2. Taxes

    Tax Rules For Resident And Nonresident Aliens

    This article examines the definition and tax treatment of these types of non-U.S. citizens.
  3. Retirement

    How Are 401(k) Withdrawals Taxed for Nonresidents?

    As a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
  4. Financial Advisor

    How to Advise Non-U.S. Citizens on Social Security

    Advising clients who are not U.S. citizens on Social Security is complex. Here is how you can successfully navigate this challenge.
  5. Investing

    Canada: A New Frontier For Real Estate Investors

    This property market is easy to access and provides profitable opportunities.
  6. Small Business

    Employer? Steps To Fill Out Immigration's I-9 Form

    Step-by-step, here's how you and the employee you've hired fill out this required form from the U.S. Citizenship and Immigration Services.
  7. Taxes

    Tax-Efficient Strategies For International Clients

    In a globalized world, international clients seek to diversify holdings by accessing U.S. markets. Creative strategies will help optimize tax positioning.
  8. Insights

    Step-by-Step: How To Replace Or Renew Your Green Card

    Replacing or renewing a green card is simple, but tedious.
  9. Taxes

    Late with Your Taxes? Grab IRS Form 4868

    Fill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
  10. Retirement

    Top Tax Tips For Retirees

    Filing your taxes during retirement can be just as time consuming as when you were employed. We have some tips to help you out.
RELATED FAQS
  1. I am a non-U.S. citizen living outside the U.S. and trading stocks through a U.S. ...

    The tax implications for a foreign investor will depend on whether that person is classified as a resident alien or a non-resident ... Read Answer >>
  2. What is an alienation clause?

    Whether used in reference to insurance policies, mortgages or commercial loans, an alienation clause stipulates that should ... Read Answer >>
  3. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (unless exempt), including what's earned outside the U.S., is usually ... Read Answer >>
  4. Who is exempt from paying Social Security taxes?

    Learn about the groups of people who qualify for exemption from Social Security taxes, and explore the process of applying ... Read Answer >>
  5. Can I roll over my IRA assets to a sheltered Canadian plan?

    It does not appear that this is an option for you. The current version of the U.S. Code and the U.S./Canada Treaty do not ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center