What Is a Nonresident Alien?
A nonresident alien is a noncitizen who "has not passed the Green Card test or the substantial presence test," according to the Internal Revenue Service (I.R.S.). Nonresident aliens must pay taxes on income earned in the U.S. Typical examples of nonresident aliens are teachers, people seeking medical treatment, and students.
- Nonresident aliens are noncitizens of the U.S. that pass the substantial presence tests or are exempt from a Green Card.
- Foreign nationals are classified as either resident or nonresident aliens or tax purposes.
- Once someone has been in the U.S. for at least 31 days and resided in the country for over 183 days in a three-year period they may qualify as a resident alien.
- Nonresident aliens only have to pay taxes if it is effectively connected to a trade or business in the U.S.
Understanding Nonresident Aliens
Once a person has been inside the U.S. for a specific period, they may qualify as a resident alien under the substantial presence test. Foreign nationals are classified as either resident or nonresident aliens.
To pass the substantial presence test, an individual must stay in the U.S. for more than 31 days in any given current year. They must also have resided in the U.S. for more than 183 days over a three-year period, which includes the current year. Those not passing the test or not having or qualifying for a green card must file their taxes as nonresident aliens.
Taxes for Nonresident Aliens
Like permanent citizens, resident aliens pay taxes on all earned income. However, a nonresident alien is subject to taxation only under specific circumstances. For a nonresident alien in the U.S., income is taxed based on whether or not it is effectively connected with a trade or business in the U.S.
Effectively connected income includes personal service income (wages, salaries, commissions, etc.), certain investment income, and certain business income. Effectively connected income is taxed at the same rates that apply to U.S. citizens and U.S. residents. Income that is not effectively connected to trade or business in the U.S. is taxed at a flat 30%. Nonresident aliens may also enjoy other tax benefits such as international treaty exemptions.
Nonresident alien income sources may be taxable should the source come from the U.S. For example, rent payments on properties they own within the U.S. would be taxable, as well as any royalties associated with the extraction of natural resources from the properties. Nonresident aliens are required to submit tax filings regarding their U.S. income-generating activities.
Nonresident aliens must file a Form 1040NR, or Form 1040NR-EZ if they are filing with no dependents. Any taxes or refunds, owed or due, must meet the standard April 15th filing deadline.
Departing Nonresident Aliens
Before leaving the U.S., a nonresident alien may need to file a Form 1040-C. This form confirms they have paid all tax obligations. The nonresident alien must file this form to obtain a certificate of compliance, known as the sailing or departure permit.
The certificate of compliance asserts that the nonresident alien complies with applicable tax laws as of their date of departure. However, a Form 1040-C does not remove the requirement to file an appropriate Form 1040NR for annual tax filing purposes.