A nonresident alien is a noncitizen who has not passed or is exempt from the Green Card or substantial presence tests. Typical examples of nonresident aliens are teachers, people seeking medical treatment, and students.
Breaking Down Nonresident Alien
Once a person has been inside the United States for a specific period, they may qualify as a resident alien under the substantial presence test. To pass, the individual must stay in the United States for more than 31 days in any given current year. They may also be classified as a resident alien if they resided in the U.S. for more than 183 days over a three-year period, which includes the current year.
Nonresident Alien Tax Implications
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., only income earned within the U.S. is taxable. Dividends from U.S.-based operations are taxed at 30%, whereas there is an exclusion on capital gains from taxation. 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 United States. 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. A nonresident alien with wages falling below the personal exemption amount and no other U.S. income is not required to file.
Departing Nonresident Aliens
To leave the United States, a nonresident alien must 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.