What Is a Non-Resident?
A non-resident is an individual who mainly resides in one region or jurisdiction but has interests in another region. In the region where they do not mainly reside, they will be classified by government authorities as a non-resident.
The classification of who falls under non-residency status is determined in each region by set circumstances such as the amount of time spent within the region during the calendar year. This classification is focused on where the person resides and does not focus on citizenship.
For example, many individuals live in one state but have a business in another region and derive income from sources within that region. A non-resident who has worked in a state where they are a non-resident may have to file two tax returns – a resident return and a non-resident return. A taxpayer who lives in New Jersey but commutes to New York daily for work would file a non-resident return in New York and a resident tax return in New Jersey. A non-resident only has to file in the state of non-residency if they earned income there. So, a snowbird who escaped Chicago during the frigid winter months to a vacation home in Houston may not need to file taxes in Houston since they only lived there briefly and earned no income from working there. However, certain types of income are taxable to non-residents even though an individual does not work in a state. A taxpayer may find that they owe taxes to the government through income such as:
- Income received as a shareholder or owner of a flow-through business entity such as a sole proprietorship, partnership, or S corporation
- Lottery or gambling winnings in the state where the winnings were made
- Rental income or income received from the sale of property
In some cases, a non-resident may have to pay more to go to college in a state where they do not primarily reside. Most states have exemptions for students who attend college out-of-state, classifying these students as residents of their home states.
Generally, a taxpayer can only be a resident of one state. In a situation whereby an individual spends considerable time in two states, they must file a tax return as a resident of one state and a non-resident of the other. Two states cannot tax the same income by law, as each state must exempt from taxation all earnings and other sources of income that were taxed elsewhere.