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Taxes for Individuals Who are Not U.s. Citizens

  1. Expatriate
  2. Tax Treaty
  3. IRS Publication 519
  4. Worldwide Income
  5. Backup Withholding
  6. Nonresident Alien
  7. Non-Resident

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Nonresident Alien: Definition & Overview

Updated: November 25, 2022

Any person who is not an American national or citizen is considered an alien. An alien who has not met either the substantial presence or the green card requirements is considered a nonresident alien.

When filing Form 1040 under the “Married Filing Jointly” filing status, your spouse can choose to regard you as a resident alien for tax purposes. This is the case even if at the conclusion of the tax year you are a nonresident alien.

Read on as we take a closer look at exactly what a nonresident alien is, as well as how they’re qualified, the tax filing associated with them, and give you an example.

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    KEY TAKEAWAYS

    • A nonresident alien is someone who is a noncitizen of the U.S. and hasn’t passed their substantial presence or Green Card test. 
    • The only way a nonresident alien pays taxes is if the income they earn is from a business or trade in the U.S.
    • Whether or not someone is classified as a nonresident alien can have different tax implications.
    • To qualify as a resident alien, someone must have resided in the U.S. for 183 days or more in a period of three years. They also must have been inside the U.S. for a minimum of 31 days.

    What Is a Nonresident Alien? 

    A nonresident alien is a term given to someone that is not a citizen of the United States. They’re considered a noncitizen because they have not passed the substantial presence test or the Green Card test. These rules are determined by the Internal Revenue Service (IRS).

    Any nonresident aliens in the U.S. are required to pay their share of taxes on the income they earn in the country. Some of the most common examples of nonresident aliens are students, teachers, and people who need specific medical treatment. Basically, foreign nationals are going to get classified as either nonresident or resident aliens. 

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    Qualifications of a Nonresident Alien 

    Qualifying as a nonresident alien means that you haven’t passed the substantial presence test or the Green Card test, but you earn some type of income from within the U.S. If a person has been in the U.S. for long enough, they could meet the criteria for the substantial presence test to become a resident alien. 

    For a nonresident alien to classify as a taxpayer, the IRS takes into consideration how much time they have spent in the U.S. This will help determine their federal income tax return, income tax withholding, and social security. 

    Resident Alien vs. Nonresident Alien 

    A foreign national will get classified as either a nonresident or resident alien. Nonresident aliens are considered noncitizens of the U.S. because they either don’t qualify for a Green Card or haven’t spent enough time in the country. 

    For tax purposes, a resident alien works in the opposite way. They are either a U.S. citizen, have met the substantial presence test, or have their Green Card. The specific details are all outlined by the IRS in Publication 519, U.S. Tax Guide for Aliens. 

    Nonresident aliens still earn an income from a business in the U.S. and are therefore considered to be taxpayers. However, the way that taxes work for nonresident aliens works a little differently compared to resident aliens. 

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    Tax Filings for a Nonresident Alien 

    Resident aliens pay taxes on all ordinary income the same way as permanent citizens. For nonresident aliens, however, there are specific circumstances as to whether or not they are subject to taxation. 

    In this case, any earned income gets taxed based solely on if it is connected with a business or trade in the U.S. Some common examples of taxable income include commissions, wages, and salaries. 

    It can also include various types of business income and investment income. These income streams get taxed the same as a U.S. resident or a U.S. citizen. On the flip side, any earned income not from a U.S. business or trade gets taxed at a flat rate of 30%.

    Nonresident aliens must submit the appropriate tax filings for income-generating activities in the U.S. A few other income sources could include:

    • Royalties from extracting natural resources 
    • Rent payments for U.S.-owned properties 

    If you’re a nonresident alien you’re going to file Form 1040NR. If you’re a nonresident alien with no dependents, you’re going to file Form 1040NR-EZ. 

    Example of a Nonresident Alien 

    An example of a nonresident alien is a professor that teaches at a college or university for one semester but is from another country. So for tax purposes, if the professor arrives at the beginning of the school year in August and leaves at the end of the semester in December, they won’t meet the requirements for the substantial presence test. 

    If the professor doesn’t return again then they won’t need to worry about any changes to their tax status. But, if they happen to come back each year to teach the same class they can accumulate time in the U.S. 

    Accumulating more than 183 days in the U.S. in a three-year period means the professor would meet the requirements for resident alien tax status.

    Summary

    Nonresident aliens are people who have dealings in the U.S. but don’t have their Green Card or meet the substantial presence test. They also typically earn an income from a business or trade based in the U.S.

    There are different tax implications for nonresident aliens compared to resident aliens. For example, resident aliens pay tax on all earned income similarly to permanent citizens. Non-resident aliens only pay taxes for earned income from a U.S.-based business. 

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    FAQs About Nonresident Alien

    Is H1B Nonresident Alien?

    For the purposes of calculating their income tax liability, H1-B aliens are considered to be nonresident aliens. This remains until they meet the requirements for the substantial presence test.

    Can a Nonresident Alien be a Member of An LLC?

    The simple answer is yes, nonresident aliens can be a member of an LLC. They are provided with the same choices as U.S. citizens when it comes to creating, owning, and being a member of an LLC in the U.S.

    Can a Nonresident Alien Work?

    Yes, a nonresident alien can work in the U.S. if they have been authorized to do so. To become authorized, they would fill out Form I-9, Employment Eligibility Verification. This confirms the relevant details.

    Can a Nonresident Alien Own a Business in the US?

    Yes, a nonresident alien can own and operate a business in the U.S.

    How Are Nonresident Aliens Paid?

    Nonresident aliens get paid the same way a U.S. citizen would get paid. Any earned income gets taxed at 30% unless otherwise specified.

    Taxes for Individuals Who are Not U.s. Citizens

    1. Expatriate
    2. Tax Treaty
    3. IRS Publication 519
    4. Worldwide Income
    5. Backup Withholding
    6. Nonresident Alien
    7. Non-Resident

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