The terms Resident Alien, Non-Resident Alien, and Dual-Status Alien are used by the United States government to classify individuals based on their immigration status and the amount of time they have spent in the country during a tax year. These classifications are important for tax purposes, as they determine an individual's tax obligations and benefits.
Resident Alien: A Resident Alien is an individual who meets either the Green Card Test or the Substantial Presence Test. The Green Card Test is met if an individual is a lawful permanent resident of the United States at any time during the tax year. The Substantial Presence Test is met if an individual is physically present in the United States for at least 31 days during the current year and for 183 days during the current year and the two preceding years, counting all the days of physical presence in the current year, one-third of the days of presence in the first preceding year, and one-sixth of the days of presence in the second preceding year. For example, John is a citizen of Canada and has been living and working in the United States for the past 5 years on a work visa. During the current tax year, John meets the Substantial Presence Test as he has been physically present in the United States for at least 31 days during the year and for 183 days during the current year and the two preceding years. John is considered a Resident Alien for tax purposes and is subject to U.S. tax on his worldwide income.
Non-Resident Alien: A Non-Resident Alien is an individual who does not meet either the Green Card Test or the Substantial Presence Test. In general, non-resident aliens are only taxed on income that is sourced in the United States. There are some exceptions to this general rule, such as for income earned by a non-resident alien from a U.S. trade or business. Example - Maria is a citizen of Spain and came to the United States for a 3-month internship during the current tax year. During her stay, she received a stipend of $5,000 from her U.S. employer. Since Maria did not meet the Green Card Test or the Substantial Presence Test, she is considered a Non-Resident Alien for tax purposes. She is only subject to U.S. tax on the income that is sourced in the United States, which in this case is the $5,000 stipend she received from her U.S. employer.
Dual-Status Alien: A Dual-Status Alien is an individual who is both a Resident Alien and a Non-Resident Alien during the same tax year. This can occur if an individual enters or leaves the United States during the tax year and meets the criteria for both classifications. In general, dual-status aliens are subject to different tax rules for the periods in which they are classified as a Resident Alien and a Non-Resident Alien. They are required to file two separate tax returns for the year: one as a Resident Alien for the portion of the year they were a resident, and one as a Non-Resident Alien for the portion of the year they were a non-resident. Example- Sara is a citizen of China and arrived in the United States on a work visa on July 1st of the current tax year. She worked for a U.S. company from July 1st to December 31st. During the first half of the year, she was living and working in China. Since she meets the Substantial Presence Test for the second half of the year, she is considered a Resident Alien for tax purposes during that time. However, for the first half of the year, she is considered a Non-Resident Alien. As a result, Sara will need to file two separate tax returns: one as a Non-Resident Alien for the first half of the year, and one as a Resident Alien for the second half of the year. She will be subject to different tax rules for each period.
Your status impacts your tax treatment.
Resident Alien: Resident Aliens are subject to U.S. tax on their worldwide income, just like U.S. citizens. They are eligible for most of the same deductions and credits as U.S. citizens, such as the standard deduction, itemized deductions, and various tax credits. However, there are certain deductions and credits that Resident Aliens may not be eligible for, such as the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC) for income earned in their home country.
Non-Resident Alien: Non-Resident Aliens are generally only subject to U.S. tax on income that is sourced in the United States. They are not eligible for the standard deduction but may be eligible for certain itemized deductions if they meet certain criteria, such as deductions for charitable contributions or certain business expenses. Non-Resident Aliens may also be eligible for certain tax treaties between their home country and the United States that could provide additional tax benefits.
Dual-Status Alien: Dual-Status Aliens are subject to different tax rules for the periods in which they are classified as a Resident Alien and a Non-Resident Alien. For the period in which they are considered a Resident Alien, they are subject to U.S. tax on their worldwide income and may be eligible for most of the same deductions and credits as U.S. citizens. However, for the period in which they are considered a Non-Resident Alien, they are generally only subject to U.S. tax on income that is sourced in the United States and are not eligible for the standard deduction. They may be eligible for certain itemized deductions or tax treaty benefits for the portion of the year they are considered a Non-Resident Alien.
The IRS Publication 519, "U.S. Tax Guide for Aliens," provides detailed information on the tax treatment of Resident Aliens, Non-Resident Aliens, and Dual-Status Aliens. It covers topics such as tax residency, tax filing requirements, deductions and credits, tax treaties, and other relevant tax matters for non-U.S. citizens. Taxpayers who are classified as an alien for tax purposes can refer to this publication to better understand their tax obligations and to ensure compliance with U.S. tax laws. Publication 519 is available on the IRS website and can be downloaded free of charge.
Non-Resident Tax Filing Status Needs to File 104-NR
Form 1040-NR is a tax form used by nonresident aliens who have U.S. source income and need to file a U.S. federal tax return. Nonresident aliens are generally individuals who are not U.S. citizens and who do not meet the substantial presence test, which is used to determine whether an individual is considered a resident alien for tax purposes. Form 1040-NR is used to report income earned in the U.S., including wages, salaries, tips, and other compensation, as well as income from investments, business activities, and other sources. The form is used to calculate the tax owed on this income and to claim any credits or deductions for which the taxpayer may be eligible.
