How to Handle Non Resident Tax Preparation

For foreign nationals with U.S. income, tax obligations depend on residency status. A non-resident alien is an individual who is not a U.S. citizen and does not meet specific legal residency criteria. This distinction determines which income is taxed and the forms used for reporting. This guide clarifies the process for preparing a U.S. non-resident tax return, from determining your status to filing the correct paperwork with the Internal Revenue Service (IRS).

Determining Your U.S. Tax Residency Status

Your tax residency status is the foundation of your U.S. tax obligations and is not determined by your immigration status alone. The IRS uses two primary tests to classify you as either a resident or non-resident for tax purposes: the Green Card Test and the Substantial Presence Test. This status dictates that you are only taxed on income from U.S. sources.

The Green Card Test is straightforward: if you were a lawful permanent resident of the United States at any time during the calendar year, you are considered a resident alien for tax purposes. This status is granted by the U.S. Citizenship and Immigration Services and is evidenced by a Form I-551, also known as a green card. The residency status under this test begins on the first day you are present in the U.S. as a lawful permanent resident and continues until that status is formally revoked or abandoned.

A more complex measure is the Substantial Presence Test, which is a mathematical formula based on your physical presence in the U.S. over a three-year period. To meet this test, you must have been physically present in the country for at least 31 days during the current tax year and a total of 183 days during the three-year period that includes the current year and the two preceding years. The calculation counts all the days you were present in the current year, one-third of the days from the first preceding year, and one-sixth of the days from the second preceding year.

Certain individuals can exclude days of U.S. presence from this calculation and are known as “exempt individuals.” This category includes students on F or J visas, who can exclude their days of presence for their first five calendar years in the U.S. Similarly, teachers or researchers on J or Q visas can exclude their days for two of the last six years. “Exempt” in this context refers only to the counting of days for the Substantial Presence Test, not an exemption from paying U.S. taxes.

Even if you meet the day count for the Substantial Presence Test, you may still be treated as a non-resident alien if you qualify for the Closer Connection Exception. This exception requires you to be present in the U.S. for fewer than 183 days in the current year, maintain a “tax home” in a foreign country, and demonstrate a closer connection to that country than to the U.S. To claim this, you must file Form 8840, Closer Connection Exception Statement for Aliens.

Required Information and Documentation

Before preparing your tax return, you must gather several key pieces of information and documents.

• Personal and travel information, including your full name, mailing address, passport and visa details, and a precise record of U.S. entry and exit dates from your Form I-94, Arrival/Departure Record.
• A valid Taxpayer Identification Number, which will be either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). An ITIN is obtained by filing Form W-7 with your first tax return.
• All income statements received during the tax year. Common forms for non-residents include Form W-2 for wages, Form 1042-S for income like scholarships or royalties, and various Forms 1099 for other types of income.

Completing Your Federal Tax Return

Non-resident aliens must use Form 1040-NR, U.S. Nonresident Alien Income Tax Return. This form is designed to report the U.S. source income of non-residents and differs from the Form 1040 used by U.S. citizens and resident aliens.

There are two main types of income for non-residents. The first is income “Effectively Connected with a U.S. Trade or Business” (ECI), which includes wages, salaries, and self-employment income. ECI is taxed at the same graduated rates that apply to U.S. citizens and residents.

The second category is “Fixed, Determinable, Annual, or Periodical” (FDAP) income, which includes passive sources like interest, dividends, and royalties. FDAP income is generally taxed at a flat rate of 30%. This rate may be reduced or eliminated if a tax treaty exists between the United States and your country of tax residence.

Non-resident aliens are not permitted to claim the standard deduction. Instead, you may be able to claim certain itemized deductions connected to your ECI, such as state and local income taxes paid or charitable contributions to U.S. organizations. Tax treaties may also provide for additional deductions.

Individuals who are excluding days of presence as an “exempt individual” must file Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition. This form is an informational statement that must be attached to your tax return, or filed by itself if you have no filing requirement. On Form 8843, you provide information about your visa and the institution you are affiliated with to substantiate your non-resident status.

Filing Your Return and State Tax Considerations

The filing deadlines for non-residents can differ from the standard April 15 deadline. If you received wages subject to U.S. income tax withholding, your return is due by April 15. If you did not receive wages subject to withholding, the deadline is extended to June 15.

Mail your non-resident tax return to the correct address listed in the Form 1040-NR instructions, which is different from the address for resident returns. If you are submitting Form W-7 to apply for an ITIN with your return, you must use the separate address designated in the Form W-7 instructions.

You must also consider state tax requirements, as each state has its own rules for determining tax residency that are separate from the federal tests. It is possible to be a non-resident for federal purposes but a resident for state tax purposes. Earning income in any state requires you to investigate that state’s specific tax laws to determine if you have a filing obligation, which forms to use, and what the deadlines are. Failing to file a required state tax return can result in penalties and interest.