If You Have a Work Permit, Are You a Resident Alien for Taxes?

Understanding your tax status in the U.S. can be confusing, especially if you hold a work permit. Many assume that having authorization to work automatically makes them a resident alien for tax purposes, but this is not always the case. Your classification determines how you’re taxed and what forms you need to file, so it’s important to get it right.

Criteria for Resident Alien Classification

The IRS classifies individuals as resident aliens for tax purposes based on two tests: the Green Card Test and the Substantial Presence Test. Meeting either of these determines how income is taxed.

The Green Card Test applies to individuals granted lawful permanent resident status by U.S. Citizenship and Immigration Services (USCIS). If you hold a valid green card at any point during the tax year, you are considered a resident alien for that year, regardless of how much time you spend in the U.S. This classification remains until your status is formally revoked or abandoned.

For those without a green card, the Substantial Presence Test is used. This test calculates the number of days spent in the U.S. over a three-year period. To qualify as a resident alien, you must be physically present in the U.S. for at least 31 days in the current tax year and a total of 183 days using a weighted formula: all days from the current year, one-third of the days from the previous year, and one-sixth from the year before that.

Certain exemptions prevent days from being counted, such as time spent in the U.S. under an F, J, M, or Q visa or as a foreign government-related individual. These exemptions can affect whether someone meets the Substantial Presence Test, so reviewing your specific circumstances is essential before assuming residency status.

Work Permit Impact on Tax Status

Holding a work permit allows legal employment in the U.S., but it does not determine tax residency. The IRS classifies individuals based on presence in the country and immigration status, not work authorization. However, having a work permit often means spending significant time in the U.S., which can affect tax classification under the residency tests.

Employment authorization can come from various sources, such as Deferred Action for Childhood Arrivals (DACA), Temporary Protected Status (TPS), or an Employment Authorization Document (EAD) tied to a visa. Each category has different tax implications. DACA recipients, for example, are generally treated as residents for tax purposes if they meet the Substantial Presence Test, even though DACA does not provide lawful immigration status. Meanwhile, individuals with an EAD under an F-1 student visa may be exempt from counting certain days toward residency, potentially preventing them from being classified as resident aliens.

The type of income earned while holding a work permit also affects tax obligations. Nonresident aliens are subject to different tax rates and withholding rules than resident aliens. For instance, nonresidents may face a flat 30% tax rate on U.S.-sourced passive income, such as dividends or rental earnings, unless a tax treaty reduces this rate. Resident aliens, however, are taxed on worldwide income under the same progressive tax brackets as U.S. citizens.

Some individuals with work permits may experience a dual-status tax year, where they are considered a nonresident for part of the year and a resident for the remainder. This can happen when someone first arrives in the U.S. and later meets the Substantial Presence Test. Dual-status taxpayers must follow specific filing rules, including using different tax forms for each period and limiting certain deductions and credits.

Tax Filing Obligations

Once classified for tax purposes, individuals must determine how to report their income. Resident aliens follow the same tax rules as U.S. citizens, meaning they must report all worldwide income, including wages, foreign salaries, rental income, and investment earnings. Nonresident aliens, however, are only taxed on income connected to a U.S. trade or business or sourced from within the country.

Filing status affects tax liability, deductions, and credits. Resident aliens can choose from the same filing statuses as citizens—Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Widow(er). This flexibility allows for potential tax advantages, such as claiming dependents or accessing higher standard deductions. Nonresident aliens generally must file as Single or Married Filing Separately, which can result in higher taxable income due to limited deductions and exemptions.

The forms used for tax reporting also differ. Resident aliens file Form 1040, the standard U.S. individual income tax return, while nonresident aliens typically use Form 1040-NR. This distinction matters because certain credits, such as the Earned Income Tax Credit (EITC) or education-related credits, are only available to resident filers. Nonresidents may still claim certain deductions, such as state and local taxes paid or specific treaty benefits, but their options are more limited.

Tax withholding and estimated payments also vary. Employers withhold federal income taxes based on Form W-4 for resident aliens, while nonresident aliens complete Form W-4 with additional restrictions, often resulting in higher withholdings. Those with self-employment income or underpayment risks may need to make quarterly estimated tax payments using Form 1040-ES to avoid penalties.

Changes in Classification

Tax residency status can change due to shifts in immigration status, extended stays in the U.S., or adjustments in tax treaties. A person who starts as a nonresident alien may become a resident alien in a later tax year if they meet the residency criteria. This change affects tax obligations, particularly regarding foreign income, deductions, and reporting requirements.

One key impact is the treatment of foreign financial assets. Under FATCA, resident aliens must disclose foreign bank accounts and other assets if their total value exceeds certain thresholds—$50,000 for single filers and $100,000 for married couples living in the U.S. Failure to report these assets on Form 8938 can result in penalties starting at $10,000, with additional fines for continued noncompliance. Resident aliens may also be subject to the Foreign Bank Account Report (FBAR) requirement, which mandates disclosure of foreign accounts exceeding $10,000 at any point during the year. These reporting obligations do not apply to nonresident aliens.

Changes in classification can also affect tax treaty benefits. Many countries have tax treaties with the U.S. that provide reduced withholding rates or exemptions for certain types of income. These treaties typically distinguish between residents and nonresidents, meaning a shift to resident alien status could eliminate eligibility for treaty benefits. For example, a nonresident alien earning dividend income from U.S. stocks may have previously qualified for a lower withholding rate under a treaty, but upon becoming a resident alien, they would be taxed at standard U.S. rates. This shift can lead to unexpected tax liabilities, particularly for those who rely on treaty provisions to minimize withholding on investment returns.