U.S. Tax Guide for Aliens: Filing Requirements and Key Considerations

Understanding U.S. tax obligations as a foreign national can be challenging, especially with different rules depending on residency status. The Internal Revenue Service (IRS) classifies individuals as either resident or nonresident aliens, which affects how income is taxed and what forms must be filed.

This guide outlines key filing requirements, taxable income categories, available exemptions, and the impact of tax treaties. It also covers state-level tax considerations and what happens if your residency status changes during the year.

Determining Resident or Nonresident Status

The IRS determines residency status using the Green Card Test and the Substantial Presence Test. Meeting either classifies a person as a resident alien, while failing both results in nonresident alien status. This classification affects tax obligations, including which income is subject to U.S. taxation and the deductions that may be claimed.

The Green Card Test applies to individuals granted lawful permanent resident status by U.S. Citizenship and Immigration Services (USCIS). Holding a valid green card at any point during the tax year generally results in resident alien status, regardless of time spent in the country. Even if the green card is later abandoned or revoked, residency status remains in effect until officially terminated.

For those without a green card, the Substantial Presence Test determines residency based on days spent in the U.S. over a three-year period. An individual is considered a resident if they are physically present in the U.S. for at least 31 days in the current year and a total of 183 weighted days over the past three years. The calculation includes 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 apply, such as for students on F-1 visas or individuals with closer ties to another country.

Some individuals may qualify for dual-status residency, meaning they are considered a resident for part of the year and a nonresident for the remainder. This often occurs when someone enters or leaves the U.S. mid-year, affecting how income is reported and taxed. Special elections, such as the First-Year Choice, allow certain nonresidents to be treated as residents earlier than they would otherwise qualify, potentially providing tax benefits.

Filing Requirements

Foreign nationals who earn income in the U.S. must file a tax return if their earnings exceed certain thresholds, which vary based on residency status and filing category. Resident aliens follow the same tax rules as U.S. citizens, meaning they must report worldwide income and file Form 1040 if their income surpasses the standard deduction, which for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. Nonresident aliens generally report only U.S.-sourced income and must file Form 1040-NR if they have taxable earnings, unless covered by a treaty exemption.

Resident aliens can file as single, married filing jointly, or head of household, which impacts tax brackets and eligibility for deductions. Nonresident aliens typically must file as single or married filing separately, with limited access to standard deductions unless they qualify under special provisions, such as the U.S.-India tax treaty. Those married to U.S. citizens or residents may elect to be treated as residents for tax purposes, allowing them to file jointly and access broader tax benefits.

The types of income earned dictate additional filing requirements. Individuals receiving wages subject to withholding must attach Form W-2, while those with self-employment income exceeding $400 must file Schedule SE to determine self-employment tax liability. Nonresident aliens with investment or rental income may need to attach Form 1042-S, which reports payments subject to withholding. If a taxpayer engages in a U.S. trade or business, they must disclose all effectively connected income, even if no tax is owed.

Deadlines vary. Resident aliens follow the standard April 15 deadline, but nonresident aliens filing Form 1040-NR have until June 15 if they were not present in the U.S. on April 15. Those unable to meet the deadline can request an automatic six-month extension using Form 4868, though this only extends the filing date, not the deadline for tax payments. Late filings can result in penalties, with the failure-to-file penalty amounting to 5% of unpaid taxes per month, up to 25%, and interest accruing on outstanding balances.

Taxable Income Categories

Income subject to U.S. taxation for foreign nationals depends on its source. Wages earned from employment in the U.S. are taxable, and employers typically withhold federal income tax based on the worker’s residency status. Compensation from U.S.-based companies for services performed abroad may also be taxable if the individual qualifies as a resident alien, but nonresidents generally owe tax only on income tied to work within the U.S.

Investment earnings such as dividends, interest, and capital gains are taxed differently depending on residency. Resident aliens report all investment income, regardless of origin, while nonresident aliens are typically taxed only on U.S.-sourced earnings. Interest from certain financial institutions, like U.S. bank accounts, is often exempt for nonresidents, but dividends from U.S. corporations face a flat 30% withholding tax unless reduced by a tax treaty. Nonresidents are usually exempt from capital gains tax unless they are present in the U.S. for at least 183 days in a given year, in which case a 30% tax applies to gains from U.S. assets.

Real estate transactions present additional complexities. Rental income from U.S. properties is taxable for both residents and nonresidents, but nonresidents must choose between a flat 30% withholding on gross income or electing to be taxed on net income after deductions, which requires filing a return. When selling U.S. real estate, the Foreign Investment in Real Property Tax Act (FIRPTA) mandates a 15% withholding on the gross sales price, though the final tax owed depends on the gain realized and applicable deductions.

Business income is another significant category, particularly for nonresident aliens engaged in U.S. trade or business activities. If income is deemed “effectively connected” with a U.S. trade or business, it is taxed at graduated rates similar to residents, rather than at the higher fixed withholding rates. This applies to self-employment income, partnership earnings, and certain royalties. However, passive income like licensing fees or rental payments that do not involve active business operations is generally subject to automatic withholding unless treaty provisions allow for a lower rate.

Exemptions and Credits

Foreign nationals may qualify for exemptions and credits that reduce tax liability. While resident aliens generally have access to the same tax benefits as U.S. citizens, nonresident aliens face more restrictions, particularly regarding refundable credits and certain deductions.

The Foreign Tax Credit (FTC) allows resident aliens to offset U.S. tax liability by claiming taxes paid to a foreign government on the same income. Unlike deductions, which reduce taxable income, the FTC directly reduces tax owed. Taxpayers must file Form 1116 to claim this credit unless they meet the exemption for simplified reporting.

For families, the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC) provide relief. Resident aliens with qualifying children under age 17 can claim up to $2,000 per child, with up to $1,600 refundable for 2024. However, nonresident aliens typically do not qualify unless they elect to be treated as residents. The Earned Income Tax Credit (EITC) is also only available to resident aliens meeting specific earned income thresholds.

Education-related tax benefits, such as the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC), apply to qualified tuition and education expenses. The AOC offers up to $2,500 per student, while the LLC provides 20% of up to $10,000 in eligible costs. Resident aliens enrolled in U.S. institutions may claim these credits, but nonresidents generally cannot unless they meet residency election criteria.

Tax Treaties and Their Application

International tax treaties help prevent double taxation and clarify tax obligations for individuals earning income across borders. These agreements impact tax rates, exemptions, and filing requirements.

One common benefit is the reduction or elimination of withholding taxes on certain types of income. For example, under the U.S.-U.K. tax treaty, interest payments made to U.K. residents are generally exempt from U.S. withholding tax. Many treaties also provide reduced rates for dividend income.

Treaties also address employment income, often establishing residency-based rules to determine which country has primary taxing rights. To claim treaty benefits, individuals must file Form 8833.

State Tax Considerations

State tax laws vary and may differ from federal classifications. Some states, such as Texas and Florida, do not impose individual income taxes, while others, like California and New York, have stringent residency rules.

Changing Status During the Tax Year

Foreign nationals transitioning between nonresident and resident status within a tax year must report income differently for each period. This often requires filing both Form 1040 and Form 1040-NR. Special elections, such as the First-Year Choice, may simplify tax treatment.