US Tax for Aliens: Rules and Filing Requirements

The United States applies specific tax laws to individuals who are not U.S. citizens, referred to as “aliens” for tax purposes. An individual’s tax obligations, including what income is taxed and which forms to file, depend on their tax residency status.

Determining Your US Tax Residency Status

An individual’s tax obligations hinge on whether they are classified as a “resident alien” or a “nonresident alien.” This determination is not based on immigration status but on tests from the Internal Revenue Service (IRS). The first path to resident alien status is the Green Card Test. If you are a lawful permanent resident of the U.S. at any time during the calendar year, you meet this test and are considered a resident alien. This status is evidenced by an alien registration card, known as a “green card.”

For individuals without a green card, tax residency is determined by the Substantial Presence Test (SPT), which calculates the number of days you are physically present in the United States over a three-year period. To meet the SPT, you must be physically present in the U.S. for at least 31 days during the current year and a total of 183 days during the three-year period that includes the current year and the two preceding years. The 183-day total is calculated using a formula that 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.

As an example of the SPT calculation, consider an individual in the U.S. on an H1-B visa for 120 days in the current year, 150 days in the first preceding year, and 120 days in the second preceding year. The calculation would be 120 days from the current year, plus 50 days (1/3 of 150), plus 20 days (1/6 of 120). The total of 190 days exceeds the 183-day threshold, meaning this individual would be classified as a resident alien for tax purposes for the current year. Any part of a day spent in the U.S. counts as a full day of presence.

Certain days of physical presence in the U.S. are not counted for the SPT if you are an “exempt individual.” This category includes students on F, J, M, or Q visas, who are exempt for their first five calendar years in the U.S. Teachers or trainees on J or Q visas are exempt for two of the last six calendar years. To claim this exemption, these individuals must file Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition.

Even if you meet the Substantial Presence Test, you may still be treated as a nonresident alien if you qualify for the Closer Connection Exception. This exception is available if you were present in the U.S. for fewer than 183 days during the current year, maintained a “tax home” in a foreign country for the entire year, and had a closer connection to that foreign country than to the U.S. Your tax home is your regular place of business or abode. To claim this exception, you must file Form 8840, Closer Connection Exception Statement for Aliens.

How Your Income is Taxed

A resident alien is taxed like a U.S. citizen and is subject to U.S. income tax on worldwide income, regardless of where it is earned. Resident aliens use Form 1040 to report their global earnings and calculate their tax liability using the same graduated tax rates as citizens.

In contrast, a nonresident alien is taxed only on income from U.S. sources. This income is divided into two categories: Effectively Connected Income (ECI) and Fixed, Determinable, Annual, or Periodical (FDAP) income.

Effectively Connected Income (ECI) is income earned from a trade or business in the United States. This includes wages, salaries, and self-employment income earned for services performed in the U.S. ECI is taxed at the same progressive, graduated tax rates that apply to U.S. citizens and resident aliens, and you can claim certain deductions related to this income.

Fixed, Determinable, Annual, or Periodical (FDAP) income covers passive investment income from U.S. sources. Common examples of FDAP income include interest, dividends, rents, and royalties. This income is taxed at a flat 30% rate on the gross amount with no deductions allowed, and the tax is collected through withholding by the U.S. payer. For instance, rental income from a U.S. property could be FDAP, but if you actively manage the property, it could be treated as ECI.

Applying Tax Treaties and Making Tax Elections

Tax rules for aliens can be modified by international tax treaties and certain elections under U.S. law, which can alter tax liability or provide relief from double taxation. These provisions are not automatic and require you to take specific actions to claim their benefits.

The United States maintains income tax treaties with numerous foreign countries to prevent the same income from being taxed by both the U.S. and another country. These treaties can provide benefits, such as reducing the 30% tax rate on FDAP income or exempting certain types of income from U.S. tax. For example, a treaty might lower the tax on dividends to 15% or exempt the income of students, teachers, or researchers temporarily in the U.S.

To claim benefits under a tax treaty, a nonresident alien must file a U.S. tax return. You must also attach Form 8833, Treaty-Based Return Position Disclosure, to your return. This form is used to disclose that you are taking a position that a U.S. tax treaty overrules or modifies a provision of the Internal Revenue Code. Failing to file this form when required can result in penalties.

A nonresident alien married to a U.S. citizen or resident alien can make an election under section 6013(g) to be treated as a U.S. resident for the entire tax year. This allows the couple to file a joint Form 1040 and potentially benefit from lower tax rates. The main consequence is that the nonresident spouse agrees to be taxed on their worldwide income for the full year.

This choice is a one-time election that remains in effect for future tax years unless it is ended. The election can be terminated by either spouse, through legal separation, or by the death of a spouse. Once terminated, the election cannot be made again in any future tax year.

Preparing and Filing Your Tax Return

If you must file a U.S. tax return but are not eligible for a Social Security Number (SSN), you must apply for an Individual Taxpayer Identification Number (ITIN). An ITIN is a nine-digit number issued by the IRS for tax processing. To apply, you must complete Form W-7 and submit it with your federal income tax return and proof of identity and foreign status, such as a valid passport.

Resident aliens file Form 1040, while nonresident aliens must file Form 1040-NR. You will also need to gather all relevant income statements, which may include Form W-2 for wages, Form 1042-S for certain income paid to foreign persons, and various Forms 1099 for other types of income.

The filing deadlines differ based on your situation. For resident aliens, the deadline is April 15. For nonresident aliens, the deadline is June 15 if you did not receive wages subject to U.S. income tax withholding; otherwise, it is also April 15. Many nonresident aliens are not eligible to file their returns electronically and must mail a paper copy.