What Is a Non-Resident Tax Return & Who Needs to File?

A non-resident tax return is a specific tax filing requirement for individuals who are not considered U.S. residents for tax purposes but have earned income from U.S. sources. This type of return, primarily Form 1040-NR, U.S. Nonresident Alien Income Tax Return, serves to report and calculate the U.S. tax liability on that U.S.-sourced income. It is distinct from the tax returns filed by U.S. citizens or resident aliens, who generally report their worldwide income. The primary purpose of this filing is to ensure that non-residents contribute their share of taxes on earnings generated within the U.S. economic system.

Defining Non-Resident Status for Tax Purposes

The Internal Revenue Service (IRS) employs specific tests to establish an individual’s tax residency status, which differs from immigration status. An individual is considered a non-resident alien for tax purposes unless they meet the Green Card Test or the Substantial Presence Test.

The Green Card Test dictates that an individual is a U.S. resident for tax purposes if they are a lawful permanent resident. This status begins on the first day the individual is present in the U.S. as a lawful permanent resident and continues until revoked or abandoned. Holding a Green Card means an individual is taxed as a U.S. resident, regardless of physical presence.

The Substantial Presence Test determines tax residency based on the number of days an individual is physically present in the U.S. This test is met if an individual is present in the U.S. for at least 31 days in the current year and 183 days over a three-year period. The 183-day calculation involves counting all days of presence in the current year, one-third of the days present in the first preceding year, and one-sixth of the days present in the second preceding year.

Certain individuals may be exempt from counting days for the Substantial Presence Test for a specified period, five years for students and two years for non-students.

Even if an individual meets the Substantial Presence Test, they might still be treated as a non-resident alien under the Closer Connection Exception. This exception applies if the individual is present in the U.S. for fewer than 183 days in the current year, maintains a tax home in a foreign country, and has a closer connection to that foreign country. To claim this exception, Form 8840, Closer Connection Exception Statement for Aliens, must be filed by the tax return due date.

Tax treaties between the U.S. and other countries can influence an individual’s tax residency status, particularly in cases of dual residency. These treaty tie-breaker rules may override U.S. domestic law and determine which country has the primary taxing rights over an individual’s income. Understanding these tests and exceptions is crucial for accurate classification.

Income Subject to Taxation

Non-resident aliens are subject to U.S. taxation on income sourced within the United States. This income is categorized into two main types: Effectively Connected Income (ECI) and Fixed, Determinable, Annual, or Periodical (FDAP) income. These categories are taxed differently.

Effectively Connected Income (ECI) is income derived from a U.S. trade or business, such as wages, salaries, professional fees, or income from a business conducted within the U.S. ECI is taxed at the same graduated rates that apply to U.S. citizens and resident aliens, allowing for certain deductions and credits.

Fixed, Determinable, Annual, or Periodical (FDAP) income includes passive income streams like interest, dividends, rents, royalties, and annuities, provided they are U.S.-sourced. Unlike ECI, FDAP income is taxed at a flat 30% rate. This rate may be reduced or eliminated if a tax treaty between the U.S. and the non-resident’s country of residence specifies a lower rate. FDAP income is often subject to withholding at the source, meaning the U.S. payer deducts the tax before remitting the payment to the non-resident.

Income is considered U.S.-sourced if it originates from activities performed or assets located within the United States. For example, wages for services performed in the U.S. are U.S.-sourced, while interest from a U.S. bank account is U.S.-sourced FDAP income. Non-residents must accurately identify the source of their income for proper tax reporting and compliance.

Key Forms and Supporting Documents

Filing a non-resident tax return requires specific forms and supporting documentation to the IRS. The main form used by non-resident aliens to report their U.S.-sourced income is Form 1040-NR, U.S. Nonresident Alien Income Tax Return. This form is designed to capture personal information, report U.S. income, claim applicable deductions, and calculate the final tax liability or refund.

Form 1040-NR includes various sections for reporting different types of income, such as effectively connected income and fixed, determinable, annual, or periodical income. Depending on the nature of the income, certain schedules may need to be attached. For instance, Schedule NEC (Tax on Income Not Effectively Connected with a U.S. Trade or Business) is used to report FDAP income, while Schedule OI (Other Information) provides additional details about the taxpayer’s status and activities.

Non-residents may also need to provide withholding forms to U.S. payers to certify their foreign status and claim any applicable tax treaty benefits. Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting, is used for this purpose. By submitting a W-8BEN, non-residents can inform payers that they are eligible for a reduced withholding rate under a tax treaty.

To accurately complete Form 1040-NR and its accompanying schedules, various supporting documents are essential. These documents include wage and tax statements like Form W-2, Wage and Tax Statement, for employment income. For other types of U.S.-sourced income, such as investment income or royalties, forms like Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, or various Form 1099 series documents (e.g., 1099-INT for interest, 1099-DIV for dividends, 1099-NEC for nonemployee compensation) are necessary. Maintaining thorough records of all income, deductions, and credits is important for accurate reporting.

Filing Your Non-Resident Tax Return

Once the necessary forms and supporting documents are gathered, non-residents must adhere to specific deadlines and procedures for filing their U.S. tax return. The due date for Form 1040-NR varies depending on the type of U.S.-sourced income received. If wages subject to U.S. income tax withholding were received, the return is due by April 15 of the year following the tax year. For non-residents who did not receive wages subject to U.S. withholding, the deadline is June 15. If additional time is needed, an extension can be requested, providing an additional six months to file.

Completed Form 1040-NR and any required schedules or statements are mailed to the Internal Revenue Service. The specific mailing address depends on whether a payment is enclosed with the return. While e-filing options have expanded, non-resident aliens may find that e-filing for Form 1040-NR is available through certain tax software providers. It is important to verify the availability of e-filing for the specific tax situation.

Any tax due must be paid by the filing deadline to avoid penalties and interest. Payments can be made electronically through IRS Direct Pay, via electronic funds withdrawal if e-filing, or by mailing a check or money order with Form 1040-V, Payment Voucher.

After filing, the IRS processes the return, which can take several weeks or longer, particularly for mailed returns. Individuals can check the status of a refund using the IRS “Where’s My Refund?” tool, though it may not be immediately available for all non-resident filings. The IRS may issue correspondence if additional information is needed or if there are discrepancies identified in the return. Maintaining a copy of the filed return and all supporting documents is recommended for personal records and future reference.