What Is a Nonresident Tax Return? Who Needs to File?

A nonresident tax return is a specific tax filing designed for individuals who are not considered U.S. citizens or resident aliens for tax purposes but have U.S.-sourced income. This return ensures these individuals meet their tax obligations to the United States government. Filing a nonresident tax return, primarily Form 1040-NR, is essential for reporting income earned from U.S. sources and claiming applicable deductions or credits. It differs from the Form 1040 used by U.S. citizens and resident aliens, which reports worldwide income. Correctly determining one’s residency status and filing the appropriate return is important to avoid penalties and comply with U.S. tax law.

Defining Nonresident Status

An individual who is not a U.S. citizen is considered a nonresident alien unless they meet either the Green Card Test or the Substantial Presence Test for a given calendar year. The Green Card Test classifies an individual as a resident alien for tax purposes if they are a lawful permanent resident of the United States at any point during the calendar year. This status is granted by U.S. Citizenship and Immigration Services (USCIS) and is evidenced by a “green card.” Once obtained, an individual is generally considered a U.S. tax resident regardless of their physical presence, unless this status is formally renounced or terminated.

The Substantial Presence Test assesses an individual’s physical presence in the United States over a three-year period. To meet this test, an individual must be physically present in the U.S. for at least 31 days in the current year and 183 days during the three-year period that includes the current year and the two years immediately before it. The calculation for the 183-day rule 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.

Individuals on specific visa types, such as F, J, M, or Q visas (often students, teachers, or trainees), may be considered “exempt individuals.” Days spent in the U.S. by these exempt individuals do not count towards the Substantial Presence Test for a specified period. Additionally, days commuting from Canada or Mexico, or days spent in transit for less than 24 hours, do not count towards physical presence.

Even if an individual meets the Substantial Presence Test, they might still be treated as a nonresident alien under the Closer Connection Exception. This exception applies if the individual was present in the U.S. for fewer than 183 days in the current year, maintains a tax home in a foreign country, and can demonstrate a stronger connection to that foreign country than to the United States. Factors considered for a closer connection include the location of a permanent home, family, personal belongings, and the country designated on official documents. To claim this exception, Form 8840, Closer Connection Exception Statement for Aliens, must be filed with the IRS.

Taxable Income for Nonresidents

Nonresident aliens are generally subject to U.S. taxation only on income derived from U.S. sources. This U.S.-sourced income is broadly categorized into two main types: Effectively Connected Income (ECI) and Fixed, Determinable, Annual, or Periodical (FDAP) income. The classification of income determines how it is taxed.

Effectively Connected Income (ECI) is income that is directly related to the conduct of a U.S. trade or business. This typically includes salaries, wages, and professional fees earned for services performed in the U.S. Income from operating a business in the U.S., such as selling products or services, is also considered ECI. Gains from the disposition of U.S. real property are also treated as ECI. This type of income is taxed on a net basis, meaning that allowable business expenses can be deducted, and it is subject to the same graduated tax rates that apply to U.S. citizens and resident aliens.

Fixed, Determinable, Annual, or Periodical (FDAP) income includes passive income such as interest, dividends, rents, royalties, and annuities from U.S. sources that are not considered ECI. This income is generally subject to a flat 30% tax rate on the gross amount, without deductions. The tax on FDAP income is often collected through withholding at the source, meaning the payer of the income is responsible for deducting and remitting the tax to the IRS. For example, a U.S. company paying dividends to a nonresident alien would typically withhold 30% of the payment.

The concept of income sourcing is important for nonresidents, as only U.S.-sourced income is generally taxable. This involves determining whether the origin of the income is within the United States. For instance, compensation for services performed in the U.S. is considered U.S.-sourced, while interest paid by a U.S. bank may or may not be U.S.-sourced depending on specific rules.

Tax treaties between the U.S. and other countries can significantly modify the taxability of certain income types for residents of those countries. These treaties often provide for reduced tax rates or even exemptions from U.S. tax on specific categories of income, including both ECI and FDAP. For example, a treaty might reduce the 30% withholding tax on FDAP income to a lower percentage or eliminate it entirely. Nonresidents claiming treaty benefits must typically disclose this on their tax return.

Required Tax Forms

Filing a nonresident tax return involves completing specific IRS forms tailored to the tax situation of individuals who are not U.S. citizens or resident aliens. The primary form for this purpose is Form 1040-NR, U.S. Nonresident Alien Income Tax Return. This form serves as the main document for reporting U.S.-sourced income, claiming deductions, and calculating the tax liability for nonresidents.

When completing Form 1040-NR, taxpayers must provide personal identification details, including their name, foreign address, and either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). The form requires detailed reporting of both Effectively Connected Income (ECI) and Fixed, Determinable, Annual, or Periodical (FDAP) income. Supporting documents such as Form W-2 for wages, Form 1042-S for certain types of income subject to withholding, and Form 1099s for other income like interest or dividends are necessary to accurately report income. Information regarding visa type and dates of entry and exit from the U.S. may also be required.

Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition, is a common form required even if no income was earned. This form is used by individuals, such as students or teachers on F, J, M, or Q visas, to explain why their days of presence in the U.S. should be excluded from the Substantial Presence Test. Form 8843 typically requires personal information and details about one’s visa status.

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), is not filed with the IRS directly but is provided to entities that pay U.S.-sourced income to nonresidents. Its purpose is to certify an individual’s foreign status and to claim eligibility for a reduced rate of withholding tax, or an exemption, under an income tax treaty. Without a properly completed W-8BEN, payers may be required to withhold tax at the statutory 30% rate on FDAP income.

Filing Your Nonresident Tax Return

Once all necessary information has been gathered and the tax forms are completed, the next step is to file the nonresident tax return with the IRS. Nonresident aliens typically have specific deadlines for submitting their returns. For most individuals who received wages subject to U.S. income tax withholding, the filing deadline is April 15 of the year following the tax year. However, if an individual did not receive wages subject to U.S. income tax withholding, the deadline is generally June 15. If these dates fall on a weekend or holiday, the deadline shifts to the next business day. An extension of time to file can be requested by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by the original due date, but this does not extend the time to pay any taxes owed.

Most nonresident aliens cannot e-file their Form 1040-NR through commercial software, so the return must generally be mailed to the IRS. The specific mailing address depends on whether a tax payment is enclosed with the return. Instructions for Form 1040-NR provide the correct mailing addresses. It is important to ensure all required forms and schedules, such as Form 8843, are attached to the Form 1040-NR when mailing.

If a tax liability is due, there are several methods for payment. Payments can be made via direct debit from a U.S. bank account, by check or money order, or through IRS Direct Pay. The payment should be submitted by the filing deadline to avoid penalties and interest.

After filing, individuals may receive a refund if they overpaid their taxes, or they might receive a notice from the IRS if there are questions or discrepancies. If an error is discovered on a previously filed nonresident tax return, it can be amended. The process for amending a nonresident return typically involves filing an amended return, often Form 1040-X, Amended U.S. Individual Income Tax Return, though specific nonresident alien instructions apply.