What Is a Nonresident Alien?

Posted by Frank Gogol

Most people already know what an alien is. An alien is a person who isn’t a U.S. citizen. However, there are two types of aliens: resident aliens or nonresident aliens. What is a nonresident alien, then? Check out the content below to find out more about nonresident aliens.

What Is a Nonresident Alien?

Nonresident aliens are people who are not citizens of the United States. To be more specific, they did not pass the Green Card test, or the substantial presence test, as it goes according to the I.R.S. When they earn income in the U.S., they will have to pay taxes on it.

Resident Alien vs. Nonresident Alien

So, what’s the difference between resident and nonresident aliens? There are a few key differences you have to keep in mind, especially if you intend to work in the U.S. as a foreigner. Here’s what you should know.

Resident Alien

Resident aliens are individuals who were foreign-born and are not U.S. citizens. They are people who are taxed on their worldwide income. People who want to become resident aliens will have to pass one of two tests. These include the Green Card Test and the Substantial Presence Test. If they manage to pass it, they will become resident aliens, and they will be taxed the same way U.S. citizens are.

Basically, if a non-resident alien has been offered the privilege, then they will be permanent residents in the United States at any time. This is how it goes based on immigration laws. If the Bureau of Citizenship and Immigration Services has offered any Green Card to the person, then the alien is considered a resident.

Nonresident Alien

As mentioned, a nonresident alien is someone who didn’t pass the Green Card test and is not a citizen of the States, as he/she was foreign-born and needs to earn certain privileges. Since even foreign nationals have to pay taxes on the income they earn, it only makes sense that nonresident aliens will be in the same boat.

When it comes to nonresident aliens, the IRS usually calculates the amount of time a taxpayer has to spend in the United States in order to be considered a nonresident alien. If you’ve been in the U.S. for less than 31 days in the calendar year and at least 183 days within the last three years when you filed tax returns, or if you don’t have or you’re not eligible for a Green Card, then you’re a nonresident alien.

There are exceptions to this rule too, though. For instance, a foreign national who is married to a permanent resident or citizen of the U.S. is an exception. He/she may file with the spouse as “married filing jointly” as such.

Also, nonresident aliens can use either form 1040NR or 1040NR-EZ when filing taxes. More than that, they can use the individual taxpayer identification number when they do not qualify for a Social Security number and thus don’t have one.

What’s the Difference?

One of the biggest differences is the fact that nonresident aliens only pay their taxes on the income earned in the United States. This is available as long as the income they earn is more than the annual personal exemption amount. This is different compared to resident aliens. While nonresident ones only pay on the income earned in the U.S., resident ones are not different from common U.S. citizens who pay taxes based on their worldwide income.

Another difference that is probably the most obvious one is the fact that nonresident aliens are people who did not pass the Green Card Test. Resident aliens passed it.

It’s important to know that usually, a new arrival on a J-1 or F-1 visa will lead to someone being a non-resident alien. Also, if you’re a student with this visa status, it’s not possible to pass the substantial presence test if you haven’t been in the U.S. for 5 calendar years. Moreover, if you’re a researcher or teacher who is visiting under a J-1 visa, you will not be able to meet the substantial presence test if you were not in the U.S. for 2 calendar years.

Understanding Nonresident Aliens

If you entered the U.S. at one point and for a certain amount of time, then you may be eligible to become a resident alien as long as you meet the substantial presence test.

As explained, you must be in the U.S. for over 31 days in the current year if you want to pass the substantial presence test. At the same time, you should have been in the U.S. for over 183 days throughout 3 years if you want to pass the test. The current year is included in the latter scenario as well.

If you do not pass the test, then you will not become a resident alien, and you will have to file your taxes as a nonresident alien. The same goes if you don’t qualify for a green card.

Taxes for Nonresident Aliens

Once you’re a nonresident alien, you will have to deal with a certain type of taxation. By now, we’ve established that resident aliens pay their taxes on all earned income, more specifically their worldwide income. Well, nonresident aliens will only be taxed based on specific circumstances. To put it simply, in order for the income of a nonresident alien to be taxed, it has to be linked effectively with a U.S. business or trade.

This means that personal service income such as salaries, commissions, wages, and others are included in this connection. Certain business income and investment income are included as well. Then, effectively connected income will be taxed using the same rates as for U.S. residents and citizens.

If income is not linked effectively to a U.S. business or trade, then the taxation will be a flat 30% one. International treaty exemption is also a tax advantage that some nonresident aliens have the chance to enjoy.

When the income sources come from the U.S. for a nonresident alien, then these sources may be taxable. Rent properties and payments owned within the United States are examples of taxable things in this regard. All nonresident aliens will have to submit tax filings about their activities in the U.S. that result in an income.

When leaving the States, the person holding the nonresident alien status will have to confirm that all the tax obligations have been paid. In order to do that, Form 1040-C will have to be filed. This form will then get the person a certificate of compliance, or the departure or sailing permit, as it’s also known. Form 1040NR may also have to be filed for annual tax filing purposes, so it’s essential to pay attention to these details.

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Conclusion

It’s essential to know what a nonresident alien is, as this will tell you whether you are in this situation and what you should do next. Nonresident aliens have certain benefits, and they are different from resident aliens. The more you know about the different types of aliens, the more prepared you will be in case you will fall under one of these categories. Hopefully, you now know what being a nonresident alien involves.

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