Type of Aliens:
Any individual who is not a United States citizen or U.S. national is termed as ‘alien’ for tax purposes.
If you are not a citizen of U.S. and failed to pass green card test or substantial presence test, you will be considered as a nonresident alien. And if you pass any of the two tests you will be identified as a resident alien.
If you are holding an H1B visa, you will not have been granted U.S. permanent residency and therefore you are not eligible to pass green card test, however you may appear for the substantial presence test. In this case you will be considered as an H1B Non Resident Alien.
The notable fact is, you need to showcase the income and file your federal income tax return in U.S. irrespective of your alien status.
Green Card Test:
In a calendar year if you spend at least one day in United States as a lawful permanent resident then you will pass this test and will be qualified to file your tax as a U.S. citizen. You will be provided the necessary documents, green card, that qualifies you as a permanent resident for tax purposes.
You can apply for a green card through a qualified family member or depending upon your employment status in U.S. or some other qualified provision.
Substantial Presence Test:
The rules and time duration to pass this test may vary depending on your employment status or if you are a student or visiting teacher or researcher.
You are eligible to file your tax return as a resident if you stay at least 31 days during the present calendar year and physically present in U.S. for 183 days in 3 years tenure, only the current year and consecutive past two years are counted. Not all the days during the last three years are considered in this regard, the calculation is like below:
- All the days of the present year is countable.
- Only, 1/3 of the days that you were physically present in U.S. during the first preceding year of the current year is countable.
- Only, 1/6 of the days physically spent in U.S. during the second preceding year of the current year in countable.
You will be considered as present in U.S. if you are physically present at any day and any time during the day, however you will not be considered as present in substantial presence test for the following cases:
- If you are a resident of Canada or Mexico and travelling to U.S. for work purpose either regularly or sometime often.
- If you are in U.S. and your stay got extended for some medical purpose.
- If you are physically present in U.S. as a crew member of a foreign vessel.
- If you are travelling between two places apart from U.S. and stayed in U.S. for less than 24 hours.
- If you stay in U.S. as an exempt individual.
Taxation Rules for Non Resident Aliens (NRA)
It is clearly stated that Non Resident Aliens hold a different tax liability than that hold by both statutory ‘U.S citizen’ and resident aliens. They are taxable only on certain income from sources within the United States and on the wealth that is generated by any applicable trade or business in the United States.
Your tax commitments towards U.S. Government will be reduced if you are a Non Resident Alien, because you need to provide tax for the money that is being earned from U.S. sources only and not for your other sources of income.
Taxation Rules Will Vary Depending On The Following Cases:
- If you are doing a regular income from a source other than an employer or contractor, that is earning a passive income (such as rents, dividends, capital gains, etc.), you will generally be charged at a flat 30% rate, however depending on your eligibility on some international tax treaties you may get some exemption on this.
- If you are doing an earned income (such as income from employment or other businesses activities) you will be eligible to show your various deductions and tax will be applicable on the amount after the deductions are adjusted.
However, you will have the eligibility to earn both passive and earned income in a single calendar year and tax will be deducted accordingly.
If you are leaving U.S. and at that point of time you are a non resident alien then you must file form 1040-C and you will get a certificate of compliance, this will work as the confirmation that you are legally clean for the process of departure. However, even if you are leaving U.S. it is mandatory to file a 1040NR as a part of your annual tax filing process.
Married Filing Jointly For Non Residential Alien
If a non resident alien is married to a U.S. citizen, the couple can file the federal income tax return in joint and the non resident alien will be treated and benefited like a U.S. citizen for tax purposes. You cannot file a ‘married filing jointly’ for a tax year if you or your spouse was a non resident alien during any time of that tax year.
You must file form 1040NR if you are a nonresident alien and engaged in any kind of trade or business in U.S. or if you have any other income earned in U.S. and the tax was not paid fully.
You should also file form 1040NR in the following cases:
- If you had wages subject to income tax withholding.
- If you receive any perk for any kind of service.
- If you are earning salary from a job.
- If you are earning a taxable income while pursuing any scholarship or fellowship.
- If you get any refund from your state or local income tax.
You will be eligible for very few and minimal limited number of deductions while filing this form. Generally, you will not be able to claim your nonresident spouse or children in this form.