Understanding U.S. tax obligations as a non resident alien involves recognizing your income sources and your residency status. Depending on the state, you may need to file a state tax return of that state. Non resident alien are typically taxed only on their U.S. income, unlike U.S. citizens and resident aliens who are taxed on their worldwide income. Properly filing your tax return ensures compliance and can help maximize potential tax benefits.
Tax Treatment
Effectively Connected Income (ECI) :
- If you have ECI, you will be taxed at the same graduated rates that apply to U.S. citizens and residents.
Fixed, Determinable, Annual, or Periodical Income (FDAP) :
- If you have FDAP income, it is generally taxed at a flat rate of 30% (or a lower treaty rate) and deductions are not allowed.
Non Resident Alien ?
An alien is any individual who is not a U.S. citizen or U.S. national. Non resident alien is an alien who has not passed the green card test or the substantial presence test. Non resident alien must file Form 1040-NR, U.S. Non resident Alien Income Tax Return, if they have U.S. source income or income effectively connected with the United States. The is income tax is based on the amount earned within the state versus other locations. Non resident alien may also need to file state tax returns if they earn income. Any foreign nationals may be included who live and work in the U.S. for a short period, foreign students, or temporary workers.
Who Must File ?
Non resident alien must file a U.S. tax return if they:
- Are engaged or considered to be engaged in a trade or business in the United States during the year.
- Have U.S. income on which the tax liability was not satisfied through withholding.
- Wish to claim a refund of excess withholding or claim any deductions or credits (e.g., income from rental property treated as connected to a trade or business).
Tax Treatment of Non Resident Alien
Engaged in a Trade or Business:
- Non resident alien must pay U.S. tax on their effectively connected income (ECI) after allowable deductions at the same rates applicable to U.S. citizens and residents.
- ECI includes wages, salaries, tips, dividends, rental income, and other types of U.S.-sourced income.
Not Engaged in a Trade or Business:
- U.S. income that is fixed, determinable, annual, or periodical (FDAP) is taxed at a flat 30 percent rate (or lower treaty rate).
- No deductions are allowed against FDAP income.
Marital Status of Non Resident Alien
Married Filing Jointly:
- A non resident alien married to a resident alien or U.S. citizen can choose to be treated as a U.S. resident for tax purposes, allowing them to file jointly.
- This election subjects the non-resident’s worldwide income to U.S. taxation, potentially offering certain tax benefits.
Married Filing Separately:
- If the non resident alien spouse is not treated as a resident, they will file as a non resident, and the U.S. citizen or resident spouse will file as married filing separately.
- If you are a non resident alien at the end of the tax year and your spouse is a resident alien, your spouse can choose to treat you as a U.S. resident alien for tax purposes and file Form 1040 using the filing status “Married Filing Jointly.”
Filing Deadlines
- April 15: If you have wages subject to U.S. income tax withholding.
- June 15: If you do not have wages subject to U.S. income tax withholding, such as self-employment or investment income.
Taxpayers who cannot meet the June 17 or April 15 deadline can request an additional extension to file their return by October 15. However, this extension does not apply to the payment of any taxes owed, which are still due by June 17.
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Filing Requirement of Non Resident Alien
Non resident alien (NRAs) are generally required to file a U.S. tax return if they meet any of the following criteria:
- Engaged in U.S. Trade or Business: If you are engaged in a trade or business within the U.S. income and generate income effectively connected to that business (ECI).
- U.S. Source Income: If you have U.S. income on which tax liability wasn’t fully satisfied by withholding.
- Claiming Tax Benefits: If you wish to claim a refund for excess tax withholding or want to utilize tax deductions or credits.