Foreign National Tax Basics
Your tax obligation to the US depends on which type of foreign national you are considered to be for tax purposes. For example, resident aliens are required to follow the same rules and fill out the same forms as US citizens. Generally, nonresident aliens who receive wages or business income while in the US are required to file a tax return. Dual-status aliens must file a separate return, cannot claim the standard deduction, and generally cannot claim dependency exemptions.
It is complicated but required so filing a return is in your own best interests. Just because your employer has withheld tax from your wages does not mean that you have paid the proper amount. You may be owed a refund.
For resident aliens, another reason to file a return is to preserve your visa status. If you do not have a tax liability and choose not to file a return, the IRS will not impose penalties if no tax is due. However, the terms of your visa require you to comply with all laws of the US, including the requirement to file an income tax return. You may be required to show proof that you filed if you wish to change your visa status, obtain permanent residency, or regain entry into the US once you have left. Failing to file your taxes (and thereby failing to comply with this requirement) could jeopardize your visa status.
The first thing you must determine in order to file your tax return is whether you are a resident or nonresident for US tax purposes. If you find that you are both a resident and nonresident in the same year, you may be a dual status alien for which special rules apply.
The designation of resident for tax purposes is completely separate from your immigration status. You might qualify as a resident for tax purposes while remaining a nonimmigrant alien for immigration purposes.
Non-US citizens meeting either the lawful permanent residence ("Green Card") test or the Substantial Presence test (based on time in-country - known as the 183-day calculation). Special rules apply to foreign government personnel, students, teachers and a few other special occupations. Even if you do not meet either of these tests, you may be able to choose to be treated as a US resident for part of the year. Resident aliens follow the same rules and file the same forms as a US citizen. As a resident alien, you will pay tax on your worldwide income rather than just US source income. If you are an exempt individual (exempt from the Substantial Presence test for determining residency status) you are required to file Form 8843 regardless of the amount of income received. More information on the Green Card test, the Substantial Presence test, and a definition of “exempt individual” are available below.
Non-US citizens not qualifying under the two Resident Alien tests, but with assets in or income earned in the US, may have a US income or estate tax filing obligation. A nonresident files a special tax form, pays tax only on US source income, is subject to special rates, and may qualify for treaty exemptions. Students or scholars visiting the US on an F, J, M or Q visa are classified as nonresident for US taxation purposes and are required to file a tax return if they have any income subject to US income tax.
Dual Status Alien:
You are a US resident for tax purposes beginning on the first day you are present in the US as a lawful permanent resident. Therefore, if during the first year of your residency you were a nonresident prior to obtaining permanent residency status; you may be classified as a dual-status alien for tax purposes. As a dual-status alien you must file a separate return, cannot claim the standard deduction, and generally cannot claim dependency exemptions. See the IRS Web site page on Dual Status Aliens for more information.
The Green Card Test
You are a lawful permanent resident of the US if you have been given the privilege, according to the immigration laws, of residing permanently in the US as an immigrant. You generally have this status if the Immigration and Naturalization Service (INS) has issued you an alien registration card, also known as a "green card".
You are a US resident for tax purposes beginning on the first day you are present in the US as a lawful permanent resident. As a resident taxpayer you must report, for US tax purposes, your worldwide income. You are also eligible to claim all deductions and credits available to US citizens. You can file Form 1040, 1040A or 1040EZ, whichever is applicable to your situation, and if you are married you can file a joint return with your spouse. As a resident taxpayer, you may still be eligible to claim treaty benefits under the US tax treaty with your home country. For more information, visit the IRS Web site page on the Green Card Test.
If you receive permanent residency status during the year, you are automatically a resident for US tax purposes from that point forward. However, you may or may not be considered a resident for US tax purposes for the portion of the year you did not have permanent residency status. That means you might be a dual status alien. See the section above on dual status aliens for more information.
The Substantial Presence Test
To meet the substantial presence test, you must be physically present in the US (during a period you do not hold an F, J, M or Q visa) for at least:
31 days during the current year, and
183 days during the 3-year period that includes the current year and the previous two years, counting:
See the IRS Web site page on the Substantial Presence Test for more information.
Definition of Exempt Individual
An exempt individual is someone whose days in the US are not counted toward the substantial presence test, not someone who is exempt from tax. If you are an exempt individual, you are a nonresident alien until you are no longer an exempt individual, or until you receive permanent residency status.
Nonresident Spouse Treated as a Resident
If one spouse is a resident for tax purposes at the end of the year, and the other spouse is a nonresident, you can elect to treat both spouses as residents for the entire year. This rule applies even if the spouse who is a resident at the end of the year is a dual-status alien (a nonresident at the beginning of the year). See the IRS Web site page on this topic for more information.
As these tax rules and filing requirements are extremely complicated to follow, we are experts in this area and are happy to assist with the filing of returns or address any questions you may have.