Nonresident Tax Return: You May be Taxed by the IRS as a Non-Citizen Residing in the United States
Millions of Non-US Citizens travel to the United States annually. Some visitors stay only temporarily, while others visit for more extensive periods. If you are a Non-US Citizen staying in the United States for any considerable period of time, you may be required to file a US income tax return.
There are dozens of reasons why Non-US Citizens visit the United States. If you are visiting temporarily, you may not be required to file a US income tax return. If, however, you are in the United States for an extended period of time, you will be expected to file a tax return and report your worldwide income. It’s important to document the exact amount of days you spend in the United States so that you are aware of your rights and responsibilities as a US Taxpayer.
There are two different ‘tests’ the IRS uses to determine if you are required to file a US income tax return as a Nonresident. The first test is whether or not you have a Green Card, and the second test is the Substantial Presence Test.
The first test for determining whether or not you will be required to file a US income tax return is the Green Card Test. If you have a Green Card issued by the United States, then you are considered a permanent resident and will – therefore- be required to file an annual US income tax return, reporting your worldwide income.
The second test is not so cut and dry. In order to meet the conditions of the Substantial Presence Test, you must consider the amount of time you’ve spent in the United States. If you have been in the US for at least 31 days out of the current year and at least 183 days out of the current and previous 2 years, you will have met the conditions of the Substantial Presence Test and will be required to file a US income tax return as a Nonresident.
You are only required to count the exact amount of days you spend in the United States for the current year. When considering time spent in the US for the preceding 2 years, you only count a fraction of the days you spent in the United States.
Every day you spend in the United States in the current year must be counted. To calculate your qualifying days in the US for the previous 2 years, you use a different fraction for each year. For the previous year, you only count one third of the days you actually spent in the United States. For the second year, you only count one sixth of the days you actually spent in the United States. If the total of these days equals 183 or more, you will be required to file a US income tax return.
If you are living in the United States and you are required to file a US income tax return, you must file by April 15. If you are living overseas and met the Substantial Presence Test requirements while living in the United States, your deadline to file is June 15.
Both US Residents and US Nonresidents are required to file a tax return by April 15 if they are residing in the United States. US Citizens and Nonresidents who have met the conditions of the Substantial Presence Test or who have a Green Card have until June 15 to file a US expat tax return. If you need more time to prepare your return, you may request an extension to October 15.
If you are required to file a US income tax return, you will be required to report all of your worldwide income. You will also, however, be allowed to take a variety of deductions available to US Expats to reduce or eliminate your US tax liability.
As a Nonresident required to file a US income tax return, you will be expected to report and pay taxes on your worldwide income. This includes capital gains, dividends, interest, regular salary and wages, royalties, and any other type of income – both foreign and domestic.
One important aspect to keep in mind is that you have a few deductions and exclusions available to you as a US Nonresident filing a US income tax return. The most common exclusion is the Foreign Earned Income Exclusion (FEIE). Using the FEIE, you are able to deduct up to $99,200 (for 2014) of your foreign earned income from your US tax return. For those earning less than $99,200 in foreign income, this exclusion completely eliminates your US tax liability.
If your foreign income exceeds $99,200 and you are responsible for foreign taxes on the excess income, you may take advantage of the Foreign Tax Credit (FTC). The FTC allows you to take a dollar-for-dollar deduction from your US expat tax return. You are not allowed to claim the FTC on income excluded using the FEIE.
When claiming the FEIE or the FTC, you must be sure that the income you are deducting is – in fact – foreign income. If you have US-sourced income, you may not use these deductions or exclusions; you must pay taxes on all income earned in the United States. If you are earning US-sourced income, you may have taxes withheld throughout the year which will make you eligible for a tax return.