If you are not a US citizen or GC holder, live outside the US but earned money in the United States, you are likely required to file the annual tax form 1040NR (U.S. Nonresident Alien Income Tax Return). You may also be required to file a state tax return for your U.S. source income. IRS Publication 519 explains the complex rules governing nonresident taxation. But because few people enjoy reading IRS publications, we wrote this simple guide below.
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IF YOU
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YOU’LL NEED TO
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Have income from the US
US rental income, part year employment, investment income)
But do not meet the
substantial presence test
which would require a U.S. resident tax return.
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File form 1040NR
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Are a Non-Resident Alien
engaged in a trade or business in the United States during the calendar year
Even if this generated no income, or if the income is exempt from US tax under a tax treaty
or any section of the Internal Revenue Code.
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File form 1040NR
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If you earned income in the US, are a non-resident alien, and fail to file form 1040NR,
you may be leaving money on the table. Many non-residents fail to file because
they assume they do not owe tax due. This is backward thinking. You may actually be due a refund
from the IRS due to overpayment (as taxes were already automatically withheld).
The amount withheld from the average non-resident's paycheck is normally over the amount
that would be due at the end of the year. Failing to file means the loss of a refund.
Aside from the financial incentive, NRA’s have an immigration incentive to file form 1040NR.
Visa terms require their holders to fully comply with U.S. laws. This includes the obligation
of filing a tax return. If you leave the US and seek re-entry, you may very well be required
to show proof that you filed a US return.
Not filing a return could put their U.S. residency status at risk.
Your tax obligations will be different depending on your status, whether you are a
Resident Alien,
Non-resident Alien or
Dual Status Alien.
Your tax obligations will even depend on the country you moved in or out of, and even on your occupation.
It really is a rather complicated process - but that is what we are here for.
By asking the right questions, we determine your status and file the right tax return for you.
NOTE: If you were a Non-resident alien student,
teacher, or trainee who was temporarily present in the United States on an "F,""J,""M," or "Q" visa,
you are considered engaged in a trade or business in the United States. You must file Form
1040NR
(or Form 1040NR-EZ) only if you have income that is subject to tax, such as wages,
tips, scholarship and fellowship grants, dividends, etc.
Frequently asked questions
1. I’m a non-US citizen and not a GC holder. I do not live in the US, but I have rental properties in the US. Do I need to file a US tax return? What about State taxes?
Rental properties in the U.S. require annual nonresident tax return 1040NR to report gain or loss from rental activity.
Annual non-resident state return is required as well Annual reporting is required even if you generate a loss. Furthermore, when you choose to sell your property, all accumulated losses (if any) are deducted from sales proceeds. Without annual reporting, these losses cannot be recovered. If property is idle (no rental activity), no reporting is required.
2. I have an H-1b visa - what is my residency status for tax purposes?
You are a U.S. resident in the current year for tax purposes if you meet the substantial presence test beginning on the first day you are present in the United States. You are not considered present in the United States while you are an "exempt individual."
- If you meet the test and have been in the U.S. on an H-1B visa for the entire calendar year, you are a full-year resident for U.S. tax purposes.
- If you fail the substantial presence test you are a nonresident alien unless you qualify for and make a special election.
As a nonresident alien, you are required to file a tax return each year you are here if you have any income subject to U.S. income tax. If you are married, you and your spouse must file separate returns; joint returns are not allowed.
There is a special election [IRC Sec. 7701(b)(4)] to be treated as a resident alien from your arrival date if you satisfy the following tests -
- You are not otherwise a resident alien for the year,
- You were not a resident alien at any time in the immediately preceding year,
- You are a resident alien under the substantial presence test for the immediately following year,
- You are present in the United States during the election year for a period of 31 consecutive days,
- Your days of U.S. presence are 75% or more of the total days between the beginning of the earliest 31 day consecutive U.S. day period and December 31.
Alternatively, a further election is available, when combined with the first election, to file a joint resident return with your spouse and be treated as a U.S. resident for the entire year [IRC Sec. 6013(g)]. Under this election, you can claim the standard deduction and other tax benefits available to U.S. citizens and residents, but you are subject to tax on your worldwide income for the entire calendar year. In order to eliminate double taxation, the foreign tax credit is generally available to claim against foreign taxes paid on foreign source income.
3. I have interest in the U.S. partnership but I have not spent any time in the U.S. during the tax year. Do I have any filing obligations?
A U.S. Partnership with non-US partners must pay the withholding tax regardless of the amount of foreign partners' ultimate U.S. tax liability and regardless of whether the partnership makes any distributions during its tax year. Tax reduces the foreign partner's share of income. The foreign partner should then file form 1040NR to claim a refund for overpayment of tax withheld from his share of partnership income.
