Who is a non-resident alien for tax purposes? Why do you need to know? Well, the taxation of a non-resident alien is different than those who are U.S. citizens or residents in the United States. In this article, we will be discussing your tax residency status in the United States.
Please visit “Taxation of non-resident alien” for the tax deductions and exemptions that are available to a non-resident alien in the United States.
You, an alien (not a U.S. citizen), will be considered a non-resident alien unless you meet one of the two tests described below:
According to the immigration laws, you are a lawful permanent resident of the United States at any time as you have been given the privilege of residing permanently in the United States as an immigrant.
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for a calendar year. To meet this test, you must be physically present in the United States on at least:
A resident alien individual can claim an exclusion from days present in the United States by explaining his/her basis on Form 8843.
– Were an exempt individual.
– Were unable to leave the United States because of a medical condition or medical problem
For e.g. A Student, Trainee, or Researcher from India claiming a treaty convention between India and The United States of America under article 21 or 22.
You are a resident alien for tax purposes if you meet either the green card test or the substantial presence test. Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S. resident for part of the year.
Closer Connection to a Foreign Country
Even if you meet the substantial presence test, you can be treated as a non-resident alien if you:
Dual residents. The rules given here to determine if you are a U.S. resident do not override tax treaty definitions of residency. If you are a dual-resident taxpayer, you can still claim the benefits under an income tax treaty. A dual-resident taxpayer is a resident of both the United States and Canada under Canada’s tax laws. If you are treated as a resident of Canada under a tax treaty, you are treated as a non-resident alien in figuring your U.S. income tax.
You can be both a non-resident alien and a resident alien during the same tax year. This usually occurs in the year you arrive in or depart from the United States.
Choosing Resident Alien Status
If you are a dual-status alien, you can choose to be treated as a U.S. resident for the entire year if all the following apply.
This includes situations in which both you and your spouse were non-resident aliens at the beginning of the tax year, and both of you are resident aliens at the end of the tax year.
Note. As a Single filing status at the end of the year, you cannot make this choice.
Non-resident Spouse Treated as a Resident
If you are married and one spouse is a U.S. citizen or a resident alien, and the other spouse is a non-resident alien, you can choose to treat the non-resident spouse as a U.S. resident. This includes situations in which one spouse is a non-resident alien at the beginning of the tax year, but a resident alien at the end of the year, and the other spouse is a non-resident alien at the end of the year.
Alien Tax Status First-Year Choice
If you do not meet either the green card test or the substantial presence test for the current year (for example, 2019) or the prior year (2018), and you did not choose to be treated as a U.S. resident for part of the prior year (2018), but you meet the substantial presence test in the following year (2020), you can choose to be treated as a U.S. resident for part of the current year (2019) and be taxed as a dual-status alien for the current year (2019). To make this first-year choice, you must:
Be present in the United States for at least 75% of the number of days following the 31-day period, beginning with the first day of the 31-day period and ending with the last day of the current year (2019). (For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States.)
Alien Federal Income Tax Rate
You are an alien if not a U.S. citizen. You are a non-resident alien if you do not meet either the green card test or the substantial presence test.
– If you are filing as a U.S. resident alien, your federal tax bracket is the same as for a U.S. citizen.
– If you are filing as a non-resident alien in the United States, your federal tax bracket is the same as for a U.S. person for your income from business or employment in the USA.
– However, a non-resident alien pays a flat income tax rate of 30% on all your passive income from interest, dividends, rents, or royalties unless a tax treaty specifies a lower rate.
For 2020 and 2021 Federal income tax brackets, please visit our Latest News.
RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters. RKB a CPA(Delaware), CA(India), and CIA(USA) has over 25 years of experience in accounting and taxation in dealing with various countries in the world.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.