Tax Tips for Resident and Non-Resident Aliens

Even if you’re not an American citizen, if you live in the United States or spend a significant amount of time there, you still need to pay U.S. income tax.

Resident or non-resident alien

How does the IRS decide your Fiscal U.S. Residency status? In a nutshell there are two tests to establish this decision on assessing your status; the green card test and the substantial presence test. If you satisfy the requirements of either one, you’re considered a resident alien for income tax purposes; otherwise, you’re treated as a non-resident alien.

If you’re an alien with a green card and or permission to reside and work in the U.S, meaning the U.S. Citizenship and Immigration Service allows you to reside in the country legally, you are a resident alien. However, if you don’t have such permissions and spend at least 31 days in the U.S. during the current tax year and a total of 183 days during the last three tax years (inclusive of the current tax year), you’ll usually satisfy the physical presence test and are also treated as a resident alien.

Counting 183 days

When calculating the total number of days you’re present in the U.S. during the three-year period, not every single day is included. Instead, count only a fraction of the days in two of the three years. An example would be; you’re trying to figure out your status for the 2019 tax year because you lived in the U.S. for 70 days. You count all 60 days for 2019, one-third of the days in 2018 and one-sixth of the days in 2017. Therefore, if you were in the U.S. for 117 days in 2018 and 150 days in 2017, only include 39 days for 2018 and 25 days for 2017, with the total for the three-year period being 134 days. In this scenario, you would file taxes as a non-resident alien due to not going over the 183 ceiling.

Another important note to take is that days when you are physically present in the US under the following circumstances do not count towards U.S. presence:

• Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or Mexico.
• Days you are in the United States for less than 24 hours when you are in transit between two places outside the United States.
• Days you are in the United States as a crew member of a foreign vessel.
• Days you are unable to leave the United States because of a medical condition that arose while you are in the United States.
• Days you are an “exempt individual”.

An “exempt individual” for purposes of this test refers to the following individuals:

• An individual temporarily present in the United States as a foreign government-related individual under an “A” or “G” visa.
• A teacher or trainee temporarily present in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa.
• A student temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa.
• A professional athlete temporarily in the United States to compete in a charitable sports event.

Please note that event though some visas are exempt from filing a tax return in the U.S., other forms are still required to be filed. For example, “F” visa holders that are exempt from filing a tax return on foreign income, still might need to file a tax return on U.S. effectively connected income among other forms such as “Statement for Exempt Individuals” and “Closer Connection Exception Statement for Aliens” which are mandatory and not optional.

Resident alien taxes

Once you become a legal U.S. resident, you’re subject to the same tax rules as U.S. citizens. In summary this means you are now required to report all income you earn worldwide on annual tax returns, regardless of which country in which you earn it or reside.

Dual-Status Taxpayer

In the year of transition between being a nonresident and a resident for tax purposes, you are generally considered a Dual-Status Taxpayer. A Dual-Status Taxpayer may file two tax returns for the year; one return for the portion of the year when considered a nonresident, and another return for the portion of the year considered a resident. There are situations where a taxpayer can elect to be treated as a full-year resident in the transition year to avoid having to file two separate returns.

Still unsure what your status for U.S. filing requirements are? Contact us so we can assist you to determine your residency status and if needed prepare your non-resident return.