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Tax Tips for Resident and Non-Resident Aliens: Part 2

tax tips for resident and non-resident aliens2

When it comes to filing taxes as a resident or non-resident alien, the first step is determining your alien status for tax purposes. If you satisfy the requirements of either the IRS green card test or the substantial presence test, you will be considered a resident alien for tax purposes. If you cannot meet the requirements, you will be taxed as a non-resident alien. Here’s how resident and non-resident aliens are taxed and how to make the most out of your situation. 

How are resident aliens taxed? 

If you’re considered a resident alien, you will be taxed the same way a U.S. citizen would be. In other words, all income must be reported on your tax return. This is even if some of it or all of it was earned abroad. Income can include wages, interest, royalties, dividends, rental income, and other sources. Resident aliens use the same forms and filing statuses as U.S. citizens. Additionally, they have access to the same tax deductions, credits, and exemptions.  

How are non-resident aliens taxed? 

Non-resident aliens are taxed differently. The IRS only requires non-resident aliens to pay taxes on the income earned in the United States. Similarly, income connected to a U.S. business should be reported. This means any income earned in any foreign country is not taxed by the IRS. Instead of using Form 1040 to file a tax return, non-resident aliens should use Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Non-resident aliens will also qualify for deductions and credits to help reduce their taxable income.  

How are dual-status aliens taxed? 

If you are a dual-status alien, it means that you were considered a resident alien and a non-resident alien in the same year. This typically occurs the in the year you arrive in the U.S. or depart. In this scenario, you would need to file a tax return. Which one is filed depends on which status you held at the end of the tax year. For example, if you ended the year as a resident alien, you would file Form 1040 and note that it is a dual-status return. You would also need to include a statement of income earned as a non-resident during the tax year. If you choose to use Form 1040-NR as your statement of income, you will need to note that it is a dual-status statement. Dual-status tax returns have several filing restrictions, so consider consulting with a tax professional for help.  

Can resident and non-resident aliens leave the U.S. without paying taxes? 

In most cases, all aliens leaving the United States will need to secure a sailing permit with the IRS. This document grants IRS clearance and can be obtained by filing Form 1040-C, Departing Alien Income Tax Return or Form 2063, U.S. Departing Alien Income Tax Statement and Annual Certificate of Compliance. You must also pay any tax owed, plus any taxes due from previous years. This process can take 2-3 weeks so you should plan your departure accordingly.  

Tax Help for Resident and Non-Resident Aliens 

Determining your alien status for tax purposes is only one initial hurdle that you need to overcome when filing a tax return. Filing and paying taxes is a whole other set of tasks and sometimes requires the help of a knowledgeable and experienced tax professional. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations. 

If You Need Tax Help, Contact Us Today for a Free Consultation 

Tax Tips for Resident and Non-Resident Aliens: Part 1

tax tips for resident and non-resident aliens1

Did you know you are required to pay taxes on your income even if you are not an American citizen? The same is true even if you spend some of your time abroad. One important thing to note, however, is the way you are taxed is determined by your alien status. In other words, resident aliens are taxed differently than non-resident aliens. Here’s an overview of tax tips for resident and non-resident aliens, including how each status affects your taxes

Resident vs. Non-Resident Alien Status 

Before figuring out how you will be taxed, you’ll need to figure out which alien status applies to your situation. The first is the resident alien status. This means you were born outside the United States, do not have U.S. citizenship, but you live in the country. It also means you have satisfied the requirements of one of two IRS tests. These are the green card test or the substantial presence test. The second status is the non-resident alien status. This status is granted to those who do not satisfy the requirements of the green card test or the substantial presence test. 

Green Card Test 

The green card test is fairly simple. If the U.S. Citizenship and Immigration Service grants you a green card, you satisfy the requirements of this test and are considered a resident alien.  

Substantial Presence Test 

The substantial presence test is a little more complicated. It is for those who do not have a green card but meet both of the following requirements: 

  • Spent at least 31 days in the United States during the current tax year 
  • Spent at least 183 days in the United States during the last three tax years (including the current tax year) 

How to Count Number of Days Present 

When counting days, you may count all the days you were in the country in the current year. However, you may only count 1/3 of the days you were present in the year prior to the current year and only 1/6 of the days you were present in the second year prior to the current year. Let’s look at an example. Assume you were present in the country for 120 days in 2023, 180 days in 2022, and 150 days in 2021. Your total number of days present in the U.S. would be 205 days according to the following calculations: 

  • 120 days for 2023 
  • 60 days for 2022 (1/3 of 180) 
  • 25 days for 2021 (1/6 of 150) 

This means you’d meet the minimum of 183 days in the United States. Therefore, you’d be considered a resident alien for tax purposes in 2023. However, keep in mind that there are several days that should be excluded from your count, including: 

  • Days you regularly commuted to work in the U.S. from Mexico or Canada 
  • Days you pass through the U.S. for less than 24 hours because you are in transit between two places outside the U.S.
  • Days you are in the U.S. as a crew member on a foreign vessel 
  • Days you are unable to leave the U.S. due to a medical condition that developed while in the U.S. 
  • Days you are considered an exempt individual   

Exempt Individuals

You are considered an exempt individual for a day if you meet any of the following criteria: 

  • You are temporarily in the U.S. as a foreign government-related individual under an “A” or “G” visa, excluding “A-3” and “G-5” class visas 
  • You are a teacher or trainee who is temporarily in the U.S. under a “J” or “Q” visa and comply with the visa requirements 
  • You are a student who is temporarily in the U.S. under an “F,” “J,” “M,” or “Q” visa and comply with the visa requirements 
  • You are a professional athlete who is temporarily in the U.S. to compete in a sporting event for charity 

Going back to our previous example, if we were to exclude 30 days that you spent in the U.S. working as a crew member on a foreign vessel in 2023, your new count would be 175. Because the excluded days reduced your count below the 183-day minimum, you would be considered a non-resident alien for tax purposes in 2023.  

Tax Help for Resident and Non-Resident Aliens 

It’s clear that determining your alien status for tax purposes can get complicated. If you’re still unsure about your status after reading our tax tips for resident and non-resident aliens, you can consult a tax professional for clarification. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations. 

If You Need Tax Help, Contact Us Today for a Free Consultation