Nonresident Alien: Meaning and Tax Implications

What is a nonresident alien?

A nonresident alien is a foreign national who is not a U.S. citizen and does not meet either the Green Card test or the substantial presence test. Typical examples include visiting teachers, students, temporary workers, and people in the U.S. for medical treatment. Nonresident aliens are subject to U.S. tax only on certain U.S.-source income.

Resident vs. nonresident: how residency is determined

• Green Card test: a person with lawful permanent resident status (a green card) is a resident alien for tax purposes.
• Substantial presence test: you are a resident alien if you are physically present in the U.S. for at least:
• 31 days during the current year, and
• 183 days total using the weighted three-year formula: all days in the current year + 1/3 of days in the prior year + 1/6 of days two years prior.
• If neither test is met (and no green card exists), the person is a nonresident alien for tax purposes.

Taxation of nonresident aliens

Taxation depends on whether income is U.S.-source and whether it is effectively connected with a U.S. trade or business:

• Effectively connected income (ECI):
• Includes wages, salaries, commissions, business income, and some investment income that is connected to a U.S. trade or business.
• ECI is taxed at the same graduated rates that apply to U.S. citizens and resident aliens.
• Non‑effectively connected U.S.-source income (often called FDAP: fixed, determinable, annual, or periodic income):
• Includes certain interest, dividends, rents, royalties, and similar passive U.S.-source income not effectively connected to a U.S. trade or business.
• Taxed at a flat 30% rate on gross income unless a reduced treaty rate applies.
• Examples of taxable U.S.-source items for nonresident aliens:
• Rent from U.S. real property
• Royalties from U.S. natural resource extraction
• U.S. wages for services performed in the U.S.

Treaties and exemptions

Tax treaties between the U.S. and other countries can modify tax treatment (reduced rates or exemptions). Specific treaty provisions and eligibility rules apply, so check the relevant treaty and IRS guidance.

Filing requirements and deadlines

• Nonresident aliens generally file Form 1040-NR to report U.S.-source income and claim allowable deductions and treaty benefits. (A simplified version, Form 1040-NR-EZ, has historically been available in limited situations.)
• Filing deadlines:
• April 15 — if you were an employee and received wages subject to U.S. income tax withholding.
• June 15 — if you did not receive wages subject to U.S. tax withholding (for example, no U.S. wage income).
• Nonresident aliens must report U.S.-source income and may need to furnish documentation to claim treaty benefits or exemptions.

Departing the U.S.: certificate of compliance

• Before leaving the U.S., a departing nonresident alien may file Form 1040-C to obtain a certificate of compliance (sometimes called a sailing or departure permit). This form helps confirm that tax obligations due as of the departure date have been satisfied.
• Filing Form 1040-C does not replace the requirement to file an annual return (Form 1040-NR) where applicable.

Practical takeaways

• Determine your status (resident vs nonresident) using the Green Card and substantial presence tests; the result determines your U.S. tax obligations.
• Nonresident aliens are taxed only on U.S.-source income, either at graduated rates if it is effectively connected or at a flat 30% (subject to treaties) for passive U.S.-source income.
• File the appropriate forms (1040-NR and, if applicable, 1040-C when departing) by the correct deadline and consult treaty rules that may reduce tax.

Sources

IRS Publication 519, “U.S. Tax Guide for Aliens,” and IRS Topic No. 851, “Resident and Nonresident Aliens.”