Foreign Nationals: Non-Resident Aliens and Resident Aliens
Tax information for non-U.S. citizens or non-U.S. green card holders living and working in the United States
For a more detailed analysis of the summary below, view the full-length Article: Prefer An American Work Experience?
Whether you have been assigned, seconded or locally hired to work in the United States (U.S.) from a foreign country, determination of your optimal tax-filing status in the year of your arrival to the U.S. is rarely straightforward, and tends to be quite complex.
There are a multitude of unique and highly complex U.S. domestic tax laws and regulations affecting the U.S. tax residency of foreign nationals, both non-resident aliens and resident aliens, in addition to income tax and social security tax treaties or Totalization Agreements. These U.S. domestic tax laws and regulations are highly specialized and their tax ramifications for foreign nationals (non-resident aliens and resident aliens) are very different than that for U.S. citizens or U.S. green card holders (Legal Permanent Residents).
Additionally, in many cases, foreign nationals may not be subject to certain U.S. and state taxes that they may have already been paying for years. Protax Consulting Services specializes in helping its clients recover such improperly paid income taxes.
As a non-resident alien foreign national in the United States, if you breach the Substantial Presence Test (SPT) – in any calendar tax year through U.S. presence that is in excess of 183 days, with a two-year look back test that accrues additional days to the current year on a fractional basis – then you become a U.S. resident alien who is taxable in the United States on your worldwide income. This is the same case for all U.S. citizens or U.S. green card holders. There are exceptions to this test if you are on certain kinds of visas or meeting certain conditions. The tax rates in this instance are the applicable U.S. graduated rates of tax.
Non-resident aliens in this situation will also be subject to non-recoverable U.S. social security taxes depending on their visa type.
In cases where a foreign national in the United States has two statuses in a single calendar tax year (i.e. a non-resident alien changes to resident alien status, or vice-versa), they become dual-status alien filers in recognition of these two statuses. Dual-status alien tax filers, if married, must file separately and cannot file jointly. Dual status aliens may not use the Head of Household filing status or the Standard deduction.
Additionally, there are opportunities for individual taxpayers entering the United States at some point in the tax year whom do not satisfy the Substantial Presence Test that year, to elect to be treated as U.S. resident aliens from the date of entry forward. This choice to be considered a U.S. resident alien from the date of entry onward may benefit taxpayers with mortgage interest or other itemized deductions not allowed to U.S. non-resident aliens. This may also be beneficial in cases where there are foreign losses, like foreign rental losses, etc. And in some cases, it may facilitate breaking residence from the individual’s former country.
Likewise, there is also the option for married persons to become U.S. resident aliens for the full year. This may benefit taxpayers by using the married joint-filing graduated tax brackets, as opposed to the married separate-filing brackets, which are halved. This is particularly useful when a spouse is not working and is earning no income.
Ways Out of U.S. Tax Residency
Some options for getting out of U.S. tax residency include:
- Closer Connection Exception available on Form 8840 (Closer Connection Exception Statement) and
- U.S. federally negotiated income tax treaties
Some ways to override U.S. Social Security taxes include:
- Social security treaties and
- Totalization Agreements
Tax Education is a Top Priority
At Protax, we are dedicated to educating our clients. We want them to be kept aware of U.S. tax laws affecting the amount of income tax they will pay, as well as the developing and constantly changing laws of U.S. taxation.
We invest the time and resources to meet with our clients as often as required to ensure maximum optimal tax savings mechanisms are in place.
These highly complex tax filings involve intricate terminology and Internal Revenue Code sections not understood by the majority of CPA practitioners, let alone average taxpayers. Therefore, only competent international tax CPAs should attempt these filings. Protax has an extremely qualified staff on hand year-round and also offers excellent articles on this website that will help explain these intricacies in more detail for foreign nationals, both non-resident aliens and resident alien tax filings.
We can advise you as to the applicable tax laws and regulations directly affecting you and we will consult with you on the preparation of your Form 1040NR, dual-status or Form 1040 and any required state tax filings.
Please contact us for a free consultation and for further details.
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