Tax Treatment for Resident Alien

If you are a U.S. resident alien, you use the same filing status a U.S. citizens. If you are a resident alien for the entire tax year you can claim the same deductions as U.S. citizens as well. You get to take a personal exemptions and exemptions for dependents according the dependency rules for U.S. citizens. You have the option of itemized your deductions or using the standard deduction (based on filing status). Resident alien get the same tax credits, use the same forms and use the same mailing addresses as U.S. citizens.

Tax Treatment for Non-Resident Returns

As a foreigner in the United States, you need to know what your tax obligations are, especially if you are pursuing residency. You should not make the mistake of assuming you are exempt from taxes by virtue of not being a citizen yet.

Foreign filers are referred to as non-resident aliens by the Internal Revenue Service (IRS). Any non-resident alien who is waiting to pass the green card test, or the substantial presence test is required to file taxes. They are taxed on all the income that they earn in the U.S, though are not liable to pay taxes on income that they earn outside of the U.S.

Non-resident aliens are divided into two main categories; non-resident aliens with no U.S trade or business and non-resident aliens with a U.S trade or business.

If you are a non-resident alien at the end of the tax year, and your spouse is a resident alien, your spouse can choose to treat you as a U.S. resident alien for tax purposes and file Form 1040 using the filing status “Married Filing Jointly.”

Non-Resident Aliens with a U.S Trade or Business

As a foreign filer that falls into this category, you are required to pay taxes in the U.S on your effectively connected income, following your allowable deductions, at the same rate that the U.S citizens and residents are charged.

When it comes to the available options for exemptions, a nonresident alien can only claim one personal exemption, on the conditions that the claimant may not be listed as another person’s dependent, or any other equivalent tax return.

The IRS Form 1040NR is the income tax return form that should be filled by people in this category. IRS Form 1040NR – EZ, should be filled out when the taxpayer does not have any dependents.

Note:

1) Non-resident aliens are not able to apply for standard deductions on federal returns. Instead, they are limited to itemized deductions on their returns.

2) Non-resident aliens do not need to file a tax return if their US earning or wages are less than the personal exemption amount ($4,000 for year end 12/31/15).

Non-Resident Aliens with No U.S Trade or Business

If you are not engaged in a trade or business, and you are earning an income in the U.S that is fixed, determinable, annual or periodical, then you need to pay your tax at a flat rate of 30%, and you are not allowed any deductions against this income.

General information for all Foreign Filers

Knowing the right time to file for your non-resident alien tax returns is important. If you are an employee or are self-employed, receiving a wage or non-employee compensation, or you have an office or place of business that is subject to the U.S income tax withholding, then you should file by April 15^th every year.

If on the other hand you are not and an employee or self-employed and receiving a wage or non-employee compensation, and, you do not have an office or a business, then you should file by June 15^th every year.

In case you require an extension to file your returns, you should fill out the Form 4868 which will extend the tax deadline from April 15^th to October 15^th for individuals.