Resident and Non Resident Alien for USA tax return purposes? This definition is quite confusing to many foreign nationals who reside or plan to live in the USA.
This is a story of one of our clients. “Lishmi came to the USA 1 year ago to join his family. He found some part-time job. He doesn’t have a green card or a U.S. citizenship. He was surprised to learn that he is considered a resident alien for U.S. tax purposes and Lishmi is taxed on his worldwide income.” Lishmi like many other foreign nationals in the USA thought that he had to report only his U.S. income and assets.
What is the first thing that any foreign national should know about resident and non resident alien status before s/he files a USA tax return?
The answer to this question is quite simple yet it might be quite complicated. Any foreign national must know whether s/he is considered a resident or nonresident for USA tax return purposes. Moreover, the status of a person for USA tax return purposes is not the same as the status for immigration purposes. For example, Lishmi is considered a nonimmigrant alien from the INS USCIS perspective; however, he is a resident alien for tax purposes.
Consequently, a foreign national in the U.S must understand a difference between three tax filing statuses: resident alien, nonresident alien and dual status alien.
Resident alien is treated like a U.S. citizen for tax purposes and taxed on a worldwide income. Moreover, a resident alien has to file the forms like FBAR (read What is FBAR) and FATCA (read What is FATCA) and report foreign accounts as well as any overseas taxes. Resident aliens usually file the form 1040.
Nonresident alien is taxed only on a U.S. source income and subject to special tax rates. However, s/he might qualify for treaty exemptions. Nonresident aliens file the form 1040NR.
Dual status alien is treated both as a resident and non resident alien for USA tax return purposes during the same calendar year. Dual status aliens have to file both the forms 1040 and 1040NR during the same year.
This is just a basic overview of resident and non resident alien status. Please stay tuned for more updates.
If you are a foreign national residing, working or doing business in the USA, please seek an advice of an expat tax professional that provides international tax services. International tax experts at Artio Partners are here to help you.