How to File US Taxes If You’re Not a Resident

This article was first published on July 26, 2012. It was updated on June 18, 2014, with information relevant to the 2013 and 2014 tax years.

Filing as a Non-Resident Using Form 1040 NR

The United States is a destination for expats from other countries who are hoping to experience a different culture while earning decent wages. Like anyone who works in the United States, these individuals are going to be required to pay US taxes and file a return with the IRS.  This article will explain which non-residents need to file US taxes, the importance of their residency status, what to know about filing US taxes and what is needed to file US taxes for the first time.

Which non-residents need to file?

Generally speaking, most individuals who earn money inside the United States are going to need to both file and pay US taxes.  The IRS has defined who exactly is required to file a return as a non-resident in order to ensure individuals know whether or not they need to file. Currently, the IRS states that you must file if:

  • You are a non-resident alien engaged in trade or business in the United States. You must file even if:
    • Your income was not from a trade or business within the United States
    • You have no income that is US-sourced
    • Your income is considered exempt from income tax
    • You are a non-resident alien who is not engaged in any business, but have US sourced income (example: investment income) that does not have taxes withheld at the source, or
    • You are a trustee for a nonresident alien estate or trust.

So, if you are in the United States under a dual-residency status, or are engaged in any business conducted within the United States, or have US-source income that is not taxed at the source, you must file US taxes and pay anything you may owe the IRS.

Your non-resident taxes and residency

Your residency status is important in determining what to report on your US taxes.  If the IRS considers you a resident, you are going to be required to pay taxes on worldwide income.  Since this can cause a significant tax burden for many individuals, it is important to understand how your residency is determined.

You are considered a resident if:

  • You hold a Green Card (permanent resident)
  • You pass the Substantial Presence Test
    • Physically present in the United States for 30 days in the current year, and
    • Were physically present in the United States for more than 183 days of the current and previous two years.  This is calculated as the following:
      • (1/3 days in USA in the previous year + 1/6 days in the USA two years previous + all days in the current tax year).
      • You may also select to do a “First Year Election” and have your income treated as a resident for tax purposes.

Any other individual who has been living in the United States will be taxed as non-residents – only on US Source income.

If you are a non-resident alien to the United States, you understandably may not be familiar with the IRS reporting requirements or how the US tax system works. Here are some basics.

As a non-resident, you are going to need to file Form 1040NR or Form 1040NR-EZ by tax day.  Tax day is usually April 15th, but this is sometimes different when the 15th is on a national holiday or weekend.  You are eligible to file for an extension to file with Form 4868.  Do note that even if you are granted an extension, any taxes you owe are still due on the original due date, and these taxes will accrue interest if you fail to pay them.

The IRS has multiple “schedules” that must be attached to Form 1040NR (or 1040NR – EZ) for specific types of income.  This includes investment income (such as interest from a bank account) or income from rental real estate (supplemental income and loss).  These schedules must be attached with your Form 1040NR when you report your income.

You may be confused as to which income needs to be reported.  If you are a dual resident and have income coming from your home country, you are going to be taxed the same way as US citizens.  The US taxes residents and citizens on worldwide income.  So, if you have arrived in the US from India and elect to be treated as a resident on your first year, you are going to be required to report any income you have in India or any other foreign country on your taxes. This includes wages, tips, interest income, capital gains, supplemental income and others.

The IRS does allow for certain exemptions.  The personal exemption is $3,900 for the 2013 tax year and $3,950 for the 2014 tax year.  If you are filing as a non-resident, you are not allowed to take more than one personal exemption.  If you are filing as a resident, you are able to take exemptions for yourself, your non-resident spouse and any dependents you have inside the United States.  It is for this reason that many individuals take the First Year Election and end up saving.

First-time filing as a non-resident

Your Tax Identification Number

If you are not a US citizen, you most likely will not have a Social Security Number or Tax Identification Number.  If you do not have either of these numbers, you are not going to be able to file your tax return.

In order to be assigned a Tax Identification Number (ITIN), you are going to need to file Form W-7 for you and any dependents you wish to claim on your taxes.  This form is relatively simple to complete, but the IRS does quote a six week processing time.  As this can be a time consuming procedure, it is important to take care of receiving your tax identification number early.

If this is your first time filing a US tax return, you may be confused, and we can understand why!  Individuals who have lived inside the United States their entire lives still are confused by US taxation.  With the additional schedules and forms that are required, and the added complexity of the tax regime in comparison to other countries, it is easy to see why an individual would be lost while preparing their US taxes.

You are going to want to stay organized.  Having the information about income from all sources (including foreign if you’re a resident) is going to make the entire process much easier.  You will then be able to determine which schedules are required for each type of income, which exemptions you are able to take, and what other deductions you are eligible for. You can then get started on preparing your tax return to submit to the IRS by tax day.

Feeling Overwhelmed? Help Is Available

If you are uneasy about your taxes, get started early to avoid penalties for filing late and seek professional tax preparation assistance to ensure your returns are completed correctly.  Mistakes and errors are easy to make when you are filing for the first time, and can cause costly delays.  Bear in mind that any of these mistakes are likely to be far more expensive than the preparation fees!

For More Information on Preparing US Taxes

We have a blog post on how to file expat tax returns correctly that will be helpful for you. If you have any other questions or would like to learn about our expat tax services, please contact us.

 

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