April 11, 2018
When filing your taxes as a resident or nonresident alien of the U.S. you’ll find that there are some differences between how you are required to fulfill the rules, and how a citizen of the U.S. is. There may in fact, be some income tax exemptions for certain individuals who are not U.S. citizens, depending on their circumstances. Let’s take a closer look at the definition and tax treatment of such individuals:
Who is classed as a ‘resident alien’ and who is classed as a ‘non-resident alien’?
Those non-U.S. citizens holding green cards or who have resided in the country for a minimum of 183 days over a period of 3 years (including the current year), are classed as resident aliens. Those individuals who don’t hold green cards but who are in the country legally – such as tourists – are classed as non-resident aliens.
How is the income of non-resident aliens taxed?
Income earned or realized from a U.S. source, is taxable for non-resident aliens, but they are not legally required to pay taxes on any income that is generated from overseas. Income from investment that is not from a U.S. source is usually given a tax rate of 30%.
Instead of filing a joint return, the spouses of non-resident aliens may claim them as dependents in certain circumstances.
It’s imperative that all non-resident aliens keep track of their earnings and can show all relevant paperwork to the IRS at any given time, making their task of verifying what should be taxed and what is exempt, a whole lot clearer.
How is the income of resident aliens taxed?
All forms of income received by the resident alien are taxable, no matter whether it is foreign or domestic, and includes payments that may have been received from a pension or foreign government. If they qualify however, some resident aliens may be able to claim the ‘foreign earned income exclusion’.
Passing the residence test for resident aliens:
All resident aliens must carry a green card or have met the requirements of the residence test to remain legally in the U.S. The alien taxpayer must live in the U.S. for at least 31 days of the year and have been in the country for at least 183 days of the past 3 years, to pass the residence test.
That said, the test will only class a day of residence within the U.S. as a full day of residence for the current year. Each day of residence will only be classed as one-third of a day of residence in the previous year, and then one sixth of a day in the year preceding that. This means that the total number of days classed as being of residence in the country during the previous 2 years must be divided by 3 or 6 to reach a total; the final total must then be equal to at least 183.
Who can you turn to for more information and guidance?
Any tax professional with adequate qualifications, knowledge and experience will be able to give you the most up to date information regarding your income tax as a resident, or non-resident alien. They will ensure that you don’t pay more than you are legally required to, and that you file in a timely manner while staying tax compliant. It’s always worth investing in the services of a tax professional when it comes to something as important as your taxes, as they’ll give you peace of mind and enable you to be free from the worry of getting into trouble with the IRS.
Most US individuals and businesses who benefit from having completed their tax returns in a timely and accurate manner, will admit to having used the services of a tax professional, and there is absolutely no shame in that.
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