If you are not a native of the US or live permanently in the country, you might or might not have to pay taxes in the US. This depends on your status in the country.
The term “aliens” is used to categorize people who are not citizens of the US, and nonresident aliens are those who are temporarily in the country as they did not pass the green card or any other substantial presence tests.
Depending on the purpose and length of your stay in the country, you may or may not be eligible for tax payment on your earnings. Let’s take a detailed look at this.
What Are Nonresident Aliens?
People from foreign countries or nationals who reside in the US and earn within the country must pay taxes on their income. The IRS has separated foreign nationals into resident and nonresident aliens to determine the tax rate easily.
Resident aliens are the citizens of the US or foreign people living in the country who have qualified either the green card test or a substantial presence test. Generally, people with F and J visas are considered resident aliens after completing five calendar years in the country.
H-1, TN, and O-1 visa holders become resident aliens after completing the substantial presence test requirements. Researchers and professors on a J visa are also considered resident aliens after completing two calendar years.
A nonresident alien does not meet the requirements to be categorized as a US citizen and has not passed the green card or substantial presence test.
IRS has taken out a rule of thumb to determine and classify nonresident aliens. If the person has been in the US for less than 31 days in one year or less than 183 days within three years, they qualify for taxes as a nonresident alien.
The situation for a nonresident alien is a bit different when they are married to a US citizen, where the spouses file for taxes together under Form 1040, and the filing status is “Married Filing Jointly.”
Who Should File Under The Non-Resident Category?
Any person who has a business in the US or is engaged in some form of trading activity in the country has to file taxes under the nonresident alien category. Even if you don’t have a business in the US but are earning some income in the country, you must file for taxes as a nonresident alien for all earnings from which tax was not withheld at the source of the income.
You will have to file for a tax refund to get back any excess claims that were withheld at the source or if you want to get some benefit of deductions or credit.
Which Income Is To Be Reported?
For a nonresident alien, two different types of income must be reported while filing the taxes. One is the income from a business or trade in the US or is “Effectively Connected” to a business or trade. The other is the US sources of income that is Fixed, Determinable, Annual, or Periodical (FDAP).
For the Effectively Connected income, the same tax rates apply to the residents and citizens of the country. There are some deductions allowed, but for the rest of the income, a graduated rate also applies to nonresident aliens. You have to report the Effectively Connected income on the first page of Form 1040NR, US Nonresident alien income tax return.
The other income in the US, which is not from a business or trade, must be reported on Schedule NEC (Form 1040-NR).
The Filing Process
Form 1040-NR Nonresident alien income tax return is the form you need to file for the tax returns.
If you are employed at a job in the US where you are paid a set salary, which undergoes US income tax withholding, or if you have a place of business, you must file the taxes by the 15th of the fourth month or by April 15th.
For a person with a business in the US or a self-employed person with an income that undergoes US tax withholding at the sources, then you must file your taxes by the mid of the sixth month or by June 15th.
Time Extension Form
If you cannot compile and file your taxes on time, you can get some extra time for the process by filling the Form 4868. This form requests an automatic extension of time for you to file your taxes. However, this form, too, has a due date, so you will have to fill and file the form before the due date.
Leaving The US
If you are leaving the country, you must get a compliance certificate. This sailing permit or departure permit can be obtained from the IRS. In addition, you must file Form 1040-C on leaving the country. Even after leaving the country, you must file taxes on your annual income in the US.
I hope this clarifies your position as a tax filer, and now you can go ahead and file under the correct category.