Form 1040NR – U.S.Nonresident Alien Income Tax Return requires U.S. nonresident aliens (NRAs) to file this form if the NRA participated in any trade or business in the U.S. during the tax year and has U.S. source income. Activities to include studying, teaching, or doing research in the U.S. are considered to be participating in trade or business within the U.S. NRAs that were employees during the tax year and received wages would also need to file this income tax form. For more information on Form 1040NR and its instructions, please visit this link: https://www.irs.gov/pub/irs-pdf/i1040nr.pdf.
This three part series will look at who qualifies as an NRA for filing purposes, filing requirements and exemptions based on individual circumstances, and, finally, special considerations to note when filing a 1040NR: U.S. Nonresident Alien Income Tax Return.
Part I: Who files the 1040NR?
Determining your legal status as a U.S. nonresident alien for income tax purposes appears be straight forward at first glance. And like U.S. citizens, the same information found in Publication 17, Your Federal Income Tax, will also apply to nonresident aliens. But as you dig deeper into the Form 1040NR – U.S. Nonresident Alien, there are specific requirements that may dictate which form best aligns with your tax circumstances. This segment covers who is considered a U.S. nonresident alien based on legal status during a given tax year.
Who qualifies as U.S. non-resident alien?
To be classified as a Nonresident Alien (NRA), the individual is neither a U.S. citizen nor a U.S. resident.
Resident Alien as a NRA
A resident alien can be considered an NRA unless the individual meets either the green card or substantial presence test in most cases. A resident alien can still be treated as an NRA while meeting the substantial presence test by:
- Being present in the U.S. less than 183 days during the tax year
- Maintains a home in a foreign country during the tax year, and
- Has as closer connection to one foreign country during the tax year than to the U.S.
- Individuals with a closer connection to two (but not more than two) foreign countries are an exception to this rule
- Files Form 8840 – further discussed in Part II of this series
- Certain foreign students can also use the closer connection exception even if present in the U.S. for more than 183 days during the tax year; these students must file 8843 to claim closer connection exception.
Having a “closer connection to a foreign country” means the individual has significant ties to a foreign country than they do in the U.S. This means the individual designates the foreign country as their residence on forms and documents in addition to filing any of these form types: Forms W-9, W-8BEN, or W-8ECI. Other considerations include the location of their permanent home, the individual’s family, and majority of their business activities when determining which country an individual has a closer connection to. This rule does not apply to individuals taking steps during the year to change their status to a U.S. permanent resident or if there is an application pending during the year for status adjustments. In these cases, the taxpayer may qualify as having a dual-status.
Dual-resident taxpayer as an NRA
A dual-resident taxpayer is an individual who is a resident of both the U.S. and another country. This taxpayer must follow the laws of each country. This type of taxpayer may be required to file additional forms if the other country has an income tax treaty with the U.S. For more information on countries that have a tax treaty with the U.S., see Publication 901, U.S. Tax Treaties.
Dual-status taxpayer as an NRA
Individuals who are become U.S. citizens and those expatriating out of the U.S., during a given tax year, may be considered NRAs for part of a certain tax year.
These individuals must claim both partial statuses during the current tax year, resulting in the filing of more than one form type to record the income tax received based on their status when the income was received throughout the year. More on this topic in Part II.
Dual-status taxpayers are subject to U.S. tax on worldwide income while as a U.S. resident alien in addition to being subject to U.S. tax on U.S.-source or U.S. ECI received during the part of the year as an NRA. Special rule considerations for dual-status taxpayers are discussed in detail in Part III.
Understanding your legal status can help to determine which forms you may be required to file and how your unique circumstances can play a vital role in future tax planning.
Next: Part II focuses on qualifying conditions and exceptions for Form 1040NR and 1040NR-EZ as well as the additional forms required based on circumstantial triggers.
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