Taxes must be filed by every person who is a citizen or a resident in the U.S. The process of filing varies depending on your residency status, and this is why it’s important to know your status and the filing process. Any mistakes in filing, like choosing the wrong forms or not reporting certain incomes, can lead to penalties. This guide explains the taxation process and forms for nonresident and resident aliens.
Determining Your Tax Residency Status
One of the first steps in tax filing is to determine your residency status, and this determines the forms you must use. It also determines the income that you must report for taxation.
The Green Card Test Explained
You are a resident for taxation purposes if you are a permanent resident of the U.S. at any time during a calendar year. You have this status if the U.S. Citizenship and Immigration Services (USCIS) has issued a Permanent Resident Card, Form I-551, also known as a Green Card. In other words, you are a resident alien if you have a green card.
Residency ends if you formally abandon lawful permanent resident (LPR) status or if you are subject to a final administrative or judicial removal order.
The Substantial Presence Test — Day-Count Calculation
Like the Green Card test, the substantial presence test is another test that determines your residency status. According to this test, you must be present in the U.S. for at least:
- 31 days during the current year, and
- 183 days during the three-year period, including the current year and two years preceding it.
For this calculation, the IRS counts:
- all days in the current year,
- ⅓ of the days in the prior year, and
- 1/6 of the days in the second prior year.
Example: If an individual is present in the U.S. for 120 days in 2023, 2024, and 2025, the calculation for 2025 would be:
- 120 days (2025) + 40 days (⅓ of 120 from 2024) + 20 days (⅙ of 120 from 2023) = 180 days.
Since this is below 183, the individual is not considered a resident under this test for 2025.
Days not counted
Some days do not count toward the test, including:
- Days commuting to work from Canada or Mexico,
- Days present in the U.S. for less than 24 hours in transit,
- Days as a crew member of a foreign vessel,
- Days you could not leave the U.S. due to a medical condition that arose while in the U.S. (not if you came for treatment).
Certain “exempt individuals” are also excluded (see below). To exclude these days, you must file Form 8843.
Let us understand this calculation with an example. For example, let us assume an individual is present in the U.S. for 120 days in 2023, 2024, and 2025. For taxation purposes, all 120 days in 2025 will be included, 40 days will be included from 2024, and 20 days from 2023 will be included, bringing the total to 180 days. Since that individual is short by three days, that person will not be considered a resident under this test for 2025.
If the said individual does not have a Green Card, then he or she must file under non-resident alien status.
Common Exceptions to the Tests (e.g., Students, Teachers, Diplomats)
Some individuals are exempt, and their physical presence is not counted for the substantial presence test. The following individuals are exempt from counting days for the substantial presence test:
- Students temporarily in the U.S. under “F,” “J,” “M,” or “Q” visas (generally for up to 5 years),
- Teachers or trainees under “J” or “Q” visas,
- Foreign government-related individuals on “A” or “G” visas,
- Professional athletes temporarily in the U.S. for a sporting event.
These individuals must file Form 8843 annually to claim the exemption.
An individual who meets the above Green Card or the Substantial Presence Tests is considered a resident alien.
Tax Obligations: Resident vs. Nonresident Alien
The tax obligations vary greatly between resident and non-resident aliens. Resident aliens file taxes like U.S. citizens, while non-resident aliens have more limited requirements. The non-resident alien also has fewer benefits and deductions than resident aliens.
Resident Alien Filing: Form 1040 and Worldwide Income
Resident aliens must report income from the U.S. and other sources from around the world, similar to U.S. citizens. These individuals must file Form 1040, which is the Individual Income Tax Return. If you are a senior, you can file Form 1040-SR, which is the Income Tax Return for seniors. These forms must be filed before April 15th of the next year following the taxation calendar year.
The tax obligations vary greatly between resident and nonresident aliens. Resident aliens file taxes like U.S. citizens, while nonresident aliens have more limited requirements.
- Resident aliens must report worldwide income.
- Nonresident aliens report only U.S.-source income and effectively connected income (ECI). Nonresident aliens also face a 30% flat tax on U.S.-source passive income (FDAP), unless reduced by treaty.
Nonresident Alien Filing: Form 1040-NR and U.S.-Source Income Only
When compared to resident aliens, non-resident aliens have fewer requirements. They must report only the U.S. income for taxation. This income can include earnings from wages, trade, businesses, rents, or any other U.S. source. Global incomes that are not connected to the U.S. need not be reported.Nonresident aliens must file Form 1040-NR if they have U.S. source income, including wages, trade or business income, rents, or other ECI.
- They report only U.S.-source and effectively connected income.
- Passive income (FDAP) is taxed at 30% flat, unless a treaty applies.
- Filing deadline: April 15 (if wages subject to withholding) or June 15 (if no wages subject to withholding).
Limitations on Deductions, Credits, and Filing Status for Nonresidents
Along with limited reporting requirements, non-residents also have fewer deductions and credits. These individuals cannot claim the standard deduction that is available for resident aliens and citizens. There are a few exceptions to this rule that we discuss below. Also, they must itemize every deduction and provide detailed information for the same. Non-resident aliens have fewer credits as well.
- No standard deduction, except:
- Certain students/apprentices from India (under the U.S.-India treaty, Article 21(2)),
- Nonresidents married to U.S. citizens/residents who elect to be treated as residents.
- Filing status is generally restricted to single or married filing separately. Nonresidents cannot file as head of household or qualifying surviving spouse.
Dual-Status Filers & Closer-Connection Election
Some individuals may fall into both resident and non-resident alien categories in the same year. Similarly, some may have stronger ties abroad despite meeting the residency tests. Each of these situations requires special handling.
An individual has dual status if part of the year is as a nonresident and part as a resident (e.g., obtaining a green card mid-year).
- They must split reporting: Form 1040-NR for the nonresident portion and Form 1040 for the resident portion.
- They generally cannot claim the standard deduction unless making a special election to be treated as a full-year resident.
Understanding Dual-Status Tax Returns and Reporting Splits
An individual is said to have dual status if they are a non-resident for a few days or months in a year and a resident after that. For example, if you came to the U.S. in a particular year and got your green card during the year, you are considered a non-resident alien until the green card date and a resident alien for the rest of the year. In such a scenario, you have to split your reporting between Form 1040-NR during the non-resident period and Form 1040 for the remaining part of the year after you get the Green Card.
Though you cannot claim the standard deduction in the dual year, you may still be eligible for some benefits. If this is confusing, you should reach out to taxation experts like Manay CPA, who are experienced in handling such scenarios.
Filing as a Resident Alien by Election (Closer-Connection Test, Form 8840)
In some cases, you will be treated as a non-resident alien even if you meet the substantial presence test. Such situations are:
- If you had a closer connection with another country in which you had a tax home, when compared to the U.S.
- Maintained a tax home in a foreign country during the entire year.
- Did not take steps towards applying for a green card.
- No green card processing is pending for you in a given year.
In all the above cases, you can apply for a non-resident alien status. Note that you can have a tax home in two or more foreign countries. In that case, the close-connection comparison rule will apply to every country. In other words, country A will be compared to the U.S., and country B will be compared separately to the U.S. Accordingly, the residency status will be determined.
If you meet the criteria for this test, you must file Form 8840 to prove to the IRS that your primary home, family, and economic interests are outside the U.S.
Restrictions and Typical Scenarios for Making Elections
You can elect to be treated as a non-resident alien if you meet the closer-connection test. This is largely applicable to students and temporary workers who maintain permanent ties with another foreign country. Also, you cannot elect if you have spent 183 days in the U.S. or hold a green card.
Tax Treaty Relief & Mixed-Status Households
There are specific scenarios that can add more complexity to tax filing. For example, if you are from a country that has a tax treaty with the U.S., or if you and your spouse have different tax statuses, then determining residency can be tricky. If you happen to be in such a situation, consider reaching out to taxation experts like Manay CPA.
The U.S. has tax treaties with many countries to reduce double taxation. These treaties may exempt or reduce tax on certain income (e.g., dividends, royalties, pensions).
- If you claim a treaty benefit, you may need to file Form 8833.
- Exceptions exist: Form 8833 is not required for all treaty claims, only for disclosable positions listed by the IRS.
Overview of Tax Treaty Benefits and How to Claim Them
Some countries enter into treaties with the U.S. to reduce the burden of double taxation on individuals. Under these treaties, certain types of income, like dividends and royalties, can be exempted from U.S. taxes. The exact details depend on the terms of the treaty and the ability of the individual to meet the criteria laid down by these treaties. It is best to examine the individual provisions present in each treaty while determining the taxes and exemptions.
If an individual is claiming exemption under any such tax treaty, it’s important to file Form 8833 with the return.
Filing Options for Couples with Mixed Residency Status (e.g., 6013(g) Election)
There is always a possibility for spouses to have different tax filing statuses. For example, one spouse may meet the resident alien status while another may continue to be a non-resident alien. A good example of this scenario is when a resident alien marries someone from another country who moves to the U.S., but does not meet the green card or substantial presence tests. In this case, the spouse is considered a non-resident alien for taxation purposes.
However, under section 6013(g), both spouses can be treated as resident aliens, and they can file jointly. However, it’s important to note that while this type of filing can offer higher credits and deductions, it will also subject the worldwide income of both spouses to U.S. tax rates. Hence, taxpayers must carefully consider their options before electing for this status.
Weighing Costs and Benefits of Joint vs. Separate Filing
Joint and separate filing come with their benefits and costs for mixed-status households. The biggest advantage is that resident aliens can claim the standard deduction and other credits, reducing their overall tax liability. But the downside is that the global incomes of both spouses must be disclosed. On the other hand, separate filing may limit the benefits and deductions, but it avoids the global income from being taxed in the U.S. In general, if both spouses have substantial global earnings, it’s best to file separately. Also, it is a good idea to prepare both scenarios and evaluate to see which offers higher benefits, based on specific data and income levels.
How Resident Aliens File Taxes in the United States
The process of filing taxes for resident aliens is similar to that of U.S. citizens, as they also enjoy the same deductions, credits, and benefits. Similarly, the taxation structure and rates are also the same.
Required IRS Form — Filing Form 1040 Instead of 1040-NR
Resident aliens must always file Form 1040 and not Form 1040-NR. In this form, you can enter the digital assets, dependents, income earned under different categories, payments made, and other relevant information. There are also provisions for claiming deductions and describing the payments made. Based on all the data you enter, your income tax is computed.
Reporting Worldwide Income, Not Just U.S.-Source Earnings
As a resident alien, you must report worldwide income on your tax returns. However, some non-U.S. income may be exempted under a foreign-earned income exclusion, foreign income-tax credit, or if they come under a tax treaty. Read through the appropriate provisions and tax treaties while evaluating your choices. Alternatively, tax firms like Manay CPA can handle this on your behalf, as they are well-versed with these provisions.
Note that some foreign bank accounts, assets, and transactions may also trigger reporting under FBAR or FATCA regulations.
Claiming Standard Deductions, Credits, and Filing Status Options
Resident aliens have the option to claim multiple tax deductions and credits, starting from the standard deduction to education credits, child tax credits, and more. They also have multiple filing status options, like single, married filing jointly, married filing separately, and head of household.
State Tax Filing Obligations for Resident Aliens
Resident aliens also have state tax filing obligations. Many states follow the federal residency rules, and this means, the tax filing obligations don’t change for resident aliens. If applicable, they must report worldwide income at the state level, too.
Common Mistakes Resident Aliens Should Avoid When Filing
When filing taxes, resident aliens must avoid the following mistakes:
- Using the wrong form. Only Form 1040 must be used for filing income tax.
- Not reporting foreign income.
- Failing to disclose foreign assets.
How Nonresident Aliens File Taxes in the United States
The tax filing options for nonresident aliens are limited when compared to resident aliens, especially in terms of deductions and credits. At the same time, they don’t have to disclose foreign income.
Required IRS Form — Filing Form 1040-NR
Non-resident aliens must file Form 1040-NR, if they have earned income from a U.S. source, including from trade or business in the United States. This form is extensive and includes income from multiple categories.
Reporting Only U.S.-Source Income and Effectively Connected Income (ECI)
One of the differences between a resident and a non-resident alien is the income reported for taxation. While resident aliens report all income, non-resident aliens can report only U.S.-based income. Passive income, like dividends and royalties, may be exempted if they are not related to a U.S.-connected source.
Ineligibility for Standard Deduction (With Limited Exceptions)
As a rule, non-resident aliens are not eligible for the standard deduction. However, there are certain exceptions to this. Under Article 21 of the U.S.-India Income Tax Treaty, students and business apprentices from India who are in the U.S. may be eligible for this deduction. Also, non-resident aliens married to U.S. citizens or resident aliens can choose to file as resident aliens and become eligible for the standard deduction.
Applicable Tax Rates and Withholding Rules for Nonresident Aliens
The tax rates are the same as those of U.S.citizens and resident aliens. The Fixed, Determinable, Annual, or Periodical (FDAP) income includes all income, except that obtained from the sale of personal property. It also excludes all income that is not connected to a U.S. source or that is exempt from gross income, like tax-exempt municipal bond and qualified scholarship income. There is a flat 30% on FDAP income.
State Tax Filing Requirements for Nonresident Aliens
The filing requirements can vary by state. In general, all U.S.-source income earned within the borders of the state is taxed by that state. Many states tend to follow the federal requirements and require you to file specific tax forms.
Note that the state tax return must be filed before the deadline set by each state.
How Can Manay CPA Help You When Filing Taxes
Knowing the residency status and filing taxes accordingly can be overwhelming, especially if your case is complex or if you are filing it for the first time. Manay CPA can assist by:
- Calculating residency status under both tests,
- Selecting the correct form (1040 vs 1040-NR),
- Reviewing treaty provisions and elections,
- Comparing joint vs. separate filing scenarios.
Clarifying Residency Status & Correct Form Selection
Determining the residency status can be confusing, especially if you have lived for a few days in the U.S. over the last three years. The precise calculation, discussed above, must be used to determine residency, where even a few days of miscalculation can change the residency status. To avoid filing the wrong form and the ensuing penalties, Manay CPA carefully analyzes your presence and checks to see if you pass the Green Card or the Substantial Presence Test. Accordingly, its experts recommend the appropriate form.
Navigating Treaty Benefits and Filing Options
Manay CPA’s team closely evaluates the tax treaty, if any, signed between the U.S. and your tax home country. If you have a tax home set up across multiple countries, then treaties are evaluated for each. After scrutiny, Manay CPA’s tax experts compute your income and the appropriate filing options to get maximum deductions. Many times, they even compute taxes under different filing options to evaluate the most beneficial one.
Schedule a Free Consultation (CTA)
If you are in doubt or have questions, Manay CPA can answer them accurately for you. They will work with you to evaluate your residency status and the best filing options that can provide the maximum benefits.
FAQ Section
What Determines If I’m a Resident Alien for Tax Purposes?
There are two tests to determine residency status – The Green Card test and the Substantial presence test. You must meet the requirements of at least one of these tests to be determined as a resident alien for tax purposes.
Can I File Jointly If I’m a Nonresident Alien?
In general, you cannot file jointly if you’re a non-resident alien. However, there are exemptions. Under Rule §6013(g) and (h), you can file jointly if you’re married to a U.S. citizen or a resident alien.
What If I’m in the U.S. on a Student or Teacher Visa?
You may be exempt from counting days under the substantial presence test (file Form 8843). After the exemption period, the SPT applies.
How Do Tax Treaties Impact My Tax Filing?
Tax treaties entered into by the U.S. with other countries can impact your tax filing. Many times, additional deductions are available for those coming from specific countries. They may reduce or exempt certain income from U.S. tax. Some claims require Form 8833.
When Is Dual-Status Filing Required, and How Does It Work?
Dual-status filing applies when you are a non-resident alien for some part of the year and become a resident alien sometime through the tax year. For example, you can get your Green Card during the year, after which you become a resident alien. While filing, you must separate income and file for both statuses. When you are a resident for part of the year and a nonresident for the other part (e.g., obtain a green card mid-year). You file partly as 1040-NR and partly as 1040.
