Free Invoice Generator – Luzenta

Relocating to the United States for education, research, or employment can be an exciting step in anyone’s journey. However, one aspect that often catches newcomers off guard is the complexity of the U.S. tax system, especially when their residency status for tax purposes is not clearly understood.

This section provides an in-depth exploration of who qualifies as a nonresident alien and how that status affects your tax obligations in the U.S. We’ll also explain what types of income are taxable and how the U.S. government determines whether you owe taxes on earnings or other financial benefits.

Who Is Considered a Nonresident Alien?

An individual is defined as an alien for tax purposes if they are not a U.S. citizen or national. Among aliens, the law differentiates between nonresident aliens and resident aliens. This classification determines what income is subject to U.S. taxation and which tax forms must be filed.

You are considered a nonresident alien unless you meet the requirements of either the Green Card Test or the Substantial Presence Test.

Green Card Test

This test applies to individuals who have been granted lawful permanent resident status by U.S. Citizenship and Immigration Services. If you possess a valid green card at any time during the calendar year, you are typically treated as a resident alien for tax purposes, regardless of how much time you actually spent in the U.S. during that year.

Substantial Presence Test

If you do not hold a green card, your residency is evaluated using the Substantial Presence Test. You meet this test if you are physically present in the United States for:

• At least 31 days during the current tax year, and

• A total of 183 days over the past three years, including:
  
  • All days present in the current year

  • One-third of the days present in the year before the current year

  • One-sixth of the days present in the second year before the current year

For example, if you were in the U.S. for 120 days in 2024, 120 days in 2023, and 120 days in 2022, your total for the test would be:

• 120 (2024) + 40 (2023) + 20 (2022) = 180 days
  You would not pass the test and would therefore be classified as a nonresident alien.

Certain individuals, such as international students or scholars on F, J, M, or Q visas, may be exempt from counting some of their days toward the Substantial Presence Test. These exemptions typically apply for the first few years of their stay.

Why Your Residency Status Matters

Your residency status for tax purposes determines:

• The tax forms you must file

• The type and source of income subject to tax

• Your eligibility for certain deductions, credits, and exemptions

Resident aliens are taxed in the same way as U.S. citizens. This means they are subject to income tax on their worldwide income, regardless of where the income was earned.

Nonresident aliens, however, are taxed only on income that originates from within the United States. This distinction makes it essential to understand which types of income are considered U.S.-sourced and which are not.

Types of U.S.-Sourced Income for Nonresident Aliens

Only U.S.-sourced income is taxable for nonresident aliens. Understanding what counts as income sourced in the United States is key to determining your filing obligations.

Examples of U.S.-Sourced Income

• Wages or salaries earned while physically working in the U.S.

• Dividends from U.S. corporations

• Interest paid by U.S. banks or financial institutions (with exceptions)

• Rental income from property located in the U.S.

• Royalties from U.S. copyrights or intellectual property

• Compensation for services performed in the U.S.

• Certain scholarship or fellowship grants

Foreign-Sourced Income

Income earned from sources outside the United States is generally not taxable if you are a nonresident alien. This includes:

• Salary from foreign employment while physically located outside the U.S.

• Foreign investment income

• Property rental income from outside the U.S.

However, once you become a resident alien, your global income is subject to U.S. tax. Any change in status mid-year may require you to file as a dual-status taxpayer.

Categories of Taxable Income

The IRS separates taxable income into two major categories for nonresident aliens: effectively connected income (ECI) and fixed, determinable, annual, or periodic (FDAP) income. Each category has distinct tax treatment.

Effectively Connected Income (ECI)

Effectively connected income refers to income that is connected to a trade or business conducted in the United States. Examples include:

• Wages and salaries from a job in the U.S.

• Business income earned while operating a sole proprietorship or partnership in the U.S.

• Consulting fees or freelance income earned while physically present in the U.S.

This type of income is generally taxed at the same graduated rates as resident taxpayers. Nonresident aliens can claim certain deductions against ECI, including business expenses or allowable itemized deductions if they meet the requirements.

Fixed, Determinable, Annual, or Periodic (FDAP) Income

FDAP income generally consists of passive income. Common forms include:

• Dividends

• Royalties

• Rents

• Interest (unless specifically exempt)

• Annuities

• Certain scholarship or fellowship income not used for qualified educational expenses

FDAP income is typically taxed at a flat rate of 30%, unless a tax treaty between your home country and the U.S. provides for a lower rate or exemption. Unlike ECI, deductions are not allowed against FDAP income.

Special Case: Scholarships and Fellowships

Many nonresident aliens arrive in the U.S. to pursue academic programs. Scholarships and fellowships present a unique case in terms of taxation.

Scholarship income used to pay for tuition, fees, and required materials is not taxable. However, funds used for other expenses such as:

• Housing

• Food

• Transportation

• Travel

• Research expenses not required by the educational program

are considered taxable income. If your scholarship includes a stipend or grant for services (such as teaching or research), it will be treated as employment income and may be reported on a specific form. Your university or grant provider may issue Form 1042-S to report the taxable portion of your award.

Withholding of Taxes on Nonresident Income

U.S. institutions and employers are responsible for withholding income taxes from payments made to nonresident aliens. The amount withheld depends on:

• The type of income

• Your treaty eligibility

• Whether you have provided the appropriate forms (such as W-8BEN or 8233)

Withholding often results in more tax being collected upfront than what is ultimately owed. Filing an accurate tax return ensures you can claim a refund for any overpaid tax.

Income Not Subject to U.S. Tax

There are certain types of income that are either exempt from U.S. taxation or excluded for nonresidents due to tax treaties or special rules. Some common examples include:

• Interest income from U.S. banks (if not connected to a trade or business)

• Qualified scholarship income used for tuition and fees

• Income from foreign sources

• Certain types of capital gains

Each exemption is subject to conditions and may vary depending on your home country’s tax treaty with the U.S.

Dual-Status Taxpayers

Some individuals change residency status during the tax year. For example, if you were a nonresident alien for part of the year and became a resident alien later in the same year, you are considered a dual-status taxpayer. This requires a more complex return, as you must report U.S.-sourced income differently for each period.

The dual-status return generally requires:

• Form 1040-NR for the nonresident portion

• Form 1040 for the resident portion

• A statement attached to the return that explains the transition

Accurate record-keeping and careful attention to filing instructions are essential in these cases.

Importance of Determining Residency Status Early

Properly identifying whether you are a resident or nonresident alien for tax purposes is the foundation of accurate tax filing. This status affects:

• Which tax form you file

• Whether you can claim treaty benefits

• How much income is subject to tax

• What deductions or credits you may claim

If you are unsure of your status, reviewing the criteria for the Substantial Presence Test or consulting with a tax professional can help you avoid costly mistakes or penalties.

Filing Federal and State Tax Returns as a Nonresident Alien

Once you’ve determined that you are a nonresident alien for U.S. tax purposes, the next step is understanding how to fulfill your filing obligations. Filing a tax return may seem daunting, especially if you are new to the U.S. tax system, but having the right guidance and information can simplify the process.

We walk through the practical steps of filing a nonresident federal tax return, explains when and how to file a state tax return, outlines the forms you may need, and provides important information about key deadlines and consequences for failing to file.

Who Must File a Nonresident Federal Tax Return?

As a nonresident alien, you are required to file a federal tax return if any of the following apply to you during the calendar year:

• You earned U.S. source income, such as wages, tips, or stipends

• You received a scholarship or fellowship that is partially taxable

• You had U.S. source investment income that was not fully withheld at the source

• You engaged in any business or trade within the United States

• You are claiming a tax treaty benefit

• You were present in the U.S. on a nonresident visa and wish to report your exempt status under the Substantial Presence Test, even if you had no income

If you had no income but were present in the U.S. on a visa such as F-1, J-1, M-1, or Q-1, you are still required to file Form 8843 to explain your exempt status.

Key Forms Used in Federal Filing

Understanding the forms involved in the nonresident tax filing process is essential for accurate and compliant reporting. Below are the most commonly required forms for federal tax purposes.

Form 1040-NR

This is the main income tax return form for nonresident aliens. It is used to report U.S. source income, claim applicable deductions, and calculate tax owed or refunded. The form includes sections to list income, exemptions, credits, and taxes paid or withheld.

Form 8843

Form 8843 must be filed by individuals on F, J, M, or Q visas who are exempt from the Substantial Presence Test. This form is required even if you did not earn any income. It provides details about your visa type, length of stay, and reasons for the exemption.

Forms W-2, 1042-S, and 1099

• Form W-2 reports wages, salaries, and tips paid by an employer, including amounts withheld for federal and state taxes.

• Form 1042-S is issued for certain U.S. source income, including scholarships, fellowships, and investment income, and shows any tax withheld.

• Form 1099 reports various types of income, such as self-employment earnings (1099-NEC), dividends (1099-DIV), or bank interest (1099-INT).

Each of these forms is used to report income on your tax return and determine whether additional tax is owed or if a refund is due.

Required Identification Numbers

In order to file a U.S. tax return, you must have a taxpayer identification number. There are two primary types:

Social Security Number (SSN)

If you are authorized to work in the U.S., you are eligible for an SSN. This number is used to report wages and income and is required for employment.

Individual Taxpayer Identification Number (ITIN)

If you are not eligible for an SSN but still need to file a tax return, you must apply for an ITIN using Form W-7. This number is issued by the IRS and is used exclusively for tax purposes.

How to File Your Federal Return

Filing your nonresident tax return involves several steps. The process includes:

• Collecting necessary forms and documentation (such as W-2, 1042-S, 1099)

• Determining your filing status and whether you can claim any tax treaty benefits

• Completing Form 1040-NR and any additional forms (such as Form 8843 or Form 8938, if applicable)

• Including supporting documents, such as a copy of your visa, passport, and wage statements

• Submitting your return to the IRS by the deadline

Federal returns can be submitted electronically or mailed to the appropriate IRS address, depending on your situation.

Filing Deadlines for Federal Tax Returns

For the 2024 tax year, the standard filing deadline for nonresident federal tax returns is April 15, 2025. This includes the deadline to pay any taxes owed. If you need more time to file, you may apply for an extension, which pushes your filing deadline to October 15, 2025.

However, the extension applies only to the filing of the return, not to the payment of taxes. Any tax owed must still be paid by April 15 to avoid penalties and interest.

Filing a State Tax Return

In addition to federal taxes, you may also be required to file a state income tax return, depending on the state where you lived or earned income.

Each state has its own rules regarding:

• Who must file

• What income is taxable

• Whether treaty benefits are recognized

• What deductions and credits are available

Some states do not impose an income tax at all, while others may tax even nonresidents if they worked or received income in the state.

States Without Income Tax

As of the current tax year, nine states do not require residents or nonresidents to file income tax returns:

• Alaska

• Florida

• Nevada

• New Hampshire (only taxes dividends and interest)

• South Dakota

• Tennessee (only taxes dividends and interest)

• Texas

• Washington

• Wyoming

If you resided or worked in one of these states, you generally have no state tax filing obligations. However, if you live in a state that collects income tax, you may need to file a separate return based on your residency and income status.

Types of State Residency

States classify taxpayers into three groups:

• Resident: Someone who lived in the state for more than 183 days or has a permanent home there

• Part-year resident: Someone who moved into or out of the state during the tax year

• Nonresident: Someone who did not live in the state but earned income from sources within it

Even as a nonresident, you may be required to file a return if you earned income from employment, freelancing, or other work performed in the state.

State Forms and Documentation

Each state provides its own tax forms and instructions. In general, you’ll need the following to file a state return:

• State-specific income tax return form (often called Form 540NR, IT-203, etc., depending on the state)

• Copy of your federal return (Form 1040-NR)

• Wage statements (W-2, 1099, etc.)

• State withholding information

Your state return must often be mailed to a separate address from the federal return and may have a different filing deadline.

What Happens if You Don’t File?

Failing to file your tax return or pay taxes on time can result in penalties and interest. The consequences may include:

Late Filing Penalty

If you owe taxes and fail to file by the deadline, the IRS can impose a penalty of 5% of the unpaid tax for each month the return is late, up to a maximum of 25%. This penalty starts the day after the due date.

If your return is more than 60 days late, the minimum penalty is either $510 or 100% of the tax owed, whichever is less.

Interest on Unpaid Taxes

In addition to penalties, interest accrues on any unpaid tax from the original due date until the balance is paid in full. The interest rate is adjusted quarterly and is compounded daily.

State Penalties

States may impose their own penalties for late filing or payment. These vary but can include flat fees, percentage-based penalties, or interest charges.

Immigration Consequences

In some cases, failure to comply with tax obligations may affect your future U.S. immigration status. Visa renewals, green card applications, and other immigration processes may require proof of tax compliance. A failure to file could potentially harm your eligibility.

Filing From Outside the U.S.

Even if you have left the United States, you are still required to file a tax return for the year(s) you were present in the country and earned income. You can file your return from abroad by:

• Completing your forms electronically and submitting them via e-file (if eligible)

• Printing your forms and mailing them to the IRS from your current country of residence

Be sure to keep copies of all submitted forms and documentation for your records.

Filing Jointly With a Spouse

Nonresident aliens generally cannot file jointly with a spouse unless one of the spouses is a resident alien for tax purposes. In most cases, both spouses must file separately as single taxpayers.

If one spouse becomes a resident alien and the other chooses to be treated as a resident for the full tax year, a joint return may be filed using Form 1040 instead of Form 1040-NR. This option requires careful consideration, as it subjects the couple to taxation on their worldwide income.

Overview of Tax Treaties

Tax treaties are bilateral agreements between the United States and other countries that are designed to avoid double taxation and prevent tax evasion. These treaties define how income such as wages, interest, dividends, royalties, and pensions are taxed and may provide complete or partial exemptions from U.S. tax for residents of treaty countries.

Each treaty is unique, and the specific benefits available depend on the country of residence and the type of income earned. Some treaties include provisions that reduce tax withholding at the source, while others provide for exemptions that must be claimed on a tax return.

Common Benefits Offered by Tax Treaties

Benefits vary by treaty, but the following are some common provisions:

• Exemption from U.S. tax on certain types of scholarship or fellowship income

• Reduced tax rates or exemptions on interest, dividends, or royalties

• Wage exemptions for students or trainees temporarily present in the U.S.

• Rules for determining residency in dual-residency situations

• Clarification on the taxing rights of pension or retirement income

Who Can Claim Tax Treaty Benefits?

To claim tax treaty benefits, you must meet the following criteria:

• You must be a resident of a country that has a valid tax treaty with the U.S.

• You must meet the eligibility criteria outlined in the relevant article of the treaty

• You must not have taken steps to be treated as a U.S. resident for tax purposes

Students, professors, researchers, and trainees are the most common groups eligible for tax treaty benefits, particularly under student or teacher articles.

How to Claim a Tax Treaty Benefit

To properly claim treaty benefits, the IRS requires documentation depending on your income type and treaty article. The main methods include:

Form 8233

Form 8233 is used to claim a tax treaty exemption on compensation for independent personal services or dependent personal services (typically wages). You must submit this form to your employer to prevent withholding at the full 30% rate. The employer then forwards it to the IRS.

Form W-8BEN

This form is typically submitted to a withholding agent or financial institution (such as a university or investment firm) to claim treaty benefits on passive income such as interest, dividends, or royalties.

Reporting on Form 1040-NR

Even if you have submitted Form 8233 or W-8BEN, you may also need to report the exempt income on Form 1040-NR and identify the relevant treaty article that provides the exemption.

Failure to file the correct forms may result in excessive withholding, which you would then need to recover by filing a tax return and requesting a refund.

Common Exemptions and Deductions

Unlike U.S. citizens and residents, nonresident aliens face restrictions on which deductions they may claim. However, there are still a few key exemptions and deductions available.

Personal Exemption

Prior to tax year 2018, nonresident aliens could claim a personal exemption. However, this deduction has been eliminated through 2025 under the Tax Cuts and Jobs Act. As such, personal exemptions are no longer available unless covered by a specific tax treaty provision.

Standard vs. Itemized Deductions

Nonresident aliens generally cannot claim the standard deduction. Instead, they are limited to itemized deductions. These include:

• State and local income taxes

• Charitable contributions to U.S.-based organizations

• Casualty and theft losses from federally declared disasters

• Certain business expenses connected to income effectively connected with a U.S. trade or business

If you are a student or trainee, you may also be allowed to claim certain itemized deductions under a tax treaty.

Dependent Exemptions

In rare cases, nonresident aliens may be able to claim exemptions for a spouse or dependents if they are residents of Mexico, Canada, or South Korea, or if the taxpayer is a U.S. national. These exemptions must be carefully documented and typically require an ITIN for the dependent.

Income Types Commonly Exempted or Reduced by Treaty

Understanding which income types are often covered by tax treaties can help you plan your taxes more effectively. Here are examples of treaty-covered income:

Scholarships and Fellowships

Some treaties allow full or partial exclusion of scholarship and fellowship income from taxation for students and researchers. For example, residents of China on F-1 visas may exclude up to $5,000 in wages earned while studying in the U.S.

Interest Income

Treaties may reduce the U.S. withholding tax rate on interest income, often down to zero, particularly for government or bank-issued bonds.

Dividends

Dividend income is typically subject to a flat 30% withholding tax for nonresidents, but treaties can lower this rate to 15%, 10%, or even 0%, depending on the treaty partner country.

Royalties

Tax treaties frequently reduce the tax on royalties from intellectual property, patents, trademarks, or other sources.

Wages and Salaries

Some treaties allow temporary wage exemptions for students, apprentices, or interns who earn below a certain threshold. These benefits often require reporting via Form 8233.

Refund Eligibility for Nonresident Aliens

Even as a nonresident, you may be eligible for a refund if too much tax was withheld from your income or if you qualify for treaty benefits that reduce your taxable income.

Common Reasons for a Refund

• Overwithholding of federal or state income tax on wages or scholarships

• Incorrect classification as a resident for withholding purposes

• Inaccurate application of treaty benefits by an employer or university

• Filing Form 1040-NR to report exempt income and claim a refund

How to Receive a Refund

To receive a refund, you must:

• File a timely and accurate Form 1040-NR

• Include all relevant documentation such as W-2, 1042-S, 1099s, and Forms 8233 or W-8BEN

• Enter U.S. bank account information for direct deposit (optional but faster)

• Submit supporting documents such as visa copies, I-20 or DS-2019, and proof of residency for treaty purposes

The IRS generally issues refunds within 6–12 weeks if filed electronically, or longer if filed by mail. Refunds may be delayed if documents are missing or inconsistent.

Important Supporting Documents

Filing a correct and complete return relies heavily on having the right documents available and organized. These include:

Identification Documents

• Passport ID page

• U.S. visa stamp and I-94 entry record

• Form I-20 (for F-1 visa holders) or DS-2019 (for J-1 visa holders)

Wage and Income Statements

• W-2: For employment income

• 1042-S: For scholarship, fellowship, or other U.S. source income

• 1099: For investment or self-employment income

Make sure these forms match your filing documents to avoid delays or IRS inquiries.

ITIN or SSN

You will need a valid ITIN or SSN to file your return. If you are applying for an ITIN, submit Form W-7 along with proof of identity and a completed tax return.

Treaty Forms

• Form 8233: Required for tax-exempt wages or compensation

• Form W-8BEN: Required for claiming treaty benefits on passive income

These must be submitted to the payer and often also attached to your tax return for verification.

What If You Miss the Refund Deadline?

Nonresident aliens generally have three years from the original due date of the return to claim a refund. For example, to claim a refund for tax year 2022, you must file your return by April 15, 2026.

If you miss this deadline, the IRS will not issue a refund—even if you were legally entitled to one—so it’s important to file as soon as possible.

Amending a Return

If you discover an error on your previously filed Form 1040-NR or fail to claim a treaty benefit you were eligible for, you may file an amended return using Form 1040-X. Be sure to include:

• Corrected income or deduction information

• Explanation of changes

• Supporting documentation

• Reference to the original return submitted

The deadline to amend a return and claim additional refunds is also generally three years from the original due date.

Avoiding Common Mistakes

Errors in nonresident tax returns can lead to audits, delays, or loss of refunds. Here are common pitfalls to avoid:

• Using Form 1040 instead of Form 1040-NR as a nonresident

• Failing to file Form 8843 when required

• Not attaching treaty forms (8233 or W-8BEN)

• Omitting income reported on W-2 or 1042-S forms

• Claiming deductions or credits not allowed for nonresidents

• Providing incorrect or missing identification documents

Carefully review your return and keep a copy of everything submitted for future reference or verification.

Conclusion

Filing taxes as a nonresident alien in the United States involves a unique set of rules, forms, and requirements that differ significantly from those faced by U.S. citizens and resident aliens. From choosing the correct form between 1040 and 1040-NR, to understanding which types of income are taxable and which may be exempt under tax treaties, nonresidents must navigate a complex regulatory landscape to ensure full compliance and avoid costly errors.

We outlined how to determine your tax residency status and guided you in selecting the correct tax form. For most nonresident aliens, Form 1040-NR is the appropriate choice. Filing the wrong form not only leads to processing delays but may disqualify you from treaty benefits or refunds. Knowing your visa category, days of presence in the U.S., and connection to U.S. trade or business is essential to determining the right filing path.

We explored which types of income are taxable and how different visa holders may be subject to federal income tax. Nonresident aliens are only taxed on U.S.-sourced income, and understanding how wages, scholarships, fellowships, self-employment earnings, and investment income are treated can help you better plan for and report your obligations. Accurate income reporting is key to avoiding underpayment penalties or overwithholding.

We examined how to leverage tax treaties to reduce or eliminate tax on certain types of income, especially for students, teachers, and residents of treaty-partner countries. We also discussed exemptions, deductions, and refund eligibility. While nonresidents have limited access to deductions, many can still reduce their liability through treaty provisions or eligible itemized deductions. Filing the correct forms such as 8233, W-8BEN, and 1040-NR along with required supporting documentation ensures accurate reporting and a smoother tax process.

Ultimately, the key to successfully filing as a nonresident alien lies in understanding your visa status, accurately classifying your income, applying any relevant treaty benefits, and submitting the right forms on time. With the right approach and awareness of IRS rules specific to nonresidents, you can minimize your tax burden, avoid penalties, and potentially claim a refund of overpaid taxes.

Whether you’re a student, academic, researcher, or foreign worker, staying informed and organized during tax season will help you fulfill your legal obligations while preserving your financial well-being in the United States.