Resident and Non-Resident Aliens

Resident Aliens

Taxable Income

A resident alien’s income is generally subject to tax in the same manner as a U.S. citizen. A resident alien must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on the U.S. tax return. These amounts must be reported whether from sources within or outside the United States.

Tax Rates

Income of resident aliens is subject to the graduated tax rates that apply to U.S. citizens. Resident aliens use the Tax Table and Tax Rate Schedules which apply to U.S. citizens found in the instructions for Forms 1040, 1040A, or 1040EZ.

Filing Status

Resident aliens can use the same filing statuses available to U.S. citizens.

Claiming Exemptions

Resident aliens can claim personal exemptions and exemptions for dependents according to the dependency rules for U.S. citizens. They can claim an exemption for their spouse on a separate return if the spouse had no gross income for U.S. tax purposes and was not the dependent of another taxpayer. They can claim this exemption even if the spouse has not been a resident alien for a full tax year or is an alien who has not come to the United States. They can claim an exemption for each person who qualifies as a dependent according to the rules for U.S. citizens. The dependent must be a citizen or national of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which the tax year begins. Get Publication 501, Exemptions, Standard Deduction, and Filing Information for more information.

CAUTION:

The spouse and each dependent must have either a Social Security Number or an Individual Tax Identification Number in order to be claimed as an exemption or a dependent.

Deductions

Resident aliens can claim the same itemized deductions as U.S. citizens, using Schedule A of Form 1040. These deductions include certain medical and dental expenses, state and local income taxes, real estate taxes, interest they paid on a home mortgage, charitable contributions, casualty and theft losses, and miscellaneous deductions.

If deductions are not itemized, they can claim the standard deduction for their particular filing status. For further information, see Form 1040 and its instructions.

Tax Credits

Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U.S. citizens. The following items are some of the credits they may be able to claim: child and dependent care credit, credit for the elderly and disabled, child tax credit, education credits, foreign tax credit, earned income credit, and adoption credit.

Non-Resident Aliens

Which Form to File

Non-resident aliens who are required to file an income tax return should use Form 1040NR or, if qualified, Form 1040NR-EZ. Refer to the Instructions for Form 1040NR-EZ to determine if they may use Form 1040NR-EZ. If they do not qualify to file Form 1040NR-EZ, they must file Form 1040NR.

Taxable Income

A non-resident alien (NRA) usually is subject to U.S. income tax only on U.S. source income. The general rules for determining U.S. source income that apply to most non-resident aliens are shown below:

Summary of Source Rules

Type of Income Source Determined By
Compensation for Personal Services Where services are performed
Dividends Type of Corporation (U.S. or foreign)
Interest Residence of payor
Rents Where property is located
Royalties-Patents, Copyrights, etc Where property is used
Royalties-Natural Resources Where property is located
Pensions due to personal services performed Where services were performed while an NRA
Scholarships and Fellowships Generally, residence of payor

To review detailed discussion of source income, refer to the general rules. See Publication 519, U.S. Tax Guide for Aliens for exceptions to the general rules and additional details.

Note: Not all items of U.S. source income are taxable.

How Income Is Categorized and Taxed

A non-resident alien’s income that is subject to U.S. income tax must be divided into two categories:

  1. Income that is effectively connected with a trade or business in the United States
  2. Income that is not effectively connected with a trade or business in the United States

The Difference Between Effectively Connected and Not Effectively Connected Income

The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates.  These are the same rates that apply to U.S. citizens and residents.  Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate and no deductions are allowed against such income.

Filing Status

A non-resident alien filing Form 1040NR may be able to use one of the filing statuses discussed below. If filing Form 1040NR-EZ, they can only claim “Single non-resident alien” or “Married non-resident alien” as the filing status.

Married Filing Jointly

Generally, the taxpayer cannot file as married filing jointly if either spouse was a non-resident alien at any time during the tax year. However, non-resident aliens married to U.S. citizens or residents can choose to be treated as U.S. residents and file joint returns. For more information on these choices, refer to non-resident Spouse Treated as a Resident in Publication 519.

Qualifying Widow(er)
  • A non-resident alien may be eligible to file as a qualifying widow(er) and use the joint return tax rates if:
    1. They were a resident of Canada, Mexico, Japan, South Korea, or a US national, and:
    2. Their spouse died in 1999 or 2000 and they have not remarried, and
    3. They have a dependent child living with them

Note: See the instructions for Form 1040NR for the rules for filing as a qualifying widow(er) with a dependent child.

Head of Household

A non-resident alien cannot file as head of household if they were a non-resident alien at any time during the tax year.

Married Non-resident Aliens Filing Separately

Married non-resident aliens who are not married to US citizens or residents generally must use the Tax Table column or the Tax Rate Schedule for married filing separate returns when determining the tax on income effectively connected with a US trade or business. They normally cannot use the Tax Table column or the Tax Rate Schedule for single individuals.

Exemptions

Generally, if a non-resident alien is engaged in a trade or business in the United States, he or she can claim only one personal exemption. An exemption for a spouse and a dependent may be claimed if the spouse or dependent is described in any of the following categories.

  1. If a resident of Mexico or Canada or a national of the United States.
  2. They can also claim a personal exemption for their spouse if the spouse had no gross income for U.S. tax purposes and was not the dependent of another taxpayer. In addition, they can claim exemptions for their dependents who meet certain tests. Residents of Mexico, Canada, or nationals of the United States must use the same rules as US citizens to determine who is a dependent and for which dependents exemptions can be claimed. See Publication 501 for these rules.

Pursuant to tax treaties certain residents of Japan or South Korea and certain students and business apprentices from India may be able to claim exemptions for their spouse and dependents. Refer to IRS Publication 519 for details.

Standard Deduction

Non-resident aliens cannot claim the standard deduction. However, students and business apprentices from India may be eligible to claim the standard deduction. Refer to Publication 519, U.S. Tax Guide for Aliens for more information.

Deductions

A non-resident alien can claim deductions to figure their effectively connected taxable income. They generally cannot claim deductions related to income that is not connected with their US business activities. Except for personal exemptions, and certain itemized deductions, a non-resident alien can claim deductions only to the extent they are connected with their effectively connected income. Non-resident aliens can deduct certain itemized deductions if they receive income effectively connected with their US trade or business. These deductions include:

  • State and local income taxes,
  • Charitable contributions to US organizations,
  • Casualty and theft losses,
  • Miscellaneous itemized deductions, and
  • The ordinary and necessary expenses related to a U.S. trade or business.

Use Schedule A of Form 1040NR to claim itemized deductions. If they are filing Form 1040NR-EZ, they can only claim a deduction for state or local income taxes. If they are claiming any other deduction, they must file Form 1040NR. For a discussion about certain itemized deductions refer to IRS Publication 519.

Adjustments to Gross Income

Non-resident aliens may claim the following adjustments to gross income if they meet the qualifications for each adjustment:

  • IRA Deduction
  • Student Loan Interest Deduction
  • Archer MSA Deduction
  • Moving Expenses
  • Self-Employed Health Insurance Deduction
  • Self-Employed SEP, SIMPLE, and Qualified Plans
  • Penalty for early withdrawal of Savings
  • Scholarship and Fellowship Grants excluded

Refer to IRS Publication 519 and other IRS Publications for further information.

Education and Earned Income Credits

If they are a non-resident alien for any part of the year, they generally cannot claim the Earned Income Tax Credit, the Hope Credit, or the Lifetime Learning Credit. However, they may claim an adjustment for the student loan interest deduction. Refer to IRS Publication 519 for details.

Self-Employment Tax

Non-resident aliens are not liable to pay self-employment tax.

Resources

Publication 519 – Non-resident Alien or Resident Alien
Tax Topic 851 – Resident and Non-Resident Aliens
Tax Topic 852 – Dual Status Alien
Instructions for Form 1040-NR