Taxation for Resident and Nonresident AliensTaxation for Resident and Nonresident Aliens

Taxation for resident and nonresident aliens differs from that of U.S. citizens. In this article, we will go over the basics of taxation for resident and nonresident aliens.

Resident vs. Nonresident

A resident alien is someone who is not a U.S. citizen but has a green card that allows them to work in the country. Or they have lived in the U.S. for at least 183 days over the last 3-year period (including the current tax year). On the other hand, a nonresident alien is someone who is legally and temporarily in the United States but does not have a green card.

Residence Exemptions

There are certain individuals who may be able to exempt themselves as residents for tax purposes. These exemptions include:

  • You commute to the U.S. from Mexico or Canada
  • Your tax home is in another country. To do this you must prove you were not in the United States for the 183-day requirement period.
  • You are temporarily residing in the U.S. because you are a teacher, trainee, student, or you have diplomatic/consular status for a foreign government or international organization, or you are an immediate family member of someone who is.
  • You have been unexpectedly detained in the U.S. for medical reasons.
  • There is an applicable tax treaty in place.

Taxation for Nonresident Aliens

If you are a nonresident alien, you must pay U.S. income tax on any income you earn in the U.S. or from a U.S. source. You do not have to pay United States income tax on any income from a foreign source. How does this work? Let’s say you own a business with two locations, one in the U.S. and one in Spain. You are a Spanish citizen, and your main country of residence is Spain. In this case, you would have to pay income tax on the profits your U.S. business makes. But no U.S. income tax would be due for the profits made by the portion of your business that is based in Spain.

Taxation for Resident Aliens

If you are a resident alien, you must pay income taxes on any U.S. or foreign income that you earn. However, there are tax planning strategies that can help you to reduce your liability. These strategies include claiming the Foreign Earned Income Exclusion or the Foreign Tax Credit. Additionally, if your employer is a foreign government you may qualify for exclusions if your employing country has a reciprocal tax treaty with the United States.

Planning for Your Taxes

Taxation for resident or nonresident aliens can be complex. Proper planning can help you to avoid unexpected surprises. Meet with a qualified tax professional who can help you to prepare now for the coming tax season.

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