Non Resident Alien Taxes | TaxConnections

09 Nov 2021

Who Needs To File Form 1040NR – Nonresident Alien Tax Return

It’s crucial for nonresident aliens to understand U.S. tax obligations, which come along with “U.S.-sourced income”: investments or employment in the U.S, and when they have an obligation to file Form 1040NR. As many non-residents aren’t familiar with the U.S. tax system, they fail to file a tax return. It may lead to a variety of consequences. But on a positive note, you could receive a refund if you file a tax return on time. What if you are a U.S. citizen or Green Card holder with U.S. investment but ready to give up your citizenship/green card? In case you consider going this route, you need to be aware of your tax obligations changes.

Who should file form 1040NR and who is a Non-resident Alien?

First, let’s determine who is a nonresident alien. The IRS considers anyone who is not a U.S. citizen, Green Card holder, or met the substantial presence test but has U.S. tax filing obligation to be a nonresident alien. For example, you have income from the US but you do not meet the substantial presence test. Or you are engaged in a trade or business in the US and you are a nonresident alien. It doesn’t matter if the business activities generated any income, or if it’s exempt under tax treaty from US tax.

Written by Olivier Wagner | Posted in Non Resident Alien Taxes

25 Jun 2020

Assets Of A Foreign Individual (Nonresident Alien) Subject To U.S. Estate Tax

Unlike a U.S. citizen, who is subject to estate taxation on worldwide assets, the gross estate of a nonresident alien (meaning, a foreign individual who is not a U.S. citizen or resident alien) only includes property that is situated in the U.S. at the time of the nonresident alien’s death.1

For purposes of determining what property is situated in the U.S., any property which the decedent has transferred, by trust or otherwise, which would be taxable within the provisions of IRC Sections 2035 through 2038 (relating to termination of certain property interests within three years of death, transfers with a retained life estate or to take effect at death, and revocable transfers), is deemed situated in the United States if it was so situated either at the time of the transfer or at the time of death.2

For a decedent who was a nonresident alien at the time of death, property is considered located in the U.S. if it falls into any of the following categories:

(1)Real property located in the U.S.;

(2)Tangible personal property located in the U.S., including clothing, jewelry, automobiles, furniture or currency. Works of art imported into the U.S. solely for public exhibition purposes are not included;

(3)A debt obligation of a citizen or resident of the U.S., a domestic partnership or corporation or other entity, any domestic estate or trust, the U.S., a state or a political subdivision of a state or the District of Columbia; or

(4)Shares of stock issued by domestic corporations, regardless of the physical location of stock certificates.3

However, in the case of a nonresident alien who dies while in transit through the U.S., personal effects are not considered located in the U.S. Neither is merchandise that happens to be in transit through the U.S. when a nonresident alien owner dies.

Social Security Tax And Employer Withholding: Resident And Non-Resident Aliens

Must You Pay Social Security and Medicare Tax?

Nonresident aliens who are F-1, J-1, M-1 or Q-1 visa holders are not subject to social security and Medicare taxes (FICA) on services are performed to carry out the purpose for which they are admitted to the United States [IRC sec. 3121(b)(19)]. This generally includes on-campus work for which authorization is granted on Form I-94, Arrival and Departure Record, or Form I-20, Certificate of Eligibility for Nonimmigrant Student Status.

A nonresident alien admitted to the US as a student is not permitted to work off campus for a wage or to engage in business unless given approval by the U.S. Citizenship and Immigration Services (CIS). This should be noted on the student’s copy of Immigration Form I-20, or Form I-688B, Employment Authorization Document.

Off-campus work due to severe economic necessity or for optional practical training is considered by the IRS to qualify for the exemption. The IRS does not consider other off-campus work performed by a nonresident alien student to be performed to carry out the purpose of a student visa.
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Written by Gary Carter | Posted in Non Resident Alien Taxes • Resident Alien Taxes