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.. As many nonresidents aren’t familiar with 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 cases 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.
Do train stations make you wistful? My husband and I lived on the East Coast when we first moved to the US and sometimes took the train from Baltimore to DC. Passing the town of Riverdale, MD got us all excited because like every other Indian teenager of our generation, we had grown up on a rather unhealthy dose of Archie comics!
Well, it was around this time that I discovered Tax Law and found it quite fascinating. I started to prepare our own taxes which involved Form 1040NR’s, India-US Treaty knowledge and the rest is rather choppy history which is reserved for another post because today we need to talk to about this 2018 Form 1040NR.
For the longest time ever this foreign cousin of the good ol’ Form 1040 had a rather mundane existence, nothing usually changed on it. Tax geeks got all excited when the Form 1040NR finally entered the digital age in 2017, we had hardly settled down from that when the BIG 2017 Tax Reform happened and everything pretty much is different now.
Before a green card holder uses the Treaty Tiebreaker provision of a U.S. Tax Treaty, he/she must consider what is the effect of using the Treaty Tiebreaker on:
A. His/her immigration status under Title 8 (will he/she risk losing the Green Card?)
B. His/her status under Title 26 (will he expatriate himself under Internal Revenue Code S. 7701(b)) and subject himself to the S. 877A Exit Tax provisions?