If you are a citizen of another country, but you spend a significant amount of time in the United States, you may be considered a resident alien. A resident alien is another name for an immigrant or foreign-born U.S. resident who is not an American citizen. Resident alien status determines how the IRS taxes your income and which tax forms you need to file. In many cases, resident aliens are taxed similarly to U.S. citizens and must report worldwide income to the IRS.
Who is considered a resident alien for tax purposes?
A resident alien is not a U.S. citizen legally living in the U.S. They are treated as a U.S. resident for federal tax purposes. Generally, you are considered a resident alien if you meet either the Green Card Test or the Substantial Presence Test.
Resident aliens may fall into one of the following categories from an immigration perspective:
- Permanent resident: A lawful permanent resident who has been issued a Green Card.
- Conditional permanent resident: A person who has been granted permanent residency on a conditional basis for two years, such as certain spouses of U.S. citizens.
- Returning resident: A lawful permanent resident returning to the United States after a temporary stay abroad.
Regardless of the category, your tax residency status is generally determined under IRS rules, including the Green Card Test and Substantial Presence Test.
What is the difference between a resident alien and a non-resident alien?
The primary difference between a resident alien and non-resident alien is how the IRS classifies and taxes each status. There are two “tests” that are performed to determine your status: Green Card Test and Substantial Presence Test. The first sees if you hold a Green Card, and the second determines your residency status based on your physical presence in the U.S. throughout the past three years.
Resident aliens must report all of their worldwide income to the IRS yearly. This includes interest, capital gains and losses, and rental income.
On the other hand, non-resident aliens have reduced tax liability since they’re only taxed on income generated in the U.S. Additionally, non-resident aliens must file taxes using Form 1040-NR to report their U.S.-sourced income.
How does someone become a resident alien?
You are a resident alien if you meet the green card test or the substantial presence test. These aren’t actual “tests,” but they’re factors to help determine your residency status in the United States.
Green Card Test
If you are a green card holder, you are considered a permanent, legal resident of America. Foreigners typically receive this status upon stepping foot in the U.S. with a green card. So, from an immigration standpoint, you cannot spend more than one year outside the country or establish a primary home in another country.
If you don’t have a green card, you may be considered a non-resident alien. For more information, visit the U.S. Citizenship and Immigration Services website.
Substantial Presence Test
If you do not intend to stay in the U.S. permanently, you may find the substantial presence test more applicable to your circumstances. As the name suggests, this test determines your residency status based on your physical presence in the U.S. throughout the past three years. To pass the test, your length of stay in the country must meet the following requirements:
- 31 days during the current year, and
- 183 days during a three-year period, including the current year and the two years preceding the current year. You’d meet this 183-day requirement if you’ve been in the U.S.:
- Every day this year
- 1/3 of the days last year
- 1/6 of the days two years ago
Also, you are unable to count days when you’re in the U.S. under the following circumstances:
- Days you commute to the U.S. from a residence in Canada or Mexico if you regularly commute from those countries
- Days you are in the U.S. for less than 24 hours when you are in transit between locations outside the U.S.
- Days you are in the U.S. as a crew member of a foreign vessel
- Days you are unable to leave the country due to illness
- Days you are an exempt individual
Even if you meet the Substantial Presence Test, you may still be considered a non-resident alien if you support a home in a foreign country.
Exceptions for visa holders
You may be exempt, which means your days of presence in the U.S. are not counted, if you’re temporarily in the country under the following types of visas:
- You’re in the U.S. on foreign government business under an A or G visa
- You’re a teacher or trainee in the U.S. under a J or Q visa
- You’re a student in the country under an F, J, M, or Q visa
- You’re a professional athlete in the country competing in a sports event
- If you can’t leave the country for medical reasons
If you qualify for an exemption, you must file Form 8843 to document your claim.
How does the resident alien status impact my taxes?
Your status as a resident alien does not change the fact that all U.S. income is subject to taxation. How much you pay depends on factors such as your income and filing status. For more information about these requirements, read How Much Money You Need to Make to File Taxes.
What is a dual-status alien?
It’s possible to be a U.S. resident and a non-resident alien in the same year. This makes you a dual-status alien. This typically happens the year someone leaves or enters the country.
Since it’s difficult to nail down the time periods you were in and out of the country, the IRS will determine your tax liability by differentiating the period when you were in/out of the country.
- For the part of the year you were a non-resident alien: The IRS will tax your worldwide income for the period when you were in the country
- For the part of the year you were in the U.S.: The IRS will tax all U.S. sourced income during the time you were a non-resident alien
- Not effectively connected income: Any income earned during your time as a non-resident alien not linked to a trade or business in the U.S. will not be taxable
Can a resident alien claim tax treaty benefits?
In some situations, yes. The United States has income tax treaties with many countries. These treaties are designed to prevent double taxation and may provide reduced tax rates, exemptions, or other benefits for eligible taxpayers.
Although tax treaty benefits are often associated with non-resident aliens, resident aliens may also qualify for certain treaty provisions depending on the specific treaty and their circumstances.
Because treaty rules vary by country and can be complex, taxpayers should review the applicable treaty provisions and IRS guidance before claiming a treaty benefit.
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