U.S. Tax on Income of Aliens and Visa Holders, Investors, LPRs, Students, and Tax Return

U.S. Tax on Aliens - General Overview

The federal income and employment tax consequences for foreign citizens working in the U.S. depend on (a) whether the individual is classified as a "resident" or "non-resident" under the U.S. tax laws and (b) whether a tax treaty exists between the U.S. and the foreign citizen’s country.

Those aliens who meet the "resident" test are subject to the same federal income tax laws as citizens of the United States. In other words, they are subject to tax on all income earned in the U.S. and abroad. Residents are subject to social security and Medicare taxes on wages (FICA) and on self-employment income (SECA) in the same manner as U.S. citizens.

Non-resident aliens are taxed on income from sources within the U.S. but generally not on income from foreign sources. Nonresident aliens are subject to FICA taxes on compensation from work within the U.S. under the same rules that apply to U.S. citizens and resident aliens.

U.S. Tax on Aliens - Who Is a Resident Alien

You are a resident alien for U.S. tax purposes if you meet either the "green card test" or the "substantial presence test" for the calendar year in question. (January 1-December 31). Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S. resident for part of the year.

U.S. Tax on Aliens - Green Card Test

You are a resident for tax purposes if you are a lawful permanent resident (LPR or green card holder) of the U.S. at any time during the calendar year. (However, see Dual-Status Aliens, below).

U.S. Tax on Aliens - Substantial Presence Test

You will be considered a resident for tax purposes if you meet the substantial presence test for the calendar. To meet this test, you must be physically present in the United States on at least:

1. 31 days during the current year, and

2. 183 days during the 2 years preceding the current year, counting:

a. All the days you were present in the current year, and
b. 1/3 of the days you were present in year prior, and
c. 1/6 of the days you were present in the year prior to the year in (b) above.

You are treated as present in the United States on any day you are physically present in the country at any time during the day.

Closer Connection to a Foreign Country

Even if you meet the substantial presence test, you can be treated as a nonresident alien if you:

  • Are present in the United States for less than 183 days during the year.
  • Maintain a tax home in a foreign country during the year, and
  • Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a closer connection to two foreign countries, discussed next).

Non-Resident Spouse Treated as a Resident

If at the end of the tax year, you are married and one spouse is a U.S. Citizen or resident alien and the other is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident. Under this choice, the couple is treated as U.S. residents for the entire year, taxed on their word-wide income, and may file a joint or separate returns in later years.