How to Save U.S. Taxes for Nonresident Aliens

The green card test and the substantial presence test are the two tests used by IRS for determining your alien status. If you meet either one’s criteria, you’re considered a resident alien for income tax purposes; otherwise, you’re classified as a nonresident alien.

If you are a foreigner with a green card, which means that the US Citizenship and Immigration Service enable you to reside in the country lawfully, you are a foreign resident. Suppose, however, that you do not have a green card and spend a minimum of 31 days in the US during the current tax year and a total of 183 days in the previous three tax years (inclusive of the current tax year). In that case, the physical presence test is usually completed, and you are still regarded as a resident alien.

Nonresident Taxes

A nonresident may still pay the IRS income tax, but only on income that is effectively related to the U.S., which normally includes the money you receive while in the U.S. However, the IRS does not have the power to levy a tax on the profits that nonresidents receive for this purpose in their home countries or foreign countries.

You must use Form 1040NR when you file your U.S. tax return, if eligible.

  • You can only record sums that are considered US-source revenue, irrespective of the type you use.
  • Like resident aliens and U.S. residents, there are exemptions and credits you can demand to minimize your taxable income.

On the IRS website, all nonresident tax return forms, such as 1040NR, 1040NR-EZ, or 8843, is available with instructions. You can consult our company to help you through the planning process for nonresident tax returns.

An exempt person, maybe anyone in the following categories:

  • An individual temporarily residing in the United States as a person associated with a foreign government
  • An instructor or trainee temporarily with a J or Q visa present in the United States significantly complies with the visa requirements.
  • A student with an F, J, M, or Q visa temporarily residing in the United States who substantially complies with the visa requirements; or
  • A professional athlete who is present temporarily to play in a charity sports event.

Capital Gains

Nonresident aliens are subject to no tax on U.S. capital gains, and the investment company would withhold no money. This does not, however, mean you can trade tax-free. In your country of origin, you will likely need to pay capital gains tax.

 

Dividends

Nonresident aliens are subject to a 30% dividend tax rate on dividends paid out by US businesses. However, whether the dividends are paid by foreign firms or are interest-related dividends or short-term dividends for capital gains, they are exempt from this tax. Depending on the alliance between your home country and the US, you can also reduce the 30% tax rate. As a consequence, to check the rate, it is necessary that you contact your brokerage firm.

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