According to the IRS, non resident aliens are individuals who are not U.S. citizens or nationals who have not passed their green card test or the substantial presence test.
What non resident aliens are required to file?
Non residents may still have a tax obligation to the United States, even if they did not reside here in the U.S.
Below is a brief list of circumstances when non resident alien tax filing is required:
- Non resident aliens who have engaged in a trade or business within the U.S.
- Non resident aliens not engaged in U.S. trade or business with U.S. sourced income that has not been taxed appropriately at the source or an income tax treaty is required to be disclosed
- Representatives responsible for filing the tax return for a non resident alien
- Fiduciaries for non resident alien estates and trusts
There are many circumstances that require non alien residents to file with the IRS.
As an example, foreign exchange students are considered to be in trade with the U.S. so they fall under the same guidelines for the taxation of non resident aliens absent any income tax treaty.
Departing aliens must also obtain a certificate of compliance.
What is taxable?
Under current IRS guidelines, there are two general types of non resident alien income subject to U.S. income tax: effectively connected income and U.S. source income that is Fixed, Determinable, Annual or Periodical (FDAP).
Effectively connected income from a trade or business in the U.S. has graduated tax rates after allocation of income and deductions. They are the same general rates U.S. citizens and residents are taxed.
FDAP typically applies to investment income that is passive. However, it can include almost any type of income. It is taxed at a flat rate of 30 percent or lower if an applicable income tax treaty rates applies. There are no deductions for this type of taxable income.
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