Airport signage with tax terms to start the conversation about your tax resident status" width="900" height="599" />Airport signage with tax terms to start the conversation about your tax resident status" width="900" height="599" />
Whether you are a temporary nonresident alien in the United States or you’re planning to move to the U.S. permanently, there are actions you can take to get your tax affairs in order. It's important to know your tax resident status and what specific tax obligations come with your situation.
You can potentially save a significant amount of money by planning your finances before you the U.S. taxes your worldwide income. Taxes can be expensive and burdensome, but there are ways to minimize your tax liability the legal way. Plan ahead - there are several actions you should consider to potentially reduce your tax burden.
Table of ContentsIn the United States, even temporary visitors can be tax residents if they spend a certain amount of time in the country. If you are a nonresident foreign national and you’re planning to stay in the U.S. for some time, make sure you understand when you might convert to a Resident Alien for tax purposes.
Are you a resident for tax purposes or a non-resident for tax purposes? Here’s a chart to help you determine your status:
| If you are a. | Then you are a. |
| U.S. Citizen | Tax Resident |
| Green Card Holder | Tax Resident |
| Non-U.S. Citizen and Pass Substantial Presence Test | Tax Resident |
| Non-U.S. Citizen and Pass Green Card Test | Tax Resident |
| Non-U.S. Citizen and DO NOT Pass Substantial Presence Test and DO NOT Pass Green Card Test | Non-Resident for Tax Purposes |
The Green Card Test is easy. If you are an immigrant who is a lawful permanent resident, otherwise known a green card holder, and you spent at least one day in the United States, you are automatically a tax resident. If you don’t meet this requirement, take the Substantial Presence Test.
There are exclusions from the countable days such as staying in the country for medical treatment and stopping by while traveling between two countries. Some visa types like F-1, F-2, J, J-1, and J-2 are also exempted from the Substantial Presence Test (SPT).
If you pass the SPT, the U.S. government will tax you as a U.S. tax resident (a resident alien). If not, you will file taxes as a nonresident alien.
The most important difference between being taxed as a resident alien versus a nonresident alien is that resident aliens are taxed by the United States on their U.S. income AND worldwide income. Nonresident aliens are only taxed by the U.S. on their U.S. income.
Another scenario where you may be taxed as a resident is if you surrendered your green card, but you did not comply with the notification requirements.
If you want to abandon your lawful permanent resident status, you must to file Form I-407 with the Department of Homeland Security. Although this may provide you with tax relief, it has permanent consequences to your immigration status as well. Speak to an immigration attorney before filing Form I-407. To change your tax status, you also have to file Form 8854 with the Internal Revenue Service (IRS) and pay exit taxes if applicable. I-407 filers must also comply with the notification requirements to the applicable department which is either the Department of State or Department of Homeland Security.
Some statuses are exempt from resident alien tax liabilities – are you one of them? While the rules for being a tax resident are clear, there are ways to maintain your status as a nonresident alien. Exempt individuals include:
*Students on visas enjoy a five-year exemption while teachers and trainees holding J or Q visas are exempt for two calendar years every six years.
Another option is to look for applicable treaties between the U.S. and your country to elect a nonresident alien status. There may be reduced rates under these treaties. The terms governing the rules for each country differ, so check the IRS repository for treaties which may be applicable to your status. In addition, students may qualify for the Closer Connection Exception. The Substantial Presence Test computes countable days in the country based on three years: the current year, the previous year, and two years prior. The Closer Connection provides greater leeway since it only counts the 183 days for the calendar year. You’ll need to meet these requirements to take advantage of this exception:
There are various income and asset reporting requirements depending on your status. According to IRS, you can determine what income to report based on your status. If you meet the requirements as a tax resident, you need to report U.S. and worldwide income to the IRS. While you may not be taxed for the entire amount, you still have to meet the reporting guidelines and prepare to pay tax based on your worldwide income.
Meanwhile, nonresident aliens will only have to pay taxes on the following:
Reporting requirements for nonresident aliens include:
