There may be confusion to the non- U.S. citizen or resident when it comes whether he, she, or the company must file a tax return in the United States.

To begin, it should be determined when a person is a non-resident alien. A nonresident alien is an alien who has not passed the green card test or the substantial presence test. The green card test determines whether you are a Lawful Permanent Resident of the U.S. at any time during the calendar year. A U.S. Lawful Permanent Resident has been given the privilege through U.S. immigration law to reside permanently in the U.S. as an immigrant. Usually the resident alien has been issued an alien registration card (Form I-551) also known as a “green card.”

When is the Non-Resident Alien Obligated to File a U.S. Tax Return?

A nonresident alien must file: (1) if he or she is engaged or considered to be engaged in a trade or business in the United States during the year. (Filing is required even if the income did not come from a trade or business conducted in the United States; there is no income from U.S. sources; or the income is exempt from income tax.); (2) a nonresident alien individual not engaged in a trade or business in the United States with U.S. income that was not previously withheld at the source of payment; (3) a representative or agent responsible for filing the return of an individual described in (1) or (2); (4) a fiduciary for a nonresident alien estate or trust, or (5) a resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax.

The non-resident alien must also file a U.S. tax return to claim a refund, deductions or tax credit benefits.

Which Income Should the Non-Resident Alien Report?

The non-resident alien’s income that is subject to U.S. tax is divided into two categories: (1) income that is Effectively Connected with a U.S. trade or business; or (2) U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP). Effectively Connected Income, after allowable deductions, is taxed at graduated rates, which is similar to U.S. citizens and residents. FDAP income is taxed at a flat 30 percent (or a lower rate if there is an appropriate treaty between the U.S. and the foreign nation), but no deductions are allowed against such income.

If you have any questions tax reporting of non-resident aliens, please feel free to contact us.