International Taxation

Each year, thousands of nonresident aliens are gainfully employed in the United States. Thousands more own rental property or earn interest or dividends from U.S. investments.

First step: Determining Alien Tax Status

If you are an alien (not a U.S. citizen), you are considered a nonresident alien unless you meet one of two tests: the green card test or the substantial presence test for the calendar year (January 1 – December 31). If you do not meet either the Green Card Test or the Substantial Presence Test, then you are a nonresident alien. See determining Alien Tax Status for more details.

If you meet either test, you are considered a U.S. resident alien and are generally taxed in the same way as U.S. citizens. This means that your worldwide income is subject to U.S. tax and must be reported on your U.S. tax return (Form 1040, U.S. Individual Income Tax Return; Form 1040A, U.S. Individual Income Tax Return or Form 1040EZ, Income Tax Return for Single and Joint Filers with No Dependents).

Filing Requirements for Nonresident Aliens

Nonresident aliens are generally subject to U.S. income tax only on their U.S. source income. They are subject to two different tax rates, one for effectively connected income, and one for fixed or determinable, annual, or periodic (FDAP) income.

Effectively connected income (ECI) is earned in the U.S. from the operation of a business in the U.S. or is personal service income earned in the U.S. (such as wages or self-employment income). It is taxed for a nonresident at the same graduated rates as for a U.S. person.

FDAP income is passive income such as interest, dividends, rents or royalties. This income is taxed at a flat 30% rate, unless a tax treaty specifies a lower rate.

Nonresident aliens must file and pay any tax due using Form 1040NR, U.S.

The A&F Financial expertise team are helping foreign investors understand their tax obligations in the United States.