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Issues Affecting Nonresident Aliens

What is a nonresident alien?

A nonresident alien is a visitor who comes to the United States for a temporary, limited purpose. If you are a nonresident alien, you will typically hold a nonimmigrant visa. Nonimmigrant visa holders are typically short-term business visitors, tourists, students, or temporary professional workers who fall into some other well-defined category. These temporary visas are usually much easier to get than a green card, but your activities while you’re in the United States are restricted. For example, if you gain admittance as a visitor, you won’t be able to work at the neighborhood hamburger joint without changing your status; and if you have a student visa, it’s good only at the school for which it is issued. Also, some visitors do not have visas. For example, someone coming into the United States on the Visa Waiver Program would be visa exempt. Also, there are classifications such as temporary protected status that enable aliens who are neither immigrants nor nonimmigrant visa holders to stay in the United States. Even undocumented individuals may be classified as nonresident aliens. Interestingly, not all nonimmigrants or even undocumented aliens are nonresident aliens for tax purposes. Many may be resident aliens, depending on if and how long they are earning income in the United States.

What is the difference between a nonimmigrant and a nonresident alien?

The term nonresident alien is a tax term and is usually not used in the context of immigration law. You are a nonresident alien if you do not meet the “green card” or “substantial presence” tests described in IRS Publication 519, U.S. Tax Guide for Aliens. Generally, a nonresident alien is subject to U.S. tax only on his or her U.S. source income. Moreover, there are often exemptions and minimum thresholds that apply before a nonresident alien is subject to U.S. taxation. The concept of U.S. source income is not always as straightforward as you might think. Consult IRS Publication 519 for information on the meaning of U.S. source income, or contact your tax advisor or attorney.

Depending on many considerations, nonimmigrants may be classified as nonresident or resident aliens for tax purposes. Certain nonimmigrants, such as students, exchange visitors, professional athletes, and employees of international organizations, are regarded as “exempt individuals,” and days in these classifications do not count toward the requisite number of days for triggering resident alien status for tax purposes. Again, IRS Publication 519 is an excellent resource for delving more into this issue.

How do you get a nonimmigrant visa?

Most work-related nonimmigrant visas also require obtaining the approval of an application classifying you as an alien eligible for a given category. The application should be filed with the Department of Homeland Security, U.S. Citizenship and Immigration Services (USCIS). Once approved, it could be cabled or simply presented to the U.S. consular office as part of the application for the nonimmigrant visa. It’s important to note that in the case of an H-1B professional worker visa, a labor condition application must be filed with the Department of Labor and certified prior to the time of the approval of the application. For additional information on an assortment of nonimmigrant visa classifications, see the Department of State website at www.travel.state.gov.

To get a nonimmigrant visa, you must often first convince the U.S. consular officer in your home country that you aren’t secretly intending to stay in the United States permanently, or even longer than your visa allows. You will be issued a temporary visa (known as a nonimmigrant visa) that identifies your status. In some instances, immigration law recognizes that you have a dual intent of visiting the United States on a nonimmigrant visa, and also of becoming a lawful permanent resident. The concept of dual intent is explicitly recognized for H-1B professionals and L-1 intracompany transferees.

Entering the United States

Once you have arrived in the United States, even though you’re holding the visa in your hand at a U.S. port of entry, you also have to convince the Department of Homeland Security U.S. immigration inspector in the United States that you’re not intending to stay here indefinitely. The inspector fills out Form I-94 when he or she admits you. The I-94 form proves that you are a lawful visitor and also limits the amount of time you can stay. The I-94, a white card, is the best evidence that you’re in the country legally, but your foreign passport, with its visa stamp, is also evidence. You should carry both your passport and your I-94 form with you at all times.

More about your visa and your presence in the United States

Your visa will be issued for a specific period of time. A visitor’s visa, for instance, is usually issued for up to six months. However, you don’t always have to leave when the visa expires. What counts is the I-94. The dates stamped on the visa mean only that the holder doesn’t have to reapply for a visa until a certain date. That’s why the I-94 is the best evidence you have that you’re in the United States legally. You may also be able to enter the United States under one type of nonimmigrant visa (such as a student visa), then switch to another type (such as a temporary worker visa) in order to remain in the country. If you want to do this, however, don’t wait until your visa has run out to request a change of status. If the time on the I-94 does run out, the application will not be considered timely filed and will probably be denied. Moreover, your original visa may be considered void and you may begin accruing “unlawful presence.” These possibilities will dim your prospects for future temporary and permanent visits to the United States. Plan ahead.

Your visa will specify the number of times you can enter the United States. If you have a single entry visa for one year, for instance, you can come any time during that year, but only once. Generally, individuals are permitted to visit Canada and Mexico for visits not exceeding 30 days, provided that the period of stay designated on the I-94 form has not expired.

Activities: What you can do in the United States

The type of visa you get establishes what you can do when you get here. If you’re a student and decide to work at the local convenience store, for example, you’ll need to get permission. If you enter the United States to work in a specific job pursuant to an approved USCIS application, you’ll have to do that job unless a different employer agrees to sponsor you by filing a petition on your behalf. You can’t legally change jobs unless the appropriate forms are filed with the USCIS. In most instances, the applications have to be approved before you can change jobs. For H-1B professionals, however, if you are already here and working in H-1B status, the filing of the petition, provided it would qualify for H-1B classification, should suffice in order to start the new job.

It’s important to note that some nonimmigrant visa classifications (certain students, for instance) may require you to obtain an employment authorization document (EAD) in order to work. With certain other classifications, such as H-1B and L-1, you do not need to obtain an EAD card. Generally, an employment-authorized status that required the filing of a petition with the USCIS prior to the issuance of the nonimmigrant visa will allow for work without an EAD card. Call your attorney, human resources professional, or foreign student advisor if you are in doubt.

What to do if your visa is denied

You can request a written explanation from the consular officer who denies your visa and then ask the State Department for an Advisory Opinion. Don’t expect too much from this appeal, however. Usually, the consular officer’s decision stands.

What are the tax issues for nonresident aliens?

If you are considered a nonresident alien for U.S. tax purposes, you won’t have to pay income taxes on foreign source income. But if you have U.S. source income (i.e., you’re “engaged in a trade or business” in the United States, as the tax code puts it), expect to fill out Form 1040NR or 1040NR-EZ. You’ll also need an Individual Taxpayer Identification Number (ITIN) to fill out your return. You can apply for an ITIN at most IRS offices by filling out IRS Form W-7, Application for IRS Individual Taxpayer Identification Number. You can download this form from the IRS Internet site (www.irs.ustreas.gov) and mail it in. If you can’t prove you’ve paid your income tax, the IRS won’t give you permission to depart from this country.

  • Caution

If you are in the United States temporarily, don’t assume that you will be considered a nonresident alien under U.S. tax laws. Even though your immigration status is related to your residency status under U.S. tax law, they are not the same. If you meet what is called the substantial presence test, you may be considered a resident alien, rather than a nonresident alien, for tax purposes, unless you are considered an exempt individual (e.g., a teacher, student, or professional athlete).

  • Tip

In some cases, even if you work in the United States and are considered to be a nonresident alien for tax purposes, you won’t have to pay taxes here. Are you an employee of a nonresident alien business? Have you worked here for periods of not more than 90 days? Have you earned less than $3,000? If you answer no to any of these questions, you may have to pay income tax.

The standard deduction

If you are filing Form 1040NR as a nonresident alien, you cannot claim the standard deduction.

Tax rates

U.S. source income (connected with a trade or business in the United States) is taxed at the same rates that apply to U.S. citizens and residents. In addition, U.S. source income that is not connected with a trade or business in the United States is taxed at a flat rate of 30 percent. This includes some interest income, dividends, rents, annuities from pensions, and royalties.

If you’re a household employee, your employer doesn’t have to withhold income tax, but you can voluntarily ask him or her to.

If your home country has a tax treaty with the United States, you may qualify for a lower tax rate or even an exclusion. See IRS Publication 901, U.S. Tax Treaties, for a list of these countries.

Dual status aliens

Unless you got your green card on January 1, there is bound to be one year in which you have dual status as a resident and nonresident alien. If you were a resident on the last day of the tax year, you’ll have to file a personal income tax return. However, if you were a nonresident on the last day of the tax year, you’ll need to file Form 1040NR. Write “Dual Status Return” across the top of the return.

Filing jointly with a resident alien or citizen

If you’re married to a citizen or a resident alien, you may choose to be treated as a U.S. resident for income tax purposes. You must file a joint return and report your worldwide income. However, you won’t be able to file as head of household. In addition, if you want to claim an exemption for your spouse or children, they’ll need a Social Security number or individual taxpayer identification number.

If both you and your spouse are nonresidents, you can’t file your taxes jointly. For more information, see IRS Publication 519, U.S. Tax Guide for Aliens.

Departure permit for IRS purposes

Many aliens who leave the United States have to prove they’ve paid their taxes. Do this by filing Form 2063, U.S. Departing Alien Income Tax Statement, with the IRS. The IRS then issues you a letter of compliance, known as a departure permit or sailing permit.

Give the IRS at least two weeks to do the paperwork, and go with your spouse if he or she is also a nonresident alien when you apply. You’ll have to show your passport and alien registration card or visa, copies of your U.S. income tax returns for the past two years, receipts for income taxes paid on these returns, other documents that prove your deductions and business expenses, and a statement from each employer for this year, showing wages paid and withheld.

If you’re self-employed, you’ll have to show a statement of income and expenses, among other documents. You’ll need documents about the grants or scholarships you’ve received and tax-treaty documents.

Social Security taxes

The United States has entered into bilateral Social Security agreements (called totalization agreements) with some foreign countries. These agreements coordinate Social Security coverage and taxation of workers employed for part or all of their careers in one of the countries. In general, under these agreements you will pay Social Security taxes only in the country where you are working, although if you work only temporarily in one country, you may remain covered by Social Security only in the country where you normally work. To establish that your pay is subject only to foreign Social Security taxes and is exempt from U.S. Social Security taxes, you and your U.S. employer must request a statement from the foreign agency responsible for the Social Security taxes in that country.

  • Tip

If you do pay Social Security taxes in the United States and eventually collect benefits, 85 percent of the benefits you receive will be taxable as fixed income at the 30 percent tax rate, unless exempted by treaty.

Estate planning for nonresident aliens

Gift and estate taxes

If you own tangible or real property within the United States and you are a nonresident alien, that property is subject to both gift and estate taxes. Gifts of intangible property, however, are usually tax free, and deposits in bank accounts and life insurance are excluded from both gift and estate taxes.

  • Caution

If you are the beneficiary of your spouse’s estate and your spouse is a U.S. citizen while you are a nonresident alien, you will not be able to claim the marital deduction unless the estate passes to you by way of a qualified domestic trust.

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