Your U.S. Tax Status: Resident vs Nonresident Alien

The U.S. tax system can confuse non-US citizens who spend significant time in the country. Due to differing tax implications, it’s crucial for individuals to accurately determine their tax status as either a resident alien or a nonresident alien. We provide an overview here.

What Defines a Nonresident Alien?

A nonresident alien is neither a U.S. citizen nor a resident alien for tax purposes throughout any period of the tax year. Understanding this classification helps you identify the tax rules that apply to you.

What Defines a Resident Alien?

Conversely, you are considered a resident alien if you pass either the green card test or the substantial presence test during the calendar year:

• Green Card Test: You pass this test and are classified as a resident alien if, at any point in the year, you legally hold a U.S. green card and your status as a lawful permanent resident has not been revoked or otherwise terminated.
• Substantial Presence Test: This test is met if you are physically present in the U.S. for at least 31 days during the current year and 183 days during three years, including the current year and the two years immediately before. The days are counted in full for the current year, one-third for the first preceding year, and one-sixth for the second prior year.

Key Exceptions and Exclusions

Certain days of presence in the U.S. are not counted under the substantial presence test:

• You can commute to work from Canada or Mexico on days you do this on more than 75% of your workdays.
• Days you are in the U.S. for less than 24 hours while in transit between two places outside the U.S.
• Days you spend in the U.S. as a crew member of a foreign vessel.
• Days you cannot leave the U.S. due to a medical condition that arose while you were in the country.
• On days you are an exempt individual, such as specific foreign government-related individuals, teachers, trainees, students under specific visas, or professional athletes attending charitable sports events,

Choosing Resident Alien Status

Even if you don’t meet the typical criteria for resident alien status in a given year, some provisions may allow you to elect to be treated as a resident alien under certain conditions. This is particularly relevant if your status changes during the year.

Tax Reporting Obligations

• Nonresident Aliens: They must file Form 1040-NR if they are engaged in trade or business in the U.S. or have U.S.-sourced income.
• Resident Aliens: Similar to U.S. citizens, they must report worldwide income and file Form 1040 or 1040-SR.

Final Thoughts

Determining whether you are a resident or nonresident alien is critical to understanding your U.S. tax obligations. Consulting with a tax professional is advisable for more detailed guidance and to ensure compliance with U.S. tax laws.

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