FOCUS ON THE US TAX RETURN FOR NON-RESIDENTS

 FOCUS ON THE US TAX RETURN FOR NON-RESIDENTS

You are neither a U.S. citizen nor a green card holder and must file a U.S. tax return. Invest US offers a guide to filing U.S. taxes for non-residents.

In what cases does the US tax return for non-residents apply?

If you receive income from the United States, such as rental income, part-year employment, or investment income, and you do not meet the substantial presence requirement that would require you to file your taxes as a U.S. resident, the U.S. non-resident tax return applies to you.

If you were a nonresident alien engaged in a trade or business in the United States during the calendar year, even if you generated no income or the income was exempt from U.S. tax under a tax treaty or a special condition of the Internal Revenue Code, you are also affected.

It is important to understand how US taxes work, especially for non-residents, in order to comply with regulations and also to determine whether a given investment is worthwhile, i.e., whether it generates a decent income after taxes. Due to a lack of knowledge, some non-residents miss out on significant savings simply because they fail to file a tax return that could generate a refund!

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The difference between residents and non-residents on the US tax return

If you file Form 1040 , which is the U.S. resident filing form, you must report your income regardless of where it originates. Non-residents, on the other hand, file Form 1040NR. They are required to report only U.S.-source income.

Foreign nationals investing in the United States, if they are considered U.S. residents for tax purposes, will be required to report all of their income, regardless of its origin or source.

It's important to know that the requirements for Form 1040, which applies to U.S. citizens and Green Card holders, are relatively straightforward. For non-residents, there is no minimum income threshold for filing. Indeed, even if you received no income from a U.S. trade or business, or if your income is exempt from U.S. tax under a tax treaty or a specific provision of the tax code, you are still required to file the return.

What is the 1040NR statement?

Filing a tax return remains in the best interest of anyone who has earned money in the United States, regardless of their status. As mentioned above, many non-residents forget to file their tax return because they believe they don't owe anything. However, it's possible that they overpaid. Thus, filing a tax return works both ways: to pay taxes and to receive a refund. As such, not filing a tax return could mean losing a potential refund.

Additionally, there's another reason why filing a US tax return for non-residents is important. Visa requirements require visa holders to comply with US laws. These include filing a tax return. To amend their visa conditions, visa holders are often asked to provide proof of filing. This can be essential for those who have left US soil and are seeking to return.

How do you know if you are really a non-resident?

To determine nonresident status, the IRS uses two techniques. The first is whether the person has a green card; the second is called the "Substantial Presence Test." Translated: the substantial presence test.

Possession of a green card , the first technique used by the U.S. Internal Revenue Service, is whether, at any time during the calendar year, the person was a lawful permanent resident of the United States, under immigration laws and that their status has not been canceled or abandoned.

The second technique, the so-called substantial presence test , requires that the individual have been physically present in the United States for at least 31 days during the year, and 183 days during the past three years, as well as one-sixth of the days of presence during the second year preceding the current year.

Even if you meet the "substantial presence" test, you may be treated as a nonresident if you were present in the United States for fewer than 183 days during the current calendar year, if you maintain a tax home in a foreign country during the year, or if you have a closer connection to that country than to the United States.

However, you are not considered a non-resident if you have applied for lawful permanent resident status in the United States or if you have a pending adjustment of status application.

There are tax treaties between the United States and several countries around the world. These treaties provide specific rules for determining residency for treaty purposes. Generally, a foreign national whose status changes during a year from resident to nonresident or vice versa is taxed on the income for both periods according to the provisions of the law that apply to each period.