Non-Resident Alien

What Is Non-Resident Alien?

A Non-Resident Alien is an individual who is not a U.S. citizen or U.S. national and who does not pass the green card test or the substantial presence test. These tests are ways to determine residency status in the U.S. for tax purposes. Non-Resident Aliens are generally subject to U.S. income tax only on their U.S. source income.

What Are Some Examples of Non-Resident Alien?

1. Foreign students studying in the United States on an F-1, J-1, or M-1 visa and engaged in full-time study.
2. Foreign workers temporarily present in the United States in a H-1B work status.
3. A temporary visitor to the United States on a B-2 visa.
4. An individual living in the United States under the provisions of a visa that requires them to maintain a foreign domicile during their presence in the United States.
5. A foreign investor who owns property in the United States but does not have a green card or meet the substantial presence test.
6. Foreign teachers or trainees temporarily present in the U.S. under a J or Q visa.
7. A foreign diplomat, foreign consular officer, or other foreign government official present in the U.S. under an A or G visa.

What's the Difference Between Non-Resident Alien and Resident Alien?

Resident Aliens and Non-Resident Aliens are differentiated mainly by their level of connection or attachment to the United States.

The IRS classifies a Resident Alien as a foreign person who is a permanent United States resident, or has met the substantial presence test, or they are a green card holder. These individuals are treated as U.S. residents for tax purposes, meaning they're subject to U.S. income tax on their worldwide income, much the same as U.S. citizens.

On the other hand, a Non-Resident Alien is a foreign individual who has not passed the substantial presence test or doesn't possess a green card. Non-Resident Aliens are typically subject to U.S. income tax only on their U.S. sourced income.

What Are Some Examples of Individuals Who Are Considered Resident Aliens?

Here are some examples of individuals who may be considered Resident Aliens:

1. A foreign student studying in the United States on an F-1, J-1, or M-1 visa who passes the "substantial presence test".
2. An individual with a H-1B work visa who has obtained a green card.
3. A foreign national married to a U.S. citizen who has obtained a green card.
4. An individual who has lived in the U.S for a longer enough period that meets the requirements of the substantial presence test.
5. A refugee or asylee given asylum in the United States who has applied for and received their green card.
6. Foreign workers living in the U.S, and have not violated the terms of their status, and have passed the substantial presence test.
7. An individual holding an immigrant visa which is also known as a settled resident visa or green card.

What Distinguishes a Non-Resident Alien From a Foreign National in the United States?

While both terms refer to individuals who are not U.S. citizens, their uses and implications differ:

• A Non-Resident Alien is a specific term used by the IRS to denote non-U.S. citizens who don't pass the green card or substantial presence tests, and whose income is subject to U.S. taxes based on their U.S. source income.

• A Foreign National, on the other hand, is a broader term that refers to anyone who is not a citizen or national of the United States, irrespective of their residency status or how much time they spend in the U.S. This term includes both Resident Aliens and Non-Resident Aliens.

Consequently, a Non-Resident Alien is essentially a subset of Foreign Nationals.

What Are Some Examples of Individuals Considered as Foreign Nationals?

Here are some examples of individuals who may be considered Foreign Nationals:

1. A tourist from France visiting the U.S for a few weeks.
2. A Japanese businessperson in the U.S on a B-1 visa for making business deals or attending conferences.
3. A British student studying in the United States on a J-1 visa.
4. A Canadian temporary worker in the United States on a TN visa.
5. A Mexican individual with a green card, living in the U.S (this person is also considered a resident alien).
6. An Indian software engineer living in the U.S. and working on a H-1B visa.
7. A Chinese diplomat in the U.S on a diplomatic visa (here, the person is a Non-Resident Alien but also a Foreign National).

What Are the Tax and Financial Benefits for a Non-Resident Alien in the U.S.?

A Non-Resident Alien in the U.S. generally receives the following tax and financial benefits:

1. Limited Tax Liability: Non-resident aliens are typically only liable to pay taxes on their income from U.S. sources, not their worldwide income.

2. Tax Treaty Benefits: Some countries have tax treaties with the U.S. that allow their residents to pay lower taxes on income earned in the U.S., or to avoid being taxed twice on the same income.

3. Capital Gains: Non-resident aliens without a U.S. trade or business are typically exempt from U.S. capital gains taxes, unless they have been in the U.S for 183 days or more in a year.

4. U.S. Bank Interest: Non-resident aliens typically do not pay tax on interest income from their deposits in U.S. banks, savings institutions, and insurance companies.

5. Usual Standard Deduction: While non-resident aliens cannot take the usual standard tax deduction, they can itemize their deductions, such as state and local income taxes, charitable contributions to U.S. organizations, casualty losses etc.

6. Specific Credits: Although non-resident aliens are generally not allowed the same credits as U.S. residents, they may be able to claim some exceptions like child and dependent care credit.

Please note that tax laws are complex and subject to change, so it's important for non-resident aliens to consult a tax professional or tax attorney knowledgeable about international tax law.

What Disadvantages Might a Non-Resident Alien Face While Residing in the United States?

Non-Resident Aliens may face some challenges and restrictions while residing in the United States:

1. Limited Work Opportunities: Non-Resident Aliens have restrictions on employment. They typically need work visas, and even then, certain jobs may only be available to U.S. citizens or permanent residents.

2. Taxation: Non-Resident Aliens must pay U.S. taxes on all income earned from U.S. sources.

3. Limited Stay: Their stay in the U.S. is usually limited to the duration of their specific visa. Overstaying can lead to legal issues and deportation.

4. Unable to Vote: Non-Resident Aliens cannot vote in U.S. elections.

5. Limited Access to Financial Services: They may have trouble opening bank accounts or securing loans due to lack of U.S. credit history.

6. Health Insurance: Access to health insurance can be more challenging for non-residents. They may incur substantial costs for health care services without insurance.

7. Visa Restrictions: Staying in the U.S. beyond the visa expiration date can lead to deportation and may affect future visa and immigration requests.

8. No Social Security Benefits: Unless they have worked for a certain period in the United States, they generally cannot receive social security benefits.

Which Employers Are Likely Affected by Employing Non-Resident Aliens?

There are several types of employers that are likely to be affected by employing Non-Resident Aliens. Here are some examples:

1. Universities and Research Institutions: These often hire Non-Resident Aliens as professors, researchers, or other faculty members, especially those with specialized knowledge in a specific academic field.

2. Technology Firms: These companies often hire Non-Resident Aliens to fill specialized roles where there is a shortage of domestic talent, especially in fields like programing, software development, data science, etc.

3. Healthcare Institutions: Many hospitals and healthcare centers employ Non-Resident Aliens as doctors, nurses, or other healthcare professionals.

4. Multinational Corporations: These companies often employ Non-Resident Aliens in the United States for their unique skills, global perspective, or understanding of overseas markets.

5. Hotels and Restaurants: The hospitality industry often hires Non-Resident Aliens for different roles, especially in cities with high tourist traffic.

6. Agriculture: In the agricultural sector, some roles are frequently filled by Non-Resident Aliens, especially for seasonal work like harvesting crops.

It's important to note that these employers must follow strict regulations outlined by the U.S. government such as obtaining work visas for their foreign workers and withholding proper taxes.