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If you are a foreign citizen residing in the U.S., you are required to file an annual return with the IRS.You are considered a ‘Resident Alien’ and have to declare your worldwide income as well as your non-U.S.bank accounts.
We help many foreign citizens handle their affairs with the IRS and are familiar with the issues you face.Many of them are non-obvious (even more so than the U.S. tax code with respect to U.S. citizens),which is why we recommend that you use a qualified professional to handle your US taxes.
Frequently Asked Questions
1. When am I considered a US tax resident for tax purposes (ie how many days spent in the US)?
You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
- All the days you were present in the current year, and
- 1/3 of the days you were present in the first year before the current year, and
- 1/6 of the days you were present in the second year before the current year.
2. Do I have to declare my worldwide income (such as my foreign earned & unearned income)?
Once you meet the Substantial Presence test you become a subject to the same filing obligations as U.S. citizen, i.e. you are required to declare your worldwide income.
3. Do I have to declare my non-US financial accounts on FBAR / Form 8938?
Once you meet the Substantial Presence test you become a subject to the same filing obligations as U.S. citizen, i.e. you are required to declare your non-US financial accounts. Please see www.taxesforexpats.com/expat-tax-advice/FBAR-Fincen-114.html.
4. I lived 5 years in the US. On July 1st I moved back home to country X. Do I have to declare my income in country X for Jul-Dec on my US tax return for the year?
You may not have to declare your non-US income if you qualify for an early residency termination date. This is the the last day that you are physically present in the United States (July 1 in this example). To qualify for early residency termination date, your tax home the remainder of the calendar year should be in the foreign country X.
5. Under what conditions can I stop having to file US tax returns?
You can stop filing US tax return once you do not live in the U.S. and do not have income from U.S. sources.
6. If I have extra income (such as dividends or rental) in country X, how should I pay taxes - in the US or country X?
If you meet the Substantial Presence Test you must pay tax in the U.S. on your worldwide income including unearned income.
Note - you may still be required to pay tax in country X. There are various methods to avoid double taxation. The most common method is claiming Foreign Tax Credit on your U.S. return for tax paid in country X. Some countries with a Tax Treaty may accept Form 6166 - Certification of U.S. Tax Residency and allow for a tax exemption.
7. I no longer live in the US but have a pension from when I worked previously. Is this taxable?
Pension will usually consist of earned income that was not previously taxed previously not taxed earned income. When you receive pension distributions, they will be taxed by the IRS the same way as if it was earned income.
no exemption or tax reduction through the Tax Treaty applies to pension from prior work in the U.S. However, this income will be exempt from tax in the state where you worked and earned pension.
8. When I receive these pension distributions, do I have to file a U.S. Tax return to declare this income if I am not a US person anymore?
You are not required to file a U.S. tax return if pension is your only income as the U.S. Bank will make backup withholding. However, it is in your best interest to file because bank withholding will never be less than you owe but most likely it will be greater than tax due. Filing a non-resident Tax Return (Form 1040NR) is the only way to claim the refund.
9. I still own a home in the US - if I sell it, do I have to file a US tax return? If I rent it, do I have to file a US tax return?
If you sell your property in the U.S. you must file a federal and state tax return to report the sale.
If renting, rental properties in the U.S. require annual nonresident tax return 1040NR to report gain or loss from rental activity.
- Annual non-resident state return is required as well unless property is located in a tax-free state like TX.
- Annual reporting is required even if you generate a loss. Furthermore, when you choose to sell your property, all accumulated losses (if any) are deducted from sales proceeds. Without annual reporting, these losses cannot be recovered. If property is idle (no rental activity), no reporting is required.
10. My wife is not a U.S. person and she stays abroad while I work in the U.S. What filing status should I choose?
You may choose the filing status Married Filing Separately and not to declare your spouse income on your tax return.
Or you may choose to file Married Filing Jointly if your spouse has no or little income. This will help reduce your tax rate. Once you stop being a resident alien your wife will no longer be required to file a U.S. tax return.
Contact your tax advisor to determine the most appropriate option for you.
11. I lived and worked in the U.S. from February 1, 2016 through August 31, 2016. Then, I’ve left the U.S. How should I file? Resident, non-resident or dual status alien?
SItuation: Non-US citizen moves to the US in February 2016, works through the end of August 2016. How do they need to file?
In 2016 you met the substantial presence test. You have two options. You may file resident tax return for the entire year because the default end of U.S. tax residency date is December 31 of the calendar year.
Alternatively, you may file a dual status alien return with the end of U.S. residency on August 31. You qualify for the earlier end of U.S. tax residency because you left the United States after that date and maintain a closer connection to your home country.
During the course of tax preparation we will be able to advise which is most advantageous to you.
12. I worked for a U.S. company as an independent contractor and came to the U.S. only for one week through the year. Should I pay tax in the U.S. on income received?
Income for independent personal service earned in the U.S. by nonresident aliens is tax exempt provided that you spent less than 183 days in the U.S. during the year.
You may still need to file a non-resident tax return to report income reported to you on form 1099-MISC and claim income exemption.
13. I worked for a U.S. company and spent one week in the U.S. My country has a Tax Treaty with the U.S. Will U.S. tax on income reported on W2 be reduced through the Tax Treaty?
Income reported on W-2 is fully taxable to the recipient regardless of the location where work was performed and regardless of the country where is resides. There is no exemption or reduction in U.S. tax owed on that income. However, if that income was taxable in your resident country you can claim foreign tax credit to eliminate double taxation.
14. I live abroad and sell goods on EBay to US customers. Are sales proceeds taxable in the U.S.?
You are subject to US tax on selling goods through EBay only if you are you have a “dependent agent” in the US who does something substantial to further your business in the US (as opposed to something purely administrative).
*EBay is not your dependent agent; hence you are not engaged in a trade or business in the US and not subject to US tax on income from selling products into the US.
Further Reading
- Resident and NonResident Aliens (NRA) and the IRS
- US Taxes for Foreign Nationals
As an expert in international tax compliance, particularly in the realm of U.S. taxation for foreign citizens, I can offer comprehensive insights into the intricacies of the subject matter discussed in the provided article. My expertise is grounded in practical experience, having assisted numerous foreign citizens in navigating the complex landscape of U.S. tax obligations.
Key Concepts Discussed in the Article:
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Resident Alien Status: Foreign citizens residing in the U.S. are categorized as 'Resident Aliens' for tax purposes. The determination is based on the Substantial Presence Test, requiring a minimum presence of 31 days in the current year and 183 days over a 3-year period.
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Worldwide Income Declaration: Once a foreign citizen meets the Substantial Presence Test, they are obligated to declare their worldwide income, including both earned and unearned income, similar to U.S. citizens.
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Reporting Non-U.S. Financial Accounts: Resident Aliens must declare their non-U.S. financial accounts, adhering to reporting obligations such as FBAR (Foreign Bank Account Report) and Form 8938.
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Early Residency Termination: Depending on circ*mstances, individuals may qualify for an early residency termination date, affecting the declaration of non-U.S. income.
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Cessation of U.S. Tax Return Filing: Foreign citizens can cease filing U.S. tax returns once they no longer reside in the U.S. and have no income from U.S. sources.
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Taxation of Foreign Income and Double Taxation Mitigation: Foreign citizens meeting the Substantial Presence Test must pay taxes in the U.S. on worldwide income. Various methods, such as the Foreign Tax Credit, help mitigate double taxation concerns.
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Taxation of Pensions: Pensions from prior U.S. work are taxable by the IRS, but exemptions may apply at the state level. Filing a non-resident Tax Return (Form 1040NR) is necessary to claim refunds.
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Property Transactions and Rental Income: Selling or renting U.S. property requires filing federal and state tax returns. Annual reporting for rental properties is mandatory, even in the case of losses.
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Filing Status for Married Individuals: Options include Married Filing Separately or Jointly, depending on the spouse's income. Professional advice is recommended to determine the most suitable option.
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Dual Status Alien Filing: Individuals who meet the Substantial Presence Test have the option to file a resident tax return for the entire year or a dual status alien return with an earlier U.S. residency termination date.
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Taxation of Income for Independent Contractors: Nonresident aliens providing independent personal services in the U.S. may be exempt from tax, provided they spend less than 183 days in the country.
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Tax Treaties and W-2 Income: Tax treaties do not reduce U.S. tax on income reported on W-2 forms. However, foreign tax credits can be claimed to prevent double taxation.
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Taxation of EBay Sales to U.S. Customers: Sales proceeds from EBay are taxable in the U.S. only if a "dependent agent" in the U.S. is involved in furthering the business.
The information provided in this article demonstrates a nuanced understanding of the complexities faced by foreign citizens regarding U.S. tax obligations. It underscores the importance of seeking professional assistance to navigate the intricate U.S. tax code effectively.
