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Most people don’t envision themselves dealing with the legal aspects of their stay abroad or preparing tax forms when considering becoming an expat. Still, filing taxes is one of the vital aspects of expat life in the United States that might prevent you from extending your visa.
As a non-resident alien, you must file taxes on Form 1040-NR even if you don’t work for a US company or generate income from business activities.
The income you earn from engaging in a trade or business or receiving a fellowship grant is taxable, so you must report it to the IRS at the end of the tax year.
Let’s go through the essential tax information for non-residents and find out how to report income on Form 1040-NR.
Table of Contents
Meeting the US Non-Resident Criteria
The tax forms and the income sources you’ll have to report to the IRS when you move to the US will depend on your immigration status.
Non-resident aliens must report their income on Form 1040-NR unless they pass one of these two tests:
- Green Card Test: You must file taxes on Form 1040, like all other US Taxpayers, after obtaining the Alien Registration Card (Green Card) from the US Citizenship and Immigration Services.
- Substantial Presence Test: To pass this test, you must spend at least 31 days on the territory of the United States during a tax year and 183 days over the previous two years. Non-resident aliens who spent less than 183 days in the United States in the last three years don’t have to report their worldwide income to the IRS.
Hence, you only have to report the income you earn from US sources on Form 1040-NR if you don’t pass either of these tests. It’s also worth adding that the representatives of deceased persons, estates, and trusts that meet the non-resident criteria must also file Form 1040-NR.
Form 1040-NR Filing Requirements
It can be challenging to understand the circumstances under which you must file this form if you’re unfamiliar with the US federal tax system. The instructions booklet for Form 1040-NR provides a detailed list of filing requirements for US non-resident aliens.
You must complete this form under the following circumstances:
- You have no income from a trade or business conducted in the United States.
- You received income from a trade or business conducted in the United States.
- You have no US source of income, or the income you earned is tax-exempt under the IRC regulations.
- You earned income reported on Schedule NEC from a US source.
- You owe special taxes to the IRS, like household employment, medicare, and Social Security taxes, taxes on tips, or alternative minimum tax.
- You received Archer Medical Savings Account, HSA, or Medicare Advantage MSA distributions.
- You earned over $400 from self-employment during the tax year and came from a country with which the United States has the Social Security agreement.
Non-resident aliens married to a US citizen cannot file joint returns with their spouses, and they must choose the Married Filing Separately status on the form.
Besides Form 1040-NR, you must also prepare Schedule OI (Form 1040-NR), and you may also be required to submit other schedules depending on the income type you’re reporting.
You must also attach Form W-2, 1099-R, 1042-S, and other tax forms showing your earnings and the withholding amount.
Income Types you Must Report on Form 1040-NR
You must file Form 1040-NR even if you don’t earn anything from the business or trade you conduct in the United States during your stay. Recipients of taxable scholarships and fellowship grants are also required to prepare this form.
Generating income from property rental, pensions, and other types of fixed, determinable, annual, or periodic income makes you subject to a 30% tax rate on the gross amount of such income.
Self-employed individuals with the US non-resident status who earn less than $400 a year don’t have to report their income on Form 1040-NR.
Additionally, you can use this form to claim dependents or different tax credits, including the Child Tax Credit.
Some tax credits, like the credit for other dependents or the additional child tax credits, are only available to US non-residents from India, Mexico, Canada, and South Korea.
As a result, the maximum tax refund you can claim on Form 1040-NR and the supporting documents you’ll have to submit will depend on your nationality and the current tax regulations.
Overview of Form 1040-NR
The instructions booklet for Form 1040-NR is a 50-page document covering everything from filing requirements to instructions on completing different Form 1040 and Form 1040-NR schedules.
You must read the document to determine which tax forms you must attach to Form 1040-NR and figure out how to compute your tax liability. Form 1040-NR is a two-page document, but despite this, you’ll still need a couple of hours to complete it.
The form is divided into several sections, and you might need information from other tax forms to complete each section.
1. Taxpayer Information
The form’s top section collects information about a taxpayer. You must choose the filing status, provide your name and address, and indicate your native country and identification number in this part of the form.
This portion of the form also allows you to claim up to four dependents and child or dependent tax credits, but remember that you can only claim these credits if you meet all requirements.
Non-resident aliens must report any digital assets they received, sold, or gifted during a tax year on this form.
2. Income Effectively Connected with US Trade or Business
The information you must include in this section of the form depends on the type of income you earned during your stay in the US. You may have to attach Form W2, SSA-Form 1042-S, Form RRB-1042-S, Form 8288, or Form 1099-R to this section.
Moreover, you might need information from Form 2441, Form 8919, or Form 8839 to complete this part of Form 1040-NR. Use this section of the form to report the following types of income:
- W2 wages
- Household employee wages
- Income earned from tips
- Medicaid wavier payments
- IRA distributions
- Dividends
- Capital gains and loses
- Pensions and annuities
- Other types of earned income
You should also list your adjusted gross income, itemized deductions from Schedule A Form 1040-NR, or qualified business income deduction in this part of the form.
3. Tax and Credit
The information you’ll provide in this section depends on the forms you must attach to Form 1040-NR.
So, if you completed Schedule 2 Form 1040, Schedule NEC Form 1040-NR, or Schedule 3 Form 1040, you must use the amounts from these forms to calculate your tax liability and the tax credits you can claim.
4. Payments
Proceed to list the tax withholding amounts specified on Form W2, Form 1099, or any other forms or schedules you received. Add up all your tax payments in a year to compute your total payments and refundable credits.
Remember that you may also need Form 1040-NR you filed with the IRS the year before to determine the estimated tax payments and the amount applied from the previous tax year.
5. Refund and the Amount You Owe
The final two sections of Form 1040-NR let you compute your tax liability and the amount the IRS should refund you. To calculate the refund amount, you must subtract the total payments amount on Line 24 from the total tax and credit amount on Line 33.
Specify which type of bank account you have and add the account number and routing number to the appropriate fields. Subtract the amount from Line 33 from Line 24 to calculate how much you owe to the IRS.
You must also compute the estimated tax penalties on Form 1040-NR if you failed to meet your tax obligations in previous tax years.
You or the persons authorized to file the form for you should sign the document, enter PIN or PTIN and provide other necessary information at the bottom.
Frequently Asked Questions
The filing deadline for Form 1040-NR is April 15, or the next working day. But US non-resident aliens who earn income that isn’t subject to tax withholding can file the form before June 15 without facing late filing penalties.
A dual resident is an individual who is simultaneously a resident of the United States and a foreign country. You must attach Form 8833 to Form 1040-NR if you want to be treated as a US non-resident alien for tax purposes and file taxes in a foreign country.
US Citizens who leave the territory of the United States but don’t take residence in another country must report their income on Form 1040-NR.
The IRS might assess failure to file and failure to pay penalties ranging from 5% to 25% of their tax debt to non-resident aliens who don’t pay income taxes or file Form 1040-NR on time. Moreover, non-residents who don’t file this form might be unable to extend their visas.
Fulfilling Your Tax Obligations with Form 1040-NR
Completing Form 1040-NR requires a high level of familiarity with the US tax system, which is why most expats seek professional assistance.
In addition, you can contact the Tax Advocate Service if you’re struggling to understand which tax laws apply to you or which forms you must attach to Form 1040-NR.
Failing to meet your tax obligations can have far-reaching consequences that extend far beyond the financial penalties, so you should do everything in your power to pay and file taxes on time, especially if you want to continue living in the United States.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
