Who is considered a foreign person for U.S. tax purposes?

A foreign person is an individual that is not a U.S. person. Generally, this includes non-resident aliens (NRAs) and it also includes U.S. branches of foreign corporations, foreign estates, foreign corporations, and partnerships.

What is U.S. sourced income?

For Fixed or Determinable, Annual or Periodic (FDAP) income paid to a foreign person to be subject to NRA reporting and withholding, the payment must be U.S. sourced. Following are some basic rules for sourcing of certain types of FDAP payments by withholding agents and multi-nationals:

1. Interest – If the debtor is a U.S. resident, the interest is generally U.S. sourced.
2. Royalties – If the subject property is used in the U.S., the royalty payment is U.S. sourced. Payments made in connection with the sale of certain intangible assets, including copyrights and patents, are generally sourced similar to royalties when the payments are contingent on the productivity, use or disposition of the intangible See Internal Revenue Code Section 865(d).
3. Rents – If the rental property is located in the U.S., the rental payment is U.S. sourced.
4. Personal Services – If the services are performed in the U.S., the payment for those services is generally U.S. sourced.

Do I need a Social Security Number to file taxes?

No, but you will need an Individual Taxpayer Identification Number (ITIN) if you do not have a Social Security Number (SSN). You must have one or the other to file a U.S. tax return.

Who is a "resident alien for tax purposes"?

A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.

What is a "Tax Treaty"?

A tax treaty is a bilateral agreement made by two countries to resolve issues involving double taxation of passive and active income.  Tax treaties generally determine the amount of tax that a country can apply to the income and wealth of a taxpayer.

What does "NRA" mean?

NRA stands for nonresident alien

Who is a non-resident alien?

A non-resident alien (NRA) is an individual who is not a U.S. citizen or a resident alien. 

What is a "W-2"?

The Form W-2 is a U.S. federal tax form issued by employers to employees stating how much an employee was paid in a calendar year.

Am I considered a "non-resident alien" or a "resident alien" for tax purposes?

You are considered a nonresident alien for any period that you are neither a U.S. citizen nor a U.S. resident alien.  You are considered a resident alien if you met one of the following tests for the calendar year.

1. The first test is the "green card test".  If at any time during the calendar year you were a lawful permanent resident of the U.S. according to the immigration laws, and this status has not been rescinded or administratively or judicially determined to have abandoned, you are considered to have met the green card test.

2. The second test is the "substantial presence test”. A foreign person will be considered a U.S. resident for tax purposes if they meet the substantial presence test for the calendar year. The test must be applied each calendar year that the individual is in the U.S.

To meet the test, a foreign person must:

a. Be physically present in the U.S. for at least 31 days during the calendar year, and

b. Be physically present in the U.S. for 183 days during the 3-year period that includes the current year and 2 years immediately before that, counting:

        - All the days the individual was present in the current year, and

        - 1/3 of the days the individual was present in the 1st year before the current year, and

        - 1/6 of the days the individual was present in the 2nd year before the current year.

In most cases, the days the alien is in the U.S. as a teacher, student, or trainee on an F, J, M or Q visa are not counted. This exception is for a limited amount of time. See publication 515.

What is the "Substantial Presence Test (SPT)"?

A foreign person will be considered a U.S. Resident for tax purposes if they meet the substantial presence test (SPT) for the calendar year. The test must be applied each calendar year that the individual is in the U.S.

To meet the test, a foreign person must:

1. Be physically present in the U.S. for at least 31 days during the calendar year, and

2. Be physically present in the U.S. for 183 days during the 3 year period that include the current year and 2 years immediately before that, counting:

a. All the days the individual was present in the current year, and

b. 1/3 of the days the individual was present in the 1st year before the current year, and

c. 1/6 of the days the individual was present in the 2nd year before the current year

In most cases, the days the alien is in the U.S. as a teacher, student, or trainee on an F, J, M or Q visa are not counted. This exception is for a limited amount of time. See publication 515

What is a "1042-S"?

Form 1042-S reports taxable federal income and the corresponding federal tax withholding relating to the following types of income received by U.S. nonresidents:

1. Wage payments made to employees who have claimed tax treaty benefits

2. Tax reportable Fellowship income

3. Service payments made to independent contractors for work performed in the U.S.

4. Royalty payments issued to individuals or entities

5. Non-employee Prize or Award payments

Form 1042-S is distributed to all eligible recipients on or before March 15 of each year following the year the payments were made.

What is the "Green Card Test"?

An alien is a U.S. resident if the individual was a lawful permanent resident of the U.S. at any time during the calendar year.  This is known as the green card test because these aliens hold immigrant visas (also known as green cards).

Please define FDAP income and include some specific examples.

In general, in order for a payment to be subject to non-resident alien (NRA) withholding, it must be a FDAP income payment. FDAP is an acronym for Fixed or Determinable, Annual or Periodic. Some of the more common expenses paid by U.S. withholding agents which would result in FDAP income to their vendors and other service providers are interests, royalties, compensation for personal services, rents, pensions or annuities and gains from the sale or exchange of the patents, copyrights, and similar intangibles that are described in Internal Revenue Code Section 865(d).

Are NRAs automatically exempt from FICA and Disability taxes?

No, your visa type determines the type of taxes you must pay.

What is an 8233 NRA Withholding Exemption Form and when do I have to submit it?

Form 8233 is an exemption from withholding on compensation for independent personal services of a non-resident alien individual.