Tips for Non-Resident Aliens and Resident Aliens Tax Filing

It may come as a surprise that individuals who are not American citizens are still obligated to pay taxes on their income, regardless of where they reside. Even if a portion of their time is spent outside the country, tax obligations remain. Crucially, the manner in which taxes are assessed hinges on one’s classification as a non-resident aliens or as a resident aliens for tax filing.

To put it simply, resident aliens face different tax regulations compared to non-resident aliens. Let’s delve into some tax advice tailored for these two alien statuses and understand the impact each status has on your tax obligations. The initial stage in the tax-filing process for resident and non-resident aliens involves establishing your alien status for tax assessment.

Should you meet the criteria of the IRS green card test or the substantial presence test, you will be classified as a resident alien for tax purposes. Conversely, if you are unable to meet these criteria, then you will be subject to taxation as a non-resident alien. Understanding how resident and non-resident aliens are taxed is essential for optimizing your tax situation.

How Are Resident Aliens Taxed?

As a resident alien, your tax obligations align closely with those of a U.S. citizen. Essentially, you are required to disclose all the income you earn on your tax return, regardless of whether it was obtained domestically or overseas.

Different revenue streams can encompass salaries, gains from investments, payments for using intellectual property, profits from ownership shares, income from leasing property, and various other origins. Much like U.S. citizens, resident aliens utilize identical forms and categories when submitting taxes. Moreover, they are eligible for similar tax breaks, incentives, and exclusions.

resident aliens tax

How are Non-Resident Aliens Taxed?

When it comes to taxation, non-resident aliens face a different set of rules. Specifically, the IRS mandates that taxes are only owed on income earned within the United States by non-resident aliens. Furthermore, any income tied to a U.S. business must be accounted for. Notably, income generated in foreign countries remains untaxed by the IRS.

For non-resident aliens filing their tax returns, it is recommended to opt for Form 1040-NR, the U.S. Non-resident Alien Income Tax Return, instead of Form 1040. Utilizing this form allows non-resident aliens to access deductions and credits that can effectively lower their taxable income.

How are Dual-Status Aliens Taxed?

In the situation where an individual is classified as a dual-status alien, they are both a resident and non-resident alien concurrently during a single tax year. This designation usually occurs upon entry into or departure from the United States. In such a case, the individual must submit a tax return, with the type of return being determined by their status at the conclusion of the tax year.

Suppose you transitioned to resident alien status by the end of the year. In this case, your tax obligations would involve completing and submitting Form 1040, identifying it as a dual-status return. Additionally, you must provide details of the income you received as a non-resident throughout the tax year.

In the event that Form 1040-NR is selected for reporting income, it’s important to recognize that this form is designated as a dual-status document. These dual-status tax returns come with specific limitations on filing, making it advisable to seek guidance from a tax specialist for assistance.

Can Resident Aliens and Non-Resident Aliens Leave the U.S. Without Paying Taxes?

When departing the United States, aliens are typically required to obtain a sailing permit from the IRS. This permit provides clearance from the IRS and can be acquired by submitting either Form 1040-C, known as the Departing Alien Income Tax Return, or Form 2063, the U.S. Departing Alien Income Tax Statement and Annual Certificate of Compliance. Prior to departing, it is important to settle any outstanding tax obligations, including those from earlier years. The time required to complete this procedure typically ranges from 2 to 3 weeks, so it is advisable to schedule your departure with this in mind.

Tax Help for Resident Aliens and Non-Resident Aliens

Navigating through the complexities of your alien status in relation to tax obligations is just the beginning of the challenges you may encounter while preparing your tax return. The subsequent steps of filing and settling your taxes involve a distinct set of responsibilities that may necessitate the expertise of a seasoned tax advisor.

Navigating the complexities of identifying your alien status for tax purposes can be quite daunting. If you find yourself feeling uncertain about your classification even after reviewing our tax advice for resident and non-resident aliens, seeking guidance from a tax expert can provide the clarity you need. Embark on your journey to tax compliance with the expert guidance of a seasoned, dedicated Tax Professional at RapidTax.

Tax Tips for Resident and Non-Resident Aliens

Suppose you find yourself residing within the borders of the United States or frequently staying in the country without being a citizen. In that case, you are still required to fulfill U.S. income tax obligations irrespective of your citizenship status. The IRS employs a combination of evaluations known as the green card test and the substantial presence test to determine your alien status. Meeting the criteria of one category will establish you as a resident alien for income tax purposes, while failing to do so will classify you as a non-resident alien. In order to comply with tax regulations in the United States, both legal residents and citizens are required to report their annual income on tax returns. This includes income earned in any country. Non-resident Aliens, on the other hand, are only taxed by the IRS on income that is linked to the U.S.

Non-Resident Aliens

Determining Resident or Non-Resident Alien

When determining your alien status for tax purposes, the IRS employs two criteria: the green card test and the substantial presence test. Meeting the criteria of either test results in being classified as a resident or non-resident alien for tax purposes; failing to meet the criteria will lead to classification as a non-resident alien.

In the event that you are a visitor from another planet and possess a green card which signifies approval from the U.S. Citizenship and Immigration Service to live lawfully within the nation, you would be classified as a resident alien.

In the event that an individual doesn’t possess a green card and stays in the United States for a minimum of 31 days in the present tax year, along with a combined total of 183 days throughout the past three tax years (which include the current one), they typically fulfill the physical presence requirement and are considered a resident alien.

Counting 183 Days for Non-Resident Aliens

In determining the total days spent in the United States over a three-year span, it is important to exclude certain days from the count. Only a portion of the days within two out of the three years should be considered. For instance, if you need to ascertain your residency status for the tax year of 2025 based on having resided in the U.S. for 60 days, this calculation method will be useful.

In calculating your presence in the U.S. over a three-year period, consider 50 days for 2025, one-third of the days in 2024, and one-sixth of the days in 2023. For instance, if you spent 150 days in the U.S. in 2024 and 240 days in 2023, your count should be adjusted to include only 50 days for 2024 and 40 days for 2023. The total for the three years is 140 days, in which you pay income tax as a non-resident alien.

If you’re questioning whether you qualify as a resident or non-resident for tax purposes, our team of skilled tax experts at RapidTax is here to help. We will assess your residency status and promptly prepare your non-resident tax return.

Non-Resident Aliens Tax

When it comes to non-residents, they are required to pay income taxes to the IRS only on the earnings that can be linked to the United States. This typically covers the income generated while physically present in the U.S. Notably, the IRS lacks the jurisdiction to levy taxes on the income non-residents make in their native lands or any foreign nation.

Upon completion of your U.S. tax filing, Form 1040NR will be your go-to document. It is essential to note that only income originating from the U.S. will be included in your report, irrespective of the form utilized. Similar to how resident aliens and American citizens operate, there are opportunities for tax deductions and tax credits that can lower your taxable income.

Transitioning Dual-Status Taxpayer

During the phase when you are transitioning from being a non-resident to a resident for tax purposes, you are typically classified as a Dual-Status Taxpayer. As a Dual-Status Taxpayer, you will need to submit two separate tax returns for the year—one for the period in which you were categorized as a non-resident and another for the period in which you were classified as a resident. There are instances where a taxpayer has the option to choose to be considered a full-year resident during the transition year in order to prevent the need to submit two distinct tax returns.

Experience the convenience of RapidTax Live Full Service, where a skilled Tax Professional tailor-made to handle your specific tax needs will take care of your taxes from beginning to end. Alternatively, receive boundless support and guidance from tax specialists as you navigate your taxes alongside a dedicated Tax Professional through RapidTax.

More taxes,  Less Tax Credit after 2025

As the clock strikes midnight on December 31, 2025, a deluge of tax adjustments will cascade upon the majority of Americans with the conclusion of the Trump tax reductions after 2025.

Once the clock strikes midnight on the Tax Cuts and Jobs Act of 2017 (TCJA), its major provisions will fade into the shadows unless Congress takes action to prolong them. An array of tax aspects, from brackets and rates to credits and deductions, are at stake. Should these TCJA elements sunset, their repercussions will be felt far and wide by individuals and families alike.

In light of potential upcoming changes, RapidTax dedicated tax professionals emphasize the importance of being proactive and taking necessary measures to avoid unexpected tax implications in the future.

It is undeniable that alterations in tax deductions and tax credits will impact individuals in varied ways. Higher tax rates will be uniform across the board, affecting everyone.

tax after 2025

Why Are Higher Taxes After 2025?

Implemented under the leadership of President Donald Trump, the Tax Cuts and Jobs Act (TCJA) reduced tax rates for all income levels and altered the boundaries of various tax brackets. While the extent of tax reductions varied among individuals, experts in taxation noted that nearly everyone experienced some level of financial benefit from the changes.

Consider this scenario: In 2017, a married couple with a total income after deductions of $250,000 faced a 33% tax rate, which decreased to 24% by 2024. Similarly, an individual earning $39,000 in taxable income in 2017 had a top tax rate of 25%, which then dropped to 12% in 2024. Those in the highest tax bracket saw their rate decrease from 39.

Taxes May Revert to Rates Before the 2017 TCJA Taxes.

One way Americans can reduce their tax burden is by capitalizing on the current lower tax rates. A strategic approach could involve accelerating income into the upcoming years of 2024 and 2025. Retirees, for instance, may find it beneficial to withdraw a bit more than their mandated minimum distributions during these specific years.

According to him, some individuals might view a Roth conversion as a strategy to reduce costs by taking advantage of current lower tax rates and avoiding taxes upon withdrawing from Roth accounts.

If you foresee a potential increase in your tax rate, it may be advantageous to reassess the timing of deductions. Postpone claiming deductions such as charitable donations and retirement contributions to reduce your taxable income in the coming years, particularly from 2026 onwards.

Less Child Tax Credit After 2025

In light of recent tax reforms, the TCJA ended the personal exemption previously granted for every dependent under the age of 17. However, it also doubled the child tax credit to $2,000 per individual.

Should Congress fail to take action before 2025 concludes, the child tax credit will return to its previous amount of $1,000 for each child under the age of 16. The credit would be both refundable and gradually introduced, with the initial threshold being $3,000 in earned income.

In the recent legislative session, the House approved a bill to enhance the child tax credit under Republican leadership. The proposed changes involved a gradual rise in the refundable segment throughout 2023 to 2025, along with provisions to align the tax credit with inflation from 2024 onwards.

In light of the proposed changes, work obligations will still apply. Yet, families with limited income who are exempt from paying income taxes could now receive a refund of up to $1,800 from the $2,000 per child tax credit, a notable increase from the existing $1,600. This refund amount is anticipated to increase to $1,900 by 2024 and ultimately reach $2,000 by 2025. 

Regrettably, the bill never faced a vote in the Senate, resulting in a standstill for the proposed legislation.

Itemize Your Expenses

Following the implementation of Trump’s tax cuts, there was a significant increase in the standard deduction, effectively lowering individuals’ taxable income and enabling more people to take advantage of it instead of itemizing their tax deductions.

In addition to raising the standard deduction, the TCJA made the decision to remove the personal exemption of $4,050 per individual. Although the elimination of personal exemptions somewhat balanced out the benefits of the higher standard deduction, overall, the Tax Policy Center noted that this change resulted in a rise in the taxable income threshold for 2018, ultimately benefiting taxpayers.

If this provision expires, the standard deduction will be reduced, personal exemptions will be reintroduced, and individuals will be more likely to opt for itemizing their tax returns once again.

Andrew Lautz, associate director of the Economic Policy Program at the Bipartisan Policy Center, emphasized that Americans will swiftly notice the impact of increased tax rates and reduced standard deductions in 2026 in their paychecks.

Calculating withholding amounts involves predicting your income and applying the tax rate to that income. This calculation assumes you will opt for the standard deduction, the value of which may decrease if the YCJA legislation lapses.