Skip to main content

Matthew Ledvina - Taxation of Non-Resident Aliens vs. Resident Aliens

 


Nonresidents and residents face a different set of rules when filing their taxes in the United States than those who are citizens. Filers who are not citizens may be excused from declaring definite types of income, based on their circumstances. Resident aliens are not US citizens but they have green cards enabling them to work in the US or they have been in the country for no less than 183 days over a three-year period including the present year. Nonresident aliens are in the United States legally but do not have green cards. They may be tourists or other visitors.

 Taxation of Nonresident Aliens

Nonresident aliens are needed to pay income tax only on income that is earned in the United States or earned from a US source. They do not have to pay tax on foreign-earned earnings. Investment income comprehended in the US that is not from a US source is taxed at the rate of 30% usually unless otherwise specified by treaty. Nonresident aliens should keep records to show the sources of all of their income so that the Internal Revenue Service (IRS) can see what income is tax-exempt clearly and what is not.

Taxation of Resident Aliens

Most resident aliens are taxed on all forms of income obtained, domestic or foreign, including any payments received from a pension from a foreign government. Also, resident aliens who work for a foreign government in the United States may be able to claim an exemption on their wages if the US has a reciprocal tax treaty with the government that recruits the person.

The IRS Rule

If you are a foreign national, you are considered a non-resident alien unless you meet one of two tests:

  • The substantial presence test or the green card test for any specified calendar year
  • If you do not meet either the Substantial Presence Test or the Green Card Test, then you are a non-resident alien.

Green Card Test: You are a legal Permanent Resident of the USA, at any time, if you have been given the freedom, as per the immigration laws, of residing in the United States as an immigrant permanently. You usually have this status if the US Citizenship and Immigration Service issued you an alien registration card. You have resident status, under this test, except you renounce voluntarily and discard this status in writing to the USCIS, or your immigrant status is terminated administratively by the USCIS, or your immigrant status is terminated by a US federal court judicially.

Substantial Presence Test: You will also be regarded as a US resident for tax purposes if you meet the substantial presence test for the calendar year. You should be physically present in the United States on at least:

  • 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
  • 31 days during the current year, and
  • All the days you were present in the current year, and
  • 1/6 of the days you were present in the second year before the current year and
  • 1/3 of the days you were present in the first year before the current year.

Matthew Ledvina is an expert tax adviser for Aerium Strategies and a director for a Fintech company in London which specializes on asset-backed lending.

Labels:

Comments

Post a Comment

Popular posts from this blog

Private Derivatives: A Wealth Structuring Solution in the US

By Matthew Ledvina , JD, LLM (US Taxation) Introduction  When it comes to wealth structuring in the US, traditional methods often center around the direct transfer of assets. However, there are circumstances where such asset transfer becomes either impractical or impossible, or where doing so could trigger complex tax implications. This article explores how private derivatives can serve as a versatile alternative for wealth structuring in the US.  Why Is This Important?  If direct asset transfers pose difficulties due to taxation, legal constraints, or other issues, private derivatives present an avenue for transferring the economic value associated with an asset. This is especially applicable to business owners, executives, and fund managers in the realms of private equity, venture capital, and hedge funds.  Understanding Private Derivatives  Private derivatives are contractual frameworks that enable individuals to transfer the economic upside linked to an asse...
Post a Comment
Read more

Best Ways for Americans to Make Donations to International Charities

Donating to a non-profit charitable organization is one of the best ways of helping others who are in need. In general, there are several charities that work for different causes such as providing disaster relief, healthcare facilities for the poor, protecting animals from cruelty, etc. Considering the USA, charities raise billions of dollars each year for the betterment of mankind, the animal kingdom, and the planet Earth. In fact, the annual charity generation in the USA is one of the highest in the world. Among the billions of dollars, most donations are made to the US charities while the remaining small portion goes to the international charitable organizations. No doubt, there are many Americans who are eager to donate their fortune to international charities but due to some reason they don’t. One of the foremost problems is that most international charities do not provide tax deductions to the US citizens and as a result, most people choose to make donations to US charitie...
1 comment
Read more

Understanding the Swiss Trust Landscape With Matthew Ledvina

Matthew Ledvina , JD, LLM (US Taxation) outlines essential considerations for foreign trustees in relation to trusts linked to Switzerland.  Key Considerations  Identifying the Challenge  Trustees are increasingly finding themselves entangled in Swiss civil and criminal legal proceedings. They are becoming common participants in intricate transnational disputes and often find themselves in the crosshairs of disgruntled beneficiaries, alienated family members, or former spouses.  What’s at Stake for Me?  It's crucial for foreign trustees to recognize that they might be subject to litigation before Swiss courts, especially if the trust is managed in Switzerland or the settlor resides in Switzerland.  Key Takeaways  Maintaining an understanding of how Swiss laws, both procedural and substantive, can influence the administration of a trust—and most critically, its assets—is vital. This knowledge can help in circumventing unforeseen complications.  Det...
Post a Comment
Read more