1.16 How a Nonresident Alien Is Taxed

A nonresident alien is generally taxed only on income from U.S. sources. A nonresident alien’s income that is effectively connected with a U.S. business and capital gains from the sale of U.S. real property interests are subject to tax at regular graduated U.S. rates (top rate of 35% for 2012). Other capital gains are not taxed unless a nonresident alien has a U.S. business or is in the U.S. for 183 days during the year. Generally, investment income of a nonresident alien from U.S. sources that is not effectively connected with a U.S. business is subject to a 30% tax rate (or lower rate if provided by treaty).

Nonresident aliens who are required to file must do so on Form 1040NR. If you are a nonresident alien, get a copy of IRS Publication 519, U.S. Tax Guide for Aliens. It explains how nonresident aliens pay U.S. tax.

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Who Is a Resident?
An alien’s mere presence in the U.S. does not make him or her a “resident.” An alien is generally treated as a “resident” only if he or she is a lawful permanent resident who has a “green card” or meets a substantial presence test (1.18).
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Dual status.

In the year a person arrives in or departs from the U.S., both resident and nonresident status may apply.

EXAMPLE
On May 11, 2012, Leon Marchand arrived on a non-immigrant visa and was present in the U.S. for the rest of the year. From January 1 to May 10, 2012, he is a nonresident; from May 11 to the end of the year, he is a resident, under the 183-day test (1.18). Since he is a U.S. resident on the last day of the year, he files Form 1040 and reports on it the income received during the period he was a resident, as well as income received during the period of nonresidency that was effectively connected with a U.S. business. He writes “Dual-Status Return” across the top of the Form 1040. The income for the nonresident portion of the year should be shown on a statement attached to the Form 1040. Form 1040NR (or, if eligible, Form 1040NR-EZ) can be used as the statement; mark “Dual-Status Statement” across the top of the Form 1040NR (or 1040NR-EZ).

Certain restrictions apply to dual status taxpayers. For example, a joint return may not be filed, unless you and your spouse agree to be taxed as U.S. residents for the entire year.

For details on filing a return for a dual status year, see IRS Publication 519 and the instructions to Form 1040NR.

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