Tax and residency
Nonresident alien and resident alien
Also called Nonresident alien, Resident alien, NRA.
Resident alien and nonresident alien are the two United States income tax statuses a non-citizen can hold: a resident alien is taxed on worldwide income and files Form 1040, while a nonresident alien files Form 1040-NR and is taxed only on income effectively connected with a United States business and on United States source passive income.
What it decides
Under 26 U.S.C. 7701(b)(1)(A) an alien is a resident for the year if he is a lawful permanent resident at any time during it, meets the substantial presence test, or makes the first year election, and 7701(b)(1)(B) makes everyone else a nonresident alien. The IRS page Taxation of nonresident aliens sets the split: income effectively connected with a United States trade or business is taxed at graduated rates after deductions, while United States source fixed or determinable annual or periodical income is taxed at a flat 30 percent with no deductions. Both matter to EB-5. Before the green card the investor is normally a nonresident alien holding a Schedule K-1 of effectively connected income from the new commercial enterprise, on which the partnership withholds at the highest individual rate under 26 U.S.C. 1446, and Form 1040-NR is how any over-withholding comes back. After the green card, filing Form 1040-NR under a treaty tie breaker requires Form 8833 under 26 CFR 301.7701(b)-7(b) and (c), which warns that the filing may affect whether the person keeps a residency permit, and 8 CFR 316.5(c)(2) makes it a rebuttable presumption that permanent residence has been relinquished.
Where this is explained properly
Pages here that go into nonresident alien and resident alien rather than mentioning it.
Related terms
- Substantial presence testThe substantial presence test is the day count at 26 U.S.C. 7701(b)(3) that makes a foreign national a United States resident for income tax purposes: at least 31 days of presence in the current year, and 183 days across three years counting the current year in full, one third of the first preceding year and one sixth of the second. No green card is needed to meet it.
- Residency starting dateThe residency starting date is the day a foreign national becomes a United States resident for income tax purposes, so that worldwide income is taxed from that day on: the first day of presence as a lawful permanent resident under the green card test, the first day of presence in the year under the substantial presence test, or the earlier of the two where both tests are met.
- Worldwide incomeWorldwide income is the rule that a United States resident for tax purposes, including a green card holder whose residence is still conditional, is taxed on income from every source anywhere in the world and not only on income arising inside the United States.
- Abandonment of residenceAbandonment of residence is the loss of lawful permanent resident status that follows from conduct showing the holder no longer intends to make the United States a permanent home, most often moving abroad for good, staying out on what is no longer a temporary visit, or claiming nonresident status on a US tax return.
- NaturalizationNaturalization is the process by which a lawful permanent resident becomes a US citizen, requiring under 8 U.S.C. 1427(a) five years of continuous residence after lawful admission for permanent residence, physical presence for at least half of that time, three months in the state where the application is filed, and good moral character.
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