It’s crucial for nonresident aliens to understand U.S. tax obligations, which come along with “U.S.-sourced income”: investments or employment in the U.S, and when they have an obligation to file Form 1040NR. As many nonresidents aren’t familiar with the U.S. tax system, they fail to file a tax return. It may lead to a variety of consequences. But on a positive note, you could receive a refund if you file a tax return on time. What if you are a U.S. citizen or Green Card holder with U.S. investment but ready to give up your citizenship/green card? In case you consider going this route, you need to be aware of your tax obligations changes.
Do you want to know more about U.S. taxes? Check out our free resources here.
Who should file form 1040NR and who is a Non-resident Alien?
First, let’s determine who is a nonresident alien. The IRS considers anyone who is not a U.S. citizen, Green Card holder, or met the substantial presence test but has U.S. tax filing obligation to be a nonresident alien. For example, you have income from the US but you do not meet the substantial presence test. Or you are engaged in a trade or business in the US and you are a nonresident alien. It doesn’t matter if the business activities generated any income, or if it’s exempt under tax treaty from US tax.
There is no minimum income threshold to file 1040NR Form as a non-resident alien. You should only report your U.S. sourced income on this form. However, foreigners investing in the US should first determine if their U.S. visits make them U.S. residents for tax purposes. In such cases, you must report your worldwide income.
1040NR Fact #1: Filing 1040NR Form is easier than it seems to be. While many nonresident aliens suppose they don’t owe any tax, they are robbing themselves of a possible refund. It’s very common that they withhold more from your paycheck. So you can get this money back!
Some individuals must file both Form 1040 and Form 1040NR. It usually applies to expatriates who should file a dual-status return. Following the laws, you are U.S. citizen from January 1st until the day of expatriation. For this period you will need to file Form 1040 and report your worldwide income. After your expatriation, you will need to file a non-resident alien tax return to cover your U.S. sourced income. On this return, you cover the period from the date of your expatriation to Dec 31st of the same year.
Am I a Non-resident?
You can use two different tests to determine if you are a non-resident and required to file Form 1040NR. The Green Card Test and The Substantial Presence Test. While the Green Card test is simple, meaning you either have it or not, the latter one is slightly more complicated.
The substantial presence test is more complex:
- You were physically present in the US for at least 31 days during 2021, and 183 testing days from 2018 to 2021.
- To satisfy the 183-day requirement, you need to count all of the days you were present in the US in the last 3 years. You also need to count the total number of days you spent in the US during the current year. Then add it to 1/3rd of the total number of days you spent last year and then add 1/6th of the total number of days spent in the United States 2 years ago.
- For the purpose of this test, The US includes all 50 States and the District of Columbia including – territorial waters, which are defined as any “seabed or subsoil of those submarine areas that are adjacent to U.S. territorial waters and over which the United States has exclusive rights under international law to explore and exploit natural resources.”
If you’re a nonresident alien, it can be difficult to know if you’re required to file taxes, and if so, how to start the process. You’ll need to file a Nonresident Alien Tax Return to ensure you pay the required taxes based on your earnings. Obtaining assistance from professionals can also expedite the process, guiding you to the right documentation as well as reducing the risk of error affecting your costs.
Who is a Nonresident Alien?
A nonresident alien is anyone who is not a U.S. citizen or someone who holds a green card. You may earn an income while living in the U.S. but don’t meet the substantial presence test. You may also operate or be engaged in a business in the country but are not a legal citizen.
There are two different tests that can be taken to determine if you’re currently a non-resident in the U.S. The Substantial Presence Test and The Green Card Test are available to determine your status, which is necessary to move forward with filing taxes correctly and avoiding potential mistakes. The Substantial Presence Test is known to be more lengthy and complex but will give you the answers you’re looking for before filing a nonresident tax return.
If you’re struggling, 1041 Abroad can make it easier to navigate the complexities that come with filing a nonresident tax return to help you avoid penalties and fines. Similarly, we’re able to assist you in completing and submitting a form 1040NR to avoid getting robbed of a tax refund that you deserve. Our tax experts will even tell you if you’re required to submit both a Form 1040 and Form 1040NR, depending on your situation.
1040NR Fact #2: You may fall into a category of exempt individuals. Those are foreign-government related individuals, who are present in the US temporarily. Or you are a teacher with a J or Q visa. Elsewise, you can be a foreign student or professional athlete, These categories do not need to file a nonresident tax return. More specifically, the days spent in the U.S. under these visa categories are excluded from the computation when computing the substantial presence test.
What are some other exemptions to this Substantial Presence Test?
There are exemptions when you do not count the days of being in the US. For example, the first one is when you are in transit between two places outside the US and you are in the US for less than 24 hours. Also if you commute to work in the US from Canada or Mexico, where you reside. That should be on more than 75% of the workdays during your working period. In such a case, you don’t count the days you commute. Another exemption is when you couldn’t leave the US because of a medical condition that happened when you were in the country.
1040NR Fact #3: You are exempted if you are in the US as a crew member of a foreign vessel and you are engaged in transportation between the United States and a foreign country.
1040NR Fact #4: If you failed to meet the Substantial Presence Test, you can be treated as a nonresident alien for tax purposes. To do so, you need to satisfy 3 criteria: 1) maintain a “tax home” in a foreign country; 2) have a closer connection to that country than to the US; 3) spend less than 183 days in the US during the current calendar year.
There are cases when a tax treaty between the US and foreign countries has special rules to determine residency for tax purposes. What happens if you changed your status during the year from resident to nonresident (or vice versa)?
Usually, you will have a dual-status for that year. And it means you have two different periods when different tax law provisions will apply to each period. If you want to claim the above-mentioned exceptions, then you have to file different forms and attach them to a Form 1040NR. So for tax treaty relief, you’d file Form 8833. And for the closer connection test, it is Form 8840.
When nonresident aliens are taxed in the U.S.?
Filing Form 1040NR-EZ is necessary when you are a nonresident alien and have the U.S. sourced income on which tax wasn’t paid fully. U.S. source income includes: 1) wages, if you have hourly pay as a full or part-time employee; 2) salaries, you get a fixed salary each pay period; 3) tips if you receive tips for any type of work; 4) refunds of state and local income taxes; 5) taxable scholarships and fellowships grants.
Generally speaking, U.S. taxes foreign people, including non-resident aliens, in a different manner than to U.S. citizens or resident aliens. Foreigners are subject to U.S. taxes if they have income, which includes passive-type items like interest, dividends, royalties, and rent. The U.S. payer has a primary responsibility to withhold 30% on a gross basis with no offsetting deductions and report it to the IRS.
Nonresident aliens earning effectively connected income with a trade or business in the U.S. have graduated tax rates on a net basis. It means available deductions reduce your income. A foreigner’s U.S. source net capital gains are not subject to U.S. tax. However, it will be taxed if the alien spent at least 183 days in the U.S. during the year.
Speaking of available deductions for nonresident aliens, it’s worth noting that you can deduct certain itemized deductions. It is allowed when you receive income effectively connected with your U.S. trade or business. You cannot include deductions and/or losses that relate to exempt income or income that is not connected with your U.S. business or trade.
Can a US citizen file Form 1040NR?
No, only Nonresident Aliens must file Form 1040NR if they were engaged in US trade or business and/or have other US-sourced income. US citizens and Green Card holders are taxed on their worldwide income as if they were residents of the United States regardless of where they reside and they must file form 1040. Many US expats file form 1040NR erroneously thinking they are no longer residents of the US. Such a return must be amended as soon as possible in order to avoid potential penalties.
Summary of Form 1040NR: Nonresident alien tax return
To summarise the filing obligations of nonresident aliens, it’s important to remember a few things. You must file a tax return if you are a non-resident alien and you are engaged in a trade or business in the U.S. during the year. Also, you will need to file Form 1040NR if you have the U.S. sourced income and on which tax withheld wasn’t enough.
Generally, the deadline to file Form 1040NR or Form 1040NR-EZ is June 15th of the following year. In cases when you are an employee and receive wages, which you need to pay taxes on, you will need to file Form 1040NR by April 15th of the following year. To get a 6-month extension a foreign person needs to file Form 4868.
At 1040 Abroad we love helping people with U.S. taxes. Contact us to receive a free email consultation or 20-min phone call to discuss your tax situation.
Thank you for this. Do I understand this correction. a) I am now a Canadian citizen. b) I have neither US income nor any legal or family based obligations in the US. I would also say that I have in the past failed to submit US tax forms following several years of filing such forms. No one from the US then nor at any time since challenged me on this. Truthfully, I am fully committed to my Canadian citizenship and have no intention of returning to the US except in the case of a family of origin crisis. TO my way of thinking I think that this means I am not obliged to file US taxers any longer. Does this make sense?
Hi Richard,
Please, elaborate if you are the U.S. citizen, non-resident alien or have a Green Card, as different requirements apply depending on your status. Being fully committed to Canadian citizenship while still having U.S. tax return filing obligations doesn’t cancel the latter. Please, contact us at info at 1040abroad.com if you want to discuss the situation any further.
Thanks.
Hi
I have a family member that has received FDAP income. He is a noncitizen and the country does not have any tax treaties. Does he need to file a 1040nr?
Thanks
If the FDAP tax was appropriately withheld by the financial institution (that would mean at a rate of 30% given that there’s no tax treaty), he wouldn’t have to file a 1040NR. If it has not been, yes, he would have to file a tax return on form 1040NR.
Hello,
I am a non-resident alien (not a US citizen, not a US green card holder, and do not spend any day/time in the US in a calendar year). I just have a US brokerage account and I receive dividend income there. The US brokerage company automatically applies and deducts 30% withholding tax on all dividend payments. I have no other US-sourced income. I understand that the brokerage company files 1042-S for my account. Do I have to file a 1040-NR or 1042-S tax return separately? Thank you.
Hi Ren,
You already paid the tax, as such, you wouldn’t have to file a tax return on form 1040NR. If you want (and can) to take advantage of a lower tax rate using a tax treaty, you would indeed file a tax return on form 1040NR.
All the best,
Olivier
Hello,
Thanks for your informative article.
I am still struggling to figure out what my situation is. I am a German citizen. I was the lead plaintiff in a securities class action suit that settled in 2017 and was approved by a Delaware court.
The funds have been distributed. I received fund for what was due on my shares in the settlement and the judge also awarded me money as the lead plaintiff and for overseeing the case. Almost all of it was done from abroad except for the few times that had to fly in to appear in court.
Nothing was withheld from my distribution.
Germany has a tax treaty with the US. I definitely didn’t cross the substantial presence test. The US don’t owe me and cash that was withheld. I don’t owe Uncle Sam any taxes.
But I just got a letter from the IRS asking for a 2017 tax return.
Do I really have to file anything in the US? You can’t imagine my dread to find out I’m on the IRS’s radar… I like visiting the US and don’t want any legal troubles there.
Thank you for any insight you can share.
Hi Derek! Please don’t take this as final advice but to the extent that the damages replaced what would have been capital gains and since capital gains are sourced to Germany, the lawsuit damages would also be sourced to Germany and you wouldn’t have any tax owing to the US. I would respond to the notice with such an explanation.
I’m Saudi Citizen & my visa b1/b2. I have real estate investment in USA for medical issue I stayed 183 days in us in 2018. back years I used to file form 1040NR but my tax consultant informed me in 2018 I have to file form 1040 as resident also, to include all my incomes from overseas “Foreign income”
Hi Jo, you could have excluded the days by using form 8843 and have it signed by a doctor. But it had to be timely filed, if filing late, you can’t do that.
If you stayed less than 183 days, you could have used form 8840. The same rule applies, you had to file it on time, otherwise, you can’t use form 8840.
A treaty position on form 8833 doesn’t have to be timely filed, but there’s no tax treaty between the US and Saudi Arabia so that won’t work either. Tough luck, you have to file 1040, and report worldwide income just like a US citizen.
I am from Nepal and we don’t have tax treaty with USA. I am here in US since January 12, 2016. I lived 328, 357, 365 and 365 days respectively in year 2016, 17, 18 and 19. When can I file tax as a resident alien? I would appreciate for your insight.
Hi GP! You met the substantial presence test for each of these years, accordingly, you would file form 1040.
My wife is a J1 visa holder and ideally she is meant to use the 1040-NR form but she spent considerable time in the US since 2015 before starting a medical residency in 2018. Do the days spent in the USA on a B1/B2 visa count towards Substantial Presence Test?
Hi Stephen! In most circumstances, the days spent under a J1 status are excluded from the Substantial Presence Test, but the days spent under a B1/B2 status are not.
I am an mongolian expat never lived in USA since 2010 and i got 1099k for paypal transactions in 2019. My paypal is originated from USA and created when i was living in USA. That is why i have received 1099K on my paypal account and also i have SSN and USA bank account. Can anyone help on which form i should file? it seems like 1040-NR would be right one for me but i am not sure of myself. I initiated the filing with hrblock and they sent me an invoice of 349$ service fee cause i am an expat. I can not pay that much money these days. So i decided to file it as finding right form and send it through fax if possible, Any advises accepted,thanks guys
all these transactions through paypal is not came from USA sourced but i would say around 50% of them would be usa sourced.
Hi Batbayar! Sourcing depends on the type of income as well. Interest and dividends are sourced where the payor is while wages where the work was performed.
Hi Batbayar! Are you a US citizen or Green Card holder? Are you a freelancer? It would be best to contact us directly at info@1040abroad.com as your filing obligation is unclear to me at the moment.
Hi, I am from India. I came to US in Nov 28, 2018. I didn’t file tax return previous year. Now, I need to file tax return for 2019. I became a resident alien in Jan 2020. Should I file 1040NR or 1040?
Hi Aadil! Resident Alien files 1040.
I receive a pension from the usa railway and pay tax as we have tax treaty….I am a Canadian a not a resident of Usa what file do need to file ….
Hi Mary! Your US railroad benefits/social security will not be taxed in Canada. Article XVIII, paragraph 5 of the US-Canada tax treaty states that you would only be taxed in Canada and it is not taxable in the United States (Article XVIII survives the savings clause found in article XXIX paragraph 2 & 3, as such it can be read as is).
Hi,
I am a Canadian citizen, so I gather that I am a “nonresident alien individual.” I sell products solely through the internet on Amazon.com in the US. I am not physically in the US conducting any business. The income from Amazon goes into a RBC US bank account that is linked with my RBC CDN bank account. The US RBC bank is the withholding agent. I just received a Recipients Copy B form from the bank: “1042-S Foreign Person’s US Source Income Subject to Withholding”. My question is what tax form do I need to file?
Thanks for your time and advice,
Dan
Hi Dan! You are not “engaged in a US trade or business”, as such, you do not have to file a US tax return. With that being said, if taxes were being withheld on your 1042-S, you would file a tax return in order to claim a refund.
Hi, I went to the US for working in a summer camp in 2018 with a J1 Visa, should I file a tax form? Thanks!
Hi Paola! Yes, you should. You would most likely receive a refund of some of the taxes withheld on your form W-2.
Does nonresident alien without an SSN or ITIN without US income have to file a US tax return?
Hi Shavkat! No, you do not have to file a US tax return.
Hi,
I am Indian, lived in US from 2012 thru 2018 working for a company. I did migrate to Australia which has tax treaty with US. I have filed my 2018 tax returns thru agent.
In 2019 I sold my shares that were bought thru company share purchase plan between 2012 and 2018. I incurred long term capital gains. I have two questions.
1. Can you please suggest what is the tax rate being non-resident alien and how to file 1040R?
2. If there is a tax difference between what i paid Vs what IRS calculated, how would IRS contact me in future if they have to challenge me or to ask me pay the deviation.
Hi Syed! Capital gains are generally sources where the taxpayer is a resident, as such, you would pay tax to Australia but you wouldn’t have to report it to the US on form 1040NR.
I did not transfer funds to Australia. In this case what should I report and pay to US government?
To be more precise, would my long term capital gains fall in IRS tax bracket of “upto 39000 – 0% tax”??
Or being a non-resident Alien I should pay 20% flat tax on my long term capital gains?
Hi Syed! Non-residents are generally not taxed by the United States on their capital gains IRC 865(a)(2). One notable exception is sale of real estate located in the United States.
Hi Oliver
I am a foreign resident of a nation with a tax treaty with the US.
I was in the US for 330 days last year as crew on a foreign flagged yacht.
Does that make me a non resident alien as per “fact #3 in your article?
Hi Daryl! If you are a US citizen or Green Card holder then you are not a Non-Resident Alien.
Hello
I was on TN visa from Canada as independent IT contractor. I was not in US enough days to meet the substantial presence test. Do I need to file a 1040 NR?
Thanks
Hello! Yes, you would file a tax return on form 1040NR if you didn’t meet the substantial presence test.
Hi,
I live abroad with no status in the USA (No USA citizenship or Green Card) my understanding is that makes me a Non-Resident Alien.
I have a brokerage account in the USA with some stocks which sometimes pay dividends. Tax was withheld on the dividend income. I assume should there be any capital gains from selling any stocks, that would be withheld as well.
I received a 1042-S for 2019 from the bank.
Please advise as to what my requirements are for filing tax in the USA. Am I obligated to file 1040NR? Is the 1042-S enough? Is there something else I need to do with the 1042-S after receiving it?
Thank you!
Hi James! If the FDAP tax was appropriately withheld on your from 1042-S, you wouldn’t have to file a form 1040NR.
Hello,
I have a visa which I have to prove that I do not intent for permanent residency. I also need to prove of strong connection to my country before they will issue me a working visa. I have been in U.S. working full-time which means I do meet the substantial presence test but every year I have to leave U.S. to reapply my status, to continue my employment if so. Since I do not have intention to permanently be in U.S. and will leave in a few years and have been also been planning to start own business in my country, can I use form 1040NR? May I consider to be dual resident as well? I’m from Singapore. Thanks.
Hi H! No, you are not a Non-Resident Alien. Form 1040NR is filed by Non-Resident Aliens.
For my Form 1040NR, what’s Reason for Payment when I pay to IRS by Direct Pay?
Hi William! It would be a payment for the tax owing on your 2019 tax return.
My girlfriend has lived in Hungary for the past 25 years, and now that she’s 60, she has started to receive a small distribution from her retirement, under $2K, from her working days when she lived in the states. There was 25% w/holdings taken. Do we file 1040-NR to get that refunded to her? Her income in Hungary is less than $10K/annually.
Hi Jamboree! Yes, she should inform the plan administrator. The tax treaty between the US and Hungary does reduce teh tax to zero and she can indeed file a form 1040-NR in order to get a refund.
Hi, I live abroad with no USA citizenship or Green Card. I am a Non-Resident Alien for the tax purpose, right? I have a investment portfolio in the USA which gives dividends, interests, and capital gains. I received 1099-INT/DIV forms (less than $8000 in total) from the investment platform. Do I need to file any tax form? If so, is there a e-file? It would be pain to mail…
Hi John! Yes, you are a non-resident alien. Dividend income is sourced where the payor is incorporated. As such, you would be supposed to file form 1040-NR and pay the FDAP tax. Going forward, you can inform the financial institution so that they apply the appropriate withholding and provide you with form 1042-S instead, with the tax being appropriately withheld, you would no longer be required to file a US tax return.
Hi Olivier,
I am a non resident alien (not a citizen, don’t live in USA and married). For 2019 i have around $700 income from dividends (1099-DIV). Do i need to file taxes?
In 2017 I had income of around $20,200 (1099-B). I was not sure so i didn’t file taxes. Does this pass the threshold to file taxes?
Thanks,
Hi RK! Yes, you are a non-resident alien. Dividend income is sourced where the payor is incorporated. As such, you would be supposed to file form 1040-NR and pay the FDAP tax. Going forward, you can inform the financial institution so that they apply the appropriate withholding and provide you with form 1042-S instead, with the tax being appropriately withheld, you would no longer be required to file a US tax return.
Hey! I am a foreign national (residing in the UK) and the owner of 50% of a US company that was established in 2019. The company hasn’t generated any profits or paid our dividends (we are an early-stage tech startup). Do I have to file 1040NR ?
Hi Boris,
You do not have to file a US tax return. Once you receive dividends, ideally, the corporation already withheld the appropriate FDAP tax from your dividends and you wouldn’t have to file. If that is not the case, you would indeed file a return on Form 1040NR.
Hi Olivier,
I’m a non US Citizen planning to start a LLC( Single Member) in US and start an online store. I will not have any physical presence in US. I would like to know which Tax forms are applicable for me and also the best state to form the LLC tax-wise..Please let me know when I should plan to submit these forms to IRS .Thanks.
Hi Sandun,
If you are not engaged in a US trade or business, you would only have to file form 5472.
a question, I will be moving for job to US Nov 10 2020, so will be nonresident alien for 2020. Canadian citizen all 2020 till move. Will I have to file a US 1040NR for 2020 for the income I receive and 8040 for residency, or not required. Can I have my employer not withhold taxes for me in US (and how to inform him to do this), as I will have to declare worldwide income in Canada and pay taxes there. Thank you
Hi Soula,
You would file a 1040NR, since you didn’t meed the substantial presence test, you don’t have to file form 8840. You will pay tax on your US income, as such your employer should withhold tax. You will not pay tax to Canada after leaving (you would file a T1 and you would enter the date you ended being a resident on the first page).
Hi
I am a freelance singer and have been working as freelancer on contract basis in US for 10 years.
I am a non resident come to America for 3 months get a salary per performance and go home out of America
I filed my taxes last year April of 2016,2017,2018.
I only got refund for 2018 last year September.
I have been told by my accounting company that my other refunds are coming but it is over a year now.What to do?
Hi Brian,
Unfortunately, I don’t have a good answer other than to contact the IRS.
Hello Olivier!
I am a non resident alien. I am setting up a SMLLC to do online business. I will source from China and sell outside USA. I dont live in USA and I have no wharehouse, employees or assets in USA other than the bank account (which is for receiving payments and paying the supplier). I know that i need to file form 5472 + 1120 and I have also seen that even I (think) i do not have USA connection I should anyways present 1040nr as a source of protection for any future Irs questions. What do you think?
Thanks so much!
Hi Diego,
If you are a US citizen, a form 1040NE would not be appropriate.
You would be paying taxes to Canada. While you can use the physical presence test to qualify for FEIE, the foreign tax credit probably makes more sense.
Warm regards,
Olivier
Hi,
I am a foreigner, moved to California in Nov 2018, so for 2018 I only have 2 months of income from the US, do I need to file 2018 1040NR and report my foreign income from Jan to Oct 2018?
Thanks for your help
Assuming that you didn’t get a green card (and instead that you have some non-immigrant status), your would file form 1040NR and only report your US income (if you obtained a green card, it would be a dual-status return with a 1040 & 1040NR combined, even so, you would only report your income since moving to the US (and US income prior if any)).
Hi Oliver,
I expatriated, live in Germany and because I started to get a Social Security pension, I apparently will have to file 1040NRs every year. The IRS’s literature on deductions is unclear (to me). Donations to charities are deductible, but the charity and/or tax-deductible organization must be located in the USA, right? Premiums paid to health insurance and long-term care providers are also deductible, but does that apply to foreign (in my case, German) companies? Thanks a lot in advance for the answer.
Contributions to charities registered with the IRS are deductible, most of those are indeed located in the US.
Medical expenses, in excess of 7.5% of AGI, can be claimed including premiums paid to foreign insurance companies.
Hi,
I’m an Indian citizen and have recently opened an account with Interactive Brokers for investment in stocks and ETFs in the US. Given that these instruments will pay dividends will I need to separately file 1040NR in the US?
The form W8EN specifies my country and witholding tax rate (25%) and the broker would be witholding tax on dividends before crediting it to me
Please do advise
If they withhold the appropriate tax (called FDAP), you would not have to file a US tax return. Else, you would file a tax return on form 1040NR to either claim a refund or pay the tax.
Hi Olivier,
Happy New Year! Best Wishes to you and your loved ones!
Thanks a lot for a very informative article. I have also read some of the questions and answers above, which addressed majority of my concerns. However, I still have few left and I would be very grateful if you could help me with those.
I have lived and worked in US long time ago (in 2003-2004, and I have SSN), but now I am a non-resident alien for US tax purposes (I live in Europe). I have kept a bank account in US, which generates a very small interest (10-40 USD depending on the year), for which I receive form 1042-S every year. Tax withheld on that form is “0” as it says that I am exempt from paying taxes under IRC code. My question 1 (but I think answer is obvious): It is my understanding that I do not need to file 1040NR for this bank interest?
Now, the main part of my concern is that I am planning to open an account with an online European broker (DeGiro). The broker asks to fill the form W-8BEN in order to apply the correct taxes for US sourced income. However, reading the reviews about this broker, it is my understanding that although they withdraw the US taxes from the dividends, they do not actually provide form 1042-S. How is this actually possible? Is it possible to withdraw the US withholding tax on the dividends without filing 1042-S? I understand that copy A of form 1042-S needs to be sent to IRS… So, my question 2 is: Assuming that they do indeed withdraw the correct taxes and I assume that they transfer the amount directly to IRS without my involvement, and given the fact that they do not issue 1042-S, do I need to file the tax return 1040-NR?
And lastly, I would just like to clarify the wording in US tax code. It says that anybody (even non-resident alien) engaged in trade and business in US should file tax return. I noticed that in your answer to Canadian businessman named Dan (post dated May 22, 2020), who sells products online in US but never physically present in US, you mentioned to him that he is not conducting trade or business in US and hence no obligation for tax return. It is very confusing to me that a person, who clearly sells products to US customers and makes profit out of it, is deemed as not having any trade or business in US if considered from the US tax language perspective. Isn’t it a bit confusing and counter-intuitive? My last question 3 is: By the same token, having an online broker account and making dividends and capital gain (though latter is not taxed in US for non-resident aliens) from the US shares, is this also considered as not being engaged in trade or business in US?
I apologize in advance for taking too much of your time. I do hope that answers to these questions would also help other people in a similar situation as me.
Again, best wishes for the year ahead!
I suspect that the reason why you don’t have to pay tax on the interest would be due to a tax treaty, but if that’s the case, yes, you do not have to file a tax return.
I agree with you that they would have to give you a form 1042-S. If the appropriate amount of tax is withheld, you would not have to file a tax return.
To be engaged in a US trade or business, you would need some US presence, even if only to meet contacts and sign a contract while in the US. Simply shipping goods/services to the US is not being engaged in a US trade or business.
Since you are in Europe, and you can claim a tax treaty, it would have to reach the higher threshold of having a “permanent establishment”
Thanks for the reply Olivier, much appreciated!
One comment though regarding my US bank interest being tax free. I don’t think it is because of tax treaty. I have lived in several countries since I left US, and tax on my US bank interest has always been zero. It is my understanding that interest from US banks are tax exempt for non-resident aliens. This is according to 1040NR instructions, on page 51 in the bottom of mid column it says:
Quote
Exceptions. The following items of interest income that you received as a nonresident alien are generally exempt from the 30% tax. • Interest from a U.S. bank, savings and loan association, or similar institution, and from certain deposits with U.S. insurance companies.
Unquote
https://www.irs.gov/pub/irs-pdf/i1040nr.pdf
I think my bank just applies this exception by default. And again amounts are quite small (up to 40 USD of interest). But it would be good to hear your opinion on this statement in 1040NR instructions. Did I interpret it correctly?
Thanks and Best Regards,
Hi Anar,
Interest income is tax-free in the US for a non-resident based on the tax treaty.
Under IRC 861 it appears that bank interest would be taxable. I did find references that it would not be FDAP. But that would beg the question: is it taxed as ECI income.
The tax treaty is much clearer and makes such interest income tax-free and that’s what really matters.
All the best,
Olivier
Hi
I am a freelance teacher that works for a company based in the USA.
They have asked m2 to fill out a w-8ben form.
I am a British citizen currently living in Paraguay. The UK has a 0% tax treaty with the US, but I am a resident of Paraguay, which has no tax treaty.
Please could someone kindly tell me if I would have to pay 30%, just because I reside in Paraguay?
Thank you and best wishes
You would pay 30% if the work was performed in the US.
If the work is not performed in the US, they could still file a form 1042-S if they want, but then claim exemption 03: 03: Income is not from U.S. sources
( https://www.1099fire.com/support/import/codes/authority_for_exemption.htm )
Hi, I ceased to be a US Person in Oct 1, 2020, and will be filing a dual-status return for 2020. As a NRA, certain taxes are supposed to be withheld from my quarterly dividend payment in Dec 2020, but the withholding has not occurred, so I’ll need to pay the tax amount that should’ve been withheld. The total dividend amount for the FULL year was reported on 1099-DIV. So, when I fill out 1040NR Schedule NEC Line 1, should I only enter the dividend amount that was paid after Oct 1, 2020, and then put the dividend amounts from Jan-Sep on Form 1040? Thank you so much for your help!
Yes, that’s correct. You would report the amount accrued after Oct 1, 2020 on form 1040NR, schedule NEC and the amount accrued before that on form 1040.
Hi Oliver,
My Mother is a Permanent Resident(Green Card Holder) Since August 2017 and never filed any Taxes as she has zero income. In the year 2019 she applied for an reentry permit(2 years) and went to India in the beginning of 2019 and she will be back in the US in April 2021.
She didn’t receive any stimulus check and to file for the Stimulus check the IR.gov states that she needs to file an 1040-SR(she is over 65) so does my mom needs to file the 1040-NR too?
She does not have any foreign income at all.
Thanks,
Sam
Hello Sam,
She would file form 1040. Form 1040-NR is for non-residents, as a permanent resident, she would have to file form 1040 instead.
Yes, she can also file form 1040-SR. Form 1040-SR is a simplified version of form 1040, with larger characters.
At this point, yes, she should indeed file a 2020 tax return and it will be a refundable tax credit (“Recovery rebate credit”).
Hi, I am a UK resident British citizen. I sold a US timeshare from which about $500 was withheld following repayment of FIRPTA . I have now received a copy of Form 8288-A and been told I must file a Form 1040-NR.
Do I really need to fill in the form if I’m not bothered about any possible refunds?
Also, is it too late anyway as it was sold in 2019?
And would there be any negative future consequences for not filing? (holidays etc?)
You can still file a tax return for 2019. You do not have to file it if you don’t want a refund.
You must file a 1040NR if you have tax owing (or are engaged in a US trade or business, ECI income). But in your case, filing it is optional, in order to receive a refund. You will not face any negative consequence, immigration wise or otherwise if you don’t file.
Hello, My mother is German (living in Germany), green card holder, widow of a US citizen and receiving a pension from social security. Do we use the 1040NR for her? Thanks for your article. It is very helpful!
As a green card holder, she would file form 1040 (and get the standard deduction)
I am from Pakistan and made an LLC in Wyoming. I got a business bank account in the USA that is linked to my eBay account.
so i manufacture the items in Pakistan and sell them in the USA via eBay and money comes to my business bank.
now I have spoken to more than a dozen CPAs, some say I need to pay tax because i earn money in the USA and some say I don’t need to pay tax because i am a non us resident with no US presence.
the form names i being told so for by different CPA are as below:
1040NR
5472
1120
W8EN
W9
i want a simple answer that in the above scenario do i need to pay tax or just file the tax.
You don’t have to pay tax. You only have to file form 5472 (an informational form)
1040NR: optional, if you want you can file it
5472: mandatory, that’s the one you must file
1120: there is a proforma form 1120 that is used as a cover letter to form 5472, although it would be largely blank. Yes, you would file that with your 5472 but you wouldn’t file an actual form 1120
W8BEN: yes, you would provide it to a US payor if requested
W9: no, you can’t file that, you’re not a US person.
I was in the US for several years (on a H1b visa) but moved back to Canada in 2018. I left my HSA as is. In 2019 I did not have any US income and did not withdraw from my HSA. In 2020, I had no US income but did withdraw from my HSA for a dental procedure here in Canada. I believe I will have to file a 1040NR for 2020 and attach form 8889. Essentially the 1040NR will be filled with 0s and I should attach form 8889 with only Part II (HSA distributions) filled out. Is this correct? Also, for any interest on my savings accounts in the US, I am reporting them on my Canadian tax return; I believe I don’t need to report them on the US return as then it will be double taxation.
Yes, that’s correct, you would file form 1040NR and 8889 as you described.
The interest income is resourced by treaty to Canada, you wouldn’t report it on the US tax return.
I renounced my US citizenship in November 2020 . My US taxes are up to date and I am filing my last return up until the date of renunciation. Am I required to file a 1040NR for the month of December whenI was not a citizen if my only income was a small Social Security payment. There is no line on the 1040NR for Social Security. If I am required to file a 1040 NR, do I have to file every year from now on for my Social Security income? It is low enough that I do not owe any taxes.
Hi Jenn,
The 1040NR part of your final tax return is called Dual-Status Return and you must attach it to your Dual-Status Statement for the part of the year you were still a US citizen.
Warm regards,
Kasia
Hi, I am a U.K. resident freelance illustrator, who created artwork for a US magazine and got paid for it. I have never stepped foot in US and do all my work from U.K. remotely.
I filled in a W8BEN form at the time I completed the work and they did not withhold any tax as a result.
I have been sent a 1042S form in the post, copies B C and D.
Do I need to fill a US tax return?
I am including the money earned from them in my own U.K. tax return.
The information I am seeing online is so confusing, so any help would be much appreciated. Thanks
Hi Kathryn,
No, you don’t need to file anything.
Warm regards,
Kasia
I am filing 1040NR every year for past 10 Years – but I wonder if I need to.
UK resident / citizen, lived in US with Green card / US Citizen and accumulated savings then returned to UK and abandoned US status to become a Non-Resident Alien.
Q1, My income from the US is from Traditional IRA, Roth IRA, US Social Security, Bond Interest and Stocks Dividends. All but Dividends is US Tax 0% because of the Tax Treaty. For the Stocks Dividends, my Broker with W8-BEN on file, withholds at the Treaty 15%, fully satifying the US Tax due. Do I still need to File 1040NR?
Q2. My wife, as above, but without the Stocks Divs income, so her annual US tax due is the Treaty 0%. Does she still need to file 1040NR?
Q3. We report all US income on 1040NR form NEC, at 0% except the 15% for Dividends. Is this correct please?
Thank you for being here to offer guidance.
Q1 You wouldn’t have to file a tax return if you don’t have tax owing.
Q2 Likewise, she wouldn’t have to file a tax return if she doesn’t have tax owing.
Q3 The IRA withdrawals would be Effectively Connected Income, reported on the first page (and then again as a negative number as other income, and you can attach form 8833 to explain your position)
Thank you
I am a Canadian filing a joint 1040NR with my wife for only Capital Gains on a property that I sold in 2020 (no other income). My NET Capital Gain on the sale was $47,400. How much would that be in tax owing? What would I need to put on line 37 of the 1040NR form? (I have already filled out all schedules and determined my net Capital Gain to be $47,400). What rate % would I use?
It would be reported on line 7 and then taxed at graduated rates.
Very nice blog. thanks. I want to open LLC in new mexico. My main business is online trainings. I will not have any US connected income. Plese confirm.
I will file the following
1. Form 5472, which is infromation and not an income tax return.
2. Form 1120 as cover letter to 5472
3. Filing form 1040-NR is not mandatory for me, so I will not file it.
Additionally, please let me know if I will have any special state filing requirements with New mexico state ?
Hi Faisal,
Yes, you’re correct. If your business is not involved in the US trade or business, you will only file form 5472 together with pro froma 1120. No 1040NR required.
All the best,
Kasia
My wife is a dual citizen (Canada and US) who has re-established Canadian residency October 2020. I am a US citizen who is applying for permanent residence in Canada 2021. Assuming that Canada PR is approved and we are both at that point (tax year 2021 and ongoing) Canadian permanent residents but are also US citizens, do we file US taxes using the form 1040 or 1040NR? My thought is that because we are both US citizens (no matter the residency) US taxes would be filed using 1040.
Hi Olivier and Kasia, congratulations on your blog. Very informative and helpful. I would appreciate it if you could help me clarify this. I studied in the US for 5 years (1992-1997) under a J1 visa, when I received an SSN. I returned and lived in Brazil since then. Last year I worked as a remote consultant for a US-based company that requested me to fill in and submit the W-8 BEN form before starting to work. They did not withhold any taxes. Am I subject to the 30% taxes? Should I have filled the 1040NR form? Can I still do that? Thanks in advance for any help!!
Hi Guido,
Yes, absolutely. You can get a refund of those taxes by filing form 1040NR. Our fee to prepare it is 400 USD. use the contact form if you want us to help you with that.
Warm regards,
Olivier
I am nonresident Alien living in Japan whole year in 2020.
I have question about the case when we received both 1099DIV and 1042S in the same year. will treaty reduced rate (for Japan 10%) be applied to the dividend income for 1099DIV (1a box) income amount also?
I renounced greencard in 2019 and filed dual status return for 2019 return. I submitted W8BEN in 2019 but it was not processed correctly therefore I ended up getting 1099DIV for 2020 still. Finally it was processed W8BEN in December 2020 (1 year later) so now I received both 1099DIV(until November 2020) without any tax withheld and 1042S(after December 2020) which applied 10% tax withheld.
For Schedule NEC, should I only enter 1099DIV 1a box amount and apply 30% rate since until November W8BEN was not applied?
Hi Kay,
You would enter both amounts (from 1099-DIV and 1042-S) but the amount withheld on the 1042-S will be reflected on line 27g (page 2 of the 1040NR).
All the best,
Olivier
Hi,
I am a citizen of India and a student in US on F1. I received about $10690 (W2 wages, tips, and other compensation ) between Jan 2020 and March 2020 for research assistantship. My school withheld ~$861 towards Fed Tax and ~$534 towards MA state tax.
However, I was not present in the US in 2020 ( entire year ).
I understand I have to file 1040NR (Single/No Dependents). I used two tax prep software. In the generated 1040NR – none mention standard deduction of $12,400
Software A mentions:
Wages, Tips (Line 1a ) – $10692
Itemized Deduction(line 12) – $534
Taxable Income (line 15) as – $10157
Tax (line 16) – $1024
Tax Withheld (line 25a) – $861
Tax Owed (line 37) – $162
Software B:
Wages, Tips (Line 1a ) – $0
Itemized Deduction(line 12) – $534
Taxable Income (line 15) as – $0
Tax (line 16) – $0
Tax Withheld (line 25a) – $861
Total Payments (line 33) – $861
Refund (line34) -$861
I am not able to understand the vast difference in both the 1040NRs – one where tax is owed and another where there is a refund and wages line is showing 0 – I have entered my W2 correctly.
Please guide which is correct and what should the 1040NR lines look like in my circumstances. There is no mention of $12400 standard deduction in both the forms.
Thanks a lot in advance.
Rajnish
Hi Rajnish,
You cannot claim the standard deduction on form 1040NR.
Warm regards,
Olivier
Howdy, I am a US citzen living and working in Germany for the past 40 years. My wife is a German citizen. I am now retired and receive a small Social Security retirement benefit for the time I worked in the US before I came to Germany. My wife is also eligible for a very modest Social Security benefit as my dependent. To receive this she must apply for a Social Security number.
All the years abroad I have filed my 1040‘s with the status “married filing separately” to keep our two incomes separate, as my wife has had no US-sourced income. The US-German tax treaty means that she will not have to pay US taxes on the benefits.
My question is: since she will have a Social Security number, will she still have to file a tax return, even though her benefits are US tax exempt?
There is a lot of information out there but it tends to be a bit confusing when it comes down to specific cases. Thanks fot your help!
Hi Doc,
Nothing changed. You can continue to file as married filing separately, and she wouldn’t have to file a tax return.
All the best,
Olivier
Hello,
I moved from the US to Canada in July 2020 as short term working arrangement with my US employer. We decided to extend my remote working from Canada permanently. In 2021, I won’t pass the substantial presence test. The company still withholds taxes as if I lived in the US and issues a W-2. Will I be subject to the 30% tax rate for NRA in 2021? Is form 1040NR appropriate?
Thanks!
Hi Emily,
If you are a US citizen, a form 1040NE would not be appropriate.
You would be paying taxes to Canada. While you can use the physical presence test to qualify for FEIE, the foreign tax credit probably makes more sense.
Warm regards,
Olivier