In our previous article on taxes, we discussed on how not filing taxes and returns can be evil and many FAQs on Filing Taxes as International. In this article, we will discuss more around how foreigners are classified for tax purposes and what the filing status would be and some benefits around same, including forms that you would use.
How am I treated for U.S. tax purposes as International on Visas like H1B, H4, L1, etc. ?
For tax purposes those who are not a U.S. citizen or U.S. National are regarded as Aliens. Don’t think of the description of term Aliens in sci-fi movies ;), this is just the terminology in taxation. Anyways, in context of foreigners, someone living on a Visa in America are considered Aliens for tax purposes. Also to clarify, US citizen is someone born in US or get citizenship by virtue of their parents citizenship. Unlike, US National are someone born certain islands like American Samoa are treated as US Nationals. Read US Citizen vs US National. There are in general two type of aliens: Resident and Non-resident Aliens.
- Non-resident alien: An alien who has not passed any of following green card test or the substantial presence test to be qualified as resident alien. A non-resident files pays tax only on U.S. source income, is subject to special rates, and might qualify for certain treaty exemptions.
- Resident Alien : The rule of thumb is that, if you are on a Visa like H1B, H4, L1, etc. in US and stayed for over 31 days in current year and 183 days in previous 3 years combined ( full days of current year, 1/3rd of days in previous year, 1/6th of days in year before current year ) then you are classified as resident alien. A resident alien must follow the same tax laws and may claim the same tax benefits as apply to U.S. citizens. However, they must report their worldwide income from all sources, that is, income from both within and outside the United States.
- Dual status individual: One can be both a non-resident alien and a resident alien during the same tax year. This usually occurs in the year of arrival or departure from the United States. If so, one may elect to be treated as aDual Status Alien for this taxable year and a resident Alien for the next taxable year if you meet certain tests.
- Refer: https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens and section “Dual-Status Aliens” – “First Year Choice” inPublication 519, U.S. Tax Guide for Aliens.
As an International, How would I know which form I need to file for Taxes ?
If you are resident alien (basically most of the internationals living on work visa, dependents or student visa), you will file a Form 1040EZ, Form 1040A or Form 1040 depending on your tax situation. If you are a non-resident alien, you must file a Form 1040NR or Form 1040NR-EZ (if you are engaged in a trade or business in the United States).
What would my filling status as Visa Holder for tax purposes – Married, Unmarried?
Your filing status is used to determine your filing requirements, standard deduction, and eligibility for certain credits, and your correct tax. This generally makes great difference in one’s tax bill. In general, you can divide the filing statuses into 2 categories: married and unmarried.
The married filing statuses are Married Filing Jointly and Married Filing Separately while the unmarried filing statuses are Single, Head of Household, and Qualifying Widow or Widower.
(Head of Household: The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person)
Example: Standard deduction for tax year 2015 for residents
|Filing Status||Deduction Amount|
|Single/ Married filing separately||$ 6,300.00|
|Married Filing Jointly||$ 12,600.00|
|Head of Household||$ 9,250.00|
|Personal Exemption||$ 4,000.00|
Clearly if you and your spouse file as Married Filing Jointly, your standard deduction may be higher, lower tax bracket and may qualify for other tax benefits that do not apply to the other filing statuses. This may lower your tax than other filing status.
Non-resident aliens and dual-status aliens are not allowed to claim the standard deduction and must itemize in order to claim tax deductions.
- Refer: https://www.irs.gov/pub/irs-pdf/p501.pdf for details on Exemptions, Standard Deduction, and Filing Information
In the next article, we will cover details on filing taxes as family for H4 visa holders, Dependent Children.
Any other thoughts to add on tax classification and status ?
Thanks for the informative article. I have one very basic question.
I am going to start working in US on L1B visa, and i am married. however, my wife would not be doing any work (And will not be getting any salary, She will be living in US with me).
Can I file as’ Married Filing Jointly’ ?
I got H4 visa stamping done in July 2019 and received H4 EAD in Oct 2019. Was on L2 EAD before that since 2014. Can I fill up the W4 form for my new job as a Resident Alien or should I be doing it as a Non-Resident Alien. Please clarify.
If you are not GC holder, most of the times, you are classified as Non Resident Alien. Check IRS Resident Alien vs Non Resident Alien
IYou can do as resident if you qualify substantial presence test. I guess you can if you were working here.
Hi I reached US for the first time in the month of october in H1B visa along with wife and Kid(Both H4). Do i need to file 1040NR as per substantial presence?
If so What option should i fill for my wife and Kid in the W7 Form application for ITIN. Is it Dependent/Spouse Of A Nonresident Alien Holding A U.S. Visa? Please clarify
First of all thanks for this amazing article. I have a query, can you help.
I am on H1B, can i invest in BSE/NSE sitting in usa.
If yes , regarding taxes, do I need to pay tax in india or usa or both??
Yes, you can but there are few do’s and don’ts you should understand and follow. Regarding taxes, you have to pay taxes but there is no double taxation. If you file as US Resident alien, you will need to report your global income. If you have paid any taxes in India, they are also reported and your US tax liability will get reduced.
I am not sure how much of those classifications are correct. I’ve been on F1 since 2012 and I have been filing as NRA and not RA (meaning using form 1040NR and not 1040) since and verified it from different sources like H&R Block, turbo tax, windstar etc.
These classifications are correct for those on work visa like H1 or L1. Those on F1 are “Exempt Individuals” and days of presence in USA are not counted for them. Refer Exempt individuals from Substantial Presence Test (referred above as well) : https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test.
Do not count days for which you are an exempt individual. The term “exempt individual” does not refer to someone exempt from U.S. tax, but to anyone in the following categories:
-An individual temporarily present in the U.S. as a foreign government-related individual under an “A” or “G” visa, other than individuals holding “A-3” or “G-5” class visas.
-A teacher or trainee temporarily present in the U.S. under a “J” or “Q” visa, who substantially complies with the requirements of the visa.
-A student temporarily present in the U.S. under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa.
-A professional athlete temporarily in the U.S. to compete in a charitable sports event.
Thus, you will have to file as NRA using 1040NR.