If you are a non-U.S. citizen, you are considered to be an alien for U.S. tax purposes. There are two types of alien statuses: non-resident alien and resident alien. However, they are treated differently for tax purposes. So, which type of alien are you and how will it affect your U.S. tax return?
Resident Alien
If you are a non-U.S. citizen, you will be considered a resident alien if you meet one of two tests in the calendar year: the Green Card test or the Substantial Presence test.
- Green Card Test: If at any time during the calendar year you were a lawful permanent resident o the United States according to the immigration laws, and this status has not been rescinded or abandoned, you are considered to have met the green card test.
- Substantial Presence Test: To meet the substantial presence test, you must have been physically present in the United States on at least 31 days during the current year and, 183 days during the most recent 3-year period (i.e. the past 3 years starting from today`s date). In calculating the 183 day requirement, special counting rules apply. Primarily, you must add up all of the days you were present in the current year, 1/3 of the days you were present in the previous year, and 1/6 of the days you were present from 2 years ago. Plus, there are specific situations in which certain days do not count toward the 183 day requirement, such as any days you commute to work in the United States from a residence in Canada if you regularly commute from Canada.
A resident alien's income is generally subject to tax in the same manner as a U.S. citizen. If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. And, you must report these amounts whether from sources within or outside the United States. Sometimes resident aliens are allowed to make elections which can override the aforementioned two tests; for example, if you have a closer connection to another country.
Non-Resident Alien
Typically, if either the Green Card test or the Substantial Presence test outlined above is not met, a non-U.S. citizen will be considered a non-resident alien. A non-resident alien is usually subject to U.S. income tax only on U.S. source income. In other words, only in very limited circumstances will certain foreign (i.e. non-U.S.) source income be subject to U.S. tax. If you are concerned that you may be taxed twice, don’t fret! For many countries, there exist Tax Treaties with the U.S. in order to prevent double taxation, taxation in both the U.S. and your home country. Canada and the U.S. have such a treaty.
Are you unsure about what type of alien you are? The tax professionals at Tax Doctors Canada can help you with your U.S. tax returns. Please visit the Tax Doctors Canada US Citizen Canadian tax return services page for more information.
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