When it involves filing taxes in the US, resident and nonresident immigrants are subject to different regulations than citizens. In reality, depending on their circumstances, filers who are not residents may not be required to declare particular sources of income. Here are some of the main tax regulations the non-resident must abide by.
If you need help regarding tax filing in the US, then contact Tennessee CPAs.
The taxation of non-resident aliens in the United States
The American government offers many categories for inhabitants. Anyone who gains citizenship by birth, derivation, acquisition, or naturalization is considered a citizen. Being a citizen entails both duties and rights, including the need to pay taxes.
What about people who are not citizens, though? These people can be divided into two groups:
- Resident Aliens
These people do not have U.S. citizenship, but they do have green cards which allow them to work there, or they are present in the nation for at least a period of 183 days over the course of the previous three years, which includes the current one.
- Nonresident Alien
Although these people are legitimately present in the country, these people lack green cards. They can be tourists, students, and guests.
Taxation of Resident aliens
Most residents who earn money, whether locally or internationally, are subject to taxation. This includes any pension benefits you might have received from an overseas government.
Consequently, you are responsible for paying taxes on your Canadian government pension if you reside in the United States. If eligible, resident aliens can apply for the foreign tax credit and the foreign earned income exclusion.
Furthermore, resident aliens employed by a foreign government in the United States may be eligible for a salary exemption. This is true if the United States and the organization that employs the individual have a reciprocal tax treaty.
Taxation of non-resident aliens
Nonresident aliens must pay income tax solely on income produced in the United States, or from a U.S. source, unlike resident aliens. They are exempt from paying taxes on income generated abroad.
For instance, a German citizen who owns businesses in Germany and the United States will only be subject to taxation on the revenue from the later source. The business's revenue earned in Germany is not subject to taxation in the United States.
Unless expressly stated under the treaty, investment income generated in the United States but not from a United States source is typically taxed at a rate of 30%.