US taxation of non residents and aliens is a complicated area of taxation. Please see our newsletters in the Foreign Investors page of this site.
Below is more information from the IRS about taxation on aliens:
51915023TU.S. Tax Guide
for AliensIntroduction1What's New for 20052What's New for 20063Reminders3 1. Nonresident Alien or Resident Alien?4 2. Source of Income11 3. Exclusions From Gross Income14 4. How Income of Aliens Is Taxed16 5. Figuring Your Tax22 6. Dual-Status Tax Year29 7. Filing Information38 8. Paying Tax Through
Withholding or Estimated Tax41 9. Tax Treaty Benefits4810. Employees of Foreign
Governments and International Organizations5211. Departing Aliens and the
Sailing or Departure Permit5212. How To Get Tax Help55Questions and Answers57Appendix A—Tax Treaty Exemption Procedure for Students59Appendix B—Tax Treaty Exemption Procedure for Teachers and Researchers62Index67
For tax purposes, an alien is an individual who is not a U.S. citizen. Aliens are classified as nonresident aliens and resident aliens. This
publication will help you determine your status and give you information you will need to file your U.S. tax return. Resident aliens generally are
taxed on their worldwide income, the same as U.S. citizens. Nonresident aliens are taxed only on their income from sources within the United States
and on certain income connected with the conduct of a trade or business in the United States.
Table A, What You Need To Know About U.S. Taxes, provides a list of questions and the chapter or chapters in this publication where you will find
the related discussion.
<ROM>Table A.</ROM> What You Need To Know About U.S. TaxesCommonly Asked QuestionsWhere To Find The AnswerAm I a nonresident alien or resident alien?See chapter 1.Can I be a nonresident alien and a resident alien in the same year?
See Dual-Status Aliens in chapter 1.
See chapter 6.
I am a resident alien and my spouse is a nonresident alien. Are there special rules for us?
See Nonresident Spouse Treated as a Resident in chapter 1.
See Community Income in chapter 2.
Is all my income subject to U.S. tax?
See chapter 2.
See chapter 3.
Is my scholarship subject to U.S. tax?
See Scholarship Grants, Prizes, and Awards in chapter 2.
See Scholarship and Fellowship Grants in chapter 3.
See chapter 9.
What is the tax rate on my income subject to U.S. tax?See chapter 4.I moved to the United States this year. Can I deduct my moving expenses on my U.S. return?See Deductions in chapter 5.Can I claim exemptions for my spouse and children?See Exemptions in chapter 5.I pay income taxes to my home country. Can I get credit for these taxes on my U.S. tax return?See Tax Credits and Payments in chapter 5.What forms must I file and when and where do I file them?See chapter 7.How should I pay my U.S. income taxes?See chapter 8.Am I eligible for any benefits under a tax treaty?
See Income Entitled to Tax Treaty Benefits in chapter 8.
See chapter 9.
Are employees of foreign governments and international organizations exempt from U.S. tax?See chapter 10.Is there anything special I have to do before leaving the United States?
See chapter 11.
See Expatriation Tax in chapter 4.
Answers to frequently asked questions are presented in the back of the publication.
The information in this publication is not as comprehensive for resident aliens as it is for nonresident aliens. Resident aliens are generally
treated the same as U.S. citizens and can find more information in other IRS publications.
Comments and suggestions.Comments on publicationSuggestions for publication
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in
your correspondence.
You can email us at
*taxforms@irs.gov. (The asterisk must be included in the
address.) Please put Publications Comment on the subject line. Although we cannot respond individually to each email, we do appreciate your
feedback and will consider your comments as we revise our tax products.
Tax questions.
If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions at either
of the addresses listed above.
Ordering forms and publications.
Visit
www.irs.gov/formspubs
to download forms and publications, call 1-800-829-3676, or write to the address shown under How To Get Tax Help in the back of this
publication.
What's New for 2005Dividends paid to nonresident aliens.
The following dividends may be exempt from the 30% tax.
Dividends paid by foreign corporations.
Interest-related dividends.
Short-term capital gain dividends.
.
For more information, see Dividend Income in Chapter 3.
IRA deduction expanded.
You may be able to deduct up to $4,000 ($4,500 if age 50 or older at the end of 2005). If you were covered by a retirement plan, you may be able to
take an IRA deduction if your 2005 modified AGI is less than $60,000 ($80,000 if qualifying widow(er)). See Publication 590 for more information.
Residents of Japan.
Beginning in 2005, nonresident aliens who are residents of Japan generally cannot claim the following benefits.
An exemption for a spouse or a dependent.
Qualifying widow(er) filing status.
Single filing status if married, even if they have a child and do not live with their spouse.
However, if you choose to have the old U.S.- Japan treaty apply in its entirety for 2005, you may be able to claim these benefits in 2005. See
chapter 5 for a discussion on exemptions and filing statuses.
Source of compensation for labor or personal services.
In tax years beginning after July 13, 2005, new rules apply in determining the source of compensation for labor or personal services performed as
an employee. If you file your tax returns on a calendar year basis, the new rules apply to your returns for 2006 and later years.
Under the new rules, compensation (other than fringe benefits) is sourced on a time basis. Fringe benefits (such as housing and education) are
sourced on a geographical basis. For more information, see Regulations section 1.861-4, which is on page 429 of Internal Revenue Bulletin 2005-35 at
www.irs.gov/pub/irs-irbs/irb05-35.pdf.
Hurricane tax relief.Hurricane tax relief
Emergency tax relief was enacted as a result of Hurricanes Katrina, Rita, and Wilma. The tax benefits provided by this relief include the
following.
Suspended limits for certain personal casualty losses and cash contributions.
An additional exemption amount if you provided housing for a person displaced by Hurricane Katrina.
Election to use your 2004 earned income to figure your additional child tax credit.
Increased charitable standard mileage rate for using your vehicle for volunteer work related to Hurricane Katrina.
Special rules for time and support tests for people who were temporarily relocated because of Hurricanes Katrina, Rita, and
Wilma.
Special rules for withdrawals and loans from IRAs and other qualified retirement plans.
For more details on these and other tax benefits related to Hurricanes Katrina, Rita, and Wilma, see Publication 4492, Information for Taxpayers
Affected by Hurricanes Katrina, Rita, and Wilma.
Domestic production activities deduction.
You may be able to deduct up to 3% of your qualified production activities income from certain business activities. See Form 8903 and its
instructions.
What's New for 2006New exception from the filing requirement for nonresident alien individuals.
Generally, the requirement to file a return has been eliminated for nonresident aliens who earn wages effectively connected with a U.S. trade or
business that are less than the amount of one personal exemption ($3,300 for 2006). For more information, see Notice 2005-77, 2005-46 I.R.B. 951. You
can find Notice 2005-77 on page 951 of Internal Revenue Bulletin 2005-46 at
www.irs.gov/pub/irs-irbs/irb05-46.pdf.
Personal exemption and itemized deduction phaseouts reduced.
The phaseouts of the limitation on personal exemptions and itemized deductions will be reduced by .
Residential energy credit — new.
You may be able to take a residential energy credit for expenses paid in 2006 to have qualified energy saving items installed in your main home.
Alternative motor vehicles.
You may be able to take a credit if you place an energy efficient motor vehicle or alternative fuel vehicle refueling property in service in 2006.
You can no longer take a deduction for clean-fuel vehicles.
Clean renewable energy bond credit — new.
You may be able to take a credit based on the face amount of any clean renewable energy bond you hold during 2006. The amount of any credit claimed
must be included as interest income.
Certain credits no longer allowed against alternative minimum tax (AMT).
The credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, mortgage interest credit, and
carryforwards of the District of Columbia first-time homebuyer credit are no longer allowed against AMT and a new tax liability limit applies. For
most people, this limit is your regular tax minus any tentative minimum tax.
AMT exemption amount decreased.
The AMT exemption amount will decrease to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing
separately).
Educator expense deduction expires.
The deduction for educator expenses from AGI will expire. To deduct educator expenses, you must itemize your deductions.
IRA deduction expanded.
If you were covered by a retirement plan, you may be able to take an IRA deduction if your 2006 modified AGI is less than $85,000 if married filing
jointly or a qualifying widow(er). You and your spouse, if filing jointly, may each be able to deduct up to $5,000 if age 50 or over at the end of
2006.
RemindersThird party designee.
You can check the Yes box in the Third Party Designee area of your return to authorize the IRS to discuss your return with a friend,
family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may
arise during the processing of your return. It also allows your designee to perform certain actions such as asking the IRS for copies of notices or
transcripts related to your return. Also, the authorization can be revoked. See your income tax package for details.
Change of address.Address change
If you change your mailing address, be sure to notify the Internal Revenue Service using Form 8822, Change of Address.
Nonresident aliens who filed Form 1040NR or Form 1040NR-EZ with the Internal Revenue Service Center, Philadelphia, PA 19255, should send the form
there. Resident aliens should send the form to the Internal Revenue Service Center for their old address (addresses for the Service Centers are on the
back of the form).
Photographs of missing children.
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
Nonresident Alien or Resident Alien?
You should first determine whether, for income tax purposes, you are a nonresident alien or a resident alien. Figure 1-A will help you make this
determination.
If you are both a nonresident and resident in the same year, you have a dual status. Dual status is explained later. Also explained later are a
choice to treat your nonresident spouse as a resident and some other special situations.
How to determine if you are a nonresident, resident, or dual-status alien, and
How to treat a nonresident spouse as a resident alien.
Form (and Instructions)U.S. Individual Income Tax ReturnU.S. Individual Income Tax ReturnU.S. Nonresident Alien Income Tax ReturnTreaty-Based Return Position Disclosure Under Section 6114 or 7701(b)Closer Connection Exception Statement for AliensStatement for Exempt Individuals and Individuals With a Medical Condition
See chapter 12 for information about getting these forms.
If you are an alien (not a U.S. citizen), you are considered a nonresident alien unless you meet one of the two tests described next under
Resident Aliens.
You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for the
calendar year (January 1–December 31). Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S. resident
for part of the year. See First-Year Choice under Dual-Status Aliens, later.
Green Card TestGreen card test
You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during the calendar year. (However, see
Dual-Status Aliens, later.) This is known as the green card test. You are a lawful permanent resident of the United States at any
time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You
generally have this status if the U.S. Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien
registration card, also known as a green card. You continue to have resident status under this test unless the status is taken away from you or
is administratively or judicially determined to have been abandoned.
Resident status taken away.
Resident status is considered to have been taken away from you if the U.S. government issues you a final administrative or judicial order of
exclusion or deportation. A final judicial order is an order that you may no longer appeal to a higher court of competent jurisdiction.
Resident status abandoned.
An administrative or judicial determination of abandonment of resident status may be initiated by you, the USCIS, or a U.S. consular officer.
If you initiate the determination, your resident status is considered to be abandoned when you file either of the following with the USCIS or U.S.
consular officer.
Your application for abandonment.
Your Alien Registration Receipt Card attached to a letter stating your intent to abandon your resident status.
You must file the letter by certified mail, return receipt requested. You must keep a copy of the letter and proof that it was mailed and
received.
If the USCIS or U.S. consular officer initiates this determination, your resident status will be considered to be abandoned when the final
administrative order of abandonment is issued. If you are granted an appeal to a federal court of competent jurisdiction, a final judicial order is
required.
A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions. See
Expatriation Tax in chapter 4.
Termination of residency after June 3, 2004.
If you terminate your residency after June 3, 2004, you will still be considered a U.S. resident for tax purposes until you notify the Secretary of
Homeland Security and file Form 8854, Initial and Annual Expatriation Information Statement.
Substantial Presence TestSubstantial presence test
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you
must be physically present in the United States on at least:
31 days during the current year, and
183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
All the days you were present in the current year, and
of the days you were present in the first year before the current year, and
of the days you were present in the second year before the current year.
Example.
You were physically present in the United States on 120 days in each of the years 2003, 2004, and 2005. To determine if you meet the substantial
presence test for 2005, count the full 120 days of presence in 2005, 40 days in 2004 ( of 120), and 20 days in 2003 (
of 120). Because the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2005.
The term United States includes the following areas.
All 50 states and the District of Columbia.
The territorial waters of the United States.
The seabed and 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.
The term does not include U.S. possessions and territories or U.S. airspace.
Figure 1-A. Nonresident Alien or Resident Alien?Summary: This flowchart is used to determine if the taxpayer is considered a resident alien or nonresident alien for U.S. tax
purposes.StartThis is the start of the flowchart.Decision (1)Were you a lawful permanent resident of the United States (had a
green card) at any time during 2004?IF Yes Continue To Process (a)IF No Continue To Decision (2)Decision (2)Were you physically present in the United States on at least 31 days during 2004?Footnote 3: See Days of Presence in the United States in this chapter for days that do not count as days of presence in the United
States.IF Yes Continue To Decision (3)IF No Continue To Process (b)Decision (3)Were you physically present in the United States on at least 183 days during the 3-year period consisting of 2002, 2003, and 2004, counting
all days of presence in 2004, 1/3 the days of presence in 2003, and 1/6 the days of presence in 2002?Footnote 3: See Days of Presence in the United States in this chapter for days that do not count as days of presence in the United
States.Footnote 4: If No--If you meet the substantial presence test for 2005, you may be able to choose treatment as a U.S. resident alien for part
of 2004. For details, see Substantial Presence Test under Resident Aliens and First-Year Choice under Dual-Status Aliens in chapter 1.IF Yes Continue To Decision (4)IF No Continue To Process (b)Decision (4)Were you physically present in the United States on at least 183 days during 2004?IF Yes Continue To Process (a)IF No Continue To Decision (5)Decision (5)Can you show that for 2004 you have a tax home in a foreign country and have a closer connection to that country than to the United
States?IF Yes Continue To Process (b)IF No Continue To Process (a)Process (a)You are a resident alien for U.S. tax purposes.Footnote 1: If this is your first or last year of residency, you may have a dual status for the year. See Dual-Status Aliens in chapter
1.Footnote 2: In some circumstances you may still be considered a nonresident alien under an income tax treaty between the U.S. and your
country. Check the provisions of the treaty carefully.Continue To EndProcess (b)You are a nonresident alien for U.S. tax purposes.Continue To EndEndThis is the end of the flowchart.
Days of Presence
in the United StatesDays of presence
You are treated as present in the United States on any day you are physically present in the country at any time during the day. However, there are
exceptions to this rule. Do not count the following as days of presence in the United States for the substantial presence test.
Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or
Mexico.
Days you are in the United States for less than 24 hours when you are in transit between two places outside the United States.
Days you are in the United States as a crew member of a foreign vessel.
Days you are unable to leave the United States because of a medical condition that arose while you are in the United States.
Days you are an exempt individual.
The specific rules that apply to each of these categories are discussed next.
Regular commuters from Canada or Mexico.Commuters from Canada or MexicoCanada:CommutersMexico:Commuters
Do not count the days on which you commute to work in the United States from your residence in Canada or Mexico if you regularly commute from
Canada or Mexico. You are considered to commute regularly if you commute to work in the United States on more than 75% of the workdays during your
working period.
For this purpose, commute means to travel to work and return to your residence within a 24-hour period. Workdays are the days on
which you work in the United States or Canada or Mexico. Working period means the period beginning with the first day in the current year on
which you are physically present in the United States to work and ending on the last day in the current year on which you are physically present in
the United States to work. If your work requires you to be present in the United States only on a seasonal or cyclical basis, your working period
begins on the first day of the season or cycle on which you are present in the United States to work and ends on the last day of the season or cycle
on which you are present in the United States to work. You can have more than one working period in a calendar year, and your working period can begin
in one calendar year and end in the following calendar year.
Example.
Maria Perez lives in Mexico and works for Compañía ABC in its office in Mexico. She was assigned to her firm's office in the United
States from February 1 through June 1. On June 2, she resumed her employment in Mexico. On 69 days, Maria commuted each morning from her home in
Mexico to work in Compañía ABC's U.S. office. She returned to her home in Mexico on each of those evenings. On 7 days, she worked in her
firm's Mexico office. For purposes of the substantial presence test, Maria does not count the days she commuted to work in the United States because
those days equal more than 75% of the workdays during the working period (69 workdays in the United States divided by 76 workdays in the working
period equals 90.8%).
Days in transit.
Do not count the days you are in the United States for less than 24 hours and you are in transit between two places outside the United States. You
are considered to be in transit if you engage in activities that are substantially related to completing travel to your foreign destination. For
example, if you travel between airports in the United States to change planes en route to your foreign destination, you are considered to be in
transit. However, you are not considered to be in transit if you attend a business meeting while in the United States. This is true even if the
meeting is held at the airport.
Crew members.Crew members:Alien status
Do not count the days you are temporarily present in the United States as a regular crew member of a foreign vessel engaged in transportation
between the United States and a foreign country or a U.S. possession. However, this exception does not apply if you otherwise engage in any trade or
business in the United States on those days.
Medical condition.Medical condition
Do not count the days you intended to leave, but could not leave the United States because of a medical condition or problem that arose while you
were in the United States. Whether you intended to leave the United States on a particular day is determined based on all the facts and circumstances.
For example, you may be able to establish that you intended to leave if your purpose for visiting the United States could be accomplished during a
period that is not long enough to qualify you for the substantial presence test. However, if you need an extended period of time to accomplish the
purpose of your visit and that period would qualify you for the substantial presence test, you would not be able to establish an intent to leave the
United States before the end of that extended period.
In the case of an individual who is judged mentally incompetent, proof of intent to leave the United States can be determined by analyzing the
individual's pattern of behavior before he or she was judged mentally incompetent.
If you qualify to exclude days of presence because of a medical condition, you must file a fully completed Form 8843 with the IRS. See Form
8843, later.
You cannot exclude any days of presence in the United States under the following circumstances.
You were initially prevented from leaving, were then able to leave, but remained in the United States beyond a reasonable period for making
arrangements to leave.
You returned to the United States for treatment of a medical condition that arose during a prior stay.
The condition existed before your arrival in the United States and you were aware of the condition. It does not matter whether you needed
treatment for the condition when you entered the United States.
Exempt individual.Exempt individual
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 United States as a foreign government-related individual.
A teacher or trainee temporarily present in the United States under a J or Q visa, who substantially complies with the
requirements of the visa.
A student temporarily present in the United States under an F,J,M, or Q visa, who substantially complies with
the requirements of the visa.
A professional athlete temporarily in the United States to compete in a charitable sports event.
The specific rules for each of these four categories are discussed next.
Foreign government-related individuals.Foreign government employees:Alien statusDiplomatsForeign government employees
A foreign government-related individual is an individual (or a member of the individual's immediate family) who is temporarily present in the
United States:
As a full-time employee of an international organization,
By reason of diplomatic status, or
By reason of a visa (other than a visa that grants lawful permanent residence) that the Secretary of the Treasury determines represents
full-time diplomatic or consular status.
International organization employees:Alien statusAn international organization is any public international organization that the President of the United States
has designated by Executive Order as being entitled to the privileges, exemptions, and immunities provided for in the International Organizations Act.
An individual is a full-time employee if his or her work schedule meets the organization's standard full-time work schedule.
An individual is considered to have full-time diplomatic or consular status if he or she:
Has been accredited by a foreign government that is recognized by the United States,
Intends to engage primarily in official activities for that foreign government while in the United States, and
Has been recognized by the President, Secretary of State, or a consular officer as being entitled to that status.
Members of the immediate family include the individual's spouse and unmarried children (whether by blood or adoption) but only if the spouse's or
unmarried children's visa statuses are derived from and dependent on the exempt individual's visa classification. Unmarried children are included only
if they:
Are under 21 years of age,
Reside regularly in the exempt individual's household, and
Are not members of another household.
The immediate family of an exempt individual does not include attendants, servants, or personal employees.
Teachers and trainees.Teachers:Alien statusTrainees
A teacher or trainee is an individual, other than a student, who is temporarily in the United States under a J or Q visa and
substantially complies with the requirements of that visa. You are considered to have substantially complied with the visa requirements if you have
not engaged in activities that are prohibited by U.S. immigration laws and could result in the loss of your visa status.
Also included are immediate family members of exempt teachers and trainees. See the definition of immediate family, earlier, under Foreign
government-related individuals.
You will not be an exempt individual as a teacher or trainee if you were exempt as a teacher, trainee, or student for any part of 2 of the 6
preceding calendar years. However, you will be an exempt individual if you were exempt as a teacher, trainee, or student for any part of 3 (or fewer)
of the 6 preceding calendar years and:
A foreign employer paid all of your compensation during the current year, and
A foreign employer paid all of your compensation during each of the preceding 6 years you were present in the United States as a teacher or
trainee.
A foreign employer includes an office or place of business of an American entity in a foreign country or a U.S. possession.
If you qualify to exclude days of presence as a teacher or trainee, you must file a fully completed Form 8843 with the IRS. See Form
8843, later.
Example.
Carla was temporarily in the United States during the year as a teacher on a J visa. Her compensation for the year was paid by a foreign
employer. Carla was treated as an exempt teacher for the past 2 years but her compensation was not paid by a foreign employer. She will not be
considered an exempt individual for the current year because she was exempt as a teacher for at least 2 of the past 6 years.
If her compensation for the past 2 years had been paid by a foreign employer, she would be an exempt individual for the current year.
Students.Students:Alien status
A student is any individual who is temporarily in the United States on an F,J,M, or Q visa and who substantially
complies with the requirements of that visa. You are considered to have substantially complied with the visa requirements if you have not engaged in
activities that are prohibited by U.S. immigration laws and could result in the loss of your visa status.
Also included are immediate family members of exempt students. See the definition of immediate family, earlier, under Foreign
government-related individuals.
You will not be an exempt individual as a student if you have been exempt as a teacher, trainee, or student for any part of more than 5 calendar
years unless you establish that you do not intend to reside permanently in the United States and you have substantially complied with the requirements
of your visa. The facts and circumstances to be considered in determining if you have demonstrated an intent to reside permanently in the United
States include, but are not limited to, the following.
Whether you have maintained a closer connection to a foreign country (discussed later).
Whether you have taken affirmative steps to change your status from nonimmigrant to lawful permanent resident as discussed later under
Closer Connection to a Foreign Country.
If you qualify to exclude days of presence as a student, you must file a fully completed Form 8843 with the IRS. See Form 8843, later.
Professional athletes.Professional athletesAthletes, professional
A professional athlete who is temporarily in the United States to compete in a charitable sports event is an exempt individual. A charitable sports
event is one that meets the following conditions.
The main purpose is to benefit a qualified charitable organization.
The entire net proceeds go to charity.
Volunteers perform substantially all the work.
In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in a sports event. You cannot
exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or
to travel between events.
If you qualify to exclude days of presence as a professional athlete, you must file a fully completed Form 8843 with the IRS. See Form
8843, next.
Form 8843.Forms:Forms:8843
If you exclude days of presence in the United States because you fall into any of the following categories, you must file a fully completed Form
8843.
You were unable to leave the United States as planned because of a medical condition or problem.
You were temporarily in the United States as a teacher or trainee on a J or Q visa.
You were temporarily in the United States as a student on an F,J,M, or Q visa.
You were a professional athlete competing in a charitable sports event.
Attach Form 8843 to your 2005 income tax return. If you do not have to file a return, send Form 8843 to the Internal Revenue Service Center,
Philadelphia, PA 19255, by the due date for filing Form 1040NR or Form 1040NR-EZ. The due date for filing is discussed in chapter 7.
If you do not timely file Form 8843, you cannot exclude the days you were present in the United States as a professional athlete or because of a
medical condition that arose while you were in the United States. This does not apply if you can show by clear and convincing evidence that you took
reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements.
Closer Connection
to a Foreign CountryCloser connection
Even if you meet the substantial presence test, you can be treated as a nonresident alien if you:
Are present in the United States for less than 183 days during the year,
Maintain a tax home in a foreign country during the year, and
Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a
closer connection to two foreign countries, discussed next).
Closer connection to two foreign countries.
You can demonstrate that you have a closer connection to two foreign countries (but not more than two) if you meet all of the following conditions.
You maintained a tax home beginning on the first day of the year in one foreign country.
You changed your tax home during the year to a second foreign country.
You continued to maintain your tax home in the second foreign country for the rest of the year.
You had a closer connection to each foreign country than to the United States for the period during which you maintained a tax home in that
foreign country.
You are subject to tax as a resident under the tax laws of either foreign country for the entire year or subject to tax as a resident in
both foreign countries for the period during which you maintained a tax home in each foreign country.
Tax home.Tax home
Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home.
Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. If you do not have a regular or
main place of business because of the nature of your work, then your tax home is the place where you regularly live. If you do not fit either of these
categories, you are considered an itinerant and your tax home is wherever you work.
For determining whether you have a closer connection to a foreign country, your tax home must also be in existence for the entire current year, and
must be located in the same foreign country to which you are claiming to have a closer connection.
Foreign country.Foreign country
In determining whether you have a closer connection to a foreign country, the term foreign country means:
Any territory under the sovereignty of the United Nations or a government other than that of the United States,
The territorial waters of the foreign country (determined under U.S. law),
The seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the foreign country and over which the
foreign country has exclusive rights under international law to explore and exploit natural resources, and
Possessions and territories of the United States.
Establishing a closer connection.
You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have
maintained more significant contacts with the foreign country than with the United States. In determining whether you have maintained more significant
contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the
following.
The country of residence you designate on forms and documents.
The types of official forms and documents you file, such as Form W-9, Form W-8BEN, or Form W-8ECI.
The location of:
Your permanent home,
Your family,
Your personal belongings, such as cars, furniture, clothing, and jewelry,
Your current social, political, cultural, or religious affiliations,
Your business activities (other than those that constitute your tax home),
The jurisdiction in which you hold a driver's license, and
The jurisdiction in which you vote.
It does not matter whether your permanent home is a house, an apartment, or a furnished room. It also does not matter whether you rent or own
it. It is important, however, that your home be available at all times, continuously, and not solely for short stays.
You cannot claim you have a closer connection to a foreign country if either of the following applies:
You personally applied, or took other steps during the year, to change your status to that of a permanent resident, or
You had an application pending for adjustment of status during the current year.
Steps to change your status to that of a permanent resident include, but are not limited to, the filing of the following forms.
Form I-508, Waiver of Rights, Privileges, Exemptions and Immunities
Form I-485, Application to Register Permanent Residence or Adjust Status
Form I-130, Petition for Alien Relative, on your behalf
Form I-140, Immigrant Petition for Alien Worker, on your behalf
Form ETA-750, Application for Alien Employment Certification, on your behalf
Form DS-230, Application for Immigrant Visa and Alien Registration
Form 8840.Forms:8840
You must attach a fully completed Form 8840 to your income tax return to claim you have a closer connection to a foreign country or countries.
If you do not have to file a return, send the form to the Internal Revenue Service Center, Philadelphia, PA 19255, by the due date for filing Form
1040NR or Form 1040NR-EZ. The due date for filing is discussed later in chapter 7.
If you do not timely file Form 8840, you cannot claim a closer connection to a foreign country or countries. This does not apply if you can show by
clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those
requirements.
Effect of Tax TreatiesTax treaties:Effect ofForms:8833Tie-breaker rule
The rules given here to determine if you are a U.S. resident do not override tax treaty definitions of residency. If you are a dual-resident
taxpayer, you can still claim the benefits under an income tax treaty. A dual-resident taxpayer is one who is a resident of both the United States and
another country under each country's tax laws. The income tax treaty between the two countries must contain a provision that provides for resolution
of conflicting claims of residence (tie-breaker rule). If you are treated as a resident of a foreign country under a tax treaty, you are treated as a
nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident. For example,
the rules discussed here do not affect your residency time periods as discussed later under Dual-Status Aliens.
Information to be reported.
If you are a dual-resident taxpayer and you claim treaty benefits, you must file a return by the due date (including extensions) using Form 1040NR
or Form 1040NR-EZ, and compute your tax as a nonresident alien. You must also attach a fully completed Form 8833 if you determine your residency under
a tax treaty and receive payments or income items totaling more than $100,000. See Reporting Treaty Benefits Claimed in chapter 9 for more
information on reporting treaty benefits.
You can be both a nonresident alien and a resident alien during the same tax year. This usually occurs in the year you arrive in or depart from the
United States. Aliens who have dual status should see chapter 6 for information on filing a return for a dual-status tax year.
First Year of ResidencyResidency:First year
If you are a U.S. resident for the calendar year, but you were not a U.S. resident at any time during the preceding calendar year, you are a U.S.
resident only for the part of the calendar year that begins on the residency starting date. You are a nonresident alien for the part of the year
before that date.
Residency starting date under substantial presence test.Residency:Starting date
If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the
United States during that calendar year. However, you do not have to count up to 10 days of actual presence in the United States if on those days you
establish that:
You had a closer connection to a foreign country than to the United States, and
Your tax home was in that foreign country.
See Closer Connection to a Foreign Country, earlier.
In determining whether you can exclude up to 10 days, the following rules apply.
You can exclude days from more than one period of presence as long as the total days in all periods are not more than 10.
You cannot exclude any days in a period of consecutive days of presence if all the days in that period cannot be excluded.
Although you can exclude up to 10 days of presence in determining your residency starting date, you must include those days when determining
whether you meet the substantial presence test.
Example.
Ivan Ivanovich is a citizen of Russia. He came to the United States for the first time on January 6, 2005, to attend a business meeting and
returned to Russia on January 10, 2005. His tax home remained in Russia. On March 1, 2005, he moved to the United States and resided here for the rest
of the year. Ivan is able to establish a closer connection to Russia for the period January 6–10. Thus, his residency starting date is March 1.
Statement required to exclude up to 10 days of presence.
You must file a statement with the IRS if you are excluding up to 10 days of presence in the United States for purposes of your residency starting
date. You must sign and date this statement and include a declaration that it is made under penalties of perjury. The statement must contain the
following information (as applicable).
Your name, address, U.S. taxpayer identification number (if any), and U.S. visa number (if any).
Your passport number and the name of the country that issued your passport.
The tax year for which the statement applies.
The first day that you were present in the United States during the year.
The dates of the days you are excluding in figuring your first day of residency.
Sufficient facts to establish that you have maintained your tax home in and a closer connection to a foreign country during the period you
are excluding.
Attach the required statement to your income tax return. If you are not required to file a return, send the statement to the Internal Revenue
Service Center, Philadelphia, PA 19255, on or before the due date for filing Form 1040NR or Form 1040NR-EZ. The due date for filing is discussed in
chapter 7.
If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries.
Therefore, your first day of residency will be the first day you are present in the United States. This does not apply if you can show by clear and
convincing evidence that you took reasonable actions to become aware of the requirements for filing the statement and significant steps to comply with
those requirements.
Residency starting date under green card test.
If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency
starting date is the first day in the calendar year on which you are present in the United States as a lawful permanent resident.
If you meet both the substantial presence test and the green card test, your residency starting date is the earlier of the first day during the
year you are present in the United States under the substantial presence test or as a lawful permanent resident.
Residency during the preceding year.
If you were a U.S. resident during any part of the preceding calendar year and you are a U.S. resident for any part of the current year, you will
be considered a U.S. resident at the beginning of the current year. This applies whether you are a resident under the substantial presence test or
green card test.
Example.
Robert Bach is a citizen of Switzerland. He came to the United States as a U.S. resident for the first time on May 1, 2004, and remained until
November 5, 2004, when he returned to Switzerland. Robert came back to the United States on March 5, 2005, as a lawful permanent resident and still
resides here. In calendar year 2005, Robert's U.S. residency is deemed to begin on January 1, 2005, because he qualified as a resident in calendar
year 2004.
First-Year ChoiceFirst-year choice
If you do not meet either the green card test or the substantial presence test for 2004 or 2005 and you did not choose to be treated as a resident
for part of 2004, but you meet the substantial presence test for 2006, you can choose to be treated as a U.S. resident for part of 2005. To make this
choice, you must:
Be present in the United States for at least 31 days in a row in 2005, and
Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the
last day of 2005. For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United
States.
When counting the days of presence in (1) and (2) above, do not count the days you were in the United States under any of the exceptions discussed
earlier under Days of Presence in the United States.
If you make the first-year choice, your residency starting date for 2005 is the first day of the earliest 31-day period (described in (1) above)
that you use to qualify for the choice. You are treated as a U.S. resident for the rest of the year. If you are present for more than one 31-day
period and you satisfy condition (2) above for each of those periods, your residency starting date is the first day of the first 31-day period. If you
are present for more than one 31-day period but you satisfy condition (2) above only for a later 31-day period, your residency starting date is the
first day of the later 31-day period.
Note.
You do not have to be married to make this choice.
Example 1.
Juan DaSilva is a citizen of the Philippines. He came to the United States for the first time on November 1, 2005, and was here on 31 consecutive
days (from November 1 through December 1, 2005). Juan returned to the Philippines on December 1 and came back to the United States on December 17,
2005. He stayed in the United States for the rest of the year. During 2006, Juan was a resident of the United States under the substantial presence
test. Juan can make the first-year choice for 2005 because he was in the United States in 2005 for a period of 31 days in a row (November 1 through
December 1) and for at least 75% of the days following (and including) the first day of his 31-day period (46 total days of presence in the United
States divided by 61 days in the period from November 1 through December 31 equals 75.4%). If Juan makes the first-year choice, his residency starting
date will be November 1, 2005.
Example 2.
The facts are the same as in Example 1, except that Juan was also absent from the United States on December 24, 25, 29, 30, and 31. He
can make the first-year choice for 2005 because up to 5 days of absence are considered days of presence for purposes of the 75% requirement.
Statement required to make the first-year choice.
You must attach a statement to Form 1040 to make the first-year choice. The statement must contain your name and address and specify the following.
That you are making the first-year choice.
That you were not a resident in 2004.
That you are a resident under the substantial presence test in 2006.
The number of days of presence in the United States during 2006.
The date or dates of your 31-day period of presence and the period of continuous presence in the United States during 2005.
The date or dates of absence from the United States during 2005 that you are treating as days of presence.
You cannot file Form 1040 or the statement until you meet the substantial presence test for 2006. If you have not met the test for 2006 as of
April 17, 2006, you can request an extension of time for filing your 2005 Form 1040 until a reasonable period after you have met that test. To request
an extension to file until October 16, 2006, use Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. You
can file the paper form or use one of the electronic filing options explained in the Form 4868 instructions. You should pay with this extension the
amount of tax you expect to owe for 2005 figured as if you were a nonresident alien the entire year. You can use Form 1040NR or Form 1040NR-EZ to
figure the tax. Enter the tax on Form 4868. If you do not pay the tax due, you will be charged interest on any tax not paid by the regular due date of
your return, and you may be charged a penalty on the late payment.
Once you make the first-year choice, you may not revoke it without the approval of the Internal Revenue Service.
If you do not follow the procedures discussed here for making the first-year choice, you will be treated as a nonresident alien for all of 2005.
However, this does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing
procedures and significant steps to comply with the procedures.
If you are a dual-status alien, you can choose to be treated as a U.S. resident for the entire year if all of the following apply.
You were a nonresident alien at the beginning of the year.
You are a resident alien or U.S. citizen at the end of the year.
You are married to a U.S. citizen or resident alien at the end of the year.
Your spouse joins you in making the choice.
This includes situations in which both you and your spouse were nonresident aliens at the beginning of the tax year and both of you are
resident aliens at the end of the tax year.
Note.
If you are single at the end of the year, you cannot make this choice.
If you make this choice, the following rules apply.
You and your spouse are treated as U.S. residents for the entire year for income tax purposes.
You and your spouse are taxed on worldwide income.
You and your spouse must file a joint return for the year of the choice.
Neither you nor your spouse can make this choice for any later tax year, even if you are separated, divorced, or remarried.
The special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you.
Note.
A similar choice is available if, at the end of the tax year, one spouse is a nonresident alien and the other spouse is a U.S. citizen or resident.
See Nonresident Spouse Treated as a Resident, later. If you previously made that choice and it is still in effect, you do not need to make
the choice explained here.
Making the choice.
You should attach a statement signed by both spouses to your joint return for the year of the choice. The statement must contain the following
information.
A declaration that you both qualify to make the choice and that you choose to be treated as U.S. residents for the entire tax
year.
The name, address, and taxpayer identification number (SSN or ITIN) of each spouse. (If one spouse died, include the name and address of the
person who makes the choice for the deceased spouse.)
You generally make this choice when you file your joint return. However, you also can make the choice by filing Form 1040X, Amended U.S. Individual
Income Tax Return. Attach Form 1040, Form 1040A, or Form 1040EZ and print Amended across the top of the corrected return. If you make the
choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.
You generally must file the amended joint return within 3 years from the date you filed your original U.S. income tax return or 2 years from the
date you paid your income tax for that year, whichever is later.
Last Year of ResidencyLast year of residencyResidency:Last yearResidency:Termination date
If you were a U.S. resident in 2005 but are not a U.S. resident during any part of 2006, you cease to be a U.S. resident on your residency
termination date. Your residency termination date is December 31, 2005, unless you qualify for an earlier date as discussed next.
Earlier residency termination date.
You may qualify for a residency termination date that is earlier than December 31. This date is:
The last day in 2005 that you are physically present in the United States, if you met the substantial presence test,
The first day in 2005 that you are no longer a lawful permanent resident of the United States, if you met the green card test,
or
The later of (1) or (2), if you met both tests.
You can use this date only if, for the remainder of 2005, your tax home was in a foreign country and you had a closer connection to that
foreign country. See Closer Connection to a Foreign Country, earlier.
A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions. See
Expatriation Tax in chapter 4.
Termination of residency after June 3, 2004.
If you terminate your residency after June 3, 2004, you will still be considered a U.S. resident for tax purposes until you notify the Secretary of
State or the Secretary of Homeland Security and file Form 8854, Initial and Annual Expatriation Information Statement.
De minimis presence.De minimis presence
If you are a U.S. resident because of the substantial presence test and you qualify to use the earlier residency termination date, you can exclude
up to 10 days of actual presence in the United States in determining your residency termination date. In determining whether you can exclude up to 10
days, the following rules apply.
You can exclude days from more than one period of presence as long as the total days in all periods are not more than 10.
You cannot exclude any days in a period of consecutive days of presence if all the days in that period cannot be excluded.
Although you can exclude up to 10 days of presence in determining your residency termination date, you must include those days when
determining whether you meet the substantial presence test.
Example.
Lola Bovary is a citizen of Malta. She came to the United States for the first time on March 1, 2005, and resided here until August 25, 2005. On
December 12, 2005, Lola came to the United States for vacation and stayed here until December 16, 2005, when she returned to Malta. She is able to
establish a closer connection to Malta for the period December 12–16. Lola is not a U.S. resident for tax purposes during 2005 and can establish
a closer connection to Malta for the rest of calendar year 2005. Lola is a U.S. resident under the substantial presence test for 2005 because she was
present in the United States for 183 days (178 days for the period March 1 to August 25 plus 5 days in December). Lola's residency termination date is
August 25, 2005.
Residency during the next year.
If you are a U.S. resident during any part of 2006 and you are a resident during any part of 2005, you will be taxed as a resident through the end
of 2005. This applies whether you have a closer connection to a foreign country than the United States during 2005, and whether you are a resident
under the substantial presence test or green card test.
Statement required to establish your residency termination date.
You must file a statement with the IRS to establish your residency termination date. You must sign and date this statement and include a
declaration that it is made under penalties of perjury. The statement must contain the following information (as applicable).
Your name, address, U.S. taxpayer identification number (if any), and U.S. visa number (if any).
Your passport number and the name of the country that issued your passport.
The tax year for which the statement applies.
The last day that you were present in the United States during the year.
Sufficient facts to establish that you have maintained your tax home in and that you have a closer connection to a foreign country following
your last day of presence in the United States during the year or following the abandonment or rescission of your status as a lawful permanent
resident during the year.
The date that your status as a lawful permanent resident was abandoned or rescinded.
Sufficient facts (including copies of relevant documents) to establish that your status as a lawful permanent resident has been abandoned or
rescinded.
If you can exclude days under the de minimis presence rule, discussed earlier, include the dates of the days you are excluding and
sufficient facts to establish that you have maintained your tax home in and that you have a closer connection to a foreign country during the period
you are excluding.
Attach the required statement to your income tax return. If you are not required to file a return, send the statement to the Internal Revenue
Service Center, Philadelphia, PA 19255, on or before the due date for filing Form 1040NR or Form 1040NR-EZ. The due date for filing is discussed in
chapter 7.
If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries.
This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the requirements for filing
the statement and significant steps to comply with those requirements.
Nonresident Spouse Treated as a ResidentNonresident spouse treated as a resident
If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien,
you can choose to treat the nonresident spouse as a U.S. resident. This includes situations in which one spouse is a nonresident alien at the
beginning of the tax year, but a resident alien at the end of the year, and the other spouse is a nonresident alien at the end of the year.
If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. Neither you nor your spouse
can claim under any tax treaty not to be a U.S. resident. You are both taxed on worldwide income. You must file a joint income tax return for the year
you make the choice, but you and your spouse can file joint or separate returns in later years.
If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to
you.
Example.
Bob and Sharon Williams are married and both are nonresident aliens at the beginning of the year. In June, Bob became a resident alien and remained
a resident for the rest of the year. Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return. Bob
and Sharon must file a joint return for the year they make the choice, but they can file either joint or separate returns for later years.
How To Make the Choice
Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the
following information.
A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax
year, and that you choose to be treated as U.S. residents for the entire tax year.
The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the
choice for the deceased spouse.)
Amended return.
You generally make this choice when you file your joint return. However, you can also make the choice by filing a joint amended return on Form
1040X. Attach Form 1040, Form 1040A, or Form 1040EZ and print Amended across the top of the corrected return. If you make the choice with an
amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.
You generally must file the amended joint return within 3 years from the date you filed your original U.S. income tax return or 2 years from the
date you paid your income tax for that year, whichever is later.
Suspending the Choice
The choice to be treated as a resident alien is suspended for any tax year (after the tax year you made the choice) if neither spouse is a U.S.
citizen or resident alien at any time during the tax year. This means each spouse must file a separate return as a nonresident alien for that year if
either meets the filing requirements for nonresident aliens discussed in chapter 7.
Example.
Dick Brown was a resident alien on December 31, 2002, and married to Judy, a nonresident alien. They chose to treat Judy as a resident alien and
filed joint 2002 and 2003 income tax returns. On January 10, 2004, Dick became a nonresident alien. Judy had remained a nonresident alien throughout
the period. Dick and Judy could have filed joint or separate returns for 2004 because Dick was a resident alien for part of that year. However,
because neither Dick nor Judy is a resident alien at any time during 2005, their choice is suspended for that year. If either meets the filing
requirements for nonresident aliens discussed in chapter 7, they must file separate returns as nonresident aliens for 2005. If Dick becomes a resident
alien again in 2006, their choice is no longer suspended.
Ending the Choice
Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained earlier under Suspending the
Choice) or ended in one of the following ways.
If the choice is ended in one of the following ways, neither spouse can make this choice in any later tax year.
Revocation. Either spouse can revoke the choice for any tax year, provided he or she makes the revocation by the due date for
filing the tax return for that tax year. The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked.
The statement must include the name, address, and identification number of each spouse. (If one spouse dies, include the name and address of the
person who is revoking the choice for the deceased spouse.) The statement also must include a list of any states, foreign countries, and possessions
that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income. File
the statement as follows.
If the spouse revoking the choice must file a return, attach the statement to the return for the first year the revocation applies.
If the spouse revoking the choice does not have to file a return, but does file a return (for example, to obtain a refund), attach the
statement to the return.
If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal
Revenue Service Center where you filed the last joint return.
Death. The death of either spouse ends the choice, beginning with the first tax year following the year the spouse died. However,
if the surviving spouse is a U.S. citizen or resident and is entitled to the joint tax rates as a surviving spouse, the choice will not end until the
close of the last year for which these joint rates may be used. If both spouses die in the same tax year, the choice ends on the first day after the
close of the tax year in which the spouses died.
Legal separation. A legal separation under a decree of divorce or separate maintenance ends the choice as of the beginning of the
tax year in which the legal separation occurs.
Inadequate records. The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep
adequate books, records, and other information necessary to determine the correct income tax liability, or to provide adequate access to those
records.
Special SituationsAmerican Samoa, residents ofPuerto Rico, residents of
If you are a nonresident alien from American Samoa or Puerto Rico, you may be treated as a resident alien.
If you are a nonresident alien in the United States and a bona fide resident of American Samoa or Puerto Rico during the entire tax year, you are
taxed, with certain exceptions, according to the rules for resident aliens of the United States. For more information, see chapter 5.
If you are a nonresident alien from American Samoa or Puerto Rico who does not qualify as a bona fide resident of American Samoa or Puerto Rico for
the entire tax year, you are taxed as a nonresident alien.
Resident aliens who formerly were bona fide residents of American Samoa or Puerto Rico are taxed according to the rules for resident aliens.
Source of IncomeIncome from U.S. sources:Source of income
After you have determined your alien status, you must determine the source of your income. This chapter will help you determine the source of
different types of income you may receive during the tax year. This chapter also discusses special rules for married individuals who are domiciled in
a country with community property laws.
Income source rules, and
Community income.
Resident AliensAlien:Resident
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. You must report these amounts whether from sources within or outside the United States.
Nonresident AliensAlien:Nonresident
A nonresident alien usually is subject to U.S. income tax only on U.S. source income. Under limited circumstances, certain foreign source income is
subject to U.S. tax. See Foreign Income in chapter 4.
The general rules for determining U.S. source income that apply to most nonresident aliens are shown in Table 2-1. The following
discussions cover the general rules as well as the exceptions to these rules.
Not all items of U.S. source income are taxable. See chapter 3.
Interest IncomeNonresident alien:Interest incomeIncome from U.S. sources:InterestInterest income:Source rule
Generally, U.S. source interest income includes the following items.
Interest on bonds, notes, or other interest-bearing obligations of U.S. residents or domestic corporations.
Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U.S. trade or business at any time during the tax
year.
Original issue discount.
Interest from a state, the District of Columbia, or the U.S. Government.
The place or manner of payment is immaterial in determining the source of the income.
A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced
in the same manner as the interest on the transferred security.
Exceptions.
U.S. source interest income does not include the following items.
Interest paid by a resident alien or a domestic corporation if for the 3-year period ending with the close of the payer's tax year preceding
the interest payment, at least 80% of the payer's total gross income:
Is from sources outside the United States, and
Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U.S. possession.
Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual
savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as
savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association.
Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial
banking business.
DividendsDividends, U.S. source incomeIncome from U.S. sources:Dividends
In most cases, dividend income received from domestic corporations is U.S. source income. Dividend income from foreign corporations is usually
foreign source income. Exceptions to both of these rules are discussed below.
A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced
in the same manner as a distribution on the transferred security.
First exception.
Dividends received from a domestic corporation are not U.S. source income if the corporation elects to take the Puerto Rico economic activity
credit or the possession tax credit.
Second exception.
Part of the dividends received from a foreign corporation is U.S. source income if 25% or more of its total gross income for the 3-year period
ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States.
If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. Determine the part
that is U.S. source income by multiplying the dividend by the following fraction.
CalculationSummary: This is explanation of the calculation for determining the part of dividends that is U.S. source income. Multiply the amount of
dividends by (foreign corporation's gross income connected with a U.S. trade or business for the 3-year period divided by foreign corporation's gross
income from all sources for that period).
Personal ServicesIncome from U.S. sources:Personal servicesPersonal services income:Source ruleWagesPersonal services incomeSalaryPersonal services income
All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. The only
exception to this rule is discussed in chapter 3 under Employees of foreign persons, organizations, or offices.
If your compensation is for personal services performed both inside and outside the United States, you must figure the amount of income that is for
services performed in the United States. You usually do this on a time basis. That is, you must include in gross income as U.S. source income the
amount that results from multiplying the total amount of compensation by the following fraction.
CalculationSummary: This is the explanation of the calculation used for determining the amount of income received that is for services performed in the
U.S. Multiply the total amount of compensation by (Number of days you performed services in the United States divided by Total number of days of
service for which you receive payment).
Example.
Jean Blanc, a nonresident alien, is a professional hockey player with a U.S. hockey club. Under Jean's contract, he received $98,500 for 242 days
of play during the year. This includes days spent at pre-season training camp, days during the regular season, and playoff game days. Of the 242 days,
Jean spent 194 days performing services in the United States and 48 days playing hockey in Canada. Jean's U.S. source income is $78,963, figured as
follows:
CalculationSummary: This is an example from the text of the calculation used to determine the amount of wages that are considered U.S. source income. It
states: 194 divided by 242 multiplied by $98,500 equals $78,963.
Crew members.Crew members:Source of income
Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular
crew member of a foreign vessel engaged in transportation between the United States and a foreign country or U.S. possession is not U.S. source
income.
Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel
or aircraft. This is true whether the vessel or aircraft is owned, hired, or leased. The term vessel or aircraft includes any container used in
connection with a vessel or aircraft.
All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. If the
transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States.
For transportation income from personal services, 50% of the income is U.S. source income if the transportation is between the United States and a
U.S. possession. For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft.
For information on how U.S. source transportation income is taxed, see chapter 4.
Scholarships, Grants,
Prizes, and AwardsScholarship:Source ruleFellowship grant:Source rulePrizesAwardsStudents:ScholarshipStudents:Fellowship grant
Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually
disburses the funds. However, see Activities to be performed outside the United States, later.
For example, payments for research or study in the United States made by the United States, a noncorporate U.S. resident, or a domestic
corporation, are from U.S. sources. Similar payments from a foreign government or foreign corporation are foreign source payments even though the
funds may be disbursed through a U.S. agent.
Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign
sources.
Activities to be performed outside the United States.
Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be
performed, outside the United States are not U.S. source income.
These rules do not apply to amounts paid as salary or other compensation for services. See Personal Services, earlier, for the source
rules that apply.
Pensions and AnnuitiesIncome from U.S. sources:Pensions and annuitiesPensions:Source ruleAnnuities:Source rule
When you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from
U.S. sources. That part is the amount attributable to earnings of the trust and the employer contributions made for services performed in the United
States. This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether
or not funded).
If you performed services as an employee of the United States, you may receive a distribution from the U.S. Government under a plan, such as the
Civil Service Retirement System, that is treated as a qualified pension plan. Your U.S. source income is the otherwise taxable amount of the
distribution that is attributable to your total U.S. Government basic pay other than tax-exempt pay for services performed outside the United States.
Rents or RoyaltiesIncome from U.S. sources:Rents or royaltiesRentsRoyalties
Your U.S. source income includes rent and royalty income received during the tax year from property located in the United States or from any
interest in that property.
U.S. source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such
as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property.
Real PropertyIncome from U.S. sources:Real propertyReal property:Source ruleDefinitionReal estate Real propertyProperty:Real
Real property is land and buildings and generally anything built on, growing on, or attached to land.
Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in
the United States.
The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in
a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. For information on
determining that part, see section 1.863-1(b) of the regulations.
<ROM>Table 2-1.</ROM> Summary of Source Rules for Income of Nonresident AliensItem of IncomeFactor Determining SourceSalaries, wages, other compensationWhere services performedBusiness income: Personal servicesWhere services performed Sale of inventory—purchasedWhere sold Sale of inventory—producedAllocationInterestResidence of payerDividendsWhether a U.S. or foreign corporation*RentsLocation of propertyRoyalties: Natural resourcesLocation of property Patents, copyrights, etc.Where property is usedSale of real propertyLocation of propertySale of personal propertySeller's tax home (but see Personal Property, later, for exceptions)PensionsWhere services were performed that earned the pensionSale of natural resourcesAllocation based on fair market value of product at export terminal. For more information , see section 1.863-1(b) of
the regulations.*Exceptions include:
a) Dividends paid by a U.S. corporation are foreign source if the corporation elects the
Puerto Rico economic activity credit or possessions tax credit.
b) Part of a dividend paid by a foreign corporation is U.S. source if at least 25% of the
corporation's gross income is effectively connected with a U.S. trade or business for the
3 tax years before the year in which the dividends are declared.
Personal PropertyIncome from U.S. sources:Personal propertyPersonal propertyProperty:Personal
Personal property is property, such as machinery, equipment, or furniture, that is not real property.
Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United
States. If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States.
Tax home.Tax home
Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home.
Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. If you do not have a regular or
main place of business because of the nature of your work, then your tax home is the place where you regularly live. If you do not fit either of these
categories, you are considered an itinerant and your tax home is wherever you work.
Inventory property.InventoryProperty:Inventory
Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade
or business. Income from the sale of inventory that you purchased is sourced where the property is sold. Generally, this is where title to the
property passes to the buyer. For example, income from the sale of inventory in the United States is U.S. source income, whether you purchased it in
the United States or in a foreign country.
Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from
sources in the United States and partly from sources outside the United States. For information on making this allocation, see section 1.863-3 of the
regulations.
These rules apply even if your tax home is not in the United States.
To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more
than the total depreciation adjustments on the property. You allocate this part of the gain to sources in the United States based on the ratio of U.S.
depreciation adjustments to total depreciation adjustments. The rest of this part of the gain is considered to be from sources outside the United
States.
For this purpose, U.S. depreciation adjustments are the depreciation adjustments to the basis of the property that are allowable in figuring
taxable income from U.S. sources. However, if the property is used predominantly in the United States during a tax year, all depreciation deductions
allowable for that year are treated as U.S. depreciation adjustments. But there are some exceptions for certain transportation, communications, and
other property used internationally.
Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were
inventory property, as discussed above.
A loss recognized after January 7, 2002, is sourced in the same way as the depreciation deductions were sourced. However, if the property was used
predominantly in the United States, the entire loss reduces U.S. source income. You can choose to apply this rule to losses recognized in tax years
beginning after 1986. For details about making this choice, see section 1.865-1(f)(2) of the regulations.
Basis of property
The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. Depreciation
is an amount deducted to recover the cost or other basis of a trade or business asset. The amount you can deduct depends on the property's cost, when
you began using the property, how long it will take to recover your cost, and which depreciation method you use. A depreciation deduction is any
deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense.
Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. The gain
from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in
the same way as the original deductions were sourced. This is the same as the source rule for gain from the sale of depreciable property. See
Depreciable property, earlier, for details on how to apply this rule.
Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is
contingent on the productivity, use, or disposition of that property. If the income is not contingent on the productivity, use, or disposition of the
property, the income is sourced according to your tax home as discussed earlier. If payments for goodwill do not depend on its productivity, use, or
disposition, their source is the country in which the goodwill was generated.
Sales through offices or fixed places of business.
Despite any of the above rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in
the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of
business as U.S. source income. However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the
United States if your office or other fixed place of business outside the United States materially participated in the sale.
If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of
personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be
treated as U.S. source income. The income is treated as U.S. source income if an income tax of less than 10% of the income from the sale is paid to a
foreign country. This rule also applies to losses recognized after January 7, 2002, if the foreign country would have imposed an income tax of less
than 10% had the sale resulted in a gain. You can choose to apply this rule to losses recognized in tax years beginning after 1986. For details about
making this choice, see section 1.865-1(f)(2) of the regulations. For stock losses, see section 1.865-2(e) of the regulations.
Community IncomeCommunity incomeIncome:Community
If you are married and you or your spouse is subject to the community property laws of a foreign country, a U.S. state, or a U.S. possession, you
generally must follow those laws to determine the income of yourself and your spouse for U.S. tax purposes. But you must disregard certain community
property laws if:
Both you and your spouse are nonresident aliens, or
One of you is a nonresident alien and the other is a U.S. citizen or resident and you do not both choose to be treated as U.S. residents as
explained in chapter 1.
In these cases, you and your spouse must report community income as explained below.
Earned income.
Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income
of the spouse whose services produced the income. That spouse must report all of it on his or her separate return.
Trade or business income.
Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the
trade or business. That spouse must report all of it on his or her separate return.
Partnership income (or loss).
A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. The partner must report all of it
on his or her separate return.
Separate property income.
Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive
share income) is treated as the income of that spouse. That spouse must report all of it on his or her separate return. Use the appropriate community
property law to determine what is separate property.
Other community income.
All other community income is treated as provided by the applicable community property laws.
Exclusions From Gross IncomeExclusions from gross income:Income:Exclusions
Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. An exclusion from gross income is
generally income you receive that is not included in your U.S. income and is not subject to U.S. tax. This chapter covers some of the more common
exclusions allowed to resident and nonresident aliens.
Nontaxable interest,
Nontaxable dividends,
Certain compensation paid by a foreign employer,
Gain from sale of home, and
Scholarships and fellowship grants.
Publication54 Tax Guide for U.S. Citizens and Resident Aliens Abroad 523Selling Your Home
See chapter 12 for information about getting these publications.
Resident Aliens
Resident aliens may be able to exclude the following items from their gross income.
Foreign Earned Income
and Housing AmountForeign earned income exclusion
If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may
qualify for the foreign earned income exclusion. The exclusion is $80,000. In addition, you may be able to exclude or deduct certain foreign housing
amounts. You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the
United States has an income tax treaty. For more information, see Publication 54.
Foreign country.Foreign country
The term foreign country means any territory under the sovereignty of a government other than that of the United States. The term also
includes territorial waters of the foreign country, the airspace over the foreign country, and the seabed and subsoil of submarine areas adjacent to
the territorial waters of the foreign country.
Nonresident Aliens
Nonresident aliens can exclude the following items from their gross income.
U.S. source interest income that is not connected with a U.S. trade or business is excluded from income if it is from:
Deposits (including certificates of deposit) with persons in the banking business,
Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and
other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or
credited can be deducted by the association), and
Amounts held by an insurance company under an agreement to pay interest on them.
Government obligations.Municipal bonds
Interest on obligations of a state or political subdivision, the District of Columbia, or a U.S. possession, generally is not included in income.
However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income.
U.S. source interest income that is not connected with a U.S. trade or business and that is portfolio interest on obligations issued after July 18,
1984, is excluded from income. Portfolio interest is interest (including original issue discount) that is paid on obligations:
Not in registered form (bearer obligations) that are sold only to foreign investors, and the interest on which is payable only outside the
United States and its possessions, and that has on its face a statement that any U.S. person holding the obligation will be subject to limitations
under the U.S. income tax laws,
In registered form that are targeted to foreign markets and the interest on which is paid through financial institutions outside the United
States, or
In registered form that are not targeted to foreign markets, if you furnished the payer of the interest (or the withholding agent) a
statement that you are not a U.S. person. You should have made this statement on a Form W-8BEN or on a substitute form similar to Form W-8BEN. In
either case, the statement should have been signed under penalties of perjury, should have certified that you are not a U.S. citizen or resident, and
should have included your name and address.
Portfolio interest does not include the following types of interest.
Interest you receive on an obligation issued by a corporation of which you own, directly or indirectly, 10% or more of the total voting
power of all classes of voting stock.
Interest you receive on an obligation issued by a partnership of which you own, directly or indirectly, 10% or more of the capital or
profits interests.
Portfolio interest does not include contingent interest. Contingent interest is either of the following:
Interest that is determined by reference to:
Any receipts, sales, or other cash flow of the debtor or related person,
Income or profits of the debtor or related person,
Any change in value of any property of the debtor or a related person, or
Any dividend, partnership distributions, or similar payments made by the debtor or a related person.
Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations.
For the definition of related person in connection with any contingent interest, and for the exceptions that apply to interest described
in item (1), see subparagraphs (B) and (C) of Internal Revenue Code section 871(h)(4).
Exception for existing debt.
Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued:
On or before April 7, 1993, or
After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was
issued.
Dividend Income
The following dividend income is exempt from the 30% tax.
Certain dividends paid by foreign corporations.
There is no 30% tax on U.S. source dividends you receive from a foreign corporation. See Second exception under Dividends in
chapter 2 for how to figure the amount of excludable dividends.
Certain interest-related dividends.
There is no 30% tax on certain interest-related dividends from sources within the United States that you receive from a mutual fund. The mutual
fund will designate in writing which dividends are interest-related dividends.
Certain short-term capital gain dividends.
There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual
fund. The mutual fund will designate in writing which dividends are short-term capital gain dividends. This tax relief will not apply to you if you
are present in the United States for 183 days or more of your tax year.
Services Performed
for Foreign EmployerPersonal services income:Paid by foreign employer
If you were paid by a foreign employer, your U.S. source income may be exempt from U.S. tax, but only if you meet one of the situations discussed
next.
Employees of foreign persons, organizations, or offices.Foreign employer
Income for personal services performed in the United States as a nonresident alien is not considered to be from U.S. sources and is tax exempt if
you meet all three of the following conditions.
You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign
corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country
or possession of the United States by a U.S. corporation, a U.S. partnership, or a U.S. citizen or resident.
You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more
than a total of 90 days during the tax year.
Your pay for these services is not more than $3,000.
If you do not meet all three conditions, your income from personal services performed in the United States is U.S. source income and is taxed
according to the rules in chapter 4.
If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. To find if your
pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were
required to and did account to your employer for those expenses. If the advances or reimbursements are more than your expenses, include the excess in
your pay for these services.
A day means a calendar day during any part of which you are physically present in the United States.
Example 1.
During 2005, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U.S. partnership. Henry, who uses the
calendar year as his tax year, was temporarily present in the United States for 60 days during 2005 performing personal services for the overseas
office of the partnership. That office paid him a total gross salary of $2,800 for those services. During 2005, he was not engaged in a trade or
business in the United States. The salary is not considered U.S. source income and is exempt from U.S. tax.
Example 2.
The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during
2005 was $4,500. He received $2,875 in 2005, and $1,625 in 2006. During 2005, he was engaged in a trade or business in the United States because the
compensation for his personal services in the United States was more than $3,000. Henry's salary is U.S. source income and is taxed under the rules in
chapter 4.
Crew members.Crew members:Compensation
Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular
crew member of a foreign vessel engaged in transportation between the United States and a foreign country or U.S. possession is not U.S. source income
and is exempt from U.S. tax.
Students and exchange visitors.Exclusions from gross income:Compensation from a foreign employerExclusions from gross income:Students and exchange visitorsStudents:Income from foreign employerExchange visitors:Income from foreign employer
Nonresident alien students and exchange visitors present in the United States under F,J, or Q visas can exclude from gross
income pay received from a foreign employer.
This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of
specialized knowledge or skill, or persons of similar description. It also includes the alien's spouse and minor children if they come with the alien
or come later to join the alien.
A nonresident alien temporarily present in the United States under a J visa includes an alien individual entering the United States as an
exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961.
Foreign employer.Foreign employer
A foreign employer is:
A nonresident alien individual, foreign partnership, or foreign corporation, or
An office or place of business maintained in a foreign country or in a U.S. possession by a U.S. corporation, a U.S. partnership, or an
individual who is a U.S. citizen or resident.
The term foreign employer does not include a foreign government. Pay from a foreign government that is exempt from U.S. income tax is
discussed in chapter 10.
Income from certain annuities.Exclusions from gross income:
