Alien Taxation – Some Essential Concepts


According to IRS, Alien is defined as non-US citizen, not someone who is visiting from other planets!  There are two types of aliens – Resident aliens and Nonresident aliens.  To be classified as a resident alien, the individual must meet one of the two tests 1) Green Card Test and 2) Substantial Presence Test.  Nonresident aliens are those who don’t pass the green card test or the substantial presence test.

A resident alien’s income is generally subject to tax in the same manner as a US citizen.  A nonresident alien is usually subject to US income tax only on US source income.

In general, all income of a nonresident alien is Fixed, Determinable, Annual, Periodical (FDAP) income. However, there are certain kinds of FDAP income are considered to be effectively connected with a US trade or business.  These two types of income are taxed in different ways.

Payments of income to foreign persons are subject to special withholding rules.  There are special rules apply to taxation of foreign students and scholars.

Anyone who files a US federal tax return must have a Taxpayer Identification Number (TIN).

The US tax liability of aliens is determined primarily by US IRS code, however, may be overridden or modified by tax treaties with several foreign countries.

US person has a broader meaning to include a citizen or resident of the US, a partnership formed in the US or under the law of US, a corporation formed in the US or under the law of US, and any estate or trust other than a foreign estate or foreign trust.

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