What Is The Difference Between A Non-Resident Alien And A Resident Alien?
The primary difference between a non-resident alien and a resident alien lies in their tax obligations and residency status in the United States:
| Non-resident Alien | Resident Alien |
| The Green Card Test | Individuals without a green card or who fail the Substantial Presence Test are classified as non-resident aliens. | A foreign national with a U.S. green card (lawful permanent residency) is classified as a resident alien. |
| The Substantial Presence Test | Those who do not meet the substantial presence test (i.e., spending fewer than 183 days in the U.S.) are classified as non-resident aliens. | A person who meets the substantial presence test, meaning they have been physically present in the U.S. for at least 31 days in the current year and 183 days over the last three calendar years on a visa, is classified as a resident alien. |
| Taxation | Non-resident aliens are only taxed on their U.S.-sourced income or income connected to a U.S. trade or business. Foreign income is generally not taxed by the U.S. | Resident aliens are taxed on their worldwide income, meaning they must report and pay taxes on income earned both in the U.S. and abroad, just like U.S. citizens. |
| Tax Filing Requirements | Must file Form 1040-NR to report only their U.S.-sourced income. | Must file a U.S. tax return using Form 1040, just like a U.S. citizen, and report all income. |
| Eligibility For Tax Benefits | Non-resident aliens have limited access to U.S. tax benefits. For example, they cannot claim the standard deduction or certain tax credits unless specified by a tax treaty. | Resident aliens can claim most of the same tax credits and deductions that U.S. citizens can, including the standard deduction and various tax credits. |
The key difference between the two classifications is the scope of taxable income: resident aliens are taxed on their global income, while non-resident aliens are only taxed on income earned within the U.S.
How Are Non-Resident Aliens Taxed?
Non-resident aliens are taxed differently than U.S. citizens and resident aliens. Here’s how:
- U.S.-Sourced Income: Non-resident aliens are generally taxed only on income that is sourced from the U.S. This includes wages earned from U.S.-based work, rental income from U.S. properties, or business income connected to a U.S. trade or business.
- Tax Rate: Non-resident aliens are typically subject to a flat 30% tax rate on U.S.-sourced income unless a tax treaty between their home country and the U.S. allows for a lower rate. This withholding is often applied before the recipient receives the funds.
- No Global Income Taxation: Unlike resident aliens, non-resident aliens are not taxed on income earned outside the U.S., meaning their foreign income is not subject to U.S. taxes.
- Filing Requirements: Non-resident aliens must file Form 1040-NR with the IRS to report their U.S.-sourced income. They generally cannot claim the same deductions, exemptions, or tax credits that are available to U.S. citizens or resident aliens, unless specified in a tax treaty.
In short, non-resident aliens are primarily taxed on their U.S.-connected income and are not liable for taxes on their worldwide income.
How To Hire A Non-Resident Alien In The U.S.?
To hire a non-resident alien in the U.S., follow these steps:
- Verify work eligibility by ensuring the candidate has the appropriate visa status, such as H-1B or F-1 with Optional Practical Training (OPT).
- Complete Form I-9 to verify their identity and work authorization.
- Ensure tax compliance by withholding the correct taxes based on non-resident alien status and filing required IRS forms like 1042 and 1042-S.
- Make sure employees have obtained a valid SSN or ITIN for tax purposes. Non-resident aliens must provide a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) to determine their income tax liability. If they are not eligible for an SSN, they will need to apply for an ITIN by filing Form W-7 with the IRS.
- Adhere to visa-specific restrictions, such as employment duration and employer sponsorship rules.
- Set up payroll to handle the proper tax withholding.
- Comply with labor laws, as non-resident aliens have the same workers’ rights as U.S. employees.
For more streamlined global hiring, Playroll can assist with compliance and employment solutions. With Playroll, you can seamlessly manage compliance for your global workforce, and ensure the correct classification between non-resident and resident aliens for tax purposes. For more information, chat to one of our experts about how we help businesses stay compliant while scaling their global teams, without the red tape.
What Is The Difference Between A Non-Resident Alien And A Resident Alien?
The primary difference between a non-resident alien and a resident alien lies in their tax obligations and residency status in the United States:
| Non-resident Alien | Resident Alien |
| The Green Card Test | Individuals without a green card or who fail the Substantial Presence Test are classified as non-resident aliens. | A foreign national with a U.S. green card (lawful permanent residency) is classified as a resident alien. |
| The Substantial Presence Test | Those who do not meet the substantial presence test (i.e., spending fewer than 183 days in the U.S.) are classified as non-resident aliens. | A person who meets the substantial presence test, meaning they have been physically present in the U.S. for at least 31 days in the current year and 183 days over the last three calendar years on a visa, is classified as a resident alien. |
| Taxation | Non-resident aliens are only taxed on their U.S.-sourced income or income connected to a U.S. trade or business. Foreign income is generally not taxed by the U.S. | Resident aliens are taxed on their worldwide income, meaning they must report and pay taxes on income earned both in the U.S. and abroad, just like U.S. citizens. |
| Tax Filing Requirements | Must file Form 1040-NR to report only their U.S.-sourced income. | Must file a U.S. tax return using Form 1040, just like a U.S. citizen, and report all income. |
| Eligibility For Tax Benefits | Non-resident aliens have limited access to U.S. tax benefits. For example, they cannot claim the standard deduction or certain tax credits unless specified by a tax treaty. | Resident aliens can claim most of the same tax credits and deductions that U.S. citizens can, including the standard deduction and various tax credits. |
The key difference between the two classifications is the scope of taxable income: resident aliens are taxed on their global income, while non-resident aliens are only taxed on income earned within the U.S.
How Are Non-Resident Aliens Taxed?
Non-resident aliens are taxed differently than U.S. citizens and resident aliens. Here’s how:
- U.S.-Sourced Income: Non-resident aliens are generally taxed only on income that is sourced from the U.S. This includes wages earned from U.S.-based work, rental income from U.S. properties, or business income connected to a U.S. trade or business.
- Tax Rate: Non-resident aliens are typically subject to a flat 30% tax rate on U.S.-sourced income unless a tax treaty between their home country and the U.S. allows for a lower rate. This withholding is often applied before the recipient receives the funds.
- No Global Income Taxation: Unlike resident aliens, non-resident aliens are not taxed on income earned outside the U.S., meaning their foreign income is not subject to U.S. taxes.
- Filing Requirements: Non-resident aliens must file Form 1040-NR with the IRS to report their U.S.-sourced income. They generally cannot claim the same deductions, exemptions, or tax credits that are available to U.S. citizens or resident aliens, unless specified in a tax treaty.
In short, non-resident aliens are primarily taxed on their U.S.-connected income and are not liable for taxes on their worldwide income.
How To Hire A Non-Resident Alien In The U.S.?
To hire a non-resident alien in the U.S., follow these steps:
- Verify work eligibility by ensuring the candidate has the appropriate visa status, such as H-1B or F-1 with Optional Practical Training (OPT).
- Complete Form I-9 to verify their identity and work authorization.
- Ensure tax compliance by withholding the correct taxes based on non-resident alien status and filing required IRS forms like 1042 and 1042-S.
- Make sure employees have obtained a valid SSN or ITIN for tax purposes. Non-resident aliens must provide a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) to determine their income tax liability. If they are not eligible for an SSN, they will need to apply for an ITIN by filing Form W-7 with the IRS.
- Adhere to visa-specific restrictions, such as employment duration and employer sponsorship rules.
- Set up payroll to handle the proper tax withholding.
- Comply with labor laws, as non-resident aliens have the same workers’ rights as U.S. employees.
For more streamlined global hiring, Playroll can assist with compliance and employment solutions. With Playroll, you can seamlessly manage compliance for your global workforce, and ensure the correct classification between non-resident and resident aliens for tax purposes. For more information, chat to one of our experts about how we help businesses stay compliant while scaling their global teams, without the red tape.
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