Resident Alien

As a business owner or human resources manager, you may come across the term 'resident alien' in the context of employment and taxation. A resident alien is a non-U.S. citizen who meets either the green card test or the substantial presence test, thereby being treated as a U.S. resident for tax purposes. It's important to understand this classification because resident aliens are subject to the same tax withholding and reporting requirements as U.S. citizens, which affects payroll processing and compliance with tax laws.

For example, if your company hires an employee who holds a green card, they are considered a resident alien. This means you must withhold federal income taxes from their wages, just as you would for a U.S. citizen. Additionally, the employee is required to report their worldwide income on their tax return. Properly identifying and managing the tax obligations of resident alien employees ensures compliance with IRS regulations and helps avoid potential legal issues.

What Is The Difference Between A Resident Alien And A Non-Resident Alien? 

The primary difference between a resident alien and a non-resident alien lies in their tax obligations and residency status in the United States:

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How Are Resident Aliens Taxed? 

Resident aliens in the United States are taxed similarly to U.S. citizens. This means they are required to:

1. Report Worldwide Income: Resident aliens must pay taxes on their global income, which includes all income earned both inside and outside the U.S. This applies to wages, investment income, rental income, and any other sources of income worldwide.
2. File U.S. Tax Returns: Just like U.S. citizens, resident aliens are required to file an annual tax return using Form 1040. This form is used to report income and claim deductions, credits, or exemptions they may qualify for.
3. Access to Tax Credits and Deductions: Resident aliens can take advantage of the same tax credits and deductions available to U.S. citizens, such as the Earned Income Tax Credit (EITC), Child Tax Credit, and deductions for mortgage interest and charitable donations.
4. Social Security and Medicare Taxes: Resident aliens working in the U.S. are typically subject to Social Security and Medicare taxes on their wages, unless exempt by a tax treaty between the U.S. and their home country.

By meeting the tax obligations of a resident alien, they are complying with U.S. tax law, which helps maintain legal residency and avoid potential penalties or fines.

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How To Become A Resident Alien In The U.S.? 

Becoming a resident alien in the U.S. typically involves meeting certain legal and residency criteria. There are two main ways an individual can qualify for resident alien status:

1. Obtaining a Green Card (Lawful Permanent Resident)

One of the most direct paths to becoming a resident alien is by acquiring a Green Card, which grants lawful permanent residence in the U.S. This allows the holder to live and work in the U.S. indefinitely. A person can obtain a Green Card through various means:

• Employment-based Green Card: Sponsored by a U.S. employer.
• Family-based Green Card: Sponsored by a U.S. citizen or lawful permanent resident family member.
• Diversity Visa Lottery: Available through an annual lottery program for individuals from countries with low immigration rates to the U.S.
• Refugee or Asylum Status: Granted to individuals seeking protection from persecution in their home country.

2. Meeting the Substantial Presence Test

Individuals who do not hold a Green Card may still qualify as resident aliens if they meet the Substantial Presence Test. This test determines residency based on the number of days spent in the U.S. within a specific timeframe:

• 183 days over 3 years: The person must be physically present in the U.S. for at least 31 days during the current year and a total of 183 days over the current year and the two preceding years. The calculation considers:some text
  • All days present in the U.S. in the current year.
  • 1/3 of the days present in the U.S. in the preceding year.
  • 1/6 of the days present in the U.S. in the second preceding year.

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Compliance Issues For Resident Aliens 

Employers need to acquire work authorization for foreign nationals (including resident and non-resident aliens) by submitting a Form I-9 on their employees’ behalf before they can start working. This form verifies the employee’s identity and ensures that they are allowed to work in the U.S. 

Hiring internationally means that employers must stay compliant with both immigration guidelines and local labor laws at all times. When you work with Playroll, understanding your employees' employment status becomes seamless. Whether managing taxes for resident aliens or ensuring compliance for non-resident aliens, Playroll provides the tools to navigate global employment with ease with leading EOR services. 

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