U.S. Income Taxation of Aliens
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No, not little green men, but non-citizens. This list, complete with links to the IRS website, is courtesy of Brian Dooley, CPA, MBT:
1.Tax Treaties
The U.S. tax liability of aliens is determined primarily by the provisions of the U.S. Internal Revenue Code. However, the United States has entered into certain agreements known as tax treaties with several foreign countries which oftentimes override or modify the provisions of the Internal Revenue Code.
2. Resident Aliens
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.
3. Nonresident Aliens
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.
4. Dual-Status Aliens
You are a dual status alien when you have been both a resident alien and a nonresident alien in the same tax year.
5. Source of Income
A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income.
6. Income Types
In general, all income of a nonresident alien is Fixed, Determinable, Annual, Periodical (FDAP) income. However, certain kinds of FDAP income are considered to be effectively connected with a U.S. trade or business. These two types of income are taxed in different ways.
7. Tax Withholding on Foreign Persons
Payments of income to foreign persons are subject to special withholding rules. In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income. This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.
8. Taxpayer Identification Numbers (TIN)
Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN). In addition, aliens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.
Note: Resident Aliens are also subject to U.S. Gift and Estate Tax laws, as are non-resident aliens with regard to U.S. real property.
