Taxation of Resident and Non Resident Alien Income - F, J, Q, M Visa Taxes - IRS Pub

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Taxation of Resident and Non Resident Alien Income - F, J, Q, M Visa Taxes - IRS Pub 519



Income Taxation of Resident Aliens and Non Resident Aliens :

Resident Alien is a Non US Citizen, who meets the Substantial Presence Test (see Substantial Presence Test Calculator ), does not have a US Green Card / US Permanent residency
and is not in Tax Exemption status (Five years in Student F, J, Q, M visa, Two years as Teacher, Researcher in J visas).

Income of Resident Aliens and Non Resident Aliens are taxed in different ways.

Taxation of Resident Aliens :

The Taxation of Resident Aliens are same as US citizens, which means their worldwide income is taxed at graduated US tax rates.
Resident Aliens can use the Tax rates mentioned in Form 1040 Instructions.

Taxation of Non Resident Aliens :

1. If the income of a Non Resident Alien, is 'Effectively Connected to a US Trade or Business' in the United States and 'the source of the income is from United States',
the income is taxed at US graduated Tax rates just like a US Citizen.

2. If the Income of a Non Resident Alien is 'Not Effectively Connected to a US Trade or Business' , the income is taxed at 30%,
unless the tax rate is reduced by a Tax Treaty with a Foreign Country.


What is Effectively Connected Income ?

The Effectively Connected Income, relates to performing a Trade or Business in the United States like;

1. Personal Services / Working as an employee in the United States for a United States employee

2. Personal Services / Working as an employee in the United States for a Foreign Employee

3. Student, Teacher, Foreign Exchange Student in US, in F, J, Q, M Visas


Tax Rate is 30% - Income Not Effectively Connected - Fixed or Determinable Income

Certain Interest Income, Royalties, Dividends, Gambling Income and other types of Investment Income received by a Non Resident Alien.

However a Tax Treaty may reduce the 30% tax rate on certain income types.

Exclusion of Income - Resident Alien and Non Resident Alien

Resident Alien - Exclusion of Income

1. If you are present in a Foreign Country for more than 330 days, you can
exclude upto $85,700 in 2007, by filing Form 2555

Non Resident Alien - Exclusion of Income

1. If you are working in United States for a foreign employer, and if you are earning less
than $3000, you need not pay US Taxes.

2. Part of the Scholarship and Fellowship income paid for a degree candidate in the United States, used to pay for tuition and books.

3. Students can exclude pay, scholarship income from a foreign source.

4. Certain income excluded by a Tax treaty, for more information see IRS Pub 901
and IRS Pub 519.

Hope it helps!