How Does A Resident Alien File Their Tax Return?

Our office was recently contacted by a tax preparer in Florida that posed this interesting question. Their clients, a married couple, were from a foreign country and owned rental property in the United States. As most things go with tax law, the question was simple but the answer to get there was a little bit more complex.

If an individual is a resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether the individual is in the United States or abroad. Their worldwide income is subject to U.S. income tax the same way as a U.S. citizen. An individual is a resident alien of the United States for tax purposes if they meet either the green card test or the substantial presence test for the calendar year. U.S Resident aliens will file their tax return using form 1040.

Under the green card test, an individual is a resident, for U.S federal tax purposes, if the individual is a lawful permanent resident of the United States at any time during the calendar year. Under the substantial presence test, an individual will be considered a United States resident for tax purposes if they meet the substantial presence test for the calendar year. To meet this test, a taxpayer must be physically present in the United States (U.S.) on at least 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting all the days the individual was present in the current year, and 1/3 of the days you were present in the first year before the current year, and 1/6 of the days you were present in the second year before the current year. If an individual does not meet either of these tests, then they will be considered to be a nonresident alien.

Nonresident Aliens to the U.S will use a form 1040-NR to file their tax returns. If a married couple are also nonresident aliens to the U.S then each individual must file their own form 1040-NR. If the income is being claimed from a community property state, then a form 8958 must accompany the form 1040-NR. If there are no dependents for the individuals to claim, then the individual may be eligible to file a form 1040-NR-EZ.

The professionals at The Center for Financial, Legal and Tax Planning are more than well-equipped to answer your questions with regards to foreign income or any other income tax related questions for both individuals and businesses. Please contact us at (618) 997-3436 to setup a free consultation.