Tax Rules for Resident Aliens and Nonresident Aliens

Different rules apply to resident aliens and nonresident aliens in the United States compared to citizens when filing taxes. While resident aliens must report worldwide income on their tax returns, non-U.S. income might be exempted under a foreign-earned income exclusion, a foreign income tax credit, or a tax treaty. Nonresident aliens, on the other hand, don’t pay taxes on foreign income. There are also several exceptions.

Resident Aliens vs. Nonresident Aliens

The U.S. government has several classifications of residents. A citizen acquires citizenship by birth, acquisition, derivation, or naturalization. Individuals who reside in the U.S. but are not citizens may be:

• Resident aliens are not U.S. citizens but have green cards that allow them to work in the U.S. or have been in the country for at least 183 days over three years, including the current year.
• Nonresident aliens are in the U.S. legally but do not have green cards. They might be tourists, students, or other visitors.

Taxation

Taxation of Resident Alien Income

Most resident aliens are taxed on all forms of income received, foreign or domestic. This includes any payments received from a pension from a foreign government. For example, if someone lives in the United States and gets a pension from the Canadian government, they are liable for taxes on that income.

Resident aliens may claim the foreign-earned income exclusion or the foreign tax credit if they qualify. The exclusion prevents double taxation for individuals from a country with a tax treaty with the United States. The credit offsets any income taxes resident aliens pay to another country.

Resident aliens who work for a foreign government in the U.S. may also claim an exemption on their wages. This applies if the U.S. has a reciprocal tax treaty with the government that employs the person.

Taxation of Nonresident Alien Income

Unlike resident aliens, nonresident aliens pay income tax only on income earned in the U.S. or from a U.S. source. They do not have to pay any taxes on foreign-earned income.

A German citizen who owns a business in Germany and another in the U.S. will be taxed only on the income from the latter source. Taxes are not due in the United States on any income derived by the business in Germany. Any investment income realized in the U.S. that is not from a U.S. source is usually taxed at 30% unless otherwise specified by the treaty.

Residence Test

Resident aliens carry a green card, meet the residence test, or both. The resident alien taxpayer must reside in the U.S. for at least 31 days during the year and must have been in the U.S. for a total of at least 183 days of the past three years, including the current year.

However, the residence test only counts a day of residence in the U.S. as a full day for this test year. A day of residence only counts as one-third of a day in the previous year and one-sixth of a day in the year before. This means that the total number of days of residence during the previous two years must be divided by three or six before being totaled, and this final total must equal at least 183.

Exceptions

There are some exceptions to the residence test. They effectively exempt a large percentage of legal aliens in the U.S. from having to report taxable income. Below are some of the most common exceptions.

• People commuting from Canada or Mexico to the U.S. for work cannot count commuting days as days of residence.
• Aliens with a tax home in another country during the year and not in the U.S. for 183 days during the year are not required to pay taxes in the U.S.
• Those who reside temporarily within the U.S. as teachers, trainees, students, diplomats, or athletes can claim an exemption for the days spent in the U.S. by filing Form 8843: Statement for Exempt Individuals and Individuals with a Medical Condition.
• Anyone unexpectedly detained in the U.S. for medical reasons can claim a medical exemption.
• A treaty with another country may exempt you from being classified as a resident even if you otherwise meet the residence test.

Filing Tax Returns

Aliens who receive their green cards during the middle of a tax year can file a dual-status tax return because they were nonresident aliens before they got their cards and only became resident aliens afterward. People in this category must include a statement that breaks down all income they received.

Aliens who leave the U.S. for any time must obtain a certificate of compliance that states that they paid their U.S. taxes. Otherwise, a tax return must be filed and paid at the point of departure. They should obtain Form 1040-C: U.S. Departing Alien Income Tax Return to find out what they must report.

Aliens and any U.S. citizens who leave the U.S. and relinquish their citizenship must pay an expatriation tax on all of their income and assets. The taxpayer’s assets are assessed for taxation on the day before their expatriation.

The Bottom Line

When it comes to taxation, the rules can be complex for resident aliens and nonresident aliens. If you need more information, consult IRS Publication 519 or speak with a tax professional who can help guide you in the right direction.

Correction – July 30, 2025: This article was corrected to state that resident aliens must report worldwide income on their tax returns.