For tax purposes, a “resident alien” is a non-U.S. citizen who is a U.S. permanent resident alien or who satisfies the substantial presence test. Resident aliens are generally taxed in the same manner as U.S. citizens.
For tax purposes, a “nonresident alien” is a non-U.S. citizen who is not a permanent resident and who does not satisfy the substantial presence test. Nonresident aliens are required to pay U.S. taxes only on their income from U.S. sources and are subject to Federal tax reporting and withholding rules that differ from those applicable to U.S. citizens, permanent resident aliens, and resident aliens.
The U.S. Tax Residency Rules
For U.S. tax purposes, there are four categories of individuals:
- U.S. citizens
- Permanent residents (i.e., green card holders) and immigrants
- Resident aliens for tax purposes
- Nonresident aliens for tax purposes
There are two test that are used to determine whether a non-U.S. citizen should be treated as a U.S. resident (e.g., a “permanent resident” or “resident alien”) for tax purposes: (i) the green card test, and (ii) the substantial presence test. If a non-U.S. citizen satisfies (or passes) either test, he is treated as a U.S. resident for tax purposes; if a non U.S. citizen satisfies neither test, he is considered a nonresident alien for tax purposes.
Green Card Test
If the individual is a lawful permanent resident alien at any time during the calendar year, the individual is treated as a U.S. permanent resident alien for tax purposes.
Substantial Presence Test (SPT)
The SPT is comprised of two parts, the 31-Day Test and the 183-Day Test. The test is a mathematical calculation. The alien will satisfy the SPT if he is physically present in the U.S. for at least (i) 31 days during the current calendar year, and (ii) 183 days during the three-year period that includes the current year and two years preceding the current year.