What is a non-resident alien?

What does a non-resident alien mean?

In the United States, a non-resident alien is a person who is neither a US citizen nor a US national and who does not qualify as a US tax resident. That includes anyone who does not meet the green card test or fails the Internal Revenue Service's (IRS) substantial presence test .

Non-resident aliens are typically in the US on temporary non-immigrant visas, such as J-1 or F-1 visas. This category includes international students, people involved in academic programmes and non-resident contractors. They hold a separate tax status and, in most cases, do not make FICA contributions towards Medicare and social security.

Work authorisation is required before a non-resident alien may be employed in the US. They obtain this by completing the  I-9 Employee Eligibility Verification form.

Both organisations and individual employers must understand a non-resident alien’s rights, status and tax responsibilities to comply with US law. Non-compliance can result in financial penalties, incorrect tax payments and legal complications.

Tax considerations for non-resident aliens

Tax is one of the areas that creates the most uncertainty for non-resident aliens. The IRS treats non-resident aliens under a distinct tax regime with rules that differ from those for residents.

Generally, US-sourced income is taxable for non-resident aliens, either at graduated resident rates or at flat rates depending on the type of business activity. For example, non-resident independent contractors are commonly taxed at a flat 30% on US income. Non-resident aliens often have limited access to deductions and credits and cannot claim certain tax benefits, such as the Earned Income Tax Credit (EITC) or the American Opportunity Tax Credit (AOTC).

A non-resident alien married to a resident alien may be able to file jointly. The resident spouse can elect to be treated as a resident for tax purposes, in which case the couple files using Form 1040 under Married Filing Jointly. When leaving the US, they should file Form 1040-C.

A non-resident alien must lodge a tax return if they carried on a trade or business in the US during the previous year, or if they received US income on which tax was not withheld at source. Those seeking a refund or claiming deductions must also file an income tax return.

As noted above, non-resident aliens are generally not liable for social security and Medicare taxes, although they may still be subject to other federal or state taxes.

Employing non-resident aliens

A US employer must follow immigration laws and regulations to lawfully employ a non-resident alien. This includes confirming the individual’s eligibility to work and meeting visa requirements. Employers must also withhold taxes and fulfil reporting obligations to government agencies. 

Required documentation includes:

• Authorisation to work in the US via Form I-9
• A Certificate of Naturalization
• An unexpired Temporary Resident Card
• A social security number (SSN)
• A driver’s licence or a state- or federal-issued ID card
• An original birth certificate

Compliance can be complex, particularly around the tax consequences of hiring non-resident aliens. Employers should ensure they observe any applicable tax treaties. When engaging remote employees overseas, firms should take care not to create a permanent establishment that would force them to set up an entity abroad. Using employer of record services can help reduce that risk.

Despite the challenges, hiring non-resident aliens offers advantages such as access to a wider talent pool and diverse skill sets. Offering  can also help attract top talent.