What is a non-resident alien?

What is a non-resident alien?

In the US, a non-resident alien is any individual who is neither a US citizen nor a US national and who does not qualify as a US tax resident. This category includes people who do not meet the green card test or who fail the Internal Revenue Service's (IRS) substantial presence test.

Non-resident aliens are commonly present in the US on temporary non-immigrant visas, for example J-1 or F-1 visas. This group typically includes international students, participants in academic programmes, and contractors who are non-residents. Non-resident aliens hold a separate tax classification and generally do not make FICA contributions for Medicare and social security.

Non-resident aliens may only work in the US once they have obtained authorisation. They request this by completing the  I-9 Employee Eligibility Verification form.

Employers and individuals must be aware of non-resident aliens’ rights, legal status, and tax duties to remain compliant with US law. Failure to comply can result in penalties, incorrect tax filings, and other legal consequences.

Non-resident alien taxation

Tax obligations are among the most frequent sources of confusion for non-resident aliens. The IRS treats non-resident aliens under a distinct tax regime that differs from resident taxpayers.

Typically, non-resident aliens are taxed on US-source income either at resident rates or at specified flat rates, depending on the activity. For instance, non-resident independent contractors generally face a flat 30% tax on US income. Non-resident aliens often have limited eligibility for 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 with a spouse who is a resident alien may elect to file jointly. At year end, the resident spouse can choose to have the couple treated as residents for tax purposes. In that situation, they should submit their return on Form 1040 using the Married Filing Jointly status. When departing the US permanently, they should file Form 1040-C.

Non-resident aliens must file a tax return if they conducted a trade or business in the US during the prior year or if they received US income that was not subject to withholding. Those seeking refunds or wishing to claim deductions must also file an income tax return.

As noted above, non-resident aliens are frequently exempt from social security and Medicare taxes, although they remain liable for other applicable federal and state taxes.

Hiring non-resident aliens

For a US employer to hire a non-resident alien lawfully, the employer must comply with immigration statutes and supporting regulations. This obligation includes confirming the individual’s right to work and ensuring visa conditions are met. Employers are also required to withhold taxes and meet reporting duties to government agencies.

The documentation typically required 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

Managing compliance can be complex, especially given the intricate tax consequences of hiring non-resident aliens. Employers should verify any applicable tax treaties. When engaging remote employees overseas, employers must also avoid accidentally creating permanent establishment exposure that would require establishing an entity abroad. Using employer of record services can reduce that risk.

Despite these complications, hiring non-resident aliens offers clear benefits for employers, such as access to a wider talent pool and a broader range of skills. Providing competitive benefits can also help attract top talent.