What is a non-resident alien?

How is a non-resident alien defined?

In the United States, a non-resident alien describes a person who is neither a US citizen nor a US national and who does not meet the criteria to be treated as a tax resident in the United States. This covers individuals who fail the green card test or who do not satisfy the Internal Revenue Service's (IRS) substantial presence test.

Non-resident aliens typically remain in the United States on temporary non-immigrant visas, such as J-1 or F-1. This category includes foreign students, people participating in academic programmes, and contractors who are not tax residents. They have a separate tax status and generally do not make FICA contributions for Medicare and social security.

Non-resident aliens must obtain permission before they may work in the United States. This is requested by completing the I-9 Employee Eligibility Verification form.

Employers and individuals should be familiar with the rights, immigration status and tax responsibilities of non-resident aliens to ensure compliance with US law. Failure to comply can lead to financial penalties, incorrect tax filings and legal complications.

Taxation of non-resident aliens

Tax matters are among the most common sources of confusion concerning non-resident alien status. The IRS states that non-resident aliens occupy a distinct tax category and are subject to different rules from residents.

In practice, this usually means US-source income is taxed either at resident rates or at flat rates depending on the activity. For example, non-resident independent contractors are generally taxed at a flat 30% on US income. Non-resident aliens frequently have limited access to deductions and credits and cannot claim certain benefits, such as the Earned Income Tax Credit (EITC) or the American Opportunity Tax Credit (AOTC).

A non-resident alien who is married to a resident alien may elect to file jointly. For tax purposes the spouse can choose to be treated as a resident alien; in that case they should submit Form 1040 with the status Married Filing Jointly. On leaving the United States, they should file Form 1040-C.

Non-resident aliens must file a tax return if they carried on trade or business in the United States during the previous year, or if they received US income on which tax was not withheld at source. Those seeking a refund or wishing to claim deductions must also file an income tax return.

As noted above, non-resident aliens are generally exempt from social security and Medicare taxes, although other federal and state taxes may still apply.

Employing non-resident aliens

A US employer wishing to employ a non-resident alien must comply with applicable immigration laws and regulations. This involves verifying the individual’s eligibility to work and observing visa conditions. Employers are also responsible for withholding taxes and meeting reporting obligations to government authorities.

Documents typically required include:

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

Compliance can be complex, particularly with the tax consequences of hiring non-resident aliens. Employers must consider any relevant tax treaties. When engaging remote workers internationally, companies should also take care to avoid creating permanent establishment status that would require opening an entity overseas. Using employer of record services can help reduce that risk.

Despite these challenges, employing non-resident aliens can offer several advantages to employers, including access to a wider talent pool and more diverse skill sets. Offering  can also help attract top candidates.