What is a non-resident alien?

What is a non-resident alien?

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. This includes anyone who fails the green card test or does not meet 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. This category covers international students, people on academic programmes and non-resident contractors. They have a distinct tax status and are commonly not required to make FICA contributions towards Medicare and social security.

Non-resident aliens must obtain work authorisation before they can be employed in the US. They do this by completing the  I-9 Employee Eligibility Verification form.

Employers and individuals need to understand the rights, status and tax obligations of non-resident aliens to meet US legal requirements. Failure to comply can result in financial penalties, incorrect tax payments and legal complications.

Non-resident alien taxation

Tax is often the area that causes most uncertainty for non-resident aliens. The IRS treats non-resident aliens under a separate tax regime, with rules that differ from those applying to residents.

Generally, non-resident aliens are taxed on US-source income, either at typical resident rates or at flat rates depending on the activity. For example, non-resident independent contractors are usually taxed at a flat 30% on US income. Non-resident aliens frequently face limits on 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 elect to file jointly. At year end, the resident spouse can opt to treat the non-resident as a resident for tax purposes; in that case they should file Form 1040 using the Married Filing Jointly status. When leaving the US, they should file Form 1040-C.

Non-resident aliens must file 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. Anyone seeking a refund or wishing to claim deductions must also lodge an income tax return.

As noted, non-resident aliens are generally exempt from social security and Medicare taxes, although they may still be liable for other federal or state taxes.

Hiring non-resident aliens

A US employer must comply with immigration laws and regulations to lawfully hire a non-resident alien. That includes verifying the individual’s eligibility to work and meeting visa requirements. Employers are also responsible for withholding taxes and fulfilling reporting obligations to government agencies. 

The documents typically required include:

• Authorisation to work in the US: 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 implications of hiring non-resident aliens. Employers should respect applicable tax treaties. When hiring remote employees globally, businesses must take care not to create a permanent establishment that would require them to set up an entity abroad. Using employer of record services can help reduce that risk.

Despite the challenges, hiring non-resident aliens can deliver advantages such as access to a wider talent pool and a broader range of skills. Offering  can also help attract top talent.