What is a non-resident alien?

What the term non-resident alien means in the US

In the US, a non-resident alien refers to any person who is neither a US citizen nor a US national and who does not qualify as a US tax resident. This category covers individuals who neither meet the green card test nor satisfy the Internal Revenue Service's (IRS) substantial presence test.

Most non-resident aliens are present in the US on a temporary, non-immigrant visa such as a J-1 or F-1. This group typically includes foreign students, participants in academic programs, and non-resident contractors. They hold a distinct tax status and, in general, do not make FICA contributions toward Medicare and social security.

Non-resident aliens may only lawfully work in the US after receiving proper authorization; they may demonstrate this by completing the  I-9 Employee Eligibility Verification form.

Employers and individuals must be familiar with the rights, legal status, and tax duties of non-resident aliens to remain compliant with US law. Failure to comply can result in monetary penalties, incorrect tax filing, and other legal complications.

Tax rules for non-resident aliens

Taxation is often the area that causes the greatest uncertainty regarding non-resident alien status. The IRS treats non-resident aliens under a separate tax framework, with rules that differ from those applied to residents.

Generally, non-resident aliens are taxed on US-source income either at resident rates or at flat rates depending on the nature of the income. For instance, non-resident independent contractors are typically taxed at a flat 30% rate on US income. They usually have restricted access to certain deductions and credits and cannot claim some tax benefits such as the Earned Income Tax Credit (EITC) or the American Opportunity Tax Credit (AOTC).

A non-resident alien who has a spouse who is a resident alien may elect to file jointly. At the close of the tax year, the resident spouse can choose to be treated as a resident alien for tax purposes, in which case they should file using Form 1040 with the status Married Filing Jointly. Upon departing the US, they should submit Form 1040-C.

Non-resident aliens are required to file a tax return if they conducted trade or business in the US during the prior year, or if they received US income on which tax was not withheld at source. Those seeking a refund or aiming to claim allowable deductions must also file an income tax return.

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

Hiring considerations for non-resident aliens

A US employer must follow applicable immigration laws and regulations to legally hire a non-resident alien. This entails verifying the individual's authorization to work in the country and complying with visa conditions. Employers are also responsible for withholding taxes and fulfilling reporting obligations to government agencies. 

Typical documents required include:

• Authorization 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 license or an official state- or federal-issued ID card
• An original birth certificate

Compliance can be complex, particularly because of the intricate tax consequences tied to hiring non-resident aliens. Employers should ensure they honour relevant tax treaties when applicable. When engaging remote personnel worldwide, take care to avoid creating a permanent establishment that would require setting up an entity abroad. Leveraging employer of record services can help mitigate that exposure.

Despite the administrative hurdles, hiring non-resident aliens offers clear benefits, such as access to a wider talent pool and varied skill sets. Offering  can also help attract top talent.