What is a non-resident alien?

What is a non-resident alien?

In the US, a non-resident alien describes an individual 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 present in the US on a temporary non-immigrant visa, such as a J-1 or F-1. This category covers foreign students, participants in academic programmes, and non-resident contractors. They occupy a distinct tax status and generally do not make FICA contributions for Medicare and social security.

Non-resident aliens may only work in the US once authorised; they obtain this by completing the  I-9 Employee Eligibility Verification form.

Employers and individuals must understand the rights, status and tax duties of non-resident aliens to meet US legal requirements. Non-compliance can result in financial penalties, incorrect tax payments and legal complications.

Non-resident alien taxation

Taxation is often the area that causes the most uncertainty for non-resident alien status. The IRS assigns non-resident aliens a separate tax classification with rules that differ from those applying to residents.

In practice, non-resident aliens are liable for tax on US-source income, either at resident rates or at fixed rates depending on the activity. For example, non-resident independent contractors generally face a flat 30% rate on US income. Access to deductions and credits is typically limited; they cannot claim certain tax benefits such as the Earned Income Tax Credit (EITC) or the American Opportunity Tax Credit (AOTC).

If married to a resident alien, a non-resident alien may elect to file jointly. At year end the spouse can choose to be treated as a resident alien for tax purposes and should then file using Form 1040 with the status Married Filing Jointly. When leaving the US, they should file Form 1040-C.

Non-resident aliens must lodge a tax return if they carried on 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 wishing to claim deductions must also file an income tax return.

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

Hiring non-resident aliens

A US employer must observe immigration laws and visa conditions to lawfully hire a non-resident alien. This involves verifying the individual's eligibility to work, complying with visa requirements, withholding taxes where necessary and meeting reporting obligations to government agencies.

Required documentation includes:

• Work authorisation 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 regarding the tax consequences of hiring non-resident aliens. Employers should observe applicable tax treaties. When engaging remote employees across borders, companies should take care to avoid creating a permanent establishment that would require them to open an entity abroad. Using employer of record services can 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.

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