International / Nonresident filing
Nonresident filing and treaty positions.
For a nonresident, the United States taxes two very different things in two very different ways: income connected with a U.S. business, taxed on a net basis at ordinary rates, and passive U.S.-source income, taxed at a flat rate on the gross amount, usually collected at the source. A treaty can change the rate, the threshold, or both, but only if it is claimed correctly.
First question
Are you actually a nonresident?
Residency for tax is not residency for immigration
You are a U.S. resident for income tax if you hold a green card, or if you meet the substantial presence test, which counts all your days in the current year, a third of last year’s days, and a sixth of the prior year’s. If that weighted total reaches 183 days and you were present at least 31 days this year, you are a resident and file Form 1040 on worldwide income, whatever visa you hold.
Exceptions and elections change the answer
Days as an exempt individual, such as students on F or J status and certain teachers and trainees, do not count, but the exemption is claimed on Form 8843 and is time-limited. Someone who meets the substantial presence test but has a tax home and closer connection elsewhere may claim the closer connection exception on Form 8840. Treaty tie-breaker rules can resolve dual residency in the other direction.
Effectively connected income is taxed like a resident’s
Income effectively connected with a U.S. trade or business is reported on Form 1040-NR and taxed at graduated rates on a net basis, after allowable deductions. Wages for services performed in the United States, income from a U.S. business, and gain on the sale of U.S. real property all typically fall here.
Passive U.S.-source income is taxed on the gross
Fixed or determinable annual or periodical income, meaning dividends, interest, rents, royalties, and similar items, is taxed at a flat 30 percent of the gross amount with no deductions, generally withheld by the payer. A treaty commonly reduces that rate, sometimes to zero, but the reduction has to be claimed in advance on the right form.
A move mid-year produces a dual-status return
Arriving in or leaving the United States during a year usually creates a dual-status year, part resident and part nonresident, with different rules applying to each period and several ordinary elections unavailable. These returns are prepared differently from either a pure 1040 or a pure 1040-NR.
How we approach it
Status, source, treaty, then the return.
- Establish statusApply the residency tests, exceptions, and any treaty tie-breaker.
- Source the incomeSeparate effectively connected income from flat-rate withholding income.
- Claim the treatyLodge the right certificate with payers and disclose the position properly.
- FilePrepare the 1040-NR, dual-status return, or amended claim for refund.
The mechanics
How a treaty position is actually made
Certificates go to the payer, not the IRS
A reduced withholding rate under a treaty is claimed by giving the payer a Form W-8BEN, or W-8BEN-E for an entity, before payment. The form requires a U.S. taxpayer identification number in most treaty-benefit cases, which is where an ITIN application often enters the picture. Without the certificate, the payer withholds at 30 percent and the money is recovered only by filing a return.
Some positions must be disclosed on Form 8833
Where a treaty position overrides or modifies the Internal Revenue Code, Form 8833 is generally required with the return, with penalties for omitting it. Not every treaty claim needs the form, and the exceptions are specific. Taking the position and skipping the disclosure is a common and avoidable error.
Treaties do not bind the states
States are not parties to U.S. income tax treaties and most do not follow them. Income that is exempt federally under a treaty can still be fully taxable by New York or another state where it is sourced. The federal and state answers have to be worked separately.
Selling U.S. real property brings FIRPTA
A foreign person disposing of a U.S. real property interest faces withholding at the statutory rate on the gross amount realized, collected by the buyer and remitted on Forms 8288 and 8288-A. Where the actual tax will be lower than the withholding, a withholding certificate can be requested on Form 8288-B before closing, which is far better than waiting for a refund on the return.
The saving clause limits what a treaty does for U.S. persons
Most treaties contain a saving clause that preserves the United States’ right to tax its own citizens and residents as if the treaty did not exist, subject to listed exceptions. This is why treaty relief that looks obvious to a dual citizen frequently is not available.
This page is general information about how the rules work, not tax or legal advice for a specific situation. Facts change outcomes. Talk with the firm before acting on anything here.
Questions
Common questions
I was in the U.S. for four months. Do I have to file?
Possibly. The substantial presence test counts a weighted average across three years, so repeated short stays can add up to residency even when no single year looks long. Separately, any U.S.-source income you received may require a Form 1040-NR regardless of days present.
My broker withheld 30 percent on my dividends. Can I get it back?
If a treaty gives you a lower rate and you were entitled to it, yes, generally by filing a Form 1040-NR claiming a refund. The better outcome is to file a W-8BEN with the broker beforehand so the correct rate is applied at source and no refund is needed.
Does a tax treaty mean I owe nothing in the United States?
Rarely. Treaties usually reduce rates on specific categories of income, allocate taxing rights between two countries, and provide relief from double taxation. They almost never exempt a person entirely, and they do not remove filing obligations. The return is often still required in order to claim the benefit.
I am a nonresident who owns a rental property in the U.S. What applies?
By default, gross rents are subject to 30 percent withholding with no deductions. Making the election to treat the rental as effectively connected income lets you deduct expenses and depreciation and be taxed on the net, which is usually far better. The election has formal requirements and is worth making deliberately.
What happens in the year I move to the United States?
Usually a dual-status return: nonresident for the part of the year before residency starts, resident afterward. Several ordinary elections, including the standard deduction and in most cases joint filing, are not available in a dual-status year, though an election to be treated as a full-year resident may produce a better result. It is worth modeling both.
Before the withholding happens, not after.
Rate reductions, exemptions, and refunds are far easier to obtain in advance than to reclaim. Tell us what income is coming and from where.