Resident Alien

Resident Alien Meaning: Definition, Examples, and Tax Implications

People with resident alien status can live and work legally in the United States without being citizens. The legal status might look complicated at first. Understanding it becomes significant if you have immigration status and deal with the U.S. tax system or hire non-citizens.

Resident alien status covers people who have permanent or long-term residence rights in the U.S.. These individuals, known as “tax residents”, must follow tax rules similar to U.S. citizens. They pay taxes on their worldwide income. The definition becomes clear when you look at who qualifies. Resident aliens are lawful permanent residents or Green Card holders. They follow most of the same rules as citizens.

This detailed guide will help you understand resident alien status better. You’ll learn about its definition, examples and tax implications. The guide explains differences between resident and non-resident aliens. It shows how to get this status and what requirements you need to follow.

What does ‘resident alien’ mean?

A “resident alien” is a foreign-born person who lives legally in the United States without American citizenship. Their status creates unique legal, financial, and tax obligations that are nowhere near those of U.S. citizens and non-resident aliens.

Definition under U.S. immigration and tax law

U.S. immigration law officially recognizes a resident alien as a “lawful permanent resident” or “permanent resident”. This status applies to immigrants who have legal permission to live in the United States. The Internal Revenue Service (IRS) uses two tests to determine someone’s resident alien status: the Green Card Test and the Substantial Presence Test.

The Green Card Test qualifies you as a resident alien when you live permanently in the United States as an immigrant with an alien registration card. You’ll be called a resident alien under the Substantial Presence Test if you’ve stayed in the U.S. for at least 31 days during the current year, plus 183 days over a three-year period that covers the current year and two previous years.

Who is a resident alien in the US?

The United States Citizenship and Immigration Services recognizes three resident alien types:

1. Permanent Resident: A person who has legal permission to live in the United States.
2. Conditional Resident: Someone with a two-year green card, usually based on marriage or entrepreneurship through a golden visa process.
3. Returning Resident: A lawful permanent resident coming back to the U.S. These residents must apply again if they’ve stayed outside the country for more than 180 days.

Resident aliens must follow U.S. citizens’ tax laws and report their worldwide income. They file Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors.

What is a resident alien card?

The resident alien card’s official name is “permanent resident card,” but people know it as a “Green Card” because of its traditional greenish color. This document proves someone’s lawful permanent resident status in the United States.

The Green Card test requires you to have a current green card or to have owned one in the previous calendar year. Today, about 12.8 million green card holders live in the United States, and almost 9 million can apply for U.S. citizenship.

The card’s rights are:

• Permanent residence in the United States (unless you commit deportable offenses)
• Legal work in any job matching your qualifications (with some security-related exceptions)
• Protection under all U.S. federal, state, and local laws

The card’s responsibilities include:

• Following all U.S. laws
• Filing tax returns and reporting all income to the IRS
• Supporting democratic government (though permanent residents can’t vote)
• Males aged 18-25 must register with the Selective Service

Green card holders can become U.S. citizens after living in the country for one to five years and showing good moral character.

Resident alien vs non-resident alien

The difference between resident and non-resident aliens is a vital factor in determining U.S. tax obligations. Your classification will affect how much tax you need to pay and what income gets taxed.

Key differences in tax obligations

The biggest difference shows up in taxable income. Resident aliens pay taxes just like U.S. citizens do – they must report worldwide income from all sources. On the other hand, non-resident aliens usually pay taxes only on money earned within the United States.

Each status comes with its own filing rules. Resident aliens use Form 1040 or 1040-EZ, while non-resident aliens must fill out Form 1040NR or 1040NR-EZ. Non-resident aliens who participate in U.S. trade or business need to file returns that show all their U.S. source income.

Tax rates work differently too. Resident aliens follow the same tax brackets as U.S. citizens. Non-resident aliens face two different ways of being taxed:

• Income from U.S. trade or business (effectively connected income) uses regular graduated rates
• Fixed, determinable, annual, or periodical (FDAP) income gets hit with a flat 30% rate (unless a tax treaty lowers it)

Resident aliens can use all the same deductions and credits as citizens. Non-resident aliens don’t have access to many of these tax benefits.

Residency tests: Green Card vs Substantial Presence

The IRS looks at two main tests to figure out residency status: the Green Card Test and the Substantial Presence Test.

The Green Card Test is straightforward – you’re a resident alien if you had a lawful permanent resident status at any time during the calendar year. This stays true unless your green card gets revoked, terminated, or a court decides you’ve abandoned it.

The Substantial Presence Test uses a more detailed calculation. You become a resident alien if you were in the United States for:

• At least 31 days in the current year, and
• A total of 183 days over three years, including the current year and two years before it

The 183-day calculation works like this:

• Count every day in the current year
• Count one-third of your days from last year
• Count one-sixth of your days from two years ago

Some days don’t count toward this test. These include days you commute from Canada or Mexico, brief transit stops under 24 hours, and time spent as an “exempt individual” (like those with diplomatic visas or certain students and teachers).

What is non-resident alien in taxation?

A non-resident alien is someone who isn’t a U.S. citizen and doesn’t qualify as a resident alien for tax purposes. This means they haven’t passed either the Green Card Test or the Substantial Presence Test.

Non-resident aliens’ tax obligations look quite different from those of resident aliens or citizens. They only pay taxes on:

• Income from U.S. trade or business
• U.S. source income that’s fixed, determinable, annual, or periodical

Social Security and Medicare taxes usually don’t apply to non-resident aliens, but other federal and state taxes do. They can’t claim certain tax benefits like the Earned Income Tax Credit or the American Opportunity Tax Credit.

You might still qualify as a non-resident alien even if you pass the Substantial Presence Test. This happens if you spend less than 183 days in the U.S. during the current year, have a tax home in another country, and maintain closer ties to that foreign country than to the U.S..

How to become a resident alien

Becoming a resident alien in the United States requires meeting specific legal criteria set by U.S. immigration and tax law. Two main pathways lead to this status. Each pathway has its own requirements and processes.

1. Getting a Green Card

A Permanent Resident Card (Green Card) represents the most common path to resident alien status. U.S. immigration laws provide several eligibility categories for Green Card applications:

• Family-based: Through relationships with U.S. citizens or permanent residents
• Employment-based: Based on job skills and offers from U.S. employers
• Refugee or asylee status: For those granted asylum or refugee status
• Diversity lottery: Selected through the annual visa lottery program
• Special immigrant categories: Including religious workers, juveniles, and certain international employees

The application process needs at least two forms – an immigrant petition and Form I-485 (Application to Register Permanent Residence). Most applicants need a family member or employer to sponsor them, though some categories let you self-petition. The process can take several months to years based on your category and country of origin.

2. Meeting the Substantial Presence Test

You can become a resident alien without a Green Card by passing the Substantial Presence Test. The test requires physical presence in the United States for:

• At least 31 days during the current calendar year, and
• A total of 183 days during a 3-year period, counting:
• All days present in the current year
• 1/3 of the days present in the first preceding year
• 1/6 of the days present in the second preceding year

Here’s an example: If you spent 120 days in the U.S. in each of 2021, 2022, and 2023, your 2023 calculation would be: 120 + (120 ÷ 3) + (120 ÷ 6) = 120 + 40 + 20 = 180 days. This falls below 183 days, so you wouldn’t qualify as a resident alien.

Some days don’t count toward this test. These include commuting days from Canada or Mexico, transit days under 24 hours, and days as an “exempt individual” (diplomats, students, etc.).

3. Transitioning from non-resident to resident status

Your tax year becomes “dual-status” when you change from non-resident to resident status. This usually happens in the year you arrive in or leave the United States. You’ll need to file a dual-status tax return that covers part-year as a non-resident and part-year as a resident.

Your residency starts on your first day in the U.S. during the year you meet either test. Proper documentation and timely filing of forms like Form 8840 (for closer connection exceptions) are vital ways to stay compliant during this transition.

Tax implications for resident aliens

Tax residents who are resident aliens in the United States have the same financial duties as U.S. citizens. The IRS treats both groups the same way when it comes to tax rules, no matter their citizenship status.

Filing Form 1040 and reporting worldwide income

Resident aliens need to report income from all global sources on their tax returns. You must report all earnings from inside and outside the United States. This means resident aliens file Form 1040 or Form 1040-SR (for seniors), just like citizens do.

Your filing deadlines depend on your situation:

• April 15 if you’re a calendar-year filer with wages subject to income tax withholding
• June 15 if you’re a calendar-year filer without wages subject to withholding

Eligibility for tax credits and deductions

Resident aliens get a big advantage – they can access the same tax benefits as U.S. citizens. They qualify for many credits and deductions such as:

• Standard deduction (or itemized deductions if higher)
• Child tax credit and education credits
• Earned income credit opportunities
• Foreign tax credit to avoid double taxation

Social Security and Medicare taxes

We follow the same rules for Social Security and Medicare taxes (FICA) that apply to U.S. citizens. American or foreign employers must withhold these taxes from wages paid to resident aliens working in the United States.

Students get special treatment. The Internal Revenue Code Section 3121(b)(10) says students enrolled at least half-time might not have to pay FICA taxes if they work on campus and their job relates to their studies.

What is non resident alien in taxation?

Non-resident aliens are different from resident aliens because they haven’t passed the green card test or substantial presence test. Their tax obligations are quite different. They pay taxes only on:

• U.S. source income
• Income effectively connected with U.S. trade or business

Non-resident aliens use Form 1040-NR instead of Form 1040. They also face different tax rates – graduated rates apply to effectively connected income, while a flat 30% rate (or lower treaty rate) applies to fixed, determinable, annual, or periodical income.

Compliance and documentation requirements

Resident aliens in the United States need to keep their documentation in order. They should know which forms to file and their deadlines to maintain legal status.

Form I-9 and employment verification

U.S. employers must complete Form I-9 for every individual they hire, including resident aliens. This form proves identity and work authorization. Employees must confirm their work eligibility and show valid documents as proof. The employer needs to check these documents, document the information, and keep Form I-9 for three years after hiring or one year after employment ends. A Permanent Resident Card works as an acceptable List A document for resident aliens.

ITIN for dependents without SSN

You’ll need an Individual Taxpayer Identification Number (ITIN) if you can’t get a Social Security Number. This 9-digit number becomes especially important when your dependents don’t qualify for SSNs. ITINs expire after three consecutive tax years without use. Note that an ITIN doesn’t give you legal immigration status or permission to work.

Form 8833 for tax treaty claims

Resident aliens must file Form 8833 to claim tax treaty benefits that override Internal Revenue Code provisions. You need to submit this disclosure every year for each treaty-based position. Some treaty benefits don’t require reporting, such as those for pensions, annuities, and social security.

Maintaining legal status and reporting changes

Resident aliens must submit Form AR-11 within ten days of changing their address. While permanent residence might seem lasting, you can lose it through abandonment or actions that make you deportable. Keeping proper documentation helps you stay in good standing with your U.S. residence.

Conclusion

Living as a resident alien in the United States requires you to follow both immigration and tax laws carefully. This piece helps you understand how this status affects your life and work in the U.S. without citizenship. Understanding if you qualify as a resident alien through the Green Card Test or the Substantial Presence Test is vital to comply with tax laws properly.

The most important difference between resident and non-resident aliens lies in their tax duties. Resident aliens must report income from everywhere in the world and follow the same tax rules as U.S. citizens. Non-resident aliens only pay taxes on their U.S.-sourced income. This affects your filing needs, tax rates and deductions you can claim.

You can get resident alien status in two main ways – getting a Green Card or meeting the Substantial Presence Test criteria. Your next significant step is to keep proper documentation. Form I-9 verification, ITIN applications for dependents, and quick reporting of address changes help you retain your legal status.

Your tax benefits go beyond simple filing requirements. You can access the same tax credits and deductions as U.S. citizens, which gives you big advantages over non-resident status. Your Social Security and Medicare tax obligations are like those of citizens, though some exceptions apply.

Resident aliens need to stay alert about meeting all requirements. Good documentation, on-time filing, and knowing your ongoing obligations ensure your legal status remains intact. While this status creates specific duties, it also opens up great opportunities if you plan to build your life in the United States.

Key Takeaways

Understanding resident alien status is crucial for navigating U.S. tax obligations and maintaining legal compliance as a non-citizen living in America.

• Resident aliens must report worldwide income – Unlike non-resident aliens who only pay taxes on U.S. income, resident aliens face the same tax obligations as citizens, including reporting all global earnings on Form 1040.

• Two pathways determine resident alien status – You qualify either by holding a Green Card (permanent resident card) or by meeting the Substantial Presence Test (31+ days current year, 183+ days over three years).

• Access to full tax benefits – Resident aliens can claim the same deductions, credits, and tax advantages as U.S. citizens, including child tax credits and education credits.

• Compliance documentation is mandatory – Maintain proper records including Form I-9 for employment, report address changes within 10 days via Form AR-11, and file Form 8833 for tax treaty benefits.

• Status affects employment and Social Security – Resident aliens pay Social Security and Medicare taxes like citizens and can work legally in most positions, but must maintain documentation to preserve their status.

The distinction between resident and non-resident alien status significantly impacts your tax burden, available benefits, and legal obligations in the United States.

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