Many people are under the impression that non-citizens do not have to pay taxes. This may be true in some instances, but there are also situations in which a person who is not a U.S. citizen is required to pay taxes.
Failure to pay taxes can lead to legal penalties that can have negative consequences for non-immigrant residents in the long run. So, it is important for non-citizens to understand their tax obligations and respond to the requirements of the tax laws. The applicable law varies depending on whether the person holds a non-immigrant visa or has permanent resident status, which is commonly represented by possession of what is known as a “green card.”
The relevant laws set forth in the Internal Revenue Code determine a non-citizen’s responsibility to pay taxes in the United States. The payment of taxes may apply to income from whatever source, gifts given above a certain amount, assets that are inherited (inheritance tax) and capital gains tax on the sale of capital assets, mostly stocks and real property.
It is also important to keep in mind that federal taxes are only part of it; many states impose a tax on income and may also collect gift, inheritance and capital gains taxes. In addition, counties and municipalities may tax income. And all of these levels of government may have laws that are different from those of the federal government.
Resident aliens, that is, “green-card” holders, are classified as “tax residents” in the U.S. and are taxed in the same manner as U.S. citizens. They must report their worldwide income on their annual tax return. This means that they must report all of their income from whatever source it is derived even if it comes from sources outside the U.S. And even if they should reside outside the U.S. for the entire tax year, they must still file a U.S. tax return every year and pay any taxes owed..
All of the income reported will not necessarily be taxed. The issue of what is and is not subject to income tax is not is more complicated and would require the help of an experienced tax attorney. Tax treaties between the U.S. and other nations as well as other factors determine whether the income is taxable. Nonetheless, all income received by permanent residents must be reported to the Internal Revenue Service (IRS) by the annual tax deadline, which is April 15 every year.
Nonresident aliens are people who may reside and work in the U.S. on the basis of a visa. Nonresident aliens are taxed only on income which is derived from sources within the United States and/or income that is effectively connected with a U.S. trade or business.
However, there are exceptions to this rule regarding nonresident aliens. For example, the income of a person with a G4 visa, who works for an international organization which is the source of their income, e.g. the United Nations (U.N.), is exempt from U.S. income tax.
The Internal Revenue Service applies varying tax rules to different classifications of non-immigrant visas. It pays for a person who has a non-immigrant visa to carefully research the U.S. tax rules that apply to their particular classification.
For nonimmigrant visa holders, the basic rules regarding income tax are as follows:
- Non-immigrant visa holders may be classified as tax residents depending on the amount of time they spent in the U.S. within the most recent three years.
- A non-immigrant visa holder’s U.S. tax liability is usually determined by applying the Substantial Presence Test. This test provides that if the non-immigrant visa holder has been in the U.S. for at least 31 days in the current years, and 183 days total during the three-year period that includes the current year and the two years immediately preceding the current year, they are tax residents for U.S. income tax purposes and must file an income tax return.
- If a non-immigrant visa holder has been present for at least 183 days in any given year, they are a tax resident for that year.
- Non-immigrant visa holders who have been present in the U.S. for less than 30 days of the current year may be considered taxable residents if they have been in the U.S. for a “weighted” total of at least 183 days in the past 3 years. This calculation can become complicated, as one day in the current year counts as 1 day, while one day in the previous year counts as 1/3 of a day, and one day in the year before that counts as 1/6 of a day.
- Not all non-immigrant visa holders are subject to the Substantial Presence Test. For example, G4 visa holders, who are usually official or employees of international organizations, e.g the U.N., are not subject to the substantial presence rule. Different rules apply specifically to G4 visa holders.
- A non-immigrant resident may also be required to file a tax return if they have no “tax home” in another country. In that case, the IRS may determine that the U.S. is the person’s tax home, thus making them responsible for filing a U.S. tax return.
- Even if you have a nonimmigrant visa and qualify as a tax resident under the above rules, you can avoid being treated as a tax resident if you:
- are present in the United States for less than 183 days during the current year;
- have not applied for a green card;
- have a closer connection with a foreign country than with the U.S.; and
- maintain a tax home in this foreign country during the year.
- Some tax rules may not apply to non-immigrant visa holders who are serving as teachers, students, foreign government employees, or athletes.
For people with permanent resident status, i.e., “green card” holders, the tax rules are as follows:
- A person who has received a “green card” becomes a U.S. tax resident.
- Thus, “green card” holders must file an income tax return with the U.S. IRS every year by the April 15 deadline.
- Failure to supply tax information can negatively affect the green card holder’s chances of becoming a naturalized U.S. citizen at a later date.
The U.S. Internal Revenue Service applies varying rules to different classifications of non-immigrant visas. It pays for a person who has a non-immigrant visa to carefully research the rules that apply to their particular classification.
The income that G4 visa holders who reside in the U.S. receive from the international organization for which they work is exempt from U.S. income tax. However, if they receive income in the U.S. from other sources, that income is subject to U.S. income taxation.
G4 visa holders might be subject to inheritance taxes if they reside in the U.S. Whether or not they are considered “domiciled” in the U.S. depends on a variety of factors; in any event not all G4 visa holders will be subject to inheritance tax. If they are domiciled in the U.S., however, they are subject to inheritance tax on assets they own anywhere in the world. G4 visa holders are also subject to gift tax on tangible personal property located within the U.S.
G4 visa holders will be subject to capital gains tax on the sale of all of their capital gains wherever the capital assets are located, if they have resided in the U.S. for 183 days a year. If the G4 visa holder has not resided in the U.S. for 183 days of the year, they must pay capital gains tax only for gains realized from the sale of real property located in the U.S.
On the other hand, a non-immigrant alien with a J-1 status is treated as a U.S. resident for federal income tax purposes if they meet the Substantial Presence Test. The J-1 visa status permits a qualified nonimmigrant alien. This refers to an alien who is not a lawful permanent resident (does not hold a “green card”), to live temporarily in the United States for the purposes of: teaching, studying, observing, conducting research, consulting, demonstrating special skills or receiving on-the-job training for periods ranging from a few weeks to several years at colleges and universities, hospitals, research institutions, and with private sector entities as well.
Do U.S. Tax Residents Need to Declare Tax Information From Outside of the U.S.?
If a non-citizen is classified as a U.S. tax resident, they are required to report all of their income to the IRS, even if it is realized from sources outside the U.S. To be clear, not all reported “worldwide” income will be taxed. The non-citizen tax resident simply has a duty to declare the income on their U.S. tax returns. Whether or not income is taxed depends on other laws, for example international tax treaties.
What are the Legal Penalties Involved with Visa Holders and Tax Violations?
If a person has a visa or green card and is classified as a tax resident, they must follow all the laws regarding tax returns and payment of taxes. Failure to comply with U.S. tax laws might negatively affect the person’s future applications with regards to:
- Adjustment of status;
- Visa extensions or renewals;
- Naturalization and citizenship.
In addition, tax violations can be grounds for more serious measures such as deportation/removal. Thus, it is important for a non-citizen to understand their obligations with respect to current U.S. tax laws and to comply with them.
Do I Need a Lawyer for Issues With Visa Holders and Tax Violations?
If you or your loved ones are unsure of your current tax classification, you may wish to contact an experienced tax attorney for advice. An experienced tax attorney in your area can determine your tax status and provide you with advice on how to satisfy tax requirements.
U.S. tax law is quite complicated and determining your status, what income must be reported and how it is taxed may involve international tax treaties. Also other levels of government, from states to municipalities (cities) may also have tax laws that apply to you.
The penalties for failing to satisfy your obligations under the tax laws can be harsh. So if you have any questions at all about any kind of taxation, from income to inheritance, you should consult an experienced tax attorney. You will have the best possible outcome and protect yourself from the harsh penalties of U.S. tax law if you have an experienced tax attorney helping you.