Who Qualifies as a Resident Alien?
The United States is “home” to more than 320 million people. The IRS classifies people into three main categories: U.S. Citizen, U.S. National, or Alien. A U.S. Citizen is someone who was born in the United States or born to a citizen of the United States, or someone who has been naturalized (accepted as a citizen, though born elsewhere). A U.S. National is anyone who is a citizen or was born in American Samoa or the Commonwealth of the Northern Mariana Islands. An alien is someone who is neither a citizen nor a national.
Taxes, the IRS and Alien Status
There are two main distinctions in alien status when it comes to taxes and the IRS – resident alien and nonresident alien. There are particular parameters for being considered a resident, but the basic meaning is someone who lives in the United States.Aliens living in the U.S. typically hold green cards, which permit them to live and work in the U.S., but a green card is not mandatory to be considered a resident. There is something called a substantial presence test that the government uses to determine if a person “lives” here. This “test” uses a formula that weighs the number of days out of the previous three years that a person has been present in the United States. Based on the results, an alien is classified as either resident or nonresident.
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What Must Resident Aliens Report
Determining your correct residency status is essential to understanding how you will be taxed and what benefits you will be entitled to when it comes to taxes. Resident aliens, or green card holders, are treated nearly identically as U.S. citizens when it comes to taxes. Like citizens, they must report all wages and other compensation, as well as dividends, interest, rental income, etc. Regardless of where the money is earned- in the U.S. or outside of it- resident aliens are required to complete and submit tax returns and report all of their income to the IRS. In other words, the IRS is interested in their worldwide earnings.
Tax Breaks for Resident Aliens
Regarding tax breaks, this is another area in which resident aliens and citizens are viewed the same by the IRS. Resident aliens may claim dependents and exemptions according to the same rules that apply to U.S. citizens. They can also claim tax credits (earned income, adoptions…) in the same way that citizens do.
International Tax Law Requires an Expert
If you are considering moving to the United States, either temporarily or permanently, we at CPA Accounting and Tax Services advise that you speak with us first. Our team is versed in international tax law and can help you decide
- If you should move?
- When is the best time to move?
- What you should know about taxes in the U.S?
If you already live in the U.S and are unsure of how to properly file your tax return, call us today at 407-382-6658.