Ed note: If you are new to the U.S., the process of filing a tax return may seem daunting at best and impossible at worst. We help sort through what it means to be a nonresident filing for the first time – what status to use and what documentation you’ll need to work on ahead of time.
If you are a non-citizen filing a U.S. tax return for the first time or a U.S. citizen who has moved abroad, you’re probably wondering what the filing process looks like for you. Here, we’ll explain some of the preliminary issues that you may encounter, such as how to figure out your filing requirements and how to obtain an identifying number.
Filing Requirements for Expats
Expats are U.S. citizens or green card holders who have moved abroad and/or are working abroad. As an expat, you must file a U.S. return (Form 1040), and report your worldwide income every year you meet the filing threshold applicable to you. Additionally, foreign informational returns such as FBAR and Form 8938 may also be required.
A Definition of Terms for Inpats
If you are not a U.S. citizen, you’ll likely fall into one of these three groups for tax purposes: resident alien, nonresident alien or dual status taxpayer. Generally, if you are a visa holder in the U.S., you are termed an Inpat. Importantly, your tax filing status doesn’t change or impact your immigration status.
Determine which group you fall into as an Inpat
If you have a green card, then the answer is simple – you’re a resident alien. If you don’t have a green card, you’ll need to use the substantial presence test to determine your tax filing status.
You will need to know:
- The number of days you have been in the U.S. in the current year.
- The number of days you have been in the U.S. during each of the previous two years.
- The date you first arrived in the U.S.
- The type of visa status you have.
- What type of visas your spouse and dependents have.
Your visa status can help determine your filing status because certain visa categories must be treated as nonresident aliens for a specific period of time. Presence in the U.S. under specific exempt categories will not count as days of presence for tax residency purposes. For example, a teacher or trainee with a “J” visa will not count days present in the U.S. for the first two years they are on that visa. This means that they will be considered a nonresident alien and file a 1040NR for those first two years.
There is also a final category: dual-status aliens. You usually file as a dual-status taxpayer during the years you either move into, or move out of the U.S.
The implications of your filing status
U.S. citizens and resident aliens must report their worldwide income and file a U.S. tax return each year they meet the applicable filing threshold. This is true regardless of where they live in the world.
But, a nonresident alien is only taxed on U.S.-source income including wages earned for work performed in the U.S. or proceeds from the sale of real property located in the U.S. Whether you are required to file a return (FORM 1040NR) as a nonresident is dependent on a number of factors. However, if you are earning wages as an employee you will typically need to file a return.
How to File a U.S. Return for the First Time
You’ll need a taxpayer identification number (TIN) in order to file a U.S. return. U.S. citizens and green card holders usually have Social Security Numbers (SSNs). If you already have a SSN, even if it doesn’t allow you to work in the U.S., use that as your TIN. If you have applied for a SSN, you shouldn’t apply for a taxpayer identification number (TIN).
However, if you don’t have a SSN and aren’t eligible for one, you will need to apply for an individual taxpayer identification number (ITIN). If you are able to claim a spousal exemption and/or claim dependents, then your spouse and children will also need ITINs. The ITIN will not entitle you to social security benefits, nor does it change your immigration status or right to work in the U.S. In addition, individuals filing tax returns using an ITIN are not eligible for the earned income tax credit (EITC).
Applying for an ITIN
There are two methods to apply for an ITIN. First, you can apply for an ITIN by completing Form W-7 and attaching the form to the tax return for which the ITIN is needed. The other method is to have the required original documents certified by a certified acceptance agent (CAA) and to attach the certified identification documents to the W-7 application.
Working through the substantial presence test and the ITIN application process can be daunting. Both Inpats and Expats who are ready to get started on their tax returns and FBARs can get help from H&R Block Expat Services. Expat Tax Services also has CAA’s that can assist with the ITIN application process.