What is Non-Resident Alien?

How it works

The IRS recognises two categories of non-citizens: resident alien and non-resident alien (NRA). Classification determines what the US can tax. NRAs are taxed only on:

• US-source FDAP (fixed, determinable, annual or periodic income — dividends, interest, rents, royalties): flat 30% gross-basis withholding, reduced by treaty.
• Effectively connected income (ECI): graduated rates with deductions on net, reported via Form 1040-NR similar to a US person on Schedule C.
• Capital gains are generally exempt for NRAs, with two key exceptions: gains tied to a US trade or business (ECI), and gains on US real property interests (FIRPTA-treated as ECI by statute).

Foreign-source income — income outside the US sourcing rules — is not subject to US tax at all. A French author selling books to French readers from his Paris desk, paid by a French publisher, owes nothing to the IRS.

Two routes into NRA classification (per PwC US individual residence):

1. Pass neither the green-card test nor SPT.
2. Trip SPT but defeat it. Either via Closer Connection (Form 8840) or via a tax-treaty residency tie-breaker (Form 8833).

What an NRA actually files

Form 1040-NR — the non-resident-alien return. Reports US-source ECI on graduated rates, US-source FDAP on a separate Schedule NEC, and claims treaty-based exclusions. Withholding agents send their parallel reporting via Form 1042-S — not 1099 — by 15 March of the following year.

The deadline for 1040-NR depends on income type: 15 April if any wages were subject to US withholding, 15 June otherwise. Extensions to 15 October available.

NRAs use W-8BEN (or W-8BEN-E for entities) to certify foreign status to US payers, typically claiming treaty rate reductions. The form is given to the payer, not the IRS.

Examples

• Brazilian dentist visiting US clinics. Works 70 days/year teaching at a US dental institute over three years (70 + 23 + 12 = 105 — under SPT). Receives $40,000 of US-source ECI. Files Form 1040-NR claiming proper deductions; pays graduated US tax on $40,000 net. The rest of his Brazilian dental practice income is foreign-source and outside US tax.
• German investor with US dividends. Holds $2M of S&P 500 ETF in his German brokerage, no US presence. Receives $40,000 of US dividends. Default 30% withholding = $12,000 per year. With a valid W-8BEN claiming the Germany-US treaty 15% rate, withholding drops to $6,000 — saving $6,000/year passively.

Common mistakes

• Filing 1040 instead of 1040-NR. The two forms are not interchangeable. Filing 1040 as an NRA mis-claims worldwide income reporting and can trigger amended returns, penalties, and disallowed deductions.
• Skipping the W-8BEN. Without one, treaty rates don't apply, full 30% withholding hits, and the only refund route is a 1040-NR filed the following year — 6 to 18 months processing.
• Treating US LLC ownership as automatically NRA-friendly. A US LLC engaged in a US trade or business produces ECI for its NRA owners, taxable on net at graduated rates. The "no US tax for foreign LLC owners" myth dies fast when ECI is on the table.
• Forgetting state tax. California, New York and several other states have residency tests independent of the federal NRA classification. You can be NRA federally and a state resident locally.