Foreign nationals living or earning money in the United States generally do pay U.S. taxes, but what they owe depends on how the IRS classifies them. Resident aliens are taxed on worldwide income, the same as U.S. citizens. Nonresident aliens are taxed only on income from U.S. sources, and passive income is typically hit with a flat 30% at the source unless a tax treaty lowers that rate. Everything else — deductions, filing form, estate exposure, even Social Security withholding — flows from which of those two categories you fall into.
How the IRS Decides If You’re a Resident or Nonresident Alien
Two tests do the sorting. Pass either one and you’re a resident alien for the year.
The Green Card Test is simple: if you held a lawful permanent resident card at any point during the calendar year, you’re a resident alien for that entire year.1Office of the Law Revision Counsel. 26 U.S.C. 7701 – Definitions
The Substantial Presence Test counts days across a rolling three-year window: every day you were physically in the U.S. during the current year, one-third of the days from the year before, and one-sixth of the days from the year before that. If the weighted total is at least 183 days and you were present at least 31 days in the current year, you’re a resident alien.1Office of the Law Revision Counsel. 26 U.S.C. 7701 – Definitions
The Closer Connection Exception
Meeting the day count doesn’t always end the analysis. If you were in the U.S. fewer than 183 days during the current year, kept a tax home in a foreign country for the whole year, and can show a closer connection to that country than to the United States, you can still be treated as a nonresident alien. The IRS looks at where your permanent home is, where your family lives, where you hold your driver’s license, and where you do your personal banking. You claim the exception by filing Form 8840 with your return.2eCFR. 26 CFR 301.7701(b)-2 – Closer Connection Exception
If your status changes mid-year — arriving on a work visa and later getting a green card, for example — you’ll have a dual-status year, reporting worldwide income only for the resident portion.3Internal Revenue Service. Taxation of Dual-Status Individuals
What Nonresident Aliens Actually Pay Tax On
The IRS splits a nonresident alien’s U.S. source income into two buckets, and the two are taxed on completely different terms.
Effectively Connected Income
Income tied to a U.S. business or to services performed in the U.S. — wages from a U.S. employer, freelance pay for work done here, profits from a U.S.-based business — is effectively connected income, or ECI. ECI is taxed at the same graduated rates that apply to citizens, and deductions are allowed against it.4Internal Revenue Service. Effectively Connected Income (ECI)
Passive Income (FDAP)
The other bucket is passive: dividends, interest, rent, royalties, and similar payments from U.S. sources. The IRS labels this “fixed, determinable, annual, periodical” income, or FDAP. No deductions apply. The payer withholds a flat 30% of the gross amount before it reaches you.5Office of the Law Revision Counsel. 26 U.S.C. 1441 – Withholding of Tax on Nonresident Aliens A tax treaty can reduce that rate, but only if you claim it (more on that below).
Capital Gains
Capital gains that aren’t connected to a U.S. business get their own rule. A nonresident alien present in the U.S. fewer than 183 days during the tax year generally pays no U.S. tax on U.S. source capital gains. Cross 183 days and net capital gains from U.S. sources take a flat 30% hit, or a lower treaty rate if one applies.6Office of the Law Revision Counsel. 26 U.S.C. 871 – Tax on Nonresident Alien Individuals Real estate gains are handled separately under FIRPTA.
The FICA Break for Students and Scholars
Foreign students and exchange visitors on F-1, J-1, or M-1 visas who are still nonresident aliens don’t owe Social Security or Medicare tax on wages from authorized U.S. employment — on-campus jobs (up to 20 hours per week during the school term) or approved practical training. The exemption lasts through the first five calendar years of presence.7Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes
It doesn’t cover dependents on F-2, J-2, or M-2 visas, and it ends the moment you switch to another visa category or become a resident alien under the Substantial Presence Test. Employers routinely withhold FICA in error for exempt students, so it’s worth checking your first pay stub.7Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes
Tax Treaties Can Cut the Rate, but Only If You Claim Them
The United States has bilateral tax treaties with dozens of countries. A treaty can drop the 30% withholding on dividends to 15% or 5%, exempt scholarship income, or eliminate tax on certain pension payments. What you get depends on your country and the type of income.8Internal Revenue Service. Tax Treaty Tables
Nothing is applied automatically. For reduced withholding on passive income, hand the payer a completed Form W-8BEN certifying your foreign status and identifying the treaty article you’re relying on. Without it, the payer withholds the full 30%.9Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) If your return takes a treaty-based position that reduces your tax, you’ll usually also need to attach Form 8833 to disclose it.10Internal Revenue Service. Form 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
Selling U.S. Real Estate: FIRPTA Withholding
When a foreign person sells U.S. real property, the Foreign Investment in Real Property Tax Act (FIRPTA) requires the buyer to withhold 15% of the total sales price — not the profit, the price — and send it to the IRS.11Internal Revenue Service. FIRPTA Withholding A $500,000 sale means $75,000 leaves the closing table for the IRS, whether or not the seller actually made money.
That withholding isn’t the final tax bill. You file a return at year-end to calculate your actual gain and claim any overpayment back, or you can apply for a withholding certificate before closing to reduce the amount taken if your true liability will be lower than 15% of the price.
One narrow exception: if the buyer is an individual who plans to use the property as a personal residence and the sales price is $300,000 or less, FIRPTA withholding doesn’t apply. The buyer must intend to live at the property at least half the days it’s occupied during each of the first two years after the sale.12Internal Revenue Service. Exceptions From FIRPTA Withholding
Estate and Gift Tax: The $60,000 Trap
This is where the code turns unusually harsh on foreign nationals. A U.S. citizen or resident can shelter roughly $13.99 million in assets from federal estate tax. A nonresident alien gets $60,000. That figure has stood for decades and isn’t indexed to inflation. It comes from a $13,000 unified credit under 26 U.S.C. § 2102, which offsets tax on the first $60,000 of U.S.-situated assets.13Internal Revenue Service. Frequently Asked Questions on Estate Taxes for Nonresidents Not Citizens of the United States14Office of the Law Revision Counsel. 26 U.S.C. 2102 – Credits Against Tax
U.S.-situated assets, for this purpose, include real estate located in the U.S., tangible personal property physically here, and shares in U.S. corporations. A nonresident alien holding a $500,000 U.S. stock portfolio and a $400,000 condo has close to $900,000 exposed, with only $60,000 sheltered. Some estate tax treaties change this result, but many countries don’t have one with the U.S.
Gift tax is more workable. In 2026, a nonresident alien can give up to $19,000 per recipient per year without owing tax or filing. Gifts to a non-citizen spouse are tax-free up to $194,000 per year. Above either threshold, Form 709-NA is required.15Internal Revenue Service. Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States
Filing: ITIN, Form 1040-NR, and Deadlines
If you need to file but aren’t eligible for a Social Security number, apply for an Individual Taxpayer Identification Number (ITIN) using Form W-7, submitted with your tax return and original identity documents (a valid passport is the cleanest option). The ITIN exists only for federal tax purposes and doesn’t authorize work or affect immigration status.16Internal Revenue Service. Individual Taxpayer Identification Number (ITIN) ITINs expire if you don’t use one on a return for three consecutive years, and a lapsed ITIN has to be renewed before you can file again.17Internal Revenue Service. How to Renew an ITIN
Nonresident aliens report U.S. income on Form 1040-NR. Resident aliens file the standard Form 1040.18Internal Revenue Service. Taxation of Nonresident Aliens
If you received wages subject to U.S. withholding, your return is due April 15. If you didn’t, and you don’t have a U.S. office or place of business, the deadline is June 15.19Internal Revenue Service. Instructions for Form 1040-NR (2025) Either way, filing Form 4868 before the original deadline buys another six months to file, pushing it to October 15. The extension covers filing only; interest still runs on any unpaid balance from the original due date.20Internal Revenue Service. Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return Refunds of tax withheld and reported on Form 1042-S can take up to six months to arrive.
Foreign Account Reporting Once You’re a Resident Alien
Becoming a resident alien makes you a “United States person” for financial reporting. If the combined value of your foreign bank and financial accounts exceeds $10,000 at any point during the year, you must file a Report of Foreign Bank and Financial Accounts (FBAR) with FinCEN by April 15 of the following year.21Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements New green card holders who keep savings in their home country often miss this, and the penalties are severe even when no tax is owed on the balances.
Nonresident aliens are generally outside FBAR. Resident aliens with foreign financial assets above higher thresholds may also need to file Form 8938 with their return. The two overlap but aren’t the same, and filing one doesn’t satisfy the other.21Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements
State Income Tax Is Separate
Federal is only part of the picture. Most states impose their own income tax, with top marginal rates from under 3% to over 13%; a handful of states have none. Earning income in a taxing state usually means a state return in addition to your federal one, even as a nonresident alien. State rules vary, but many start from the federal resident/nonresident classification and then apply their own residency tests based on days present or income earned within the state.