If you’re not a U.S. citizen or green card holder and you don’t meet the substantial presence test, nonresident alien taxation applies to you, and it works differently from the system that covers residents. You owe federal income tax only on income from U.S. sources or connected to a U.S. trade or business. That income splits into two buckets taxed at very different rates: effectively connected income is taxed at the same graduated brackets as U.S. citizens (10% to 37% for 2026), while passive U.S.-source income gets a flat 30% withholding unless a tax treaty lowers it. You report everything on Form 1040-NR.
Who Is a Nonresident Alien for Tax Purposes
Federal law runs two tests. Fail both and you’re a nonresident alien for the entire tax year.1Office of the Law Revision Counsel. 26 USC 7701 – Definitions
The first is the green card test. If you held lawful permanent resident status at any point during the calendar year, you’re a tax resident. No minimum number of days is required.2Internal Revenue Service. U.S. Tax Residency – Green Card Test
The second is the substantial presence test. The IRS counts your days in the U.S. across three years using a weighted formula: all days in the current year, plus one-third of the days from the prior year, plus one-sixth of the days from two years back. If you were here at least 31 days in the current year and the weighted total hits 183 or more, you’re treated as a resident.3Internal Revenue Service. Substantial Presence Test
Even if the weighted count reaches 183, you may still qualify as a nonresident under the closer connection exception. You must have been physically present fewer than 183 actual days that year, maintained a tax home in a foreign country, and had stronger personal and economic ties there than to the U.S. You claim it by filing Form 8840 by the 1040-NR deadline; miss that deadline and you lose the exception entirely.4Internal Revenue Service. Closer Connection Exception Statement for Aliens (Form 8840)
If your status changes during the year, the IRS treats it as a dual-status year, with only U.S.-source income taxable during the nonresident portion and worldwide income taxable during the resident portion. Dual-status filers cannot use the standard deduction or file jointly.5Internal Revenue Service. Taxation of Dual-Status Individuals
How Your Income Gets Taxed
The IRS sorts nonresident alien income into two categories with completely different rules. Which category your income falls into decides both the rate and whether you can deduct anything against it.
Effectively Connected Income
Income tied to a trade or business you actively run in the United States — wages, salaries, self-employment income, business revenue — is effectively connected income, or ECI. It’s taxed at the same graduated rates that apply to U.S. citizens, currently 10% on the first $12,400 of taxable income and rising to 37% on amounts above $640,600 for single filers in 2026.6Internal Revenue Service. Effectively Connected Income (ECI)7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The advantage of ECI is that you can subtract allowable deductions from the gross amount before calculating tax, which pulls the effective rate well below what applies to passive income.
FDAP Income
Passive U.S.-source income — dividends, certain interest, rents, royalties, and similar recurring payments — is fixed, determinable, annual, or periodical income, known as FDAP. It’s taxed at a flat 30% of the gross amount with no deductions allowed, and the payer typically withholds that 30% before you ever see the money.8Internal Revenue Service. Fixed, Determinable, Annual, or Periodical (FDAP) Income The 30% rate and the graduated ECI treatment both come from Section 871 of the Internal Revenue Code.9Office of the Law Revision Counsel. 26 USC 871 – Tax on Nonresident Alien Individuals
Capital Gains
Capital gains from selling stocks, bonds, or other personal property generally escape U.S. tax if you’re in the country fewer than 183 actual days during the tax year and your tax home is outside the United States. If you’re present 183 days or more, a flat 30% tax applies to your net U.S.-source capital gains regardless of where the sales occurred. This 183-day count is a separate rule from the substantial presence test.10Internal Revenue Service. The Taxation of Capital Gains of Nonresident Students, Scholars and Employees of Foreign Governments Taxable gains get reported on Schedule NEC of Form 1040-NR, not Schedule D. Real estate gains follow the FIRPTA rules below.
What You Can and Can’t Deduct
Nonresident aliens cannot claim the standard deduction. The only narrow exception is for students and business apprentices from India, under a specific provision of the U.S.-India treaty.11Internal Revenue Service. Nonresident – Figuring Your Tax Everyone else must itemize or take no deduction.
If you have ECI, certain itemized deductions can offset it: state and local income taxes, charitable contributions to U.S. nonprofits, and casualty losses from federally declared disasters. These only reduce ECI, not FDAP. Nothing is deductible against income taxed at the flat 30% rate.
Credits are also restricted. The Child Tax Credit requires each qualifying child to be a U.S. citizen, national, or resident alien with a Social Security number valid for employment,12Internal Revenue Service. Child Tax Credit a bar most nonresident aliens’ children don’t clear. Personal exemption deductions remain unavailable through at least 2025 under current law.
Using a Tax Treaty to Lower the Rate
The United States has income tax treaties with dozens of countries, and they can dramatically reduce what a nonresident alien owes. Treaties commonly cut the 30% flat rate on dividends, interest, and royalties to 15%, 10%, or zero. Scholarships and fellowship grants for students and researchers may be fully exempt. Certain personal service income also qualifies for reduced taxation depending on length of stay and amount earned.
Treaty benefits don’t apply automatically. You have to claim them, and how you claim depends on the income type.
For passive income subject to withholding, you give the payer Form W-8BEN before receiving payment. The form establishes that you’re not a U.S. person and claims the specific treaty rate. Once it’s on file, the payer withholds at the treaty rate instead of 30%. Skip it and the full 30% comes out, leaving you to recover the excess through your return.13Internal Revenue Service. Instructions for Form W-8BEN
When you take a position on your return that a treaty overrides the Internal Revenue Code and reduces your tax, you must attach Form 8833 disclosing each such position separately. The penalty for failing to disclose is $1,000 per omission ($10,000 for C corporations).14Office of the Law Revision Counsel. 26 USC 6712 – Failure to Disclose Treaty-Based Return Positions Even if a treaty reduces your tax to zero and you’d otherwise owe nothing, you still have to file the return with Form 8833 attached to claim the benefit.
One boundary that catches filers: federal tax treaties don’t automatically bind the states. Several states refuse to recognize federal treaty benefits when calculating state income tax.15Internal Revenue Service. State Income Taxes Check with the tax department of any state where you earn income before assuming the reduction carries over.
Social Security and Medicare on Student and Exchange Visas
Nonresident aliens on F-1, J-1, or M-1 visas who have been in the U.S. fewer than five calendar years are generally exempt from Social Security and Medicare taxes on their U.S. wages, provided the work is USCIS-authorized and connected to the purpose of the visa.16Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes Qualifying work includes on-campus jobs (up to 20 hours per week during school, 40 during summer), authorized off-campus employment, and practical training. The exemption doesn’t extend to F-2, J-2, or M-2 dependents, and it ends when you switch to a non-exempt status or exceed the five-calendar-year threshold.
Employers sometimes withhold these taxes anyway. If your employer won’t refund the overcollection, file Form 843 with the IRS. Attach the W-2 and either an employer statement about any reimbursements or your own statement explaining why the employer wouldn’t provide one.17Internal Revenue Service. Instructions for Form 843
Selling U.S. Real Estate
Selling U.S. real estate triggers a separate withholding regime under the Foreign Investment in Real Property Tax Act. The buyer must withhold 15% of the total sale price, not 15% of the gain, and remit it to the IRS.18Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests A $500,000 sale means $75,000 held back regardless of whether you actually made a profit.
A reduced 10% rate applies when the buyer will use the property as a personal residence and the price doesn’t exceed $1,000,000. If the price is $300,000 or less and the buyer will use it as a residence, withholding may not apply at all.19Internal Revenue Service. FIRPTA Withholding
When the 15% will substantially exceed the tax you actually owe on the gain, you can apply for a withholding certificate on Form 8288-B before closing. If approved, the IRS authorizes reduced or zero withholding. Apply well before the closing date because the process takes time.20Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
Filing Form 1040-NR
Nonresident aliens file on Form 1040-NR.21Internal Revenue Service. About Form 1040-NR, U.S. Nonresident Alien Income Tax Return22Internal Revenue Service. Taxation of Nonresident Aliens Before starting, gather your income documents: Form W-2 for wages, Form 1042-S for FDAP income like dividends, interest, royalties, and scholarship payments,23Internal Revenue Service. About Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding and any Forms 1099. The return asks for your entry and exit dates, your country of citizenship, and details of any treaty benefits claimed.
Deadlines
If you received wages subject to U.S. income tax withholding, your return is due April 15. If none of your income was subject to withholding — passive FDAP only, for example — the deadline extends to June 15.22Internal Revenue Service. Taxation of Nonresident Aliens Both shift to the next business day when they fall on a weekend or federal holiday.
Need more time? File Form 4868 by the original due date for an automatic six-month extension. It extends the time to file, not the time to pay; unpaid tax accrues interest and penalties from the original deadline.24Internal Revenue Service. Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (Form 4868)
Filing Method and Late Penalties
Form 1040-NR can be e-filed, and paid preparers are generally required to submit it electronically.25Internal Revenue Service. Instructions for Form 1040-NR Paper returns go to the IRS processing center designated for your location and take several weeks longer to process.
Filing late costs 5% of the unpaid tax per month or partial month, capped at 25%.26Internal Revenue Service. Failure to File Penalty Keep copies of everything you submit, including mailing receipts for paper returns.
Getting a Departure Permit Before You Leave
Before leaving the United States, nonresident aliens generally must obtain a tax clearance document, sometimes called a departure or sailing permit, showing they’ve met their U.S. tax obligations. You get it by filing Form 1040-C or Form 2063 at an IRS Taxpayer Assistance Center before your departure date. Some travelers are exempt, but if you earned taxable income, handle this before you head to the airport.27Internal Revenue Service. Topic No. 858, Alien Tax Clearance