Are Resident Aliens Subject to U.S. Federal Taxes?

By:  Coleman Jackson, Esq.

Coleman Jackson, PC | 6060 North Central Expressway, Suite 443 | Dallas, Texas 75206 | | 214-599-0431

Resident Aliens And U.S. Tax

June 12, 2014

Yes, resident aliens are subject to U.S. federal taxes on their worldwide incomeSee 26 U.S.C.  §7701(b) and 26 U.S.C. §61.

Who is a resident alien?  For federal tax purposes, there are primarily two ways to determine whether one is a resident of the United States.  The first is the green card test, if you have a green card; you are a resident of the United States and therefore are subject to U.S. tax laws the same as if you were a U.S. citizen.  See U.S.C. §7701(b) (1) (A) (i).  The other test is the substantial presence test.  Under the substantial presence test you will be considered a U.S. resident if you were physically present in the U.S. for at least 31 calendar days during the course of the year and 183 days during the 3 year period that includes the current year and two previous years immediately preceding it.  See 26 U.S. C. §7701(b) (3).  The distinctions, however, between a non-immigrant and permanent immigrant is complex for tax considerations.  For example, an H-1B visa holder can stay in the United States for up to 6 years; it is therefore possible for an alien to be both a non-immigrant and pay taxes as a resident alien. You must understand that in this blog- we are discussing resident alien as defined in the Internal Revenue Code; resident alien could be defined differently under the Immigration and Nationality Laws of the United States.

Suppose the green card holder moves overseas and all her income is earned overseas?  Again green card holders are considered resident aliens of the United States for tax purposes.  Unless you follow proper procedures in abandoning your green card, you are subject to U.S. taxation on your worldwide income no matter where you live or where it’s earned.  You should file U.S. tax returns as a resident even though you live overseas.  You should not file a non-resident tax return because that could invalidate your green card.  

Does that mean you must pay income taxes in the U.S. and in the country where you reside?  It depends.  There could be a tax treaty between the U.S. and the country where you live.  Under the treaty, resident alien’s income could be partially or totally exempt from U.S. taxation.  Even so, you still must file the U.S. tax return reporting your worldwide income.  To claim the treaty exemption amount, you would attach Form 2555 to your Form 1040 individual tax return.  But before filing your return, you need to determine whether there is a tax treaty between the two countries designed to eliminate double-taxation, or at least, minimize double-taxation.  It also needs to be determined who is covered under the applicable tax treaty.  For example, the tax treaty could exempt citizens of the treaty country but not resident aliens living in the treaty country.

Taxation is a very complex area of law; therefore, you should consult with your tax advisor, who is knowledgeable about the tax treaty between the U.S. and the other country, taxation of resident aliens and like issues impacting U.S. persons who own overseas accounts and assets.

This blog was written for educational purposes only and creates no attorney-client relationship between the reader and the tax & immigration law firm of Coleman Jackson, P.C.

Coleman Jackson, PC
Immigration & Tax Law Firm
6060 North Central Expressway
Suite 443
Dallas, Texas 75206
Law Firm
Main Line:   214-599-0431 ||| Spanish Line:  214-599-0432

Leave a Reply

Your email address will not be published. Required fields are marked *