As tax filing season rolls around, it’s not just U.S. citizens who need to file their taxes. Nonresidents who earn or have a U.S. income may also be required to file a tax return each year. However, instead of Form 1040, the Internal Revenue Service has its own form for nonresident individuals, Form 1040-NR. Keep reading to learn more about Form 1040-NR, who needs to file, and what types of income require filing.
What is Form 1040-NR?
IRS Form 1040-NR, also called U.S. Nonresident Alien Income Tax Return, is used by nonresident individuals to report U.S.-source income and calculate their tax liability. Form 1040-NR is very similar to Form 1040 in appearance and function; however, instead of serving U.S. citizens, it focuses on the unique tax rules for nonresident individuals.
Who needs to file Form 1040-NR?
As a nonresident, you’ll need to file Form 1040-NR if:
You engaged in a trade or business in the United States.
You represented a deceased person who would have had to file, or an estate or trust that had to file.
You have taxable U.S.-source income that isn’t from operating a business, working as an employee, or performing services.
Tax was not withheld, too little was withheld, or too much was withheld from your income.
You claim treaty-based positions as a dual-resident taxpayer.
You’re properly reporting your income.
Do international students have to file Form 1040-NR?
Whether international students must file Form 1040-NR depends on whether they earned income.
However, nonresident students, regardless of earning an income, should file Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition. This informational statement notifies the IRS of the days you were present in the U.S. so they can be excluded from the substantial presence test. This form can be e-filed only when submitted alongside Form 1040-NR (students with income); otherwise, it must be mailed (students with no income).
Who is considered a nonresident alien for U.S. tax purposes?
A nonresident alien is an individual who isn’t a U.S. citizen and has not yet passed the green card test or the substantial presence test.
Form 1040-NR Instructions
Federal tax Form 1040-NR is a two-page document similar to Form 1040. While it may look complicated, the form can be broken down into five simple parts:
Personal information, filing status, dependents: The beginning of the form requests basic details about you, including your SSN, filing status, country of citizenship, and residency information, visa type, and days present in the U.S. You’ll also include information about digital assets or dependents you may have.
Effectively connected income: On page one, you’ll report income that’s connected to a U.S. trade or business. We’ll include more information about not effectively connected income and how to report it later.
Tax, deductions, and credits. On page two, you’ll calculate your total tax by applying allowable itemized deductions and eligible credits.
Payments, refund, or the amount you owe. The final section accounts for federal income tax withheld and any estimated tax payments you made. After comparing your total payments to your total tax, the form shows whether you’ll receive a refund or owe additional tax.
Signatures. The very end of the form is meant for a third-party designee (if you’d like one), your signature, and your paid preparer’s information and signature.
What types of U.S.-source income require filing Form 1040-NR?
There are two primary types of income that must be reported on Form 1040-NR. These two types are:
Pictured below is where you’d report effectively connected income on Form 1040-NR.
Effectively connected income for Form 1040-NR (Page 1, lines 1-11a)
As mentioned above, you must file Form 1040-NR if you operate a business, are self-employed, work, or perform services in the U.S. This income would be considered effectively connected (ECI).
Here are some examples of ECI:
Salaries
Wages
Business income: Personal services
Business income: Sale of inventory purchased
Business income: Sale of inventory produced
Taxable gains from selling certain U.S. property, including U.S. real estate or property connected to a U.S. trade or business
Sale of natural resources
Sale of real property
Partnership or LLC income
Director’s fees from U.S. companies
Honoraria, speaking fees, or appearance fees
Stock-based compensation
Not effectively connected income for Form 1040-NR (Schedule NEC)
You must also file Form 1040-NR if you have U.S. income subject to tax withholding, even if you didn’t earn it through employment. This income would be considered not effectively connected (NEC) and is taxed at 30% or a lower treaty rate. This type of income must be reported on Schedule NEC, Tax on Income Not Effectively Connected With a U.S. Trade or Business, and attached to Form 1040-NR.
Listed below are several types of NEC income:
Dividends
Taxable interest
Motion picture or TV copyright royalties
Industrial royalties (patents, trademarks, etc.)
Other royalties (copyrights, recording, publishing, etc.)
Gambling winnings and losses (losses only apply to residents of Canada)
Social Security Benefits
Rental income
Real property income and natural resources royalties
Pensions
Annuities
Capital gains or losses from property sales (not effectively connected to business)
Can nonresident aliens claim deductions or credits on Form 1040-NR? (Page 2, lines 11b-33)
Nonresident individuals can claim deductions and credits on Form 1040-NR, but there are some caveats here. Pictured below is a portion of page two of Form 1040-NR, which we’ll focus on next.
Itemized deductions vs the standard deduction for nonresidents
Nonresidents generally can’t take the standard deduction, but they can take itemized deductions, as outlined on line 12, of page two of Form 1040-NR in the “Tax and Credits” section. You can report itemized deductions on Schedule A, which should be attached to Form 1040-NR. However, you should keep in mind that itemized deductions are typically limited to ECI, meaning deductions aren’t allowed against NEC income.
Though most nonresidents can’t claim the standard deduction, there is a treaty-based exception for student and business apprentices from India. These specific nonresidents may be eligible to claim the standard deduction under Article 21 of the U.S.-India Income Tax Treaty. This exception is also mentioned on line 12.
Effectively connected income credits for nonresidents
Some nonresidents may be eligible to claim certain tax credits. Generally, these credits are allowed when related to effectively connected income, but most don’t apply to NEC income.
Eligibility for credits typically depends on income type, residency status, whether a tax treaty applies, and other IRS requirements.
Some credits that nonresidents may be able to claim (with limitations) include:
Foreign tax credit (attach Form 1116)
Child and dependent care credit (attach Form 2441)
Retirement savings contributions credit (attach Form 8880)
Child tax credit and Credit for other dependents — only available for nonresidents who are U.S. nationals; residents of Canada, Mexico, or South Korea; or students and business apprentices from India who qualify for benefits under Article 21(2) of the income tax treaty with India (line 19, attach Schedule 8812)
Adoption credit (line 30, attach Form 8839)
Credit for prior-year minimum tax (attach Form 8801)
FAQs
The bottom line
Though the IRS form is meant for nonresident individuals, filing Form 1040-NR isn’t too different from filing Form 1040. The U.S. Nonresident Alien Income Tax Return may seem complicated at first, but it’s a relatively straightforward tax form once you dive in, and it’s made even simpler with TaxAct®. Whether you’re filing the form as an employee, business owner, or someone with NEC income, or claiming credits and deductions, you can trust TaxAct for an easy and accurate return.
Use TaxAct to file your Form 1040-NR with confidence.
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