Introduction
It’s almost time to file your taxes and the deadline this year is April 18. Employers usually provide documents like W-2s and 1099s by January 31, so by early or mid-February you should have most of the documents you need to file your tax return.
One of the most common questions during tax season is whether you should be filing a 1040 or a 1040 NR. The answer depends on whether you are considered a U.S. tax resident or a non-resident for federal tax purposes. Many people, especially those who are new to the country, find it difficult to navigate through the tax laws and understand which form applies to them.
Understanding the difference between Form 1040 and Form 1040 NR is the first step in filing the correct tax return.
Main Discussion
1040 vs 1040 NR
To make it simple:
1040 is for U.S. tax residents.
Who is a U.S. tax resident?
Anyone who is:
- a U.S. citizen
- a U.S. green card holder
- or someone who meets the substantial presence test
The substantial presence test is basically if you are in the country for more than 183 days, although there is a three-year look-back rule where they consider the previous years as well.
For simplicity, if someone has been in the country for more than six months during the year, that person is generally considered a tax resident and will file Form 1040.
If someone is not a resident, then the other option is Form 1040 NR, which is basically filed by non-residents.
Special Rule for F-1 Students
There is a special rule for F-1 students.
The substantial presence test does not apply to F-1 students for the first five years of their stay in the United States. Those first five years are basically not counted toward the substantial presence test calculation.
So during those first five years, students on an F-1 visa are considered non-resident aliens for federal tax purposes, and they will generally file Form 1040 NR.
It does not matter if you were in the United States for one single day or more than 365 days during that year. During the first five years on an F-1 visa you will still be considered a non-resident for federal tax purposes.
Another important point is that even if you enter the U.S. for one day during a year, that year still counts as one of the five years.
For example, if someone entered the United States on September 1, the period from September to December 31 is still considered the first year.
Calendar Year in the U.S. Tax System
In the United States the tax system is based on the calendar year.
This means the tax year includes all income earned between January 1 and December 31 of the same year.
So if someone is filing a 2021 tax return, that return includes all income earned between January 1, 2021 and December 31, 2021.
Change from F-1 to H-1B
Another common situation happens when someone changes their visa status from F-1 to H-1B.
Usually H-1B employment starts on October 1. That means during the year of change the first nine months might still be under F-1 status and the last three months might be under H-1B status.
When applying the substantial presence test, only the H-1B period counts toward the test. Since those three months are less than 183 days, the individual might still be considered a non-resident alien for that year and may still file Form 1040 NR.
In the following year, if the individual spends the entire year under H-1B status, they will likely meet the substantial presence test and become a resident alien for federal tax purposes, which means they will file Form 1040.
Practical Impact
Determining whether you are a resident or non-resident for federal tax purposes is important because it determines which tax return you should file.
If you are a resident, you will file Form 1040. If you are a non-resident, you will file Form 1040 NR.
Your tax status depends on visa status, number of years in the United States, and the number of days you were present in the country, so it is important to determine the correct status before filing the tax return.
Conclusion
- Form 1040 is filed by U.S. tax residents
- Form 1040 NR is filed by non-resident aliens
- Tax residency is determined using the substantial presence test
- F-1 students are treated as non-resident aliens during the first five years
- During these five years the substantial presence test does not apply
- U.S. taxes are filed based on the calendar year from January 1 to December 31
- Change from F-1 to H-1B may change the tax filing requirement
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