Why Non-Resident Aliens Must File Form 1040-NR for U.S. Income Reporting

With the ever-increasing number of non-resident aliens, and their financial contribution to American taxation, and their keenness to pay taxes meticulously, let us look at the roots of their taxation from the IRS point of view. Detailed information on the identification of a non-resident alien, the conditions under which the tax return needs to be filed, the tax form to be used, some analysis of its structure, allowable deductions, and the actions to be initiated by departing aliens is given below.

An Interesting Question: Who Is a Non-Resident Alien Under American Taxation?

An alien is any individual who is not a U.S. citizen or U.S. national. A non-resident alien is an alien who has not passed the green card test or the substantial presence test.

What Is a Green Card Test?

The IRS, a legal part of the U.S. federal government, in its publications mentions the following facts:

You, a taxpayer, are a resident for U.S. federal tax purposes if you are a lawful permanent resident of the United States at any time during the calendar year. This is known as the “green card” test.

You are a lawful permanent resident of the United States, at any time, if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant.

You generally have this status if the U.S. Citizenship and Immigration Services (USCIS) issued you a Permanent Resident Card, Form I-551, also known as a “green card.”

You continue to have U.S. resident status under this test unless:

• You voluntarily renounce and abandon this status in writing to the USCIS;
• Your immigrant status is administratively terminated by the USCIS; or
• Your immigrant status is judicially terminated by a U.S. federal court.

This has been discussed heatedly due to the illegal obtaining of green cards by some residents.

About the Substantial Presence Test

Let me draw the lines given by the IRS for this purpose. These conditions are used extensively in all disputes/court cases.

You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

1. 31 days during the current year; and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:

• All the days you were present in the current year;
• 1/3 of the days you were present in the first year before the current year; and
• 1/6 of the days you were present in the second year before the current year.

Let me also illustrate an example for a clear vision.

You were physically present in the U.S. for 120 days in each of the years 2023, 2024, and 2025. To determine if you meet the substantial presence test for 2025, count the full 120 days of presence in 2025, 40 days in 2024 (1/3 of 120), and 20 days in 2023 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2025.

For a Non-Resident Alien, Who Will File a Tax Return? (NRA)

• Any NRA engaged in trade or business while living in the USA.
• Any NRA whose withholding from the income generated does not meet the required level.
• A representative or agent responsible for filing the return of an individual described in the above cases.
• A fiduciary for a non-resident alien estate or trust.
• A resident or domestic fiduciary, or other person charged with the care of the person or property of a non-resident individual, may be required to file an income tax return for that individual and pay the tax.
• You do file a return in case of excess withholding or rental income.

Form 1040-NR is filed by an NRA.

The Last Date for Its Submission Is:

• April 15: If you were employed and received wages subject to U.S. income tax withholding.
• June 15: If you were not an employee or self-employed person and did not receive wages subject to U.S. withholding (e.g., only passive U.S. income).

If you cannot meet the deadline, you can file for an automatic 6-month extension to October 15 or December 15, respectively, by submitting Form 4868 on or before your original due date.

Let Us Study the Above Form From the IRS Website

Titled “1040-NR U.S. Non-Resident Alien Income Tax Return 2025,” it consists of two pages.

Like Form 1040, it requires an address, extra information such as foreign country name, foreign province/state/county, foreign postal code, and other routine information such as filing status, digital assets, and the details of dependents.

Thereafter, under Income Effectively Connected with U.S. Trade or Business, details attaching Forms W-2, 1042-S, SSA-1042-S, RRB-1042-S, and 8288-A have been sought. Form 1099-R is also needed if tax was withheld.

Columns 1 to 11a contain information such as:

1a Total amount from Form(s) W-2, Box 1 (see instructions)

1b Household employee wages not reported on Form(s) W-2

1c Tip income not reported on line 1a (see instructions)

1d Medicaid waiver payments not reported on Form(s) W-2 (see instructions)

1e Taxable dependent care benefits from Form 2441, line 26

1f Employer-provided adoption benefits from Form 8839, line 31

1g Wages from Form 8919, line 6

1h Other earned income (see instructions). Enter type and amount.

1i Reserved for future use

1j Reserved for future use

1k Total income exempt by a treaty from Schedule OI (Form 1040-NR), item L, line 1(e)

1z Add lines 1a through 1h

2a Tax-exempt interest

2b Taxable interest

3a Qualified dividends

3b Ordinary dividends

3c Check if your child’s dividends are included in:

• Line 3a
• Line 3b

4a IRA distributions

4b Taxable amount

4c Check if (see instructions)

5a Pensions and annuities

5b Taxable amount

5c Check if (see instructions)

6 Reserved for future use

7a Capital gain or (loss). Attach Schedule D if required

7b Check if:

• Schedule D not required
• Includes child’s capital gain or (loss)

8 Additional income from Schedule 1 (Form 1040), line 10

9 Add lines 1z, 2b, 3b, 4b, 5b, 7a, and 8.

This is your total effectively connected income.

10 Adjustments to income from Schedule 1 (Form 1040), line 26. These are your total adjustments to income.

11a Subtract line 10 from line 9.

This is your adjusted gross income.

Page 2 – Tax and Credits

Under tax and credits, certain deductions such as itemized deductions, qualified business income deduction, exemptions for estates and trusts only (see instructions), and additional deductions from Schedule 1-A have been used to arrive at taxable income tax on line 16.

Child tax credit or credit for other dependents from Schedule 8812 (Form 1040), amount from Schedule 3 (Form 1040), tax on income not effectively connected with a U.S. trade or business from Schedule NEC (Form 1040-NR), other taxes including self-employment tax from Schedule 2 (Form 1040), and transportation tax help us arrive at the total tax.

Under Payments and Refundable Credits, What Is the Total Payment of Tax?

The following information shall help:

Federal tax withheld from:

25a Form(s) W-2

25b Form(s) 1099

25c Other forms (see instructions)

25d Add lines 25a through 25c

25e Form(s) 8805

25f Form(s) 8288-A

25g Form(s) 1042-S

26 2025 estimated tax payments and amount applied from 2024 return

27 Reserved for future use

28 Additional child tax credit (ACTC) from Schedule 8812 (Form 1040). If you do not want to claim the ACTC, check here.

29 Credit for amount paid with Form 1040-C

30 Refundable adoption credit from Form 8839, line 13

31 Amount from Schedule 3 (Form 1040), line 15

32 Add lines 28, 29, 30, and 31. These are your total other payments and refundable credits.

33 Add lines 25d, 25e, 25f, 25g, 26, and 32. These are your total payments.

Refund

34 If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid.

35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here.

35b Routing number

35c Type: Checking / Savings

35d Account number

35e If you want your refund check mailed to an address outside the United States not shown on page 1, enter it here.

36 Amount of line 34 you want applied to your 2026 estimated tax.

To find out what you owe as taxes:

Line 33 – Line 24 will help.

Information From the IRS Website

Use Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, to report:

• Tax withheld under Chapter 3 on certain income of foreign persons, including non-resident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts;
• Tax withheld under Chapter 4 on withholdable payments under FATCA;
• Tax withheld pursuant to IRC Section 5000C on specified federal procurement payments;
• Tax withheld under IRC Section 877A on payments of eligible deferred compensation items or distributions from non-grantor trusts to a covered expatriate.

Use Form 1042-S to report:

• Amounts paid to foreign persons from U.S. sources that are reportable under Chapters 3 or 4 (regardless of whether withholding was required);
• Amounts withheld under Chapters 3 and 4;
• Specified federal procurement payments subject to withholding under Section 5000C and certain payments subject to Section 877A;
• Certain distributions by publicly traded trusts, qualified investment entities, and publicly traded partnerships;
• Payments to foreign sellers of certain partnership interests subject to IRC 1446(f).

Non-residents with capital gains are expected to report their gains on Schedule NEC along with Form 1040-NR.

Schedule NEC (Form 1040-NR) is used to report income not effectively connected with a U.S. trade or business. This may include, but is not limited to, dividends, royalties, and gambling winnings. Tax must be withheld at source and is generally withheld at a rate of 30%.

The tax must be withheld by the person who pays the income. If your country of residence and the United States have a treaty that sets lower rates, your withholding may be lower.

Submission of Forms

Forms 1042 and 1042-S must be filed by March 15 of the year following the calendar year in which the income subject to reporting was paid. If March 15 falls on a Saturday, Sunday, or legal holiday, the due date is the next business day.

Every withholding agent submits these forms, failing which they face penalties and interest.

What Legal Steps Must Departing NRA Aliens Take?

Departing Alien – IRS Advice

Before leaving the United States, all aliens (with certain exceptions) must obtain a certificate of compliance. This document, also popularly known as a sailing permit or departure permit, must be secured from the IRS before leaving the U.S.

You will receive a sailing or departure permit after filing Form 1040-C, U.S. Departing Alien Income Tax Return, or Form 2063, U.S. Departing Alien Income Tax Statement.

Even if you have left the United States and filed Form 1040-C on departure, you still must file an annual U.S. income tax return.

If you are married and both you and your spouse are required to file, you must each file a separate return, unless one of the spouses is a U.S. citizen or a resident alien, in which case the departing alien could file a joint return with his or her spouse (refer to non-resident spouse).

Concluding Information

Form 1040-NR is a complicated one for those invested in or conducting business in the USA with non-resident alien status. It also helps according to the treaty agreements that the USA has with a large number of countries.

Yes, for those with educational visas or others, it may be a simple one.

With the scrutiny of tax returns enhanced in the USA, adequate attention is to be paid to preparation.

An Advice

Relevant forms need reference to the IRS website. My intention is only to provide information by writing this article, with no expectation of consultation as a CPA. An expert can guide you in filing with specific requirements.