Non-Resident: Definition & Overview
The United States has relatively strict rules on who counts as a citizen.
Unless you pass one of two conditions, everyone who is not a citizen of the United States is regarded as a nonresident of the country for taxation reasons. If you pass either the significant presence test or the green card test for the calendar year, you are considered a resident of the United States for tax purposes.
Read on as we take you through the ins and outs of non-residents.
Table of Contents
KEY TAKEAWAYS
- A non-resident is an individual who lives or resides in a specific region but also has interests somewhere else.
- The classification of non-resident status plays an important role in several areas. These include government benefits, eligibility for taxes, voting, education, and jury duty.
- Non-resident aliens are foreigners who don’t have a big presence in the United States. If a non-resident has income in the United States, they’re required to file taxes.
Who Is a Non-Resident?
Non-residents are individuals who live or work in a specific area or region but also have interests in other areas. Taxpayers usually are only able to be residents of a single state. But, sometimes there are situations where an individual files tax returns as a non-resident of one state and a resident of another..
Certain circumstances dictate the classification of the non-residency status. Those can include, among others, how much time is spent in a region throughout a calendar year. It’s worth mentioning that non-resident classification is based on where the individual resides. It doesn’t focus on or take into consideration citizenship.
For state income tax returns non-residents only file a state tax return if they earn income in the state that requires a state tax return. Many states have a reciprocal agreement with the neighboring state, so you only have to file an exemption not to be taxed in the state you work in.
What Are the Qualifications for a Non-Resident?
To get classified as a non-resident there are a few qualifications to meet beforehand. For being a non-resident in a certain state, you have to derive income from the state but call another state your domicile.
It’s similar for the case of being considered a non-resident in the United States. If you’re not a citizen of the United States then you’re considered a non-resident for tax purposes. You will be usually considered a non-resident unless you meet one of the two following tests:
- Substantial presence test, which runs the calendar year from January 1 to December 31
- The Green Card test
Additionally, if you are a non-resident spouse of a resident, you may be considered a resident for tax purposes.
Resident vs. Non-Resident
Some of the biggest considerations that go into classifying a resident or a non-resident depend on location and service. Let’s take a closer look at a few of the biggest differences.
- Education — Several colleges and universities offer resident students a lower tuition amount compared to students from out of state. If you wanted to go to a world-class university outside your state, you could move and live there for a year to become a resident. Then, you would be eligible for the lower in-state tuition educational programs.
- Voting — This depends on the specific state. Some states allow residents to vote right away. Other states might have a 30-day residency requirement.
- Taxes — If someone owns multiple homes in different states, they often look to claim residence in the state with the best tax rates. Each state has different requirements which can make things complicated. For example, some states have the 183-day rule, which states if you spend more than half a year in the state then you’re considered a resident.
Examples of a Non-Resident
One of the easiest ways to understand the classification of non-residency is for someone who lives and works in two different states. When it comes to tax time, the individual will have to file two separate state tax returns. One would be for the income they earn in another state, and the other would be for their state of residence.
Another example is someone that owns more than one home in different states. For example, Jennifer lives and works in New York but also has a vacation home in Arizona. The individual would need to file state income taxes in both states, because Arizona doesn’t have a reciprocal agreement with the state of New York.
What Are Non-Resident Aliens?
Non-resident aliens are foreigners without a substantial presence or legal residency in the United States. These can often include business people, seasonal workers, or individuals who commute across the border.
The Internal Revenue Service (IRS) bases residency on the substantial presence test if you don’t have a green card. If you earn income in the United States but don’t reside here, you’re still required to file a tax return. Non-residents use form 1040-NR to file. People who derive their income from a trade or business in the United States are allowed to claim all deductions and will be taxed in the same way as citizens and residents. People not deriving income from a trade or business are not allowed any deductions and are taxed at a 30% flat rate, which is reviewed annually.
Summary
A non-resident is an individual who lives in a one region or jurisdiction but has interests in other states. The time spent in the jurisdiction is taken into consideration when determining residency status.
Non-resident classification is based on where you reside, not your citizenship. Understanding how residency works can have an impact on several areas, including taxes.
FAQs About Non-Resident
Technically, yes you can have residency in two states. However, individuals often look to file residency in the state where they can receive the most benefits in return, such as lower tax rates.
A non-resident for tax purposes is an individual who doesn’t meet the substantial presence test, have a green card, or isn’t a U.S. citizen.
If non-residents have income that is subject to tax, they must file form 1040-NR, U.S. Nonresident Alien Income Tax Return.
Yes, you can work in another state without being a resident. If the states don’t have a reciprocity agreement, you will have to file two separate tax returns. One will be for your residency in the state you live and the other will be for income earned in the state you work.
Share: