Tax Filing Overview and Tax Residency Status: Am I a Resident Alien (RA) or a Nonresident Alien (NRA)?

Introduction

Before you know it, it’s once again U.S. tax season. Whether you are an F1/J1 student, someone working on F1 CPT/OPT or an H1B/L1 visa, or a green card holder or U.S. citizen, you will most likely have to deal with the IRS (Internal Revenue Service) and your state tax agency again. For people with wage income, Uncle Sam may well have withheld quite a bit from your paycheck. That is exactly why it is important to take tax filing seriously, so you can get back any money the tax authorities withheld in excess. Since tax filing is a very complex topic, we cannot possibly cover everything, but we will try to explain the basic concepts of the U.S. tax system in as much detail as possible and provide practical filing guidance that is useful to most people. We hope this can serve as a reference for those who need it, especially first-time filers.

This first article mainly gives a brief introduction to the U.S. tax system and the definition of federal tax residency (Tax Residency).

Who Needs to File Taxes?

Generally speaking, if you have income above the filing threshold (the threshold differs depending on your tax residency status), or if you received certain federal benefits, you must file a federal tax return. However, even if you are not required to file, some tax may still have been overwithheld from your income, and filing a tax return may help you get that money back. Therefore, we recommend that everyone with wage income, including scholarships, consider filing taxes.
In addition, if you are in F/J student status, you may still need to submit Form 8843 to the IRS even if you are not required to file a tax return. Please wait for the follow-up article for details.
The taxes discussed above refer to federal taxes. If you lived in a state with state income tax or earned income there, you also need to file that state’s income tax return. States with no state income tax currently include: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee do not tax wages, but they do tax investment income.
As long as you have lived in, or earned income in, any state with an income tax (that is, any state other than those listed in the previous paragraph), or received certain state benefits, you will likely need to file a state tax return there. Otherwise, congratulations: you do not need to file any state tax return.
If you are married, you may also choose to file jointly as a household or file separately as spouses.

Tax Residency Status

Before you start filing taxes, you need to determine your tax residency status (Tax Residency). Note that the IRS defines status very differently from USCIS (U.S. Citizenship and Immigration Services, referred to here as the “immigration agency”). In addition, each state has its own definition of residency, so be careful not to confuse them. Below we first introduce a few definitions:

U.S. Citizen and U.S. National

Generally speaking, you are considered a U.S. citizen for tax purposes if you are:

• born in the United States (unlike the immigration agency’s definition, “United States” here includes Guam, Puerto Rico, and the U.S. Virgin Islands); or
• born to U.S. citizen parents; or
• naturalized as a U.S. citizen

If you were born in American Samoa or the Commonwealth of the Northern Mariana Islands, you may choose with the IRS to be treated as either a U.S. citizen or a U.S. national.
If you are neither a U.S. citizen nor a U.S. national, you are an Alien. In the eyes of the IRS, there are two types: Resident Alien (RA) and Non-Resident Alien (NRA). Let’s first go over some basic concepts:

What Is the Substantial Presence Test (SPT)?

You pass the Substantial Presence Test if you meet both of the following conditions:

• You were physically present in the United States for at least 31 days during the current tax year (counted by calendar day; even if you were present for less than 24 hours on a given day, it still counts as one day; same below); and
• The number of days you were in the United States in the current tax year + 1/3 of the days in the previous year + 1/6 of the days in the year before that is greater than or equal to 183 days

You are considered to have passed the Substantial Presence Test. However, days meeting any of the following conditions are not counted toward the SPT:

• Days you were in the United States as an Exempt Individual; or
• Days you were forced to remain in the United States for medical reasons that arose in the U.S.; or
• Days that qualify for the Closer Connection Exception (a closer-connection exception available to all foreign nationals); or
• Days that qualify for the Closer Connection Exception for Students (a closer-connection exception for foreign students), generally used by students who have been in the U.S. for more than 5 years

What Is an Exempt Individual?

If you fall into any of the following categories:

• Student: a student and accompanying household family members holding an F, J, M, or Q visa, who have not violated the terms of stay required by the visa, and who have not received exempt status under this rule for more than five calendar years; or
• Teacher or trainee: a teacher or trainee, and accompanying household family members, holding a J or Q visa, who have not violated the terms of stay required by the visa, and who have not received exempt status under this rule for more than two years out of the prior six years / four years (see the “When a Teacher or Trainee is Not Exempt” conditions in the linked IRS page); or
• A professional athlete in the United States competing in a charitable sports event; or
• A foreign government-related individual

then you are an Exempt Individual. Note that if you meet any of the conditions above (other than “athlete”), you must be treated as Exempt; this is mandatory.

Definition: Resident Alien (RA)

If you are not a U.S. citizen or U.S. national, and you meet either of the following conditions:

• You were a lawful permanent resident of the United States (that is, a Permanent Resident) at any time during the entire tax year (January 1 through December 31); or
• You passed the Substantial Presence Test

then you are a Resident Alien (referred to below as “RA”). However, that does not necessarily mean you were a resident alien on every day of the year. To determine the specific start and end dates of your resident alien status for a given year, please refer to this IRS article. Here we briefly mention two rules:

• Generally speaking, the day you become a resident alien is the first day you are present in the United States to live.
• Exception: if you were an RA for any part of both this year and last year, then you are an RA starting from day one of this year.

Definition: Non-Resident Alien (NRA)

If you are an alien but not an RA, then you are a non-resident alien ("NRA").
There is one exception here: if you are an NRA under the definition above, but your spouse is a U.S. citizen, U.S. national, or RA, you may also be treated as an RA for tax filing purposes. The only limitation is that in the first year you do this, you must file jointly and may not file separately.

Definition: Dual-Status Alien

If you are an alien, but under the rules for determining your residency starting and ending dates above you are not an RA for the entire year—that is, you are an NRA for part of the year—then you are a dual-status alien.
Feeling a little dizzy already? Let's walk through some common examples.

F1 students or people on OPT who have been in the U.S. for no more than five years, and their accompanying F2 dependents

The five-year period here means calendar years. In other words, if you are physically present in the U.S. in F status for even one second during a given year, that year counts. For example, if you first entered the U.S. on an F1 visa in September 2010 and then remained in the U.S. in F1 status every year after that, then for the five tax years from 2010-2014, you are an NRA.

F1 students who have been in the U.S. for more than five years, and their accompanying F2 dependents

If you have been in the U.S. in F1 status for more than five years, that's not necessarily a problem. If you meet all of the following conditions:

• you do not intend to remain in the U.S. permanently; and
• you have not taken steps to apply for a green card; and
• you generally continue to qualify for student visa status; and
• you maintain a closer connection to a foreign country (under Treasury Regulation 301.7701 (b) -2 (d) (1))

then you may still be treated as an NRA under the Closer Connection Exception for Students. Of course, if you prefer to do so (generally because it may result in a larger refund), you may also choose to file as an RA. Note that you must actually be a student to use this rule. If you are working on OPT, you cannot use it.
We cover the options in this situation specifically in this article.

Workers on H1B/L1/O1 visas and their dependents: first year of arrival in the U.S.

If you were previously outside the U.S. and, on some date in the middle of the tax year, entered the U.S. for the first time on a work visa and continued working here, then you need to apply the Substancial Presence Test (SPT). Depending on the result, the possibilities are as follows:

• If you pass the SPT, then starting from your first day in the U.S. on the work visa, you are an RA. The period before you came to the U.S. is treated as NRA time, so you are a Dual-Status Alien.
• If you do not pass the SPT, then you are an NRA. However, if you continue working in the U.S. in your second year and are able to pass the SPT in that second year, you may be able to use the First-Year Choice to also treat the part of your first year after arriving in the U.S. as RA time, making your situation the same as above. If, when filing your first year's tax return during the second year, you still have not yet met the second-year SPT requirement described above, you can file Form 4868 to request an extension until you do meet the SPT.

Changing from F1 to H1B: the first year

This situation is actually quite similar to the one above, so you can generally refer to the same standards.
Here we will analyze the most common scenario: if you were still an NRA while in F1 status, and you changed from F1 to H1B status on October 1 of that first year, then because only three months remain in the year, there is no way to reach the 183 days required under the SPT. Therefore, you fall under the second scenario above—"you did not pass the SPT"—and may choose to file either as an NRA or as a Dual-Status Alien.
If you were already an RA before that point (for example, because you had been in F1 status for more than five years and did not use the Closer Connection Exception for Students to remain an NRA), then assuming you can pass the SPT both in the year of the status change and in the prior year, there is no question that you are an RA for that entire year.

Workers on H1B/L1/O1 visas and their dependents: the second year

In your second year in the U.S., because you are working here, you are likely living primarily in the U.S., so we will assume that you can satisfy the SPT in your second year. Therefore, no matter what, you are an Resident Alien. Generally speaking, you are treated as a resident alien for the entire year, unless:

• you were not an RA in the first year; and
• you did not use the First-Year Choice described above to treat the end-of-year portion of the first year as RA time; and
• you were not in the U.S. at the beginning of the second year

In that case, under the rules for determining the residency starting date, your resident-alien start date for the second year can be delayed until the day you first enter the U.S. in that second year. In other words, you can file the second year as a Dual-Status Alien. The benefit is that foreign income earned before your first entry to the U.S. in that second year, and unrelated to the U.S., does not need to be taxed by the U.S. Of course, this situation is relatively uncommon, so only a small number of people need this filing strategy. Most people choose the First-Year Choice and then file the second year as a full-year resident alien.

Married couples where one spouse is an RA and the other is an NRA

The most common example here is a household where one spouse is on H1B and the other is on F1. The original poster specifically said "both parties to the marriage" rather than "husband and wife," because the IRS also recognizes same-sex marriage. In this situation, there are two options:

• You can choose to use the rule that allows an NRA spouse of an RA to be treated as an RA, thereby treating the NRA as an RA. In the first year you do this, you must file jointly; in later years, you may choose either joint or separate filing; or
• you can also file separately, with one spouse filing as an RA and the other filing as an NRA; or
• if the NRA spouse has so little income that they are not required to file a return, then the RA spouse may file alone and treat the NRA spouse as the RA's dependent

Conclusion

If you've made it this far, you've done great. In the next article, we'll explain the key tax filing deadlines and timelines.
Still confused about something? Feel free to ask your questions.