Why Non-Resident Aliens Moving to the US Should Tax Plan First

US Tax Treatment for Nonresidents Aliens Moving to the US

When a Non-Resident Alien relocates to the United States and becomes a US Person for Tax Purposes — either because they received a Green Card, became a US Citizen, or met the Substantial Presence Test — one of the last concerns in their mind (initially) is what are the tax implications of becoming a US person. Unfortunately, oftentimes the reality of the tax consequences of becoming a US person is not realized by the US Person until several years after the nonresident became a US person –– and they are usually already out of compliance for one or more years with respect to US tax and international information reporting. Our International Tax Law Specialist Team represents taxpayers across the globe in over 80 countries each year with these types of issues. Here are five (5) important facts most non-residents should know before relocating to the United States as a US Person.

Substantial Presence Test for Non-Resident Aliens

What a non-resident alien relocated to the United States, oftentimes they are under the misimpression that unless they are a green card holder or US citizen they will not be subject to US tax on their worldwide income. Unfortunately, there is a sneaky, catchall category for individuals who remain in the United States for a significant number of days — which is referred to as a substantial presence test. In a nutshell, once a non-resident resides in the United States for at least 31 days in the current year and meets the other “counting days requirements”— they are still considered a US person and are now required to report their worldwide income and global assets.

Green Card and Future Expatriation for Non-Resident Aliens to Consider

If a Nonresident Alien becomes a US person and has a green card, it is important that they know that if they maintaining that green card for at least eight of the last 15 years and do not otherwise qualify as a foreign resident during that time period by making the Form 8833 Treaty Election, they can be subject to exit tax when they relinquish their green card — just as if they were US citizens. Sometimes, from a tax perspective, it may be much easier for the non-resident alien who becomes a US person to remain on a temporary visa as opposed to obtaining a green card.

Foreign Accounts and Income are Reportable 

Once a non-resident becomes a US person, they are required to report their worldwide income along with their global assets such as foreign accounts, assets, and investments on a myriad of different international information reporting forms. Some of the more common acronyms include FBAR and FATCA – but there are several other reporting forms that the Taxpayer may have to also file, depending on the category and value of their foreign assets.

Pre-Dated Non-Resident Alien Accounts May Be Reportable

Another very important fact about international information recording for recent US Persons is that when they have to begin reporting as if they are taking a snapshot of what they are reporting for. In other words, some non-resident aliens are under the mistaken impression that they only have to disclose assets, accounts, or investments that they obtained after becoming a US person — but that is not true. Thus, the nonresident alien may want to plan what type of accounts and what category for an account they have before becoming a US person so they can minimize or eliminate reporting.

Foreign Trust Complications for Non-Resident Aliens

In general, foreign trusts are very complicated. The US government believes that in general, foreign trusts are simply designed to avoid US tax; therefore, these types of trusts can be scrutinized heavily and penalized extensively if the Taxpayer is not in reporting compliance. 

Foreign Account & Income Amnesty

For Taxpayers who are out of compliance, there are many safe IRS international reporting options to help get them safely into tax and reporting compliance.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm today for assistance.