In this article, you will find important tax definitions for a nonresident tax filer. As a nonresident tax filer in the U.S, you should know how to complete your nonresident tax return correctly in order to save time and money. Below are some important tax definitions you should know.
1. Tax Return
A tax return is documentation filed with the U.S. tax authorities (IRS & State government) which reports the amount of money a person made and the amount of taxes a person paid within the year.
Income is money received, especially on a regular basis, for work performed or through investments.
3. Effectively connected income
This is income that is connected to a U.S. trade or business. This income is taxed at the same rate as U.S. citizens and residents.
4. Non Effectively connected income
This is income that is not connected to a U.S. trade or business. This income must be reported on Form 1040NR and no deductions can be taken against it. This income is taxed at a flat rate of 30% unless a lower treaty rate applies.
Deductions are benefits received which help to lower your taxable income or the amount of money you are taxed on.
6. Tax Refund
A tax refund is an amount of money returned to an individual who paid too much tax during the year.
7. Tax Bill
A tax bill is an amount of money an individual is required to pay to the tax office. If you’ve underpaid taxes or in other words, did not pay enough taxes to the tax office, then you will receive a tax bill which means you owe the government money.
A resident is any individual who is permanently residing in the U.S. but does not have citizenship. So, if you have a green card, then you are considered a resident.
A nonresident is any individual who is not a U.S. citizen or U.S. national. A nonresident can also be classified as anyone who does not have a green card.
10. Tax Treaty
A tax treaty is an agreement between two countries which gives benefits that can reduce the amount of income a nonresident is taxed on.
11. Social Security Number
A social security number is a nine-digit number issued by the U.S. government for identification purposes. This number is issued to all U.S. citizens, eligible residents, and eligible nonresidents who apply for one.
12. Green card
A green card is a permanent residence card that allows a person to live and work in the U.S.
13. Substantial Presence Test
The substantial presence test is a test that helps to determine if an individual should be taxed as a resident or a nonresident.
14. F-1 Student Visa
An F-1 student visa is a non-immigrant visa issued to students enrolled at qualified educational institutions in the U.S. This allows for a foreign student to live and study in the U.S.
15. Form 8843
Form 8843 is a statement filed by all nonresidents for tax purposes. It is for informational purposes only and does not report a person’s income.
16. Form 1040-NR-EZ
Form 1040-NR-EZ is the IRS income tax return for nonresidents with simple tax returns. This is a simplified version of the 1040-NR (This form has been discontinued as of December 2020. All nonresident tax filers must complete form 1040NR instead).
17. Form 1040-NR
Form 1040-NR is the IRS income tax return for all nonresident tax filers reporting U.S. sourced income.
The W-4 form is the employee’s withholding certificate. This form is filled out by the employee and it tells the employer how much taxes to withhold from the employee’s paycheck
The W-2 form is the Wages and Tax Statement. This form reports the employee’s annual wages and the amount of taxes withheld from their paychecks.
The 1042-S is the Foreign Person’s U.S. Source Income Subject to Withholding. This form is used to report certain types of income paid to foreign persons. One example being, an on-campus Resident Assistant (RA) program which pays money to a student who has an F-1 student visa.
21. Internal Revenue Service (IRS)
The IRS is the federal tax governors in the United States. They are responsible for the regulation and collection of taxes in the U.S.