1040-NR vs 1040
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Form 1040-NR Filing
Taxpayers who are considered U.S. Persons and required to file a tax return, are required to file an IRS Form 1040 each year to report their worldwide income. For taxpayers who are considered non-residents (usually by either making a treaty election to be treated as a foreign person for tax purposes or qualifying for an exception to the Substantial Presence Test, such as the closer connection exception) they typically do not file the form 1040, but instead, they file the form 1040-NR to report their US sourced income. Depending on if the taxpayer has significant US-sourced income or not — coupled with whether they are in a treaty country and/or have made a treaty election — or filed an extension — will impact the due dates for filing the Form 1040-NR, and how complex their filing is. Let’s go through some of the basics of Form 1040, the filing requirements, and when taxes are due.
What is Form 1040-NR?
The Form 1040-NR refers to a U.S. Non-Resident Alien Income Tax Return. The form looks similar to IRS Form 1040, but there are some immediate differences right at the top of the first page of the form. For example, taxpayers do not file this form jointly. In other words, even if spouses would otherwise file their Form 1040 together jointly as spouses, generally they are required to file separate returns as married filing separately when it comes to the 1040-NR. In addition, taxpayers cannot file as head of household either.
As provided in form 1040-NR instructions:
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“A nonresident alien filing Form 1040-NR cannot have a Married filing jointly or a Head of household filing status.”
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Can Taxpayers Itemize Deductions on Form 1040-NR?
Itemized deductions are allowable on form 1040-NR, but there is a separate Schedule A form Form 1040-NR — and there are limitations in terms of how much a person may be able to deduct. In addition, there are fewer available categories as well so the number of deductions a person can take is generally smaller than if they file a 1040.
Which Types of Income is Reportable on a 1040-NR?
The general broad category is that US-sourced income is taxable to non-resident aliens. There are some exceptions, exclusions, and limitations, but the general rule is that income is taxable. There are two primary categories of US income for non-resident aliens, which are broken down further into Effectively Connected Income (ECI) and Fixed, Determinable, Annual, and Periodic (FDA) — which are usually passive types of income. Expenses may be taken against considered ECI and ECI is typically taxed at the Taxpayer’s progressive tax rate. Conversely, FDAP is usually taxed at 30% unless a treaty election can be made to reduce the amount of withholding and/or some other exception or limitation applies. Taxpayers will file a W8-BEN to put the withholding agent on notice about the reduction or elimination of their withholding — such as certain pension income for residents of foreign countries.
What are the 1040-NR Due Dates?
The 1040-NR is due in April just as it would be the 1040. However, since many taxpayers who file the 1040-NR are considered to be foreign residents, they would receive an automatic extension until June to file. Likewise, taxpayers can also file for an extension — and depending on the type of extension they are seeking and if they are U.S. residents or not will also ultimately determine the filing due date.
Dual Status Tax Returns
Some taxpayers who are dual-status may have to file both Form 1040 and a 1040-NR in the same year. Dual-status taxpayers usually will file a Form 1040 for the portion of the year they were considered a US person and a Form 1040-NR for the portion of the year that they are considered to be a non-resident alien.
Tax Payments
Depending on the type of income and whether there is a withholding agent or not will determine whether or not sufficient taxes have been withheld throughout the year. If the Taxpayer believes that they will owe money at the time the tax return is due, then they will want to make sure they make payment before the April due date. If taxes are not being withheld, the taxpayer can make estimated tax payments throughout the year.
If an amount was overpaid, then taxpayers will be eligible for a refund or credit.
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