A nonresident alien is required to file a United States federal income tax form if he or she received income from a U.S. source greater than the personal exemption of $3,650. (That’s for the 2009 tax year. The figures vary from year to year.)
The main IRS form the nonresident alien will want to familiarize himself or herself with is Form 1040NR (or Form 1040NR-EZ), which is the “U.S. Nonresident Alien Income Tax Return.” Also see the IRS booklets “Publication 519 (U.S. Tax Guide for Aliens)” and “Publication 901 (U.S. Tax Treaties).”
Income that is effectively connected with a trade or business in the U.S. is taxed at the same graduated rate as it would be for a U.S. citizen or resident, unless a tax treaty between the U.S. and the nonresident alien’s country of residence specifies otherwise.
Income that is not effectively connected with a trade or business in the U.S. is taxed at a rate of 30%, again unless a tax treaty with the nonresident alien’s country of residence mandates a lower figure.
When is income “effectively connected with a trade or business in the U.S.”? It’s best to consult the instructions for Form 1040NR and “Publication 519” for full details, but basically it’s U.S. connected if the job one performed for wages, the business service one provided, the sale one’s business made of a product, the location of the business paying one interest or dividends, the institution providing one a scholarship or fellowship, or the property one sold or collected rent on was located in the U.S.
Again as specified in the aforementioned IRS publications, there are exemptions for certain kinds of income. For instance, most of the time wages paid by a foreign employer, other than a foreign government, will be exempt.
Deductions and credits are less often available for nonresident aliens than for citizens and residents. To receive any of the few that are available, the nonresident alien must itemize his or her deductions. Also, if the nonresident alien does not itemize, unlike residents and citizens, he or she is not able to claim the standard deduction.
Studies have shown that the majority of nonresident aliens do not file an income tax form. However, don’t think that means they’re getting away with something. The net result of all the non-filing is that those nonresident aliens greatly overpay their taxes. Why? Typically they receive wage income from which their employer has withheld taxes, and they would be due a refund if they filed.