Tax Form 1040NR Instructions

IRS Tax Form 1040NR (U.S. Nonresident Alien Income Tax Return)

Tax Form 1040NR is also known as U.S. Nonresident Alien Income Tax Return. This tax form is similar to the regular 1040 form used by United States citizens. That being said, there are some importance differences that you need to be aware of if you are required to file this particular tax form.

If you worked in the US and received wages that are subject to income tax, Form 1040NR must be filed by the fourth month, 15th day after your tax year closes. In most cases, this will be April 15. United States citizens never have to file Tax Form 1040NR. But if you are a US nonresident alien, this is a tax form that you want to become familiar with.

There are three types of income that you may need to include on Tax Form 1040NR. They include income connected with US business (taxed at the same rate as US citizens), income not connected with US business (the rate is 30 percent, unless there is a treaty between the US and your country that allows you to pay a lower rate), and income which is exempt from US tax.

Name, Address, and Identifying Number

Provide your name, address, and Individual Taxpayer Identification Number (ITIN). If you are a resident or nonresident alien, you should provide your ITIN wherever your Social Security Number (SSN) is requested on the tax return.

Filing Status

There are 6 different filing statuses on the 1040NR form — single resident of Canada or Mexico or single U.S. national; other single nonresident alien; married resident of Canada or Mexico or married U.S. national; married resident of South Korea; other married nonresident alien; and qualifying widow(er) with dependent child. Check the box next to the filing status that you qualify for.

Exemptions

The IRS allows taxpayers to claim personal exemptions for themselves and their dependents. A personal exemption is similar to a tax deduction because it reduces your taxable income. For tax years 2009 and 2010, the maximum personal exemption is $3,650 ? note that your personal exemption amount may be less if your income exceeds a certain amount. Your personal exemption information must be 100% accurate on your tax return because it largely impacts how much federal income tax you owe.

In order to claim someone as a dependent on your tax form, you must be providing at least half of that person’s support. If the person is a blood relative or your spouse, they do not need to be living with you for the duration of the year, but otherwise cohabitation is a requirement for the dependent exemption. The gross income of this dependent must be less than the personal exemption amount for that tax year. However, if the individual is under 19, or under 24 and a full-time student, the tax strategy of claiming them as a dependent can still be used.

Income Effectively Connected With U.S. Trade/Business

The IRS defines ‘income’ as any money that you receive during the given tax year. Most people can simply review their W-2s (Wage and Tax Statements) to determine their annual income.

Taxable income, generally speaking, is the gross income of an individual or corporation, less any allowable tax deductions. It’s important to realize that taxable income can encompass more than just your annual salary.  Taxable income can include profits from stocks or real estate sales, as well as winnings from the lottery, betting on horse races, or any casino (domestic or abroad). Even the cash value of bartered items is considered taxable income.

Income that may be part of your gross income but is not identified as ‘taxable income’ would include: child support, proceeds from life insurance policies, inheritances, Workers Compensation payments, Welfare benefits, compensation awarded as a result of physical injury, education scholarships or grants, and income paid to your retirement account (either a 401k or IRA, up to a certain amount).

For detailed information about income classifications and what income nonresident aliens must report, please see IRS Publication 519 (U.S. Tax Guide for Aliens).

Adjusted Gross Income

Your Adjusted Gross Income (AGI) is defined as your gross income from all taxable sources, minus certain allowable tax deductions. These ‘allowable deductions’ (also known as ‘above-the-line deductions’) may include unreimbursed business expenses, medical expenses, alimony, moving expenses, or deductible retirement plan contributions.

Your AGI is important when determining your overall tax liability because it can affect your tax bracket, how much you can contribute to qualified retirement accounts, and which tax credits you may qualify for.

On the other hand, ‘gross income’ refers to all income that you received in the form of money, goods, property, and services that is not exempt from tax. This can include any income from sources outside of the United States, as well as income from the sale of your home.

Tax and Credits

If you qualify for any tax credits or tax deductions, you will want to take advantage of them. Tax deductions reduce your taxable income and tax credits reduce the actual amount of tax that you owe ? both will increase your chance of receiving a tax refund. Make sure you understand how to properly claim any income tax benefits, as mistakes will delay the processing of your return.

Tax deductions lower your taxable income and they are equal to the percentage of your marginal tax bracket. For instance, if you are in the 25% tax bracket, a $1,000 deduction saves you $250 in tax (0.25 x $1,000 = $250). There are two main types of tax deductions: the Standard Deduction and Itemized Deductions. A taxpayer must use one or the other, but not both. It is generally recommended that you itemize deductions if their total is greater than the standard deduction.

Tax credits, on the other hand, provide a dollar-for dollar reduction of your income tax liability. For instance, a $1,000 tax credit actually saves you $1,000 in taxes. A tax credit is always worth more than a dollar-equivalent tax deduction, because deductions are calculated using percentages. Referring to the numbers above, you can see that a $1,000 credit offers $750 more in savings than a $1,000 deduction.

The Alternative Minimum Tax (AMT) is an extra tax that some people are required to pay in addition to their regular income tax. The main goal of the alternative minimum tax is to prevent high-earners from using tax strategies and special benefits to greatly decrease their tax liability. Over the years, however, the alternative minimum tax has changed quite a bit. Currently, it affects many taxpayers ? including those who do not have very high income. There are several things that can cause alternative minimum tax liability. The most common AMT triggers include: personal exemption, medical expenses, incentive stock options, tax-exempt interest, and long-term capital gains.

If you have children, you may be eligible for the Child Tax Credit which is a credit worth up to $1,000 for each qualifying child. This credit can help reduce or eliminate your overall tax bill and provide some financial relief for parents raising children.

Other Taxes

Self-Employment Tax (also called ‘SE tax’) is a Social Security and Medicare tax aimed mainly at individuals who are self-employed. The SE tax payments you make go towards your coverage under the federal Social Security system.  Social Security coverage essentially provides retirement benefits, disability benefits, health care benefits (Medicare), and survivor benefits. Note that whenever SE Tax is mentioned, it generally only refers to Social Security and Medicare taxes, and does not include any other taxes that self-employed individuals may be subject to.

Payments

Withholding tax (also known as ‘payroll withholding’) is essentially income tax that is withheld from your wages and sent directly to the IRS by your employer. In other words, it’s like a credit against the income taxes that you must pay for the year. By subtracting this money from each paycheck that you receive, the IRS is basically withholding your anticipated tax payment as you earn it ? sometimes called ‘pay-as-you-earn’ taxation. While you cannot avoid withholding tax altogether, you can control the amount that is withheld from each paycheck when you fill out your W-4 tax form.

Estimated Tax is the method that individuals and businesses use to pay tax on their income that is not subject to withholding. This may include income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your paycheck (salary, pension, or other income) is not enough. Estimated tax payments are typically made in quarterly installments using IRS Form 1040-ES, which can be filed electronically or by paper mail.

The Additional Child Tax Credit is a refundable tax credit that many people qualify to take advantage of. This credit is for taxpayers who have a qualifying child, but did not receive the full amount from the regular Child Tax Credit (worth up to $1,000 for each qualifying child).

Refund

A tax refund is issued when the amount of income tax that you paid is more than what you actually owed for that year. The IRS has an electronic system in place, called ‘Where’s My Refund? ‘ It’s Quick, Easy, and Secure.’ This is an online tool that can help you determine the status of your tax refund using the Internet. If you filed electronically, you will receive information about your refund within 72 hours after the IRS acknowledges receipt of your e-filed tax return. If you file by paper mail, it will take the IRS longer to process your tax return and you will not able to use the Where’s My Refund? system for at least 3 weeks.

Amount You Owe

Individuals have many different options for paying their federal income taxes. You can pay electronically (online) with a credit card, debit card, or e-check (electronic check). Or you can pay your taxes by paper mail with a check, money order, or cashier’s check. Additionally, if you wish to pay in cash, there is an option for that as well.

Whether you are filing late and/or paying late, the IRS urges taxpayers to pay their bill in full. It is always recommended that you pay as much of what you owe as you can, and as soon as you can. The longer you wait, the more late fees and interest charges that can accrue.

Installment Agreement — If you cannot pay the full amount due with your income tax return, you can ask the IRS if they will allow you to make monthly installment payments for the full amount or a partial amount. However, keep in mind that you will be charged interest and also possibly a late payment penalty on the tax not paid by the date your return is due, even if your request to pay in installments is granted.

Third Party Designee

By checking ‘Yes’ you are authorizing another person (tax preparer, family member, friend) to discuss your tax return with the IRS. Provide their name, phone number, and personal identification number (PIN) (they may choose any 5 digits). Note that you are not authorizing the designee to receive your tax refund, bind you to anything, or represent you before the IRS.

Sign Your Return

The 1040NR tax form is not valid unless you sign it. If you are filing a joint tax return, your spouse must also sign the form.

Assemble Your Return

Make sure you gather all the appropriate documents (your 1040NR form, plus any attachments or schedules) needed to file your return.

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