How to file a US tax return as a foreign national

If you live in the States as a foreign national and earn income there, you may be required to file a US income tax return. The same rules apply to people from any country with ties to the USA.

You can owe US tax even if you are neither a US citizen nor a green card holder, or if you live outside the USA. People who earned income, made gains or provided services during a past stay in the USA, or who currently receive passive income into their account, may also have to file a return with the IRS, the US tax authority.

Whether you owe tax depends mainly on how much you earn, as well as your age and filing status. The tax authorities set a threshold for this. If your income exceeds the IRS threshold, you generally have to file a US tax return, even as a non-American or a taxpayer living abroad.

Under US tax law, similar rules on possible US tax liability also apply to foreign companies with business ties to the States. For international companies, US tax liability can be triggered not only by a permanent establishment or employees living in the USA, but also by passive US income and gains (royalties, rent, sales of assets and so on), stakes in US companies (such as an LLC or partnership) or selling goods in the US. Here too, it is wise to talk to a tax advisor first and find out exactly how your company might be taxed in the USA. If you are planning a US company yourself, our guide to forming a US LLC as a non-resident walks you through the steps and ongoing obligations.

The first step in filing US taxes as a foreign national is determining your filing status. If you are married, you generally file jointly with your spouse. Single people, or people without dependents in the United States, file as single. If you are unmarried but have dependents, you are usually better off filing as head of household rather than single. Several factors affect the right status, for example whether both spouses earn income in the United States or only one has US income. It pays to get help from a US tax expert here. An experienced tax advisor helps you find the best filing status for your situation. Mount Bonnell Advisors is happy to help with a consultation.

Up to tax year 2019, there were two different forms for US income tax returns of people from abroad or without US citizenship: Form 1040NR and Form 1040NR-EZ. Form 1040NR-EZ was for unmarried taxpayers without permanent residence or a home in the United States who only received income or passive income from the USA. Only people for whom one of these conditions did not apply (for example those with US income from other sources such as investments) used Form 1040NR.

Since tax year 2020, nonresident aliens have just one form: Form 1040NR. If you are a tax resident of the USA (resident alien), you file Form 1040, just like US citizens. On the website of the IRS, the American tax authority, you will find the form itself along with the requirements and helpful instructions for filing a US tax return as a foreign national.

It is also important to know that you can owe tax not only at the federal level but also to individual US states. Depending on your situation and where you live in the United States, state tax may apply on top of federal income tax, and it varies from state to state. Foreign nationals may also need to consider local taxes at county level.

When filing your US tax return, it also helps to understand how credits and deductions work. Many of them generally require proof of residence in the United States, so as a foreign national it can be hard to qualify for certain credits or deductions. There are some exceptions, though, depending on your situation. If you have children at school in the USA, for example, certain education credits and deductions are available. And if you have business expenses from self-employment or other services in the United States, you may be able to claim them and deduct them from your taxes. Here too, talk to a tax advisor or financial expert. That way you will learn which deductions benefit you most and how to keep your US tax bill as low as possible.

As a foreign national, you should know this: the IRS refunds overpaid tax to you just like any other taxpayer, unless it is offset against outstanding tax debts. How much tax you owe, however, depends on which deductions and credits you are entitled to as a nonresident or resident. So it is wise to get advice from a tax expert beforehand, to make sure every applicable deduction and credit is included when your year-end tax is calculated and you don't pay more US tax than necessary.

If you owe tax in the States as a foreign national, your US tax returns must include all the details of your income. This usually includes:

• Total income earned in the tax year

• Interest and dividend income, which is also reported on IRS Form 1099

• Tax withheld from your employment income: this reduces the tax you owe on your return where applicable

• Credits and allowances: these also reduce the tax you owe

Depending on your situation, further details or additional documents may be needed. We are happy to work out exactly what information you need to provide and take care of filing your US tax return for you, whether you live in the States or abroad.

Foreign nationals and expats who owe US tax should also include the following additional information when completing their return:

• Social Security number or taxpayer identification number

• Full name, Social Security number or taxpayer identification number (and your spouse's date of birth, if applicable)

• Identity Protection PIN (if you have one)

• Bank routing number and account number, for refunding any overpayment or paying the amount you owe

For an overview of transferring money between the USA and Europe, see our dedicated article.

US citizens and everyone else with a US tax obligation must file their returns by April 15 each year. If that date falls on a weekend, the deadline moves to the next business day.

As a European citizen or expat, you can also get an extension, which pushes your filing date back by a few months if you need it. The latest possible deadline is October 15. If you miss the filing deadline without requesting an extension, expect a penalty. The amount depends on how late you are and how much tax is unpaid.

Filing US taxes can look complicated at first, and there are certainly some differences and quirks compared with the tax rules back home. But with the right preparation and expert support, a US tax return is routine, not only for Americans but for people of any nationality, whether you live in the States, in your home country or anywhere else. What matters is that you know your US tax status, include all relevant income and choose the right form (1040-NR). Finally, make sure you file your US return by April 18 (or request an extension) and pay any tax on time. Keep these points in mind and filing a US tax return goes smoothly, wherever you are from.

We strongly recommend getting professional help with your US tax return and consulting a tax advisor where needed. That is the only way to be sure you meet every legal requirement for paying taxes in the USA. We are happy to guide you through the whole process with a consultation and help you prepare and file every form you need, whichever country you come from. You will find all the details of our service on the US Tax Return page, and more articles under News.

In this article you will learn everything you need to know about the different ways to send money between the USA and Europe.

Find out here all about dual citizenship. In this article we look at the tax-free LLC.

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