Who Has to File 1040NR?

The US is famously open to foreigners, attracting a lot of foreign investment in real estate, finance and insurance, wholesale trade, and many other industries. These tens of millions of people from different countries, apart from investing and earning income in the US, have another thing in common — all of them have to file the individual taxpayer form 1040NR with the IRS each year or risk paying harsh penalties and exuberant fees.

In this article, we’ll focus on the 1040NR form and give you information about who files 1040NR. We’ll also talk about some of the most common types of US-based income eligible for taxation, and we’ll share examples of people filing the 1040 NR forms with you. 

Let’s begin. 

What Is 1040NR And Who Files 1040NR Tax Form?

The 1040NR is an individual payer tax form for nonresident aliens with US-based income. Nonresidents are not US citizens and, because of that, only have to pay taxes on their US-sourced income. Any income earned outside of the US will not be subject to taxes.

Before filing the 1040NR, you must determine whether the Internal Revenue Service (IRS) views you as a resident or nonresident for tax purposes. And to find this out, you have to do the Substantial Presence Test. If your score is 183 days of presence (or more) for a consecutive 3-year period, you will be viewed as a resident for tax purposes and will have to file the 1040 form. If your score is below 183 days, you must file the 1040NR form. 

It’s important to note here that the way the IRS views you won’t impact your actual legal status in the US. Meaning that, even if you are considered a resident for tax purposes, you won’t actually have all the rights of a US resident. This is only used to determine which form you should file — 1040 or 1040NR.

As mentioned above, the 1040NR tax form is for foreigners with US-based income. The most common types of US-based income are:

• Income generated by a rental property in the US.
• Income generated through wages or salaries paid as compensation for any type of work carried out in the US.
• Income generated through interest and dividends paid out by US corporations, bank accounts, and similar.
• Income generated via royalties from copyrights, patents, or trademarks in the US.   

Anyone who earned income in the US in 2023 and is considered a nonresident by the IRS should file the 1040NR form by the 15th of April 2024. 

Who Files 1040NR?

All nonresident aliens with a US-based income must file a 1040NR form each year. Now, the main question is — who, by the standards of the IRS, falls into the category of nonresident aliens? 

Well, according to the IRS, nonresident aliens are people who do not have US citizenship, are not Green Card holders, and did not pass the Substantial Presence Test. Anyone who falls into these three categories and generates any type of income in the US must file the 1040NR tax form. Nonresidents only have to report their US-sourced income on the 1040NR forms. 

Who Files 1040NR: Examples

To help you figure out whether or not you should be filing 1040NR this tax season and make it easier to understand, we’ve compiled a list of some real-life examples of people filing this form. 

Who Files 1040NR: Example 1

Ethan is a Canadian citizen who got a mortgage loan in the US and used it to purchase rental property in Florida. Because this property is in the US and generates rental income, Ethan has to pay taxes on it. But, before he does so, he needs to figure out whether or not the IRS views him as a resident or nonresident for tax purposes.  

To do that, Ethan needs to do the Substantial Presence Test to determine the number of his days of presence in the US. If his score is below 183, he’ll only need to pay taxes on his US-based income and will have to fill out the 1040NR form. And, if his score is above 183, the IRS will view him as a resident for tax purposes, and he will have to fill out the 1040 form and pay taxes on his worldwide income (any income that he makes in Canada or anywhere else in the world will be subject to taxation by the IRS).  

Before the SPT test, Ethan checked his travel history in the US via the online I-94 form. He put the numbers from that into his SPT test and got that his days of presence in the US were 130. Because this number is below 183, Ethan is viewed as a nonresident for tax purposes. This means that he only has to pay taxes on his US-based income and that he should file the 1040NR form with the IRS.   

Who Files 1040NR: Example 2

Alejandro was born and raised in Nuevo Laredo, a Mexican border town with around 300,000 people. This year, and the past couple of years, Alejandro crossed the border into the US and spent three months doing some seasonal farm work. Because the farm is in the US and he receives wages for his work, Alejandro has to file taxes with the IRS.

Alejandro’s SPT results show that he has 150 days of presence in the US. Because his score is below 183, Alejandro is viewed as a nonresident by the IRS and must file the 1040NR form. As a nonresident, Alejandro will only be taxed on his US-sourced income. 

Who Files 1040NR: Example 3

Daniele is an Italian citizen who decided to buy shares in a US-based company a couple of years back. This year, the company paid out dividends to its shareholders. Because the company is US-based, the income Daniele received from those dividends will be considered as US-sourced income and will be subject to taxation by the IRS.

Daniele has only been to the US once, for three weeks on a vacation. His score on the SPT test was far below the 183 days of presence required to be viewed as a resident for tax purposes. Because of that, Daniele is viewed as a nonresident by the IRS. He needs to file the 1040NR form and will only be taxed on his US-based income (in this case, the money Daniele received from dividends).

Who Files 1040NR: Example 4

Paul is a real estate broker and a novelist from the UK. His novels didn’t do well in Europe, but sold quite a bit in the States, earning him a substantial amount of royalties paid out by his publisher. Because royalties come from the US-based publisher, he needs to pay taxes in the US. 

Paul never went to the US, but still did the SPT test and got a score of 0. This put him in the nonresident category for tax purposes. Because of that, he will only be taxed on his US-sourced income and has to file the 1040NR form with the IRS. 

1040 for Non Resident Aliens: Common Mistakes

Here are some of the most common mistakes made by nonresident aliens when filing the 1040NR form with the IRS:

• Filing the 1040NR form too late or early — Failure to file the 1040NR tax form can lead to penalties and fines imposed by the IRS. On the other hand, filing the form early can cause delays and increase processing times.
• Misspelling — This is a common occurrence among nonresidents who file 1040NR forms. Even one letter being off can cause big issues with the IRS. That’s why it’s important to always double or even triple-check the spelling.
• Forgetting to sign the tax form — The 1040NR tax form needs to contain the signature of the person filing it. If it doesn’t, the entire tax form will be considered illegitimate by the IRS.
• Adding wrong information — All information in the 1040NR form has to be 100% accurate. Things such as types of income and amounts, credits, and deductions all have to be error-free.
• Filing 1040 instead of 1040NR — Anyone who filed 1040 instead of 1040NR should immediately (upon realizing the mistake) file the 1040-X form to amend their tax return. It’s important to do this as soon as possible, as the IRS can charge certain penalties.
• Not filing any tax forms — The IRs will charge an interest-based penalty between 5-25% of owed taxes for every month those taxes remain unpaid. And, if the IRS determines the person didn’t pay their taxes intentionally, they can recommend jail time and exclude this person from ever becoming a US citizen, getting a Green Card, or even entering the US.

1040 for Non Resident Aliens: Exemptions to Days of Presence and Exempt Individuals

Before filing the 1040NR form, foreigners must do the Substantial Presence Test to determine if the IRS will view them as residents or nonresidents for tax purposes. Now, it’s important to note here that there are certain exceptions to how days of presence are counted:

• Suppose you are from Canada or Mexico and regularly travel to the US for work. In that case, you’ll be considered a nonresident if you spend less than 75% of your accumulated workdays during a working period (usually one year) in the US. Otherwise, you’ll be taxed as a resident and will have to report your worldwide income to the IRS.
• Any day you are in the US for less than 24 hours because you’re in transit between two locations outside of the States won’t count as a day of presence.
• Any number of days you’re in the US as a crew member of a vessel registered in a foreign country won’t be counted as a day of presence. This exception won’t be applicable if you engage in any business activity during those days.
•  Any number of days you are prevented from leaving the US because of medical issues or various problems that directly affect your ability to leave the country.  

If you are an exempt individual, the days you spent in the US won’t count as days of presence. Exempt individuals are:

• Anyone temporarily in the US who represents or is working for a foreign government
• A teacher or a trainee with a J or Q-type Visa
• A student with an F, J, M, or Q-type Visa
• A professional athlete who came to the US to take part in a charitable event