A foreign national is defined simply as "an individual who is a citizen of any country other than the United States."
Certain types of payments to a foreign national may be taxable, while other payments to the same person are not. Also, payments that are taxable to one foreign national may not be taxable to another because of a tax treaty. It is important for the University to determine the taxability of each type of payment made to a foreign national in order to know whether withholding is required and the amount.
Note: University of Washington employees cannot provide personal, legal, or tax advice. Contact the IRS, your accountant or tax attorney for assistance.
Nonresident Aliens vs. Resident Aliens for Tax Purposes
Immigration terminology and definitions are not the same as tax terminology and definitions, therefore a nonresident alien for tax purposes is different than a nonresident alien for immigration purposes. A foreign national must be correctly classified in order to avoid potentially serious problems including:
- An unexpected tax bill at the time of departure from the U.S.
- Penalty and interest charges for both foreign national and sponsoring department
- Negative impact on future visa or immigration applications
See the chart, Comparison of Nonresident Alien vs. Resident Alien for Tax Purposes for detailed differences.
Determining Residency for Tax Purposes
A foreign national becomes a resident alien for tax purposes by passing either the “green card” or “substantial presence” tests as described in IRS Publication 519, U.S. Tax Guide for Aliens. See the chart, Determination of Nonresident Alien for Tax Purposes by Visa Type for further information.
Green Card Test
If a foreign national has been issued a Permanent Resident Card, also known as a green card or USCIS Form I-551, the person is said to have passed the “green card” test.
The right to lawful permanent residence is granted at the time of the final interview with the U.S. Citizenship and Immigration Services (USCIS) or the U.S. Department of State (DOS) officials and can be evidenced not only by the Permanent Resident Card but also by a stamp in the applicant's passport which states "temporary evidence of lawful permanent status”. The Permanent Resident Card may not be manufactured or mailed for several months after the final interview, and this stamp provides immediate proof of permanent status.
Substantial Presence Test
A person is a resident alien for tax purposes for the calendar year if she or he meets the “substantial presence” test. The visa type dictates if there are any years in which a nonresident alien is exempt from the “substantial presence” test, see chart Determination of Nonresident Alien for Tax Purposes by Visa Type. The person must be physically present in the U.S. on at least:
- 31 days during the current year, and
- 183 days during the three year period that includes the current year and the two preceding calendar years, counting:
- All of the days the person was present in the current year, and
- 1/3 of the days the person was present in the first preceding year, and
- 1/6 of the days the person was present in the second preceding year
Days Not Counted
- J-1 non-student visa holder (professor, researcher, etc.), who is substantially complying with the requirements of the visa, does not count days present in the first two calendar years
- F-1 or J-1 student visa holder, who substantially complies with the requirements of the visa, does not include days present in the first five calendar years
Note: The counting rules are based on calendar years, not twelve-month periods and days counted do not need to be consecutive.
Substantial Presence Test Examples
Circumstances that Disqualify Foreign Nationals from the Substantial Presence Test
A person will not meet the substantial presence test if (1) they are present in the U.S. on fewer than 183 days during the current year, and (2) if they establish that they have a tax home in a foreign country in the current year, and (3) that they have a closer connection to that foreign country than to the U.S. The closer connection exception is discussed in detail in IRS Publication 519, U.S. Tax Guide for Aliens.
To retain nonresident status after five years, F-1 student visa holders must establish that they have a closer connection with the foreign country than to the U.S.
Federal Withholding Taxes and Tax Treaties
The University of Washington is a withholding agent for the Internal Revenue Service (IRS) and is required to withhold tax. All payments made to a nonresident alien are taxable unless specifically exempt from tax by IRS Code or a treaty. See the Federal Withholding Tax for Foreign Nationals webpage for further information.