Resident aliens are non-citizens who have their primary residence in the United States. Resident aliens are typically green card holders or other classes of immigrants who are pursuing citizenship in the U.S. In addition, even non-immigrants (such as H1B visa holders) are technically resident aliens, because they are still living in the U.S. full time (for up to a 3 year period) and pass the substantial presence test in terms of federal taxes.
However, there is another class of non-citizens that is worth mentioning and discussing in this blog post. This is the category of non-resident aliens. Non-resident aliens can he hired by U.S. companies as employees and it is perfectly legal, even though many think that it is not a possibility. Different organizations might have needs outside of their U.S. based headquarters and therefore it makes sense to hire a foreign national with a specific skillset. This could be the case for non-profits and international organizations who have headquarters and are based in multiple different countries. Let’s see how becoming a non-resident alien really works.
The IRS and Tax Law
First off, just because someone doesn’t meet the Substantial Presence Test doesn’t mean they cannot be employed by a U.S. based company. Secondly, the IRS notes that if an employer decides to hire a non-resident alien, the wages earned by that individual, for services performed outside of the U.S. are not subject to reporting and withholding of U.S. federal income tax.[1] In other words, one of the main advantages, and perhaps reasons why being a NRA is a popular option for those who are eligible is because of the tax benefits and also because it is less hassle then going through the green card process. Personal obligations are also another reason.
If you are from a country with an established relationship and tax treaty with the U.S., it also makes becoming a non-resident alien easier in terms of the employer receiving DOL certification. Non-resident aliens are still required to be given a W-4 though. This is done through IRS official documentation using modified instructions, so that employers can withhold the correct amount of federal income tax from compensation paid for personal services performed in the United States. Just because an employee is a non-resident alien, they still are travelling to the U.S. to perform work, which then ends up being taxable.[2]
Working/Studying as a Non-resident alien
Technically, most J-1 students qualify for Non-resident alien status in their first five years at a U.S. university. This makes sense given that most PhD candidates in the U.S. that are international students do not have to pay taxes on their PhD stipend they receive as it works out that they miss the substantial presence test based on when their semester ends and they travel home on a valid visa.
In addition, while some U.S. employers will hire non-resident aliens, it is less common to be a NRA and be employed by the US government unless there is a special exception from a federal agency that is looking to hire a foreigner (as is the case with translators or those with refugee status).
For more information on this class of international taxpayer, please see the following IRS link: https://www.irs.gov/individuals/international-taxpayers/persons-employed-abroad-by-a-us-person
