A resident alien is taxed on worldwide income from all sources, just like a U.S. citizen. An exception applies for resident aliens working in the United States for a foreign government; they are not taxed on the wages if their foreign government allows a similar exemption for U.S. citizens. Resident aliens file their tax return on Form 1040.
Individuals are treated as a resident alien if they meet either of two tests:
To determine if an individual meets the “substantial presence test”, each day in the current calendar year counts as a full day. Each day in the previous calendar year counts as 1/3 of a day, and each day in the earliest year counts as 1/6 of a day.
There are certain exceptions to the “substantial presence test”:
A nonresident alien is only taxed on their income from U.S. sources. Income that is “effectively connected” with a U.S. business and capital gains related to the sale of U.S. property are subject to tax at regular rates. Investment income of a nonresident alien from U.S. sources that is not “effectively connected” with a U.S. business is subject to a flat 30% tax rate. Nonresident aliens file their tax return on Form 1040NR.