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Immigration and Taxation: Tools for Navigating Through Alien Territory

gold compass 19340357_LargeA client recently asked if a foreign national employee was subject to federal withholding taxes. Naturally, since the question involved the U.S. tax code the answer, like the code, is complicated. Fortunately, the IRS has drafted a useful and surprisingly readable guidebook entitled U.S. Tax Guide for Aliens.  In this book the IRS explains that for tax purposes, “aliens” are persons who are not U.S. citizens. Aliens are classified as Nonresident Aliens and Resident Aliens. Resident Aliens generally are taxed on their worldwide income, the same as U.S. citizens. Nonresident Aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States. The designation of “resident” for tax purposes is completely distinct from one’s immigration status as a “permanent resident.” One might qualify as a resident for tax purposes while remaining a nonimmigrant alien for immigration purposes. (Continue reading).