Kirsten Burmester Discusses Nonresident Tax Compliance on Strafford Webinar
Many nonresident aliens are either employed, own rental property or earn dividends from U.S. investments in the United States. Nonresident aliens are subject to U.S. income tax only on their U.S.-source income. Tax advisers must conduct a careful analysis to determine their taxpayer status, connection to the U.S. and approaches to reduce their tax liability.
Taxpayers without green cards or who do not maintain a substantial presence in the U.S. during the calendar year are considered U.S. nonresident aliens. These nonresident aliens can be subject to two different tax rates, one for effectively connected income (ECI) and one for fixed, determinable, annual or periodic (FDAP) income.
Taxpayers earn ECI in the U.S. from operating a business in the U.S., wages or self-employment income in the U.S. ECI is taxed for a nonresident at the same graduated rates as for a U.S. person.
If eligible income is classified as FDAP income, such as interest, dividends, rents or royalties, then the income is taxed at a 30% rate. The differences in tax rates, reporting mechanics, and withholding requirements for ECI and FDAP require tax professionals to be familiar with the ECI rules to avoid paying unnecessary taxes and penalties.
Tax treaties, deductions, credits and other options are available to reduce or eliminate the applicable tax rates or liability. Recently, the IRS implemented campaigns specifically focused on nonresident alien taxpayer compliance with tax treaty exemption claims, proper deduction of expenses and claiming tax credits.
Listen as our panel provides guidance in determining taxpayer status non-U.S. citizens, ECI vs. FDAP income classification, reporting requirements and available mechanisms to reduce tax liability of nonresident aliens. The panel will also offer tax planning techniques and best practices in light of the recent IRS compliance campaigns regarding nonresident alien taxpayers.
The panel will review these and other high priority issues:
- Tax rules and regulations applicable to U.S. nonresident aliens
- Criteria for determining a nonresident alien taxpayer
- Differences in tax reporting, rates and withholdings between ECI and FDAP
- The effect of tax treaties the U.S. has with other countries
- Recent IRS compliance campaigns focused on nonresident alien taxpayers
- Managing IRS examinations of proper withholding and claiming exemptions or deductions
- Best practices for compliance and tax planning techniques