US Income and Estate Tax Implications for Non-Resident Aliens Owning US Situs Property and Receiving US-Based Income

I. Introduction:

The United States tax system presents a complex landscape for individuals who are not citizens or residents of the country but have connections to it through property ownership or income derived from US sources. For non-resident aliens, understanding their tax obligations is paramount to ensure compliance with US law and to optimize their financial planning. This report aims to clarify the income tax implications for non-resident aliens who own property situated within the US and receive income such as social security benefits and distributions from retirement accounts established in the US. Navigating these regulations requires careful consideration of various factors, including the definition of US situs property, the general principles of US income taxation for non-resident aliens, specific rules applicable to different income types, the impact of tax treaties, and relevant filing requirements. A comprehensive understanding of these aspects is crucial for non-resident aliens to manage their US-related financial affairs effectively and in accordance with US tax laws.

II. Defining US Situs Property:

For tax purposes, particularly concerning estate and gift tax, the term "US situs property" refers to assets that are considered to be located within the United States.[1, 2] It is important to note that the definition of what constitutes US situs property can vary depending on whether it pertains to income tax or estate and gift tax regulations.[2] Furthermore, the specific definition applicable in any given situation may be modified by the provisions of an applicable estate and gift tax treaty between the US and the non-resident alien's country of residence.[1] This nuance underscores the necessity for a precise understanding of the relevant tax context when determining the situs of an asset.

Several types of assets can qualify as US situs property. Real property, which includes land and buildings located within any of the 50 states or the District of Columbia, is a primary example.[3, 4] Additionally, tangible personal property that is physically located in the US is generally considered US situs property.[1, 2] However, there are exceptions to this rule. For instance, personal effects and merchandise belonging to a non-resident alien who passes away while traveling in the US are typically not subject to US estate tax.[3] Similarly, art that has been imported into the US solely for public exhibition, is on loan to a non-profit public gallery or museum, and is on exhibit or in transit for such purposes at the time of death, is not considered US situs property for estate tax.[3, 4] In contrast, for federal gift tax purposes, cash physically located within the US, such as in a safety deposit box, is treated as US situs tangible personal property.[2, 5]

Another significant category of US situs property is the stock of US corporations. Shares issued by companies organized in or under the laws of the United States are deemed to be US situs property, regardless of where the physical stock certificates are held.[1, 2] Business assets that are located within the US or used in connection with a trade or business conducted in the US also qualify as US situs property.[1] Generally, debt obligations are considered US situs property if the principal debtor is a US person, the US government, or a state or political subdivision thereof.[3, 4] However, an exception exists for portfolio interest on obligations issued after July 18, 1984, in registered form, which is often excluded from income.[6, 7] The situs of partnership interests is less clear, but the Internal Revenue Service (IRS) generally takes the position that they are situated where the partnership's primary business is conducted.[3] For gift tax purposes, it is important to note that US situs assets are limited to real estate and tangible personal property; intangible property such as stocks and bonds of US corporations are not subject to federal gift tax.[2, 5]

Conversely, certain assets are specifically excluded from the definition of US situs property. Life insurance policies on the life of a non-resident alien are not deemed to be situated in the US.[3, 4] Bank deposits that are not effectively connected with a US trade or business also lack a US situs.[3, 4] Specifically, cash held in a US bank account is not considered US situs property for estate tax purposes [2], and deposits in a foreign branch of a US bank are also excluded.[4] Furthermore, debt obligations of US corporations and the US government are not considered US situs if the interest on such obligations qualifies as portfolio interest.[2]

The distinction between asset types and the specific tax regime (estate, gift, or income tax) are critical in determining whether an asset has a US situs. The numerous exceptions, particularly in the context of estate tax, highlight the need for a thorough analysis of each asset. The different treatment of intangible property for gift versus estate tax also presents important planning considerations for non-resident aliens.

US Situs Property by Asset Type

III. General Principles of US Income Taxation for Non-Resident Aliens:

The foundation of US income taxation for aliens rests on their residency status. The US tax code distinguishes between resident aliens and non-resident aliens. Resident aliens are generally taxed on their worldwide income in the same manner as US citizens.[8, 9] An individual is considered a resident alien if they meet either the Green Card Test (holding a lawful permanent resident card) or the Substantial Presence Test.[9, 10] The Substantial Presence Test involves a formula based on the number of days the individual is physically present in the US over a three-year period.[10]

In contrast, non-resident aliens are typically subject to US income tax only on income that is derived from sources within the United States.[8] A non-resident alien is defined as an alien who has not passed either the Green Card Test or the Substantial Presence Test.[10, 11] It is also possible for an individual to be a dual-status alien, meaning they were both a resident alien and a non-resident alien during the same tax year.[8]

For non-resident aliens, the general principle is that only income from US sources is subject to US income tax.[8] Determining the source of income is crucial, and specific rules apply to various types of income, such as compensation for services, interest, dividends, rents, royalties, and gains from the sale of property.[11, 12] Detailed guidance on source of income rules for non-resident aliens can be found in IRS Publication 519.[7, 12]

The US source income of a non-resident alien is generally categorized into two types: Effectively Connected Income (ECI) and Fixed, Determinable, Annual, or Periodical (FDAP) income.[13] Effectively Connected Income (ECI) is income that is effectively connected with the conduct of a trade or business within the United States.[14, 15] This type of income, after allowable deductions, is taxed at the same graduated rates that apply to US citizens and residents.[13] Notably, gains from the disposition of US real property interests under the Foreign Investment in Real Property Tax Act (FIRPTA) are treated as ECI.[14] Fixed, Determinable, Annual, or Periodical (FDAP) income encompasses passive investment income such as dividends, interest, rents, and royalties that are not effectively connected with a US trade or business.[15, 16] FDAP income is taxed at a flat 30% rate on the gross amount, without any deductions allowed, unless a lower rate is specified by an applicable tax treaty.[13]

Understanding the distinction between these two categories is fundamental for non-resident aliens as it dictates the applicable tax rate and whether deductions can be claimed. For instance, rental income from US property can be treated as either FDAP income or, by election, as ECI.

IV. Taxation of Income from US Situs Property:

Income derived by non-resident aliens from US situs property is subject to specific tax rules depending on the nature of the income.

Rental Income:

The default tax treatment for rental income received by a non-resident alien from US real property is that it is considered Fixed, Determinable, Annual, or Periodical (FDAP) income.[17, 18] As FDAP income, it is subject to a flat 30% federal income tax rate (or a lower rate as provided by an applicable tax treaty) on the gross amount of rent received.[19, 20] It is crucial to understand that under this default treatment, non-resident aliens are not permitted to take any deductions for expenses related to the rental property, such as mortgage interest, property taxes, or maintenance costs.[13, 17] This can result in a significant tax burden as the tax is levied on the total rental income without considering associated expenses.

However, the US tax code provides an alternative for non-resident aliens who own or hold an interest in US real property for the production of income. Under Internal Revenue Code Section 871(d), a non-resident alien can elect to treat all income from such US real property as effectively connected with a US trade or business (ECI).[18, 19] This election allows the non-resident alien to essentially convert the passive renting of US real property into an active trade or business for US tax purposes.[18] The primary benefit of making this election is that the rental income is then taxed at the graduated income tax rates applicable to US citizens and resident aliens, but importantly, it allows for the deduction of expenses that are attributable to the real property income.[17, 19] These deductible expenses can include mortgage interest, depreciation, management fees, property taxes, and insurance costs.[18] By deducting these expenses, the non-resident alien's taxable income from the rental property can be significantly reduced, potentially resulting in a lower overall tax liability compared to the 30% gross tax under the FDAP rules.[18]

To make the election under Section 871(d), a non-resident alien must attach a statement to their income tax return, Form 1040-NR, for the year in which the election is made.[19] This election applies to all income from US real property that the non-resident alien owns or has an interest in and holds for the production of income, and it applies to all income from any interest in such property.[18, 19] Once the election is made, the non-resident alien should also provide Form W-8 ECI, Foreign Person's Claim of Income Effectively Connected with the Conduct of a Trade or Business in U.S., to any withholding agent or payer in the first year of the election and in subsequent years when required.[19] This form informs the withholding agent that the rental income is to be treated as ECI and is includible in the non-resident alien's income tax return.[19] The election can also be revoked under certain conditions.[19]

Capital Gains from Sale of Property:

The taxation of capital gains derived from the sale of US situs property by non-resident aliens depends on several factors, including the type of property and the non-resident alien's presence in the United States. Generally, capital gains that are not effectively connected with a US trade or business are exempt from US tax for non-resident aliens who are present in the US for less than 183 days during the taxable year.[21, 22]

However, if a non-resident alien is physically present in the US for 183 days or more during the tax year, US source net capital gains are taxed at a flat rate of 30%, or at a lower rate if provided by a tax treaty.[17, 22] This provision primarily applies to capital gains from the sale of personal property, as gains from the sale of US real property interests are subject to different rules under the Foreign Investment in Real Property Tax Act (FIRPTA).

The Foreign Investment in Real Property Tax Act (FIRPTA) governs the taxation of gains from the disposition of US Real Property Interests (USRPI) by non-resident aliens.[17, 22] Under FIRPTA, any gain or loss from the sale or exchange of a USRPI is treated as effectively connected with a US trade or business, regardless of the non-resident alien's physical presence in the US.[14, 17] A USRPI includes real property located in the United States and shares in US Real Property Holding Corporations (USRPHC).[14] To ensure the collection of tax on these gains, FIRPTA requires the buyer (transferee) of the USRPI to withhold 15% of the gross amount realized on the sale or exchange by the non-resident alien.[17, 20] This withheld amount is essentially an advance payment towards any potential capital gains tax liability.

The withholding requirement can be reduced or even eliminated if the non-resident alien obtains a withholding certificate from the IRS.[17, 23] This typically requires filing Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, with the IRS and demonstrating that a lower withholding amount is appropriate. There are also certain exceptions to the withholding requirement, such as for the sale of a personal residence for a price of $300,000 or less, provided the buyer intends to reside in the property.[23] Reduced withholding may also apply for sales between $300,001 and $1,000,000 under similar conditions.[23]

Capital gains realized by non-resident aliens from the sale of other US situs property, such as stock in US corporations, are generally not subject to US capital gains tax unless the non-resident alien meets the 183-day presence test during the tax year.[22] However, it is important to note that capital gains from the sale of interests in US partnerships that have effectively connected income (ECI) are subject to US tax.[22]

V. Taxation of US Social Security Benefits for Non-Resident Aliens:

US social security retirement, survivors, or disability benefits received by non-resident aliens are subject to US income tax.[24, 25] Specifically, up to 85% of the amount of these benefits may be taxable.[25] It is important to note that Supplemental Security Income (SSI) and Special Veterans benefits are not subject to US income tax.[25]

The Social Security Administration (SSA) is mandated by the US Internal Revenue Code to withhold a flat tax of 30% from 85% of the social security benefits paid to non-resident aliens.[24, 26] This effectively results in a withholding of 25.5% of the total monthly benefit amount.[24, 26] However, this withholding requirement may be affected by the provisions of an income tax treaty between the US and the non-resident alien's country of residence.[24, 27]

Many income tax treaties include provisions that either exempt US social security benefits from US taxation or reduce the rate at which they are taxed for residents of the treaty country.[24, 27] For example, residents of countries such as Canada, Egypt, Germany, Ireland, Israel, Italy, Japan, Romania, and the United Kingdom are exempt from US tax on their social security benefits under existing tax treaties.[27] Residents of Switzerland, on the other hand, are subject to a reduced tax rate of 15% on the total benefit amount.[27] Additionally, under the treaty with India, benefits paid to individuals who are both residents and nationals of India are exempt from US tax if the benefits are for services performed for the United States government or its political subdivisions.[27]

To claim an exemption or a reduced rate of tax on US social security benefits based on a tax treaty, a non-resident alien beneficiary must file Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), with the Social Security Administration.[28] If the appropriate form is not filed in a timely manner or if the relevant treaty article is not correctly cited, excessive withholding may occur.[28] In cases where tax has been over-withheld due to a treaty exemption, the non-resident alien may need to file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, to request a refund of the excess amount withheld.[28] While the SSA will accept Form W-8BEN to reduce future withholding, it cannot process refunds of prior over-withholding; this must be done through filing Form 1040-NR with the IRS.[28]

VI. Taxation of 401(k) Distributions for Non-Resident Aliens:

Distributions from US retirement plans, including 401(k) plans, to individuals who are considered foreign persons are generally subject to a federal income tax withholding of 30% under Internal Revenue Code Section 1441(a).[29, 30] This rule applies unless the withholding agent, typically the plan administrator, can reliably associate the payment with valid documentation that establishes either that the payee is a US person or that the payee is a foreign person entitled to a lower rate of withholding based on a tax treaty.[30]

For non-resident aliens, the entire amount withdrawn from a 401(k) is generally taxed as ordinary income by the US, even if the individual has returned to their country of residence at the time of withdrawal.[29, 31] In addition to income tax, withdrawals made before the age of 59½ are typically subject to a 10% early withdrawal penalty, the same as for US residents.[29, 31] This penalty is levied on the amount of the distribution that is subject to income tax.

Income tax treaties between the US and many foreign countries may contain provisions that reduce the rate of withholding tax or even exempt pension income, which can include distributions from 401(k) plans, from US tax.[29, 32] The applicability of a treaty benefit often depends on the recipient's country of residence.[32] To claim a reduced rate of withholding or an exemption based on a tax treaty, the non-resident alien must provide Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), to the administrator of the 401(k) plan.[32] This form allows the individual to certify their foreign status and claim the benefits provided under the relevant tax treaty.

Direct rollovers from a US-based retirement plan such as a 401(k) to a retirement plan located in a foreign country are generally not permitted.[33] However, some tax treaties may allow for a subsequent transfer to a retirement account in the individual's home country after the funds have been rolled over into a US-based IRA.[29]

If the contributions to the 401(k) were made for services performed by the non-resident alien while working in the US, the distributions may be considered Effectively Connected Income (ECI).[31, 34] ECI is taxed at the graduated rates applicable to US citizens and resident aliens, and deductions related to that income may be allowed.

VII. Taxation of Roth IRA Distributions for Non-Resident Aliens:

The taxation of distributions from Roth IRA accounts for non-resident aliens depends on whether the distribution is considered "qualified" or "non-qualified." Qualified distributions from a Roth IRA are generally entirely tax-free for US federal income tax purposes.[29, 35] A distribution is considered qualified if it meets two conditions: first, it must be made at least five years after the first contribution to any Roth IRA by the account holder; and second, it must be made either after the account holder reaches age 59½, becomes disabled, or is used for a first-time home purchase (up to a lifetime limit of $10,000).[36]

Non-qualified distributions of earnings from a Roth IRA, meaning those that do not meet the above criteria, may be taxable as ordinary income and could also be subject to a 10% early withdrawal penalty if the account holder is under age 59½.[36, 37] However, the withdrawal of contributions made to a Roth IRA is always tax-free and penalty-free, as these contributions are made with after-tax dollars.[36]

When it comes to withholding tax on Roth IRA distributions made to non-resident aliens, distributions sent to an address outside of the US are generally subject to mandatory federal withholding.[29] The default federal withholding rate for distributions to foreign payees is often 30%, unless a lower rate is specified by an applicable income tax treaty.[35] Some financial institutions may permit the waiver of the standard 10% withholding on IRA distributions to foreign addresses by completing specific documentation, but for non-resident aliens, the mandatory withholding is frequently 30% unless treaty relief is claimed.[29] Financial organizations are generally required to apply withholding unless they have a reasonable certainty that the distribution is qualified and therefore not taxable.[35]

Income tax treaties between the US and other countries may contain provisions that reduce or eliminate US tax on distributions from pensions, which could potentially extend to the taxable portion of non-qualified Roth IRA distributions in some interpretations.[29] While qualified Roth IRA distributions are already tax-free under US law, a tax treaty might offer benefits in situations involving non-qualified earnings. To claim any treaty benefits that might be applicable, the non-resident alien would typically need to provide Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), to the financial institution managing the Roth IRA.[35, 38]

VIII. Impact of Tax Treaties:

The United States has entered into income tax treaties with numerous foreign countries. These treaties are designed to prevent double taxation and may override or modify the general provisions of the US Internal Revenue Code.[8] For non-resident aliens, understanding whether a tax treaty exists between their country of residence and the US, and the specific provisions of that treaty, is crucial for determining their US tax obligations.[11, 13]

Tax treaties can have a significant impact on the taxation of various types of income derived from US sources by non-resident aliens:

• US Situs Property Income: Tax treaties may reduce the standard 30% withholding tax rate on rental income that is treated as FDAP income.[17] Additionally, treaties can provide different rules for the taxation of capital gains from the sale of US real property interests, potentially affecting the application of FIRPTA.[22]

• Social Security Benefits: Many tax treaties include specific articles that either exempt US Social Security benefits from US income tax or provide for a reduced rate of taxation for residents of the treaty country.[27]

• 401(k) Distributions: Income from pensions, which can encompass distributions from 401(k) plans, may be subject to reduced withholding rates or even be exempt from US tax under the provisions of a tax treaty, often based on the residence of the recipient.[32, 39]

• Roth IRA Distributions: While qualified distributions from Roth IRAs are generally tax-free under US law, tax treaties might influence the taxation of any non-qualified earnings portion of the distribution or the withholding requirements applied to distributions sent abroad.[35]

It is essential to recognize that the benefits provided by tax treaties vary considerably from country to country. Therefore, a non-resident alien must always consult the specific income tax treaty in effect between the US and their country of residence to ascertain which benefits, if any, apply to their particular circumstances.[11, 39]

To claim the benefits of a tax treaty that provides for a reduced rate of withholding or an exemption from US tax, non-resident aliens generally need to complete and submit Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), to the withholding agent (e.g., the payer of rental income, the Social Security Administration, or the administrator of a retirement plan).[28, 32] In some cases, such as when claiming an exemption from withholding on compensation for personal services, Form 8233 may be required.[40] Furthermore, if a taxpayer takes a tax return position based on a treaty that differs from the general rules of the Internal Revenue Code, they may be required to disclose this position on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).[10]

IX. Relevant IRS Forms and Filing Requirements:

Non-resident aliens who have US tax obligations must be aware of the relevant IRS forms and the associated filing requirements.

The primary income tax return form for non-resident aliens is Form 1040-NR, U.S. Nonresident Alien Income Tax Return. This form is used to report both Effectively Connected Income (ECI) and Fixed, Determinable, Annual, or Periodical (FDAP) income. Instructions for completing Form 1040-NR are available from the IRS website.  

If a non-resident alien has FDAP income or capital gains that are not effectively connected with a US trade or business, they will typically need to complete Schedule NEC (Form 1040-NR), Tax on Income Not Effectively Connected With a U.S. Trade or Business. This schedule is used to calculate the tax due on such income.  

To certify their foreign status and to claim any benefits under an income tax treaty that may reduce withholding tax, non-resident aliens should complete and submit Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals). Instructions for this form are also provided by the IRS.  

In the event of the death of a non-resident alien who owned US situs property with a fair market value exceeding $60,000 at the time of death, the executor of the estate may be required to file Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States.  

Non-resident aliens who have a US tax filing or reporting requirement but are not eligible for a Social Security number (SSN) must obtain an Individual Taxpayer Identification Number (ITIN) by submitting Form W-7, Application for IRS Individual Taxpayer Identification Number.  

The general filing deadline for Form 1040-NR is April 15th of the year following the tax year if the non-resident alien received wages subject to US income tax withholding. If they did not receive wages subject to withholding, the deadline is typically June 15th. If a non-resident alien is unable to file their return by the due date, they can request an automatic extension of time by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.X. US Estate Tax Implications for Non-Resident Aliens Owning US Situs Property:

For non-resident aliens who own property considered to have a US situs, their estates may be subject to US federal estate tax upon their death.[50] The determination of whether an asset has a US situs for estate tax purposes is critical. Generally, US situs assets include real property located in the US, tangible personal property situated within the US, business assets located in the US, and stock of corporations organized under US law.[1, 51] It is important to note that the definition of US situs assets for estate tax can be modified by an applicable estate tax treaty.[51]

The maximum federal estate tax rate is 40%.[1] However, non-domiciled non-resident aliens are subject to a significantly lower estate tax exemption compared to US citizens and residents. For non-resident aliens, the estate tax exemption is limited to $60,000.[1, 3] In contrast, US citizens and individuals domiciled in the US have a much higher exemption amount (e.g., $13.61 million in 2024).[52]

The US has estate tax treaties with a number of foreign countries, and these treaties may provide more favorable treatment for non-resident aliens, such as a higher estate tax exemption or different rules for determining the situs of assets.[53] Therefore, it is essential to consult any applicable estate tax treaty between the US and the non-resident alien's country of residence.

Several estate planning considerations can be relevant for non-resident aliens owning US situs property. One common strategy involves holding US situs property, particularly real estate, through a foreign corporation. Shares of a foreign corporation are generally not considered US situs property for estate tax purposes, so upon the death of the non-resident alien shareholder, the shares themselves would not be subject to US estate tax.[50] However, the income tax implications of such structures must also be carefully evaluated.[20] Another consideration is lifetime gifting. While gifts of intangible US situs assets made during the non-resident alien's lifetime are not subject to US gift tax, gifts of tangible US situs property are taxable, with no gift tax exemption available to non-resident aliens.[1] Life insurance policies on the life of a non-resident alien are not considered US situs property and are therefore not subject to US estate tax.[53]

If the fair market value of a non-resident alien's US situs assets exceeds $60,000 at the time of their death, the executor of their estate is generally required to file Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States.[51]

X. US Estate Tax Implications for Non-Resident Aliens Owning US Situs Property:

For non-resident aliens who own property considered to have a US situs, their estates may be subject to US federal estate tax upon their death. The determination of whether an asset has a US situs for estate tax purposes is critical. Generally, US situs assets include real property located in the US, tangible personal property situated within the US, business assets located in the US, and stock of corporations organized under US law. It is important to note that the definition of US situs assets for estate tax can be modified by an applicable estate tax treaty.  

The maximum federal estate tax rate is 40%. However, non-domiciled non-resident aliens are subject to a significantly lower estate tax exemption compared to US citizens and residents. For non-resident aliens, the estate tax exemption is limited to $60,000. In contrast, US citizens and individuals domiciled in the US have a much higher exemption amount (e.g., $13.99 million in 2025).  

The US has estate tax treaties with a number of foreign countries, and these treaties may provide more favorable treatment for non-resident aliens, such as a higher estate tax exemption or different rules for determining the situs of assets. Therefore, it is essential to consult any applicable estate tax treaty between the US and the non-resident alien's country of residence.  

Several estate planning considerations can be relevant for non-resident aliens owning US situs property. One common strategy involves holding US situs property, particularly real estate, through a foreign corporation. Shares of a foreign corporation are generally not considered US situs property for estate tax purposes, so upon the death of the non-resident alien shareholder, the shares themselves would not be subject to US estate tax. However, the income tax implications of such structures must also be carefully evaluated. Another consideration is lifetime gifting. While gifts of intangible US situs assets made during the non-resident alien's lifetime are not subject to US gift tax, gifts of tangible US situs property are taxable, with no gift tax exemption available to non-resident aliens. Life insurance policies on the life of a non-resident alien are not considered US situs property and are therefore not subject to US estate tax.  

If the fair market value of a non-resident alien's US situs assets exceeds $60,000 at the time of their death, the executor of their estate is generally required to file Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States.  

XI. Obtaining an Individual Taxpayer Identification Number (ITIN):

An Individual Taxpayer Identification Number (ITIN) is a nine-digit number issued by the IRS to individuals who are not eligible to obtain a Social Security number (SSN) but have a US tax filing or reporting obligation.[46, 47] This often includes non-resident aliens who need to file a US tax return, claim a benefit under a tax treaty, or are claimed as dependents on a US tax return.[47, 48]

To apply for an ITIN, the non-resident alien must complete Form W-7, Application for IRS Individual Taxpayer Identification Number.[49] The application must include a valid US federal income tax return (such as Form 1040-NR) unless the applicant meets an exception to the filing requirement.[48, 49] The applicant must also submit original or certified copies of foreign identification documents that prove their identity and foreign status. Acceptable documents can include a passport, national identification card, or visa issued by the US Department of State.[47, 48]

The ITIN application package, including Form W-7, the tax return (if required), and the supporting identification documents, can be submitted to the IRS in one of three ways: by mail to the IRS Austin Service Center, by applying in person at an IRS Taxpayer Assistance Center (TAC) that offers ITIN services (appointments are required), or by using the services of an IRS-authorized Certifying Acceptance Agent (CAA).[46, 49] CAAs are individuals or entities authorized by the IRS to assist taxpayers with the ITIN application process and can often authenticate the applicant's identification documents, allowing the applicant to retain the originals.[48, 49]

XII. Conclusion:

The US tax implications for non-resident aliens owning US situs property and receiving US-based income are multifaceted, encompassing both income tax and estate tax considerations. Determining the correct residency status is the foundational step in understanding the scope of US taxation. Non-resident aliens are generally taxed only on their US source income, which is further classified as either Effectively Connected Income (ECI) or Fixed, Determinable, Annual, or Periodical (FDAP) income, each with its own set of tax rules. Income from US situs property, such as rental income and capital gains, is subject to specific regulations, with opportunities for electing ECI treatment for rental income and particular rules under FIRPTA for the sale of US real property. US social security benefits received by non-resident aliens are also taxable, but tax treaties can offer significant relief. Similarly, distributions from 401(k) and Roth IRA accounts are subject to US taxation and withholding, with tax treaties potentially providing reduced rates or exemptions. Estate tax implications for non-resident aliens owning US situs property can be substantial due to the limited exemption, making estate planning crucial. Finally, obtaining an ITIN is a necessary step for many non-resident aliens to comply with their US tax obligations. Given the complexity of these rules and the potential impact of tax treaties, it is strongly recommended that non-resident aliens consult with a qualified tax advisor specializing in international taxation to ensure they understand their obligations and can make informed decisions regarding their US assets and income.

Last updated 4/12/2025