Trade or Business in the United States

A nonresident alien who is engaged in a trade or business in the United States at any time during the tax year must file Form 1040-NR. This is true even if the individual had no income from that trade or business, no income from U.S. sources, or if the income is exempt under a tax treaty. The term “trade or business” is interpreted broadly by the IRS and generally includes performing personal services in the United States. A single day of work in the U.S. can be enough to trigger this requirement for certain visa holders.

Performing services as an employee of a U.S. company or as an independent contractor in the United States typically qualifies as engaging in a trade or business. Actors, musicians, athletes, and other entertainers who perform in the U.S. are almost always considered to be engaged in a trade or business here, even for a single performance.

U.S.-Source Income Subject to Withholding

Nonresident aliens who receive certain types of U.S.-source income that is not effectively connected with a U.S. trade or business — such as dividends, interest, rents, or royalties — may have tax withheld at the source at a flat 30% rate or a reduced treaty rate. Even when withholding fully satisfies the tax liability, filing Form 1040-NR may be necessary to claim a refund of overwithholding or to claim treaty benefits that were not applied at the time of payment.

Cash-Method Payment Timing

For nonresident aliens using the cash method of accounting, the timing of payment receipt matters critically. Income is taxable in the year it is received, not necessarily the year it was earned. A nonresident alien who performed services in the U.S. in one year but received payment in the following year may need to file in the year of receipt. This creates situations where an individual who has left the United States still has a filing obligation for subsequent tax years.

Filing to Claim a Refund or Treaty Benefits

Many nonresident aliens file Form 1040-NR even when not strictly required because doing so is the only way to claim refunds of overwithholding. When a payor withholds at the statutory 30% rate but a tax treaty reduces the rate to 15% or 0%, the excess can only be recovered by filing. Similarly, nonresident aliens who had U.S. tax withheld on income that turns out to be exempt under a treaty provision must file to recover those amounts. Filing also creates a paper trail that can be important for future visa applications and residency determinations.