An individual who is not a U.S. citizen and does not meet the IRS substantial presence or green card test for tax residency.
What is an NRA (Non-Resident Alien)?
For U.S. tax purposes, a Nonresident Alien (NRA) is a person who is neither a U.S. citizen nor a resident under the IRS rules. Residency is determined by two main criteria:
- Green Card Test – Whether the individual has lawful permanent resident status in the U.S.
- Substantial Presence Test – Whether the individual has been physically present in the U.S. for a required number of days over the past three years.
If neither test is met, the person is considered an NRA. NRAs are taxed differently from U.S. persons: they are generally only taxed on U.S.-source income and certain types of income “effectively connected” with a U.S. trade or business (ECI). The default withholding rate on many U.S.-source payments (such as dividends, interest, and royalties) to an NRA is 30%, unless reduced or eliminated by a tax treaty between the U.S. and the individual’s country of residence.
In the context of a foreign-owned U.S. business, an NRA can be a shareholder, member, or partner. This status affects tax obligations, such as eligibility for certain deductions, the requirement to file Form 1040-NR for U.S. income, and the need for withholding on payments to the NRA. Businesses making payments to NRAs often require Form W-8BEN to confirm treaty benefits and avoid excessive withholding.
