Non-Resident

What Is a Non-Resident?

A non-resident is an individual who mainly resides in one region or jurisdiction but has interests in another region. In the region where they do not mainly reside, they will be classified by government authorities as a non-resident.

Understanding Non-Resident

The classification of non-residency status is determined by set circumstances, such as the amount of time spent within a given region during the calendar year. This classification depends on where the person resides and does not focus on citizenship.

For example, many individuals live in one state but have a business or other income sources in another state. In that case, they may have to file two tax returns — a resident return in one state and a non-resident return in the state where they work.

Typically, a non-resident only has to file a state return if they earn income there. A snowbird escapes Chicago during the frigid winter months to a vacation home in Houston may not need to file taxes in Houston, if they were only present for a short time and earned no income.

Special Considerations

However, certain types of income are taxable, even if you do not live or work in that state. A taxpayer may find that they owe taxes to the government through income such as:

In some cases, a non-resident may have to pay more to go to college in a state where they do not primarily reside. Most states have exemptions for students who attend college out-of-state, classifying these students as residents of their home states.

Generally, a taxpayer can only be a resident of one state. In a situation whereby an individual spends considerable time in two states, they must file a tax return as a resident of one state and a non-resident of the other. Two states cannot tax the same income by law, as each state must exempt from taxation all earnings and other sources of income that were taxed elsewhere.

Resident vs. Non-Resident

The qualifications for residency vary depending on the jurisdiction and the service for which you are exercising residency. Here are some examples:

In some states, you can register to vote as soon as you establish a residence in that state. Other states have residency requirements of up to 30 days, although the Supreme Court has clamped down on longer requirements.

Higher Education

Most state universities offer lower tuition to in-state students than those from another state. For example, you can study at the world-class University of California for a fraction of the price, as long as you spend a year in California first. Residency requirements vary from state to state: Alaska requires 24 months, but Arkansas only requires six.

Many people with multiple homes seek to claim residence in the state with the most advantageous tax rates. This can be complicated since each state has different residency requirements. Most states use the so-called "183-days" rule, whereby you may be considered a resident if you spend more than half a year in that state. Others have more complicated criteria. In a worst-case scenario, it's possible to be taxed as a resident in two states at once, so it's worth spending some time to research the tax residency rules by state.

Examples of Non-Resident

As an example of non-resident determination, imagine a person who lives in New Jersey but works in New York. That person would have to file two state tax returns: one for the state of residence, and one for their income in New York.

For another example, consider someone with a home in New York, and a summer home in Florida. Since Florida does not have an income tax, it makes sense for that person to file their state taxes as a Florida resident. However, New York considers anyone with a "place of abode" in New York to be a potential resident, and will attempt to claim income tax from them. The only way to reliably escape New York residency is to spend less than thirty days in New York.

Non-Resident Aliens

A non-resident alien is a foreigner who does not have a legal residency or a substantial presence in the United States, such as seasonal workers, visiting businesspeople, or those who commute across the border from Canada or Mexico. If you do not have a green card, the Internal Revenue Service determines the residency based on the substantial presence test.

If you do not reside in the United States, you are still required to file a tax return if you have income in the U.S. Non-residents file on form 1040-NR. In most cases, this is taxed at the same rate as resident taxpayers, but for fixed, determinable, annual, or periodical income, the normal rate is 30%.

Substantial Presence Test

"You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
   All the days you were present in the current year, and

-Internal Revenue Service, "Substantial Presence Test."

Non-Resident FAQs

What Is the Meaning of Resident and Non-Resident?

A non-resident is someone who does not domicile in a given region but has a business or other interests in that region. Residency requirements vary by state and jurisdiction.

How Do I Check My Non-Resident Status?

To check if you are considered a non-resident of a given state, read the tax residency rules by state.

Residency is a bit more complicated for aliens visiting the United States. According to the IRS, you are considered a resident if you have a permanent residence permit (green card) or if you pass the "substantial presence test.'

To determine if you pass the substantial presence test, take the number of days you were physically present in the US over the past year, plus one-third of the number of days you were in the US last year, plus one-sixth of the days the year before that. If the sum of those three numbers is over 183, and you were present for 31 days in the current calendar year, you are considered a resident of the United States for tax purposes.

What Does Non-Resident Mean for Taxes?

For federal taxes, non-residents typically play by the same rules as residents, with access to the same deductions and incentives.

The main exception is Fixed, Determinable, Annual, or Periodical income, such as commissions, dividends, or prizes. This type of income is taxed at a uniform 30% unless there is a tax treaty in place that lowers the figure.

What Is a Non-Resident Corporation?

In Canada, a non-resident corporation is a company that is not legally considered to reside in Canada, but which does business there. Such companies must continue filing taxes if they have Canadian income. The rules for non-resident corporations can be found on the official webpage of the Government of Canada.

The Bottom Line

It's essential to understand how residency rules affect your rights and obligations in any given jurisdiction. While residency rules can be leveraged for lower tuition and other government services, they can also have significant tax implications, especially for non-residents. A close reading of state residency laws could help you skip a sizable tax bill.