Resident Alien Criteria for TN Visa Holders
The TN Visa is a product of the North American Free Trade Agreement, an accord by the United States, Canada, and Mexico established to remove trade barriers between the three countries. The visa was created to facilitate the entry of professionals in specific occupations between the participating countries.
Being relatively easy and affordable to obtain, the TN Visa has been the go-to non-immigrant visa for Canadians and Mexicans seeking to move to the United States to work.
However, with TN Visa holders engaging in cross-border employment, tax filing can be complex. This article aims to make it less so by providing some of the most important tax information for TN Visa holders.
Specifically, it’ll explore the criteria determining resident alien status for TN Visa holders. It’ll answer the questions like: is a TN Visa holder a resident alien, is TN Visa resident or nonresident alien, etc.?
By examining the criteria and implications of resident alien status, this article makes it easier for TN Visa holders to navigate the complexities of US immigration law.
What is TN Visa Resident Alien Status?
“TN Visa resident alien status” refers to whether an individual working in the United States on a TN Visa is considered a resident alien or a non-resident alien for tax purposes.
TN Visa resident alien status is a serious consideration because tax residency status has significant tax implications in the United States.
For example, the tax burden for a resident alien is generally higher than for a non-resident alien. One reason for this is that resident aliens are subject to US taxation on income earned within and outside the US, but non-resident aliens are taxed only on income earned within the United States.
That said, knowing the legal definition of a resident alien will clarify whether TN Visa holders are considered resident aliens or non-resident aliens.
Legal Definition of Resident Alien
A resident alien is someone who is a permanent resident of a country but who does not have citizenship.
To be considered a resident alien in the United States, an individual must meet the green card test or the substantial presence test for the year.
Green card test
To meet the green card test, an individual must be a lawful permanent resident of the United States according to immigration laws. That is, the individual must hold a US green card.
Substantial presence test
The substantial presence test depends on the individual’s duration of stay in the United States during the year. To meet the substantial presence test:
- The individual must be physically present in the US for at least 31 days during the current year, AND
- The number of days present in the US in the current year, plus one-third of the days present in the first year before the current year. Plus one-sixth of the days present in the second year before the current year must equal or exceed 183 days.
Is TN Visa A Non-resident Alien?
The answer to “Is TN Visa non-resident alien?” is yes. TN Visa holders are typically considered non-resident aliens for tax purposes, but a prolonged stay in the United States could lead to a change in tax residency status.
Criteria for TN Visa Holders
Given the legal definition of a resident alien, a Canadian, or Mexican professional in the US on a TN Visa may or may not be considered a resident for tax purposes.
Are TN Visa holders resident aliens?
True, TN Visa holders cannot meet the green card test for resident aliens. However, many TN Visa holders eventually meet the requirements of the substantial presence test to be considered resident aliens.
TN Visa holders cannot meet the requirements of the green card test because of the non-immigrant nature of the TN Visa. With the TN Visa being a non-immigrant visa specifically designed for temporary employment, TN Visa applicants must demonstrate that their intended stay in the US is temporary.
Many TN Visa holders eventually meet the requirements of the substantial presence test to be considered resident aliens because of the TN Visa’s duration of stay.
The TN Visa allows holders to stay in the United States for up to three years. In their three-year stay in the United States, TN Visa holders can eventually rack up the “183 days” required to meet the substantial presence test.
Specific Criteria for Resident Alien Status
An important thing to note is that there are different weights for each year of the three-year period considered when determining resident alien status.
In calculating the 183 days an individual has to be present in the US over a three-year period to be considered a resident alien, add:
- All the days the individual was present in the current year
- 1/3 of the days the individual was present in the first year before the current year
- 1/6 of the days the individual was present in the second year before the current year
According to the IRS guidelines for aliens, some days do not count when counting days present in the US. These days include:
- Days an individual commutes to work in the US from a residence in Mexico or Canada.
- Days an individual is present in the US for less than 24 hours when in transit between two places outside the US.
- Days an individual intended to leave the US but couldn’t because of a medical condition.
Examples and Case Studies
Consider a TN Visa holder who was physically present in the US for 62 days in the current year, 273 days in the preceding year, and 150 days in the year before that.
That amounts to 485 days. But the resident alien tax rules will not count 485 days because different weightings are used for the three-year period.
Considering the weights of each year of the three-year period, the number of days used for the individual’s tax classification is calculated as follows:
|Actual number of days the present in the US
|Weighting of each year
|Number of days present used for tax classification
|62 X 1 = 62
|First year before current year
|273 X 1/3 = 91
|Second year before the current year
|150 X 1/6 = 25
Thus, though the individual was present in the US for 485 days over the three-year period, only 178 days are used for their immigrant tax classification.
And since 178 days is less than the 183 days required to meet the substantial presence test, the individual is considered a non-resident alien TN Visa holder.
Need help calculating your days or presence in the US to determine your work visa resident status? Book a consultation with TN Visa Expert and we’ll help you!
Tax and Legal Implications
TN Visa holders in the United States encounter specific tax and legal implications.
Tax Responsibilities for Resident Aliens
Resident aliens have specific tax responsibilities that differ from those of non-resident aliens. Understanding these responsibilities is crucial to avoiding legal issues and complying with US tax laws.
Key tax responsibilities for resident aliens include:
Reporting global income
TN Visa resident aliens are required to report their worldwide income to the IRS (Internal Revenue Service). But TN Visa non-resident aliens are required to report only income sourced from the US.
Income Tax filings
TN Visa holders are required to use information on Form W-2 received from their employers to complete their income tax returns. Form W-2 is a “Wage and Tax Statement” summarizing an employee’s annual wages, taxes withheld, and other relevant information.
TN Visa resident aliens are required to file their Form W-2 along with Form 1040 (the US Individual Income Tax Returns) to report their income, deductions, and credits.
But TN Visa non-resident aliens are required to file their Form W-2 with either Form 1040NR or 1040NR-EZ. The Form 1040NR (Nonresident Alien Income Tax Returns) is a less comprehensive version of Form 1040 specifically created for tax filing by non-resident aliens. The 1040NR-EZ is a simplified version of the 1040NR.
Whether a non-resident alien uses the 1040NR or 1040NR-EZ depends on the individual’s source of US income. TN Visa non-resident aliens whose income includes dividends and taxable interest should file Form 1040NR. Those whose income is only from wages, salaries, and tips should file Form 1040NR-EZ.
Social Security and Medicare Taxes
TN Visa holders are liable for Social Security and Medicare taxes.
However, while resident aliens are subject to these taxes on all US-sourced income, non-resident aliens may be exempt from or subject to limited Social Security and Medicare taxes.
For example, non-resident aliens on TN Visas may be exempt from the Social Security portion of the payroll tax, often called Old Age Survivor and Disability Insurance (OASDI). This exemption applies if there is a totalization agreement between the TN Visa holder’s home country and the United States.
Canada and Mexico have tax treaties with the United States that can affect the tax treatment of income. Interestingly, tax classification impacts the application of these treaties, with non-resident aliens frequently qualifying for reduced income tax rates because of tax treaties.
This is because tax treaties regularly reduce the withholding tax rate on some types of income or provide complete exemption from US taxation on certain income for non-resident aliens. For example, under Canada’s tax treaty with the US, Canadian TN workers in the US who are classified as non-resident aliens and earn below $10,000 are not required to pay federal income taxes.
State Tax Considerations
Many US states have their own income tax systems. These impose income tax on individuals earning income from within the state, separate from federal income tax.
TN workers classified as resident aliens who earn income from states with state income taxes are usually subject to these taxes. However, TN Visa non-resident aliens may not be subject to state income taxes.
Legal Obligations and Rights
The TN Visa is the easiest and most affordable US work visa to obtain.
However, like every other visa category, there are certain legal implications associated with the TN Visa, and knowing these helps in understanding what a TN Visa holder legal rights are.
The legal implications of a TN Visa include:
The TN Visa is a non-immigrant visa designed for temporary employment. TN Visa holders are expected to maintain non-immigrant intent and avoid actions that might suggest an intention to stay permanently in the US.
Dual Intent Limitation
The TN Visa is not a dual-intent visa, so it does not allow the holder to pursue permanent residency while temporarily in the US.
The TN Visa authorizes an individual to work for the US employer and in the job position indicated in their TN Visa documentation. Thus, TN Visa holders have the right to work for their authorized employer and in the specific occupation mentioned in their TN Visa application.
Know that though a TN Visa is employer-specific (allows the holder to work for only the indicated employer), a TN Visa holder can change employer. But only after getting approval from the government for their TN Visa change of employer request.
Also Read: Can I Change Jobs With TN Visa?
Duration of Stay
TN Visas are valid for three years. TN Visa holders have the right to travel in and out of the US during the validity of their TN Visa.
Interestingly, as long as TN Visa holders continue to meet the TN Visa eligibility requirement, they can renew their TN Visa indefinitely (every time it expires).
When TN Visa holders intend to stay longer in the US, they should monitor their visa expiration dates and initiate renewal processes well in advance.
TN Visa holders can bring their dependents (spouses and unmarried children under 21) with them to the US. These dependents qualify for TD visas.
While dependents of TN Visa holders can attend school with their TD visas, they cannot work with them. They’ll need to obtain separate work authorization to be able to work in the US legally.
Form 8832, also known as “Entity Classification Election form,” is used by business entities to change their tax classification (such as from a corporation to a partnership or from a partnership to a corporation).
When an entity is formed, it is given a default tax classification based on its structure. Different tax classifications come with different tax benefits. Entities may elect to change their tax classification to access specific benefits.
TN Visa holders are individuals, not entities. So, the form 8832 is not directly related to the TN Visa process. True, an entity’s tax classification may affect the overall financial structure of the business. But that does not affect TN status, as long as TN Visa holders ensure they continue to meet the requirements for obtaining the TN Visa.
Professional Guidance for TN Visa Holders
Adding cross-border expatriate tax obligations to the already tricky TN Visa system can be nerve-wracking. However, professional guidance from tax professionals can help TN Visa holders navigate the system, helping them ensure compliance with US laws and optimize their tax situations.
When to Seek Legal Advice
There are many scenarios where it is advisable for TN Visa holders to seek legal advice. These include:
- Tax residency determination. Calculating the days of presence in the US (for meeting the Substantial Presence test) can be nuanced, particularly for TN Visa holders who frequently travel between the US and their country for work-related activities. Tax professionals can help determine the accurate days of presence for tax residency determination.
- Change in income source. TN Visa holders who get new income sources may need professional guidance to understand the tax implications of these changes and ensure proper reporting.
- Identifying tax credits and deductions. There are various tax credits and deductions that can help TN Visa holders reduce their tax liability. Tax lawyers can help people identify eligible tax credits and deductions to optimize their tax situations.
- Understanding totalization agreements. Totalization agreements may exist between the TN worker’s country and the US, which may exempt individuals from social security tax. Professional guidance can help in understanding and applying any such agreement to reduce tax liability.
- Understanding state taxes. TN Visa holders in some US states may be subject to state taxes. Professional advice can help in understanding and navigating state-specific tax regulations and reporting requirements.
Resources for Assistance
TN Visa holders in the US will find various resources for assistance with maintaining TN eligibility and handling tax-related matters.
The IRS website provides access to forms, publications, and resources related to individual taxation.
Tax professionals with expertise in international tax matters also provide personalized advice on tax responsibilities based on individual circumstances.
Visa consultants provide specialized products and personalized advice to help individuals maintain and retain their TN status. Explore tested and trusted TN Visa services that can help you at every stage of your TN Visa journey, from the TN Visa application process to the border interview.
TN Visa holders are generally considered non-resident aliens for tax purposes. But as their presence in the US increases, they may move to resident alien status.
Tax residency classification has significant tax implications, affecting tax liability. Professional guidance can help TN workers navigate the complexities of TN visa immigration law, with the result being ensuring compliance with tax reporting regulations and optimizing your tax situation (not paying a cent more than you should).
TN Visa Expert provides special tool kits and full-service legal advice to help individuals avoid problems when seeking a TN Visa and when in the US on a TN Visa. Contact TN Visa Expert today!
FAQs on Resident Alien Status
These are some of the most frequently asked questions about resident alien status for TN Visa holders.
How do I know if I’m a resident alien on a TN Visa?
A TN Visa holder who meets the requirement of the Substantial Presence test is considered a resident alien for tax purposes. Meeting the test requires spending “183 days” in the US over a three-year period.
However, a weighting system is used to calculate the 183 days of presence. Tax professionals can help you calculate your days of presence accurately to determine whether you’re a resident alien.
What are the consequences of misidentifying my status?
Misidentifying your tax residency status can have significant consequences, as each status comes with distinct tax implications.
Resident and non-resident aliens have different filing requirements, tax rates, tax credits, etc. So, misidentifying your status has serious implications. For example, it can make you file the wrong tax forms, resulting in inaccurate tax returns and reporting penalties from the IRS. It can also lead to paying taxes at the wrong rates or missing out on eligible credits.
Can my resident alien status change over time?
Yes, an individual’s tax status can change from resident alien to nonresident alien or vice versa.
The Substantial Presence test is used to determine whether TN Visa holders meet the criteria for being considered resident aliens. If an individual’s presence in the US increases, they may move from being considered a non-resident alien to a resident alien. Conversely, if their presence decreases, they may revert to non-resident alien status.