1040NR Exemptions Explained

Nonresident aliens may be confused the first time they complete IRS Form 1040NR. Do you automatically qualify for exemptions? How can you benefit from exemptions? Understanding applicable exemptions can help nonresident aliens reduce their taxable income when filing1040NR.

An exemption allows taxpayers, including some nonresident aliens, to lower their taxable income. There are dependent exemptions, but these perks are not available to all nonresident aliens. That being said, your foreign income is exempt from taxation, and nonresident aliens don’t need to report it on 1040NR. No one is exempt from filing 1040NR on time, and you can incur significant fines if you fail to do so.

The CPAs at US Tax Help know that the American taxation system can be confusing for nonresident aliens. If you’re a nonresident alien who wants to learn more about 1040NR exemptions, visit our website or call the CPAs at US Tax Help today at (541) 362-9127.

What Are 1040NR Exemptions?

Tax exemptions work similarly to deductions in that they reduce your tax obligation. You can claim exemptions to lower your taxable income when completing IRS Form 1040NR. So, what are some of these exemptions, and how can they benefit you?

In general, there is one tax exemptions that nonresident aliens can claim when they file IRS Form 1040NR: dependent exemptions. By claiming this exemption, you can reduce your taxable income.

However, not all nonresident aliens who have to file IRS Form 1040NR are eligible for tax exemptions. This can get complicated, but it’s important to understand when it comes time to file form 1040NR with the IRS.

What Are 1040NR Dependent Exemptions?

A dependent exemption allows U.S. taxpayers to subtract a portion of their earned income for each qualified dependent that they have. Dependents can be children or relatives that rely on your income. The question is, can all nonresident aliens benefit from claiming a dependent exemption on IRS Form 1040NR?

Nonresident aliens from Mexico, Canada, or South Korea can claim their dependents as an exemption on Form 1040NR. In addition, residents of India that engaged in U.S. business as students or via a business apprenticeship can also claim an exemption for dependents. In order to claim a dependent, you must meet the same criteria as any average U.S. taxpayer.

However, not all nonresident aliens can claim a dependent exemption on IRS Form 1040NR. Because of this, you may have a higher taxable income and thus, receive a smaller tax refund from the IRS. If you don’t qualify for a dependent exemption for IRS Form 1040NR, an accountant, like those at US Tax Help, can help you find any deductions that you might be eligible for. Reducing your taxable income and increasing your return can be ideal for nonresident aliens who live outside of the United States.

Is Your Foreign Income Exempt from 1040NR?

If you’re a nonresident alien who earns an income from multiple sources, you may not have to report it all on IRS Form 1040NR. This form is only concerned with your American-earned income and not any additional earnings from other countries.

The IRS can’t tax nonresident aliens on any income earned from non-American sources. Because of this, you do not have to report foreign income to the IRS on Form 1040NR.

Your worldwide income will not be taxed, only funds earned in the United States. Nonresident aliens do not have to provide the IRS with information about their finances unless they have garnered an income from an American company.

For example, if you have two income sources, one from an American employer and another from an employer in your country of residence, you do not have to report the latter to the IRS.

Who Is Exempt from Filing 1040NR?

IRS Form 1040NR is specifically for nonresident aliens who earn income from an American company or source. Because of this, every other person is exempt from filing IRS Form 1040NR, specifically. There are also circumstances that exempt certain nonresident aliens from completing Form 1040NR.

American citizens, residents, or expatriates often do not file IRS Form 1040NR. That being said, they will likely have to complete IRS Form 1040for their normal tax returns.

There are also exceptions for nonresident aliens on specific visas or engaging in studies or training programs. It can be difficult to know if you have to file IRS Form 1040NR if you’re a nonresident alien, so speaking with the tax CPAs at US Tax Help can be beneficial. If you don’t file when you’re supposed to, you could be subject to fines and penalties.

Are There Exemptions from Penalties for Not Filing 1040NR?

If you don’t file IRS Form 1040NR by the due date, you can incur significant fines and penalties from the IRS. Generally, there’s no way to avoid these penalties or be exempt from them. A skilled CPA can help nonresident aliens file 1040NR on time, so they aren’t vulnerable to financial penalties.

Nonresident aliens can delay penalties from the IRS for not filing 1040NR by applying for an extension. This application is due the same day that IRS Form 1040NR is, which is usually April 15th. If you don’t apply for an extension, you cannot be exempt from penalties for failure to file or pay your necessary taxes.

Although you can delay receiving penalties from the IRS, you can’t prevent them forever. Once your extension is up, you must file Form 1040NR with the IRS.

Our CPAs Can Help You File 1040NR

Learning about Form 1040NR exemptions can help certain nonresident aliens reduce their taxable income. For more information, nonresident aliens can visit our website or call the CPAs at US Tax Help today at (541) 362-9127.