Nonresident Tax Issues

If you have no U.S. filing requirements but have income that is effectively connected with a trade or business in Puerto Rico, you must file Form 1040-SS or Form 1040-PR with the United States to report your self-employment income and if necessary pay self-employment tax.

Wages and cost-of-living allowances paid by the U.S. Government or one of its agencies for working in Puerto Rico are subject to Puerto Rican tax. The cost-of-living allowances are excluded from Puerto Rican Gross income up to the exempt from U.S. tax.
These wages are also subject to U.S. tax but the cost-of living allowances are excludable. A foreign tax credit is available in order to ovoid double taxation.

If you are an alien (not a U.S. citizen), you are considered a nonresident alien unless you meet one of the two tests described for a Resident Alien. You are a resident alien of the United States for tax purposes if you meet either the Green Card Test or the Substantial Presence Test for calendar year 2013. Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S. resident for part of the year. You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during calendar year 2013. This is known as the “green card” test. You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, also known as a “green card.” You continue to have resident status under this test unless the status is taken away from you or is administratively or judicially determined to have been abandoned. You will be considered a U.S. resident for tax purposes if you meet the Substantial Presence Test for calendar year 2013. To meet this test, you must be physically present in the United States on at least: 31 days during 2013, and 183 days during the 3-year period that includes 2013, 2012, and 2011, counting: All the days you were present in 2013, and 1/3 of the days you were present in 2012, and 1/6 of the days you were present in 2011.

You are a resident alien of the United States for tax purposes if you meet either the Green Card Test or the Substantial Presence Test for calendar year 2013. Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S. resident for part of the year. You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during calendar year 2013. This is known as the “green card” test. You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, also known as a “green card.” You continue to have resident status under this test unless the status is taken away from you or is administratively or judicially determined to have been abandoned. You will be considered a U.S. resident for tax purposes if you meet the Substantial Presence Test for calendar year 2013. To meet this test, you must be physically present in the United States on at least: 31 days during 2013, and 183 days during the 3-year period that includes 2013, 2012, and 2011, counting: All the days you were present in 2013, and 1/3 of the days you were present in 2012, and 1/6 of the days you were present in 2011. If you are an alien (not a U.S. citizen), you are considered a nonresident alien unless you meet one of the two tests described for a Resident Alien.

A Nonresident Alien is generally taxed only on income from US sources. Nonresident aliens income that is connected with a US business and Capital gains from the sale of US real property interests are subject to tax at regular graduated US rates. Generally investment income from US sources that is not connected to US business is subject to a 30% tax rate. Nonresident aliens are required to file on Form 1040NR. IRS Pub 519 explains how Nonresidents are taxed.