The most important thing to realize is that payments made to
nonresident aliens are not taxable or reportable by you as long as the
services were performed outside of the U.S. In other words, only your
income earned in the U.S from January to April are taxable. Your
income earned in India from June and beyond is not taxable in the
If you earned income in January of 2006 in the U.S. (you performed
services there), you should file Form 1040NR or 1040NR-EZ in 2007 for
the 2006 tax year (you will be considered a "nonresident alien"
because you did not live in the U.S. at the end of 2006).
Nonresident at end of year.
"You must file Form 1040NR or Form 1040NR-EZ if you are a dual-status
taxpayer who gives up residence in the United States during the year
and who is not a U.S. resident on the last day of the tax year. Write
?Dual-Status Return? across the top of the return. Attach a statement
to your return to show the income for the part of the year you are a
resident. You can use Form 1040 as the statement, but be sure to mark
?Dual-Status Statement? across the top.
Former long-term residents are required to file Form 8854 for the last
year of U.S. residency. To determine if you are a former long-term
resident, see Expatriation Tax in chapter 4.
Any statement must have your name, address, and taxpayer
identification number on it. You do not need to sign a separate
statement or schedule accompanying your return, since your signature
on the return also applies to the supporting statements and schedules.
When and Where To File
If you are a nonresident alien on the last day of your tax year ... "
"If you did not receive wages subject to withholding and you report
your income on a calendar year basis, you must file no later than June
15 of the year following the close of your tax year. If you report
your income on other than a calendar year basis, file your return no
later than the 15th day of the 6th month following the close of your
tax year. In any case, file your return with the Internal Revenue
Service Center, Philadelphia, PA 19255."
FORM 1040NR (2005)
FORM 1040NR-EZ (2005)
FORM 8854 (Rev. April 2006)
>>> June and beyond
For June and beyond, you will not have to send in any more 1040s for
yourself if all of your work is performed in India. As a nonresident
alien, whether or not to file a 1040NR is dependent on where the
services are performed (and not the origin of the funds).
US TAX FOR ALIENS: Publication 519: US Tax Guide for Aliens:
Chapter 2, page 11:
"A nonresident alien usually is subject to U.S. income tax only on
U.S. source income."
Table 2?1, page 11:
Summary of Source Rules for Income of Nonresident:
A. Factor Determining Source:
1. Salaries, wages, other compensation: Where services performed
2. Business income: Personal services: Where services performed
Chapter 2, page 12:
"All wages and any other compensation for services performed in the
United States are considered to be from sources in the United States."
"If your compensation is for personal services performed both inside
and outside the United States, you must figure the amount of income
that is for services performed in the United States."
*The place where you perform the services is what defines your income
as foreign, not where or how you are paid. For instance, income
received for personal services performed in France is foreign earned
income, even if the employer is American and your pay is deposited in
an American bank."
>>> FORMS 1042 & 1042-S
In regards to your services provided in India, your company should use
Forms 1042 & 1042-S (not 1099 & 1096 & W-8) and use Code 03 in Box 6
to explain your withholding exemption.
Form 1042-S: Foreign Person?s U.S. Source Income Subject to Withholding:
Box 6, Exemption Code 03: Income is not from U.S. sources:
* "Non-U.S. source income paid to a nonresident alien is not subject
to U.S. tax. Use Exemption Code 03 when entering an amount for
information reporting purposes only."
Form 1042: Annual Withholding Tax Return for Source Income of Foreign Persons:
1) US source income = services performed in the US.
Therefore, your income in India is Non-US source.
2) You are a non-resident alien (non US citizen not in the US).
Therefore, the company will have to file forms for non-resident
aliens, non-US source income, Forms 1042 & 1042-S, and send you a copy
of the 1042-S.
I hope that is clear. If you have any questions, please post a
clarification request and wait for me to respond before closing/rating
I searched my bookmarks for the appropriate links.
Clarification of Answer by
09 Aug 2006 05:25 PDT
I'm glad to hear that I was able to help you. Your questions -
1) Forms 1042, 1042-S (and 1042-T) are all filed annually (by March
15). Form 1042-T (just a summary) is attached to the 1042-S. Here's a
good link for your employer.
Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Use Form 1042 to report tax withheld on certain income of foreign
persons, including nonresident aliens, foreign partnerships, foreign
corporations, foreign estates, and foreign trusts.
* Form 1042, Annual Withholding Tax Return for U.S. Source Income of
Foreign Persons (PDF)
* Form 1042-T, Annual Summary and Transmittal of Forms 1042-S (PDF)
* Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding (PDF)
* Instructions for Form 1042-S, Foreign Person's U.S. Source Income
Subject to Withholding (PDF)
The Forms 1042 and 1042-S must be filed by March 15 of the year
following the calendar year in which the income subject to reporting
was paid. If March 15 falls on a Saturday, Sunday, or legal holiday,
the due date is the next business day. Form 1042 is a calendar year
tax return. There are no provisions for filing a fiscal-year Form
You no longer attach paper Forms 1042-S with your Form 1042. Form
1042-T is now used to transmit the filing if Forms 1042-S. Form 1042
could be filed separately and does not have to be accompanied by Form
1042-T with attached paper Form(s) 1042-S.
2) No, sorry, I'm not a CPA, just a researcher who has done alot of
research regarding all things concerning immigration, etc., however,
even if I were a CPA, unfortunately GA would not permit us to exchange
personal contact information.