Individuals who reside and work in the United States and take part in commercial
transactions are subject to the Internal Revenue Code's taxation provisions. In terms of
tax status, the Code distinguishes between non-U.S. citizens who are residents and pay
tax on their worldwide income and nonresidents who pay tax only on their income
earned in the United States. As defined in Sec. 7701(b), resident taxpayers include:
- An individual who is a lawful permanent resident of the United States at any time
during a calendar year (i.e., a green card holder) - An individual who meets the substantial-presence test; or
- An individual who, in the year they arrive in the United States, qualifies to make
and makes an election to be treated as a U.S. resident for that year (first-year
election).
All other non–U.S.-citizen taxpayers are nonresidents. To meet
the substantial–presence test, an individual must be physically present in the United
States on at least:
- 31 days during the current year, and
- 183 days during the three-year period that includes the current year and the two
years immediately before that, counting
As many undocumented immigrants are considered residents for income tax purposes
in the United States, they will be taxed on their worldwide income and will also have tax-
filing duties. Noncitizens who work in the United States without proper authorization are
doing so illegally and risk facing a monetary penalty and deportation. Employers of non-
citizen employees who lack necessary documents cannot turn an eye since they, too,
face penalties, including civil and criminal sanctions. To obtain permitted employment,
foreign workers must go through one of the following three processes: obtain a valid
temporary work visa or an Employment Authorization Document from U.S. Citizenship
and Immigration Services, have a U.S. employer prepare and submit a Labor Condition
Application to the U.S. Department of Labor (DOL), and have a U.S. employer secure a
Program Electronic Review Management work permit from the DOL and obtain an
approved immigrant petition. Undocumented immigrants who desire to be tax compliant
and submit returns must obtain ITINs. However, possessing an ITIN does not entitle the
individual to Social Security benefits or change their work or immigration status under
US law. The individual must also submit a Form W-7, Application for IRS Individual
Taxpayer Identification Number, with the income tax return that requires the ITIN, as
well as either original or certified requisite evidence. This article provides a guidance for
undocumented immigrants and their advisers to observe and comply with United States
tax rules, stressing areas that require special attention.
