Form 1040NR Filing Guide for Tax Year 2018: Nonresident Alien Income Tax Return
Overview of 2018 Tax Year
Form 1040NR is the U.S. Nonresident Alien Income Tax Return for individuals who are not U.S. citizens and do not meet residency requirements during 2018. This year marked the first full implementation of the Tax Cuts and Jobs Act, which eliminated personal exemptions for all taxpayers, modified itemized deductions, introduced the qualified business income deduction, and changed child tax credit rules.
Step-by-Step Filing Process
Step 1: Determine Your Nonresident Alien Status
You are a nonresident alien for 2018 if you are not a U.S. citizen and fail to meet either the green card test or the substantial presence test. The green card test considers you a resident if you held lawful permanent resident status at any time during 2018. The substantial presence test requires at least 31 days of physical presence in 2018 and 183 days in 2018 2017 and 2016, using a weighted calculation where 2018 days count as full days, 2017 days as one-third, and 2016 days as one-sixth.
Exempt individuals include foreign government officials on A or G visas, teachers and trainees on J or Q visas, students on F, J, M, or Q visas, and professional athletes temporarily in the United States. You may claim the closer connection exception through Form 8840 if you maintained a tax home in a foreign country and had closer contacts with that country than with the United States. You cannot claim this exception if you have pending applications for permanent residence.
Step 2: Determine Filing Requirements
File Form 1040NR for 2018 if you were engaged in a U.S. trade or business at any time during 2018, even with no income; received U.S.-source income on Schedule NEC without full tax withholding; claimed a tax treaty exemption; received distributions from HSA, Archer MSA, or Medicare Advantage MSA; had net self-employment earnings of at least $400 as a resident of a country with a U.S. social security agreement; or received advance payments for the premium tax credit for Marketplace health coverage.
Step 3: Classify Income Types
Classify income as either effectively connected with a U.S. trade or business or not effectively connected. Effectively connected income includes wages from U.S. employment, business profits, U.S. real property gains, and active partnership income. This income is taxed at graduated rates after deductions and reported on the main Form 1040NR pages.
Non-effectively connected income includes dividends, interest, royalties, pensions, annuities, and passive investment income, subject to flat withholding rates of typically 30%, unless treaty-reduced, and reported on Schedule NEC. Report only U.S.-source income and effectively connected income.
Step 4: Select Filing Status and Report Income
Choose single, married filing separately, or qualifying widow or widower status. You cannot file married filing jointly or head of household unless you elect to be treated as a resident for the entire year. Report effectively connected income, including wages with Form W-2, interest, dividends, state and local tax refunds, scholarships with Form 1042-S, business income with Schedule C or C-EZ, capital gains with Schedule D, IRA distributions, pensions, rental income with Schedule E, farm income with Schedule F, unemployment compensation, and other income.
Step 5: Complete Schedule NEC
Report non-effectively connected income on Schedule NEC in the appropriate tax rate columns: 10%, 15%, 30%, or other treaty-reduced rate. Enter dividends, interest, royalties, pensions, annuities, rents, scholarships, and other income types. Calculate tax by multiplying income amounts by applicable rates. The default rate is 30% unless a treaty or statutory exemption provides a lower rate. Backup withholding at 24% applies if you failed to provide a correct taxpayer identification number. Transfer total tax to Form 1040NR line 54.
Step 6: Calculate Adjustments and Complete Schedule A
Subtract allowable adjustments from gross income: educator expenses up to $250, one-half of self-employment tax, health savings account deduction with limits of $3,450 for self-only or $6,900 for family coverage, moving expenses, self-employed retirement plans, self-employed health insurance, early withdrawal penalties, scholarship exclusions, IRA deduction, and student loan interest if eligible. All adjustments must relate to effectively connected income.
Nonresident aliens must itemize deductions on Schedule A. Enter state and local income taxes limited to $10,000 combined, or $5,000 if married filing separately. Report limited interest deductions, charitable contributions to U.S. organizations, and casualty and theft losses from federally declared disasters. You cannot deduct miscellaneous itemized deductions subject to the two-percent floor, medical expenses, most home mortgage interest, or property taxes if included in the state and local tax limitation.
Step 7: Understand Personal Exemption Suspension
Personal exemptions were completely suspended for all taxpayers for tax years 2018 through 2025. The exemption amount was reduced to $0. You cannot claim personal exemptions for yourself, spouse, or dependents, regardless of country of residence or tax treaty provisions. This suspension overrides previous treaty benefits for residents of Canada, Mexico, South Korea, and students from India.
Step 8: Claim Child Tax Credit and Calculate Tax
Although personal exemptions are suspended, you may claim the Child Tax Credit of up to $2,000 per qualifying child under age 17 who is a U.S. citizen, U.S. national, or resident alien with a valid Social Security number issued before the return due date. The Credit for Other Dependents provides up to $500 for dependents who do not qualify for the Child Tax Credit. The child must be your qualifying child who lived with you for over half the year and whom you supported.
Calculate taxable income by subtracting itemized deductions from adjusted gross income. With personal exemptions suspended at $0, you cannot subtract exemption amounts. Calculate tax using the tax table or tax rate schedule for your filing status. Add alternative minimum tax from Form 6251 if required and excess advance premium tax credit repayment from Form 8962 if applicable.
Step 9: Apply Credits and Add Other Taxes
Credits available to nonresident aliens are substantially limited. You may claim the Child Tax Credit, Credit for Other Dependents, foreign tax credit in limited circumstances, and Credit for Federal Tax on Fuels. You cannot claim the Earned Income Credit, education credits, or the refundable portion of the Child Tax Credit. The Child and Dependent Care Credit requires married filing jointly status, creating a practical impossibility for nonresidents unless their spouse elects resident status.
Consider the Qualified Business Income deduction, which allows up to 20% of qualified business income from sole proprietorships or businesses, limited to 20% of the lesser of qualified business income or taxable income. This deduction applies only to effectively connected income, excluding specified service businesses and income subject to wage and capital limitations.
Add other taxes, including tax on non-effectively connected income from Schedule NEC, self-employment tax from Schedule SE if you have net earnings of at least $400 and are a resident of a country with a U.S. social security agreement, unreported social security and Medicare tax, and additional taxes on retirement plans. For 2018, the Social Security wage base was $128,400, with self-employment tax at 15.3% up to this threshold.
Step 10: Report Partnership Income and Complete Schedule OI
If you are a partner in a U.S. partnership, report partnership income using Schedule K-1. Report effectively connected partnership income on the main Form 1040NR. Report partnership income not effectively connected on Schedule NEC. Partnership withholding is reported on Form 1042-S.
Complete Schedule OI, which is mandatory for all filers. Identify all countries of citizenship or nationality during 2018, the country where you claim tax residence, visa status changes, visa type held on the last day of 2018, or immigration status if no visa, and answer all questions about U.S. presence, closer connection to a foreign country, income receipt, and tax treaty benefits. Report financial interest in or signature authority over foreign financial accounts requiring Form FinCEN 114. Provide detailed information if claiming tax treaty exemption, including country name, treaty article, months benefit claimed in prior years, and exempt income amount.
Step 11: Handle Premium Tax Credit and File Return
If you received advance premium tax credit payments for Marketplace health coverage in 2018, file Form 8962 to reconcile payments with the credit actually allowed. Obtain Form 1095-A from the Marketplace. Do not attach Form 1095-A to your return; retain it for recordkeeping and attach only Form 8962. The reconciliation may result in a payment obligation or a refund.
Form 8833 must be filed if you take a position that a U.S. tax treaty overrules or modifies any Internal Revenue Code provision and reduces tax. Common exceptions include treaty provisions that reduce withholding rates on portfolio dividends, interest, or royalties; certain competent authority determinations; and treaty provisions addressing pensions and social security. Many nonresidents claiming treaty benefits for reduced withholding rates do not need Form 8833.
Report all U.S. wage income shown on Forms W-2. You may also receive Form 1042-S showing income and withholding under Chapter 3. If you received both forms for the same income, reconcile carefully to avoid duplicate reporting. Form 1042-S indicates gross income in Box 1, U.S. tax withheld in Box 7, and foreign country in Box 6. Scholarship income appears on Form 1042-S. If taxes were improperly withheld, claim a refund by filing Form 1040NR with the Form 1042-S showing excess withholding.
Step 12: Assemble and Submit Return
The filing deadline is April 15, 2019. Mail Form 1040NR to the IRS address designated for international filers. To request an extension, file Form 4868 by the original due date. Extensions extend the time to file but not the time to pay; taxes owed remain due on April 15.
Sign and date your return. If married filing separately, each spouse must sign their return. Attach copies of all Forms W-2, Forms 1099, Forms 1042-S, and other forms showing withholding at the front of the return. Attach Schedule A if used, Schedule NEC if used, Schedule OI, Form 8833 if claiming treaty benefits requiring disclosure, Form 8962 if reconciling premium tax credits, and any other required forms.
Reconcile the total federal income tax withholding shown on all forms. If total withholding exceeds actual tax liability, claim a refund. If tax liability exceeds withholding, pay the additional amount by April 15, 2019, regardless of whether a filing extension is obtained. Authorize direct deposit by providing routing and account numbers, or request a mailed refund.
Key Reminders for 2018
Personal exemptions were completely suspended for all taxpayers for 2018 through 2025. No taxpayer, including nonresident aliens from treaty countries, could claim personal exemptions in 2018. Nonresident aliens must itemize deductions and cannot claim the standard deduction except in very limited circumstances. The Child Tax Credit has increased to $2,000 per qualifying child, but it requires a valid Social Security number issued before the return due date. The backup withholding rate for 2018 is 24%. Most tax credits available to residents are not available to nonresident aliens. Maintain copies of your return and all supporting documentation for a minimum of three years.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
