Form 1040-NR Tax Year 2018 Filing Checklist
Overview of Form 1040-NR for Tax Year 2018
Form 1040-NR is the U.S. Nonresident Alien Income Tax Return used by nonresident aliens who engaged in trade or business in the United States or received U.S. source income during 2018. Tax year 2018 marked a significant departure from prior years, primarily due to provisions introduced by the Tax Cuts and Jobs Act. These provisions included reduced tax rates, suspended personal exemptions, enhanced child tax credits with restrictions for nonresident aliens, and a cap on the state and local tax deduction at $10,000.
Key 2018 Tax Year Provisions
Tax Cuts and Jobs Act Changes
The Tax Cuts and Jobs Act, enacted in December 2017, implemented significant changes that took effect for the 2018 tax year. These changes included new tax brackets with lower rates, elimination of Forms 1040A and 1040EZ, suspension of personal exemptions through 2025, an increased child tax credit to $2,000 per qualifying child, introduction of a $500 credit for other dependents, and limitation of the state and local tax deduction to $10,000 per return or $5,000 if married filing separately.
Personal Exemption Suspension
For 2018, taxpayers cannot claim personal exemption deductions for themselves, their spouses, or their dependents. This suspension applies to all taxpayers, including nonresident aliens filing Form 1040-NR. Personal exemptions remain suspended through tax year 2025 under the Tax Cuts and Jobs Act.
State and Local Tax Deduction Cap
Beginning with tax year 2018, the combined deduction for state and local income taxes, sales taxes, and property taxes is limited to $10,000 per return for most filing statuses or $5,000 for married filing separately. This represents a significant change from prior years, when there was no cap on state and local tax deductions.
Enhanced Child Tax Credit
The maximum child tax credit increased to $2,000 per qualifying child under age 17, with up to $1,400 available as the refundable additional child tax credit. A new $500 credit for other dependents was introduced for dependents who do not qualify for the child tax credit. However, nonresident aliens face significant restrictions. Only residents of Canada, Mexico, or South Korea; U.S. nationals; or students and business apprentices from India are eligible to claim these credits. Additionally, dependents must have valid Social Security Numbers issued before the return due date.
Affordable Care Act Individual Mandate for 2018
For tax year 2018, the Affordable Care Act individual shared responsibility payment remained in full effect. Taxpayers without minimum essential health coverage were required to pay the penalty or claim an exemption from it. The Tax Cuts and Jobs Act reduced the penalty to zero, effective for tax years 2019 and later, but the mandate applied in full for 2018. Nonresident aliens who received advance payments for the premium tax credit for health insurance through the Marketplace must reconcile these payments on Form 8962.
Elimination of Miscellaneous Itemized Deductions
The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, subject to the 2 percent floor of adjusted gross income, for tax years 2018 through 2025. Nonresident aliens cannot deduct unreimbursed employee business expenses, tax preparation fees, investment advisory fees, or other miscellaneous expenses that were previously allowed.
Filing Requirements for Nonresident Aliens
Who Must File
A nonresident alien engaged in trade or business in the United States during 2018 must file Form 1040-NR regardless of whether any income was received from that trade or business, whether any U.S. source income existed, or whether the income was exempt from U.S. tax under a tax treaty. A nonresident alien not engaged in trade or business must file if U.S. source income was received and not all of the U.S. tax owed on that income was withheld at source.
Filing Status Restrictions
Nonresident aliens filing Form 1040-NR are restricted to two filing statuses: Single or Married Filing Separately. Nonresident aliens are not eligible to claim head of household filing status or file jointly with a spouse. These restrictions apply regardless of marital status or family composition.
Dependent and Credit Limitations
Only nonresident aliens who are U.S. nationals, residents of Canada, Mexico, or South Korea, or residents of India who are students or business apprentices can claim dependents. Any dependent claimed must be a citizen, national, or resident of the United States, or a resident of Canada or Mexico. Dependents must have valid Social Security Numbers or Individual Taxpayer Identification Numbers issued before the return due date.
Step-by-Step Filing Process
Step 1: Determine Nonresident Alien Status
Verify nonresident alien status by confirming you do not meet the green card test or substantial presence test for 2018. The green card test is met if you were a lawful permanent resident at any time during 2018. The substantial presence test is met if you were physically present in the United States for at least 31 days in 2018 and 183 days during the three years, including 2018, 2017, and 2016, counting all days in 2018, one-third of days in 2017, and one-sixth of days in 2016.
Step 2: Gather Required Income Documentation
Collect all Forms W-2 showing wages and salaries received in the United States during 2018. Obtain Form 1042-S for U.S. source income, such as scholarships, interest, dividends, or rental income subject to withholding at source. Gather Form 1099 for dividends, interest, or other income. Collect Schedule K-1 forms from partnerships or S corporations. Obtain Forms SSA-1042S, RRB-1042S, or 8288-A as applicable to your income sources.
Step 3: Classify Income as Effectively Connected or Not Effectively Connected
Determine if each income item is effectively connected with a U.S. trade or business. Effectively connected income is taxed at graduated rates on Form 1040-NR page 1 after allowing deductions allocated adequately to that income. Income not effectively connected with a U.S. trade or business is generally taxed at a flat 30 percent rate or lower treaty rate on Schedule NEC, with limited deductions allowed.
Step 4: Report Effectively Connected Income
Report wages and salaries on line 8 of Form W-2, box 1. Enter taxable interest on line 9a. Report taxable refunds of state and local taxes on line 10b if you received a refund and had claimed a deduction in a prior year. Enter taxable scholarship and fellowship grants on line 12 with Form 1042-S attached. Report business income or loss on line 13 using Schedule C or C-EZ. Enter capital gains or losses on line 14 using Schedule D. Report rental real estate income and losses on line 17 using Schedule E. Enter other effectively connected income on the appropriate lines through line 21.
Step 5: Report Treaty-Exempt Income
Enter total income exempt from U.S. tax by virtue of a tax treaty on line 22. List the country from which the income was received, the applicable tax treaty article, the number of months in prior years when the treaty benefit was claimed, and the amount of exempt income. Complete Schedule OI Item L and attach Form 8833 if required by the rules for disclosing tax treaties.
Step 6: Calculate Adjustments to Income
Claim allowable adjustments on lines 24 through 33. These include educator expenses on line 24, health savings account deduction on line 25, moving expenses for members of the Armed Forces on line 26, and one-half of self-employment tax on line 27 if you had net earnings from self-employment of at least $400 and are covered under an international social security agreement. Enter the student loan interest deduction on line 31 if eligible. Calculate total adjustments on line 34 and subtract from line 23 to determine adjusted gross income on line 35.
Step 7: Complete Schedule A for Itemized Deductions
Nonresident aliens cannot claim the standard deduction, except in limited circumstances for particular residents of India who are eligible under tax treaty provisions. Complete Schedule A to itemize deductions related to effectively connected income. On Schedule A line 1b, enter the combined deduction for state and local income taxes or sales taxes plus state and local property taxes, capped at $10,000 total or $5,000 if married filing separately. Enter charitable contributions with Form 8283 attached if any noncash contribution exceeds $500. Report qualified mortgage interest and casualty losses from federally declared disasters with Form 4684 attached.
Step 8: Complete Schedule NEC if Applicable
If your income is not effectively connected with a U.S. trade or business, complete Schedule NEC to report it. Enter the income under the appropriate tax rate columns: 10 percent, 15 percent, 30 percent, or other specified rates, depending on treaty status and income type. Schedule NEC reports income from U.S. sources taxed at flat rates rather than graduated rates.
Step 9: Calculate Tax on Effectively Connected Income
Subtract itemized deductions from adjusted gross income to determine taxable income. Calculate tax using the 2018 tax rate schedules applicable to your filing status. Nonresident aliens generally use the single or married filing separately rate schedules. Add any alternative minimum tax calculated on Form 6251 if appropriate. Add self-employment tax from Schedule SE if you had net self-employment earnings of at least $400.
Step 10: Determine and Report Allowable Credits
Claim allowable tax credits on the appropriate lines. Enter foreign tax credit on Form 1116 if you paid income taxes to a foreign country on the same income taxed by the United States. Enter child tax credit of up to $2,000 per qualifying child on line 49 if you are a resident of Canada, Mexico, or South Korea, a U.S. national, or an eligible student or business apprentice from India, and your dependent has a valid Social Security Number. Enter the $500 credit for other dependents if applicable, subject to the same nationality restrictions.
Step 11: Report Federal Income Tax Withheld
Enter total federal income tax withheld from Form W-2 box 2, Form 1042-S box 7, and other withholding sources on lines 62a through 62d. Include all amounts withheld from wages, U.S. source income, and other payments during 2018.
Step 12: Complete Schedule OI
Fill out Schedule OI to provide the necessary additional information. Report your country or countries of citizenship or nationality on Item A. Enter the country where you claim residence for tax purposes on Item B. Report your visa status or other presence indicator on Items C through H. If claiming tax treaty benefits, complete Item L, listing the country, applicable tax treaty article, number of months in prior years the treaty benefit was claimed, and the amount of exempt income. Attach Form 8833 if required by the rules for disclosing tax treaties.
Step 13: Assemble Required Supporting Documents
Attach all required supporting documents in the proper order. Include Forms W-2, Forms 1042-S, Forms 1099-R if tax was withheld, Schedule A, Schedule NEC if applicable, Schedule OI, Form 8833 if claiming treaty benefits with disclosure required, Form 8840 if claiming closer connection exception, Form 8843 if claiming exemption as an exempt individual, Form 8962 if reconciling advance premium tax credit payments, Form 8283 if noncash charitable contributions exceed $500, Form 4684 if claiming casualty losses, and Form 1116 if claiming foreign tax credit.
Step 14: Sign and Date the Return
Sign and date Form 1040-NR, entering the date you completed it. If you are married and filing separately, your spouse is not required to sign your return. If a paid preparer completed the return, the preparer must sign and enter their name, address, phone number, and preparer tax identification number.
Step 15: File the Return by the Applicable Deadline
Suppose you were an employee who received wages subject to U.S. income tax withholding. File Form 1040-NR by April 15, 2019. If you did not receive wages subject to withholding, file by June 15, 2019, for a tax return for the calendar year. If filing by mail, consult the IRS website for the current mailing address for Form 1040-NR in your location. Ensure the return is postmarked correctly by the deadline to establish timely filing. Retain a copy for your records.
Critical Filing Restrictions
Credits Not Available to Most Nonresident Aliens
Nonresident aliens cannot claim earned income credit, education credits, adoption credit, retirement savings contributions credit, or most other credits available to U.S. citizens and resident aliens. The child tax credit and credit for other dependents are available only to limited categories of nonresident aliens as specified in the instructions.
Deduction Restrictions
Income not effectively connected with a U.S. trade or business receives no deduction allowances. Flat 30 percent withholding or applicable treaty rate applies to gross income with no expenses or deductions. Nonresident aliens cannot claim the standard deduction except in limited treaty situations and must itemize to receive any deduction benefit on effectively connected income.
Required Schedule Attachments
Schedule A is required if claiming itemized deductions for expenses related to effectively connected income. Schedule NEC is required if income is effectively unconnected with a U.S. trade or business. Schedule OI is necessary to provide other information, including country of citizenship, country of tax residence, visa status, and treaty benefit disclosure.
Important Considerations
Tax Treaty Benefits
Review tax treaty provisions between the United States and your country of residence. Common treaty benefits include reduced withholding rates on dividends, interest, and royalties, as well as exemptions for certain types of scholarship, fellowship, or teaching income. Adequately disclose treaty benefits on Schedule OI Item L and attach Form 8833 if required.
Dual Status Taxpayers
If your residency status changed from nonresident alien to resident alien during 2018, your tax filing requirements will change significantly. Dual-status taxpayers must file special returns that show income and deductions for each period under different tax rules. Consult IRS Publication 519 for dual status requirements and special rules.
Health Coverage Reporting
For tax year 2018, the Affordable Care Act individual shared responsibility payment remained in effect. Report health coverage on the return or claim an exemption using Form 8965 if you did not have minimum essential coverage. Reconcile any advance premium tax credit payments you made on Form 8962.
Recordkeeping Requirements
Retain Form 1040-NR and all supporting documentation, including Forms W-2, Forms 1042-S, and all schedules and attachments, for at least three years from the date of filing or two years from the date the tax was paid, whichever is later. Keep copies of all payment vouchers, cancelled checks, and mailing confirmations to verify timely filing and payment.
This checklist ensures accurate calculation and timely filing of 2018 income taxes for nonresident aliens using Form 1040-NR.
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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.
