The distinction between resident alien and nonresident alien for U.S. tax purposes primarily depends on two main criteria: the Green Card Test and the Substantial Presence Test. The classification affects how you file taxes, what income is taxable, and whether you can claim certain deductions or credits. Here's how it works:

1. Green Card Test

• Resident Alien: If you are a permanent resident of the U.S. (i.e., you have a Green Card), you are classified as a resident alien for tax purposes, regardless of how much time you've spent in the U.S.

• Nonresident Alien: If you do not have a Green Card, you are generally considered a nonresident alien unless you meet the criteria under the Substantial Presence Test (explained below).

2. Substantial Presence Test

This test is used to determine whether someone who doesn’t have a Green Card is considered a resident for tax purposes. It’s based on the number of days you’ve been physically present in the U.S. over a 3-year period. To pass the Substantial Presence Test for a given year, you must be physically present in the U.S. for:

• At least 31 days in the current year, and

• The total number of days in the current year and the two preceding years must be 183 days or more, calculated as follows:

  • All days in the current year count.

  • 1/3 of the days in the previous year count.

  • 1/6 of the days in the year before that count.

If you meet these conditions, you’re a resident alien for tax purposes. If you don’t meet this test, you're a nonresident alien.

Note for F-1 Students: F-1 students are exempt from counting days for the Substantial Presence Test for the first 5 years they are in the U.S. on the F-1 visa. So, even if an F-1 student is in the U.S. for a long period, they are generally still considered a nonresident alien for tax purposes during their first 5 years.

Key Differences for Tax Purposes:

Aspect	Resident Alien	Nonresident Alien
Tax Filing	File Form 1040 (standard tax return form).	File Form 1040-NR (Nonresident Alien Income Tax Return).
Worldwide Income	Taxed on worldwide income (income earned inside and outside the U.S.).	Taxed only on U.S.-source income (income earned within the U.S.).
Tax Deductions/Exemptions	Eligible for a wider range of deductions and credits (e.g., standard deduction).	Limited eligibility for deductions/credits (e.g., cannot take standard deduction unless from a country with a tax treaty).
Social Security & Medicare	Must pay Social Security and Medicare taxes on wages.	Generally exempt from Social Security and Medicare taxes (on U.S. wages).
Tax Treaties	Eligible for benefits under tax treaties.	Eligible for benefits under tax treaties.

F-1 Students and Resident Alien Status:

• F-1 students are nonresident aliens for tax purposes during their first 5 years in the U.S., regardless of how many days they’ve been in the U.S. (due to the exemption from the Substantial Presence Test).

• After the 5-year period, F-1 students might become resident aliens if they meet the Substantial Presence Test or obtain a Green Card.

Summary:

• Resident Alien: If you meet the Green Card Test or the Substantial Presence Test, you are taxed as if you are a U.S. citizen, meaning you're taxed on all income, whether it's from within the U.S. or abroad.

• Nonresident Alien: If you don't meet either test, you are taxed only on U.S.-source income and must file using Form 1040-NR.

It’s important to determine your status correctly, as it affects how you file taxes, what deductions you can claim, and what your overall tax liability will be.