Do Foreigners Pay Taxes in the U.S.? Income Tax Explained for Nonresidents
by J1 Summer Tax Back
Understanding the U.S. tax system can be confusing—especially if you’re a nonresident earning income or holding investments in the country.
Whether you’re working, studying, investing, or just visiting, it’s important to know what types of taxes may apply and how to stay compliant while maximizing your potential refunds.
Here’s a clear breakdown of how U.S. income tax works for foreigners, and what you need to know to file correctly.
🧾 Understanding U.S. Tax Residency
The first step in determining your U.S. tax responsibilities is figuring out your residency status for tax purposes.
The IRS uses the Substantial Presence Test and your visa type to decide whether you’re a resident or nonresident.
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Most F-1, J-1, M, or Q visa holders are considered nonresidents for their first few years in the U.S.
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Short-term workers, interns, and visiting researchers also typically qualify as nonresidents.
If you’re unsure of your status, you can calculate it based on your days of presence and visa type—or get professional help to determine it accurately.
🪪 What Is an ITIN, and Do Foreigners Need One?
If you are not eligible for a Social Security Number (SSN) but still need to file a U.S. tax return, you’ll need an Individual Taxpayer Identification Number (ITIN).
An ITIN is required to:
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File your Form 1040-NR (nonresident tax return)
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Claim tax treaty benefits
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Receive a tax refund
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Report U.S.-sourced income
You can apply for an ITIN using Form W-7 when you file your first return.
💵 Do Foreigners Pay Taxes in the U.S.?
Yes. If you earn U.S.-sourced income as a nonresident, you must pay tax on it.
This includes:
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Wages or salary from a U.S. employer
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Scholarship or fellowship income (in some cases)
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Rental income from U.S. property
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Business or freelance income from U.S. clients
Tax rates for nonresidents start at 10% and go up to 37%, depending on your income level and type of earnings.
However, nonresidents cannot claim the standard deduction, which often increases their taxable income—unless a tax treaty provides relief.
🏦 Opening a U.S. Bank Account as a Foreigner
Having a U.S. bank account makes it easier to receive tax refunds and manage income.
You’ll typically need:
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A valid passport
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Visa and immigration documents
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Proof of address
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ITIN or SSN (some banks may open accounts without it initially)
📈 Capital Gains Tax for Foreigners
If you sell U.S. stocks or real estate, you may owe Capital Gains Tax (CGT):
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Stocks: Nonresidents are generally exempt from CGT on U.S. stock sales unless you’re physically present in the U.S. for 183 days or more in the year.
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Real Estate: Profits from U.S. property sales are taxable under the Foreign Investment in Real Property Tax Act (FIRPTA). A portion of the proceeds is withheld and reported to the IRS.
🎰 Tax on Gambling Winnings
If you win money at a U.S. casino or through betting, congratulations! But keep in mind:
Nonresidents are subject to 30% withholding tax on gambling winnings, unless a tax treaty reduces or exempts this rate.
You must report winnings on your Form 1040-NR to claim any potential refund.
📊 Can Foreigners Invest in U.S. Stocks?
Absolutely — and many do.
However, dividends from U.S. companies paid to nonresidents are subject to 30% withholding tax (unless reduced by treaty).
To benefit from reduced rates, you must complete Form W-8BEN and submit it to your broker.
💰 Can Foreigners Get a Tax Refund in the U.S.?
Yes, there are two common types of refunds:
1. Income Tax Refund – If too much tax was withheld from your wages or investment income, you can reclaim it by filing Form 1040-NR.
2. Social Security & Medicare Refund – Some nonresidents, such as F-1 or J-1 visa holders, are exempt from these taxes. If they were withheld from your pay by mistake, you may be eligible for a refund.
💡 Stay Compliant and Keep More of Your Money
At J1 Summer Tax Back, we help international students, workers, and investors understand their U.S. tax obligations and recover any overpaid tax.
We specialize in:
✅ Determining your tax residency status
✅ Preparing your Form 1040-NR
✅ Claiming refunds and treaty benefits
✅ Helping you stay fully compliant with IRS rules
Understanding your tax rights as a foreigner in the U.S. is the first step toward smarter financial management — and keeping more of what you earn.