Individuals who are U.S. persons include U.S. citizens and non-U.S. citizens who are resident aliens for U.S. federal tax purposes. U.S. citizens and resident aliens are subject to withholding and reporting on their worldwide income even when they live and work outside the U.S.
U.S. citizens include:
- Individuals born in the U.S.
- Individuals born outside of the U.S. whose parents are citizens (one of whom had resided in the U.S. or one of its possessions)
- Individuals who became U.S. citizens through naturalization
Individuals with dual citizenship, one of which is the U.S., receive treatment as U.S. citizens for all tax purposes. Non-U.S. citizens are resident aliens for tax purposes if they meet either the U.S. lawful permanent resident test or the 183-day substantial presence test as defined by Internal Revenue Code Section 7701(b). Individuals accorded the right to reside and work indefinitely in the U.S. are U.S. lawful permanent residents (green card holders). Nonresident aliens, who make a marriage-based election to file a joint U.S. tax return with a U.S. citizen or resident spouse are, nevertheless, foreign persons for purposes of NRA withholding. (They may make such an election for wage-withholding purposes with their employer, however.) Eligible students who make a treaty-based resident election under the treaty with Hungary, Jamaica or Barbados are treated as U.S. persons for NRA withholding and reporting purposes. (They remain nonresident aliens for FICA/Medicare purposes so the NRA FICA Exception may still apply if they are otherwise eligible.)
Entities that are U.S. persons include corporations and partnerships organized under the laws of one of the 50 states or the District of Columbia. A subsidiary of a foreign corporation so organized is a U.S. corporation. U.S. persons also include U.S. Limited Liability Corporations (LLCs) organized under the laws of one of the 50 states or the District of Columbia that have elected on Form 8832 to be taxed as a corporation under the U.S. “check the box” rules. This is the case even if some, or all, of the owners of the corporation are foreign persons. Because single-owner disregarded entities are ignored for U.S. income tax purposes, the payer must determine whether the single owner is a U.S. person or foreign person and withhold and report accordingly.
An estate or trust is a U.S. person if it is governed under the jurisdiction of one of the 50 states or the District of Columbia, and one or more U.S. persons have authority to control all substantial decisions. For this purpose, a U.S. citizen or resident alien whose tax home is in a foreign country is not considered a U.S. person.