The Internal Revenue Service (IRS) classifies foreign nationals as either "resident" or "nonresident" aliens. They do not use the designations of "immigrant," "nonimmigrant," or "illegal alien." Aliens with certain types of visas or employment may have exceptions to the general tax rules, as described below.

"Resident aliens" for IRS purposes are individuals who are one of the following:

• "Green Card Test" - At any time during the current year, the individual is a lawful permanent resident of the U.S.

• "Substantial Presence Test" - The individual is present in the U.S. for at least 31 days during the current year and at least 183 days during the current year and previous two years according to a formula: all of the qualifying days in the current year, plus 1/3 of the qualifying days in the year immediately preceding the current year, plus 1/6 of the qualifying days in the second preceding year.

There are several exceptions to the above "tests" where the individual, though meeting the "tests," would still be classified as a "nonimmigrant alien." The following are examples given in the report.

• An individual who "has a closer connection to a foreign country than to the U.S., maintains a tax home in the foreign country, and is in the U.S. for fewer than 183 days during the year;"

• An individual who is in the U.S. on an F, J, M, or Q visa, so long as they have complied with the visa requirements;

• Employees of foreign governments and international organizations;

• Regular commuters from Canada or Mexico;

• Aliens who are unable to leave the U.S. due to a medical condition;

• Foreign vessel crew members;

• Aliens in transit through the U.S.;

• Athletes participating in charitable sporting events;

• Income tax treaties "If an individual is defined as a resident of a foreign country under a treaty, then he or she is a nonresident alien for purposes of determining his or her U.S. tax liability regardless of whether either residency test is met." (The U.S. currently has tax treaties with the following countries: Australia, Austria, Barbados, Belgium, Canada, China, the Commonwealth of Independent States, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela.)

The report also states that "it is possible to be a resident alien and a nonresident alien during the same year. For an explanation of the rules on determining residency starting and termination dates and on dual-status filing, see IRS Publication 519: U.S. Tax Guide for Aliens. If you are unsure, it is important to talk to a financial professional.

Resident aliens are subject to the same federal income tax laws as citizens of the United States: tax on all income eared in the U.S. and abroad, and subject to income tax withholding requirements.

Nonresident aliens are taxed on income they earn in the U.S., but not usually income earned from sources outside the U.S. (as defined by the Internal Revenue Code in sections 861, 862, 863, 864, and 865). There are different rates at which a nonresident alien's U.S. source income is taxed. According to the report, "nonresident aliens file a return using the Form 1040NR series and are subject to the same collection procedures as U.S. citizens and resident aliens."

In addition to Federal taxes, workers in the U.S. pay employment taxes Social Security and Medicare. Resident aliens, like U.S. citizens, are subject to Social Security and Medicare taxes on both wages (FICA) and on self-employment income (SECA). Nonresident aliens are subject to FICA taxes on compensation from work within the U.S. under the same rules as resident aliens and U.S. citizens. They are not subject to SECA taxes. There some services which are exempt both for residents and nonresidents. Additionally, a nonresident worker with a F, J, M, or Q visa is not subject to FICA taxes on "income from the performance of services that meets the purpose of admittance."

The U.S. has agreements (called "totalization agreements") with several countries (Australia, Austria, Belgium, Canada, Chile, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, South Korea, Sweden, Switzerland, and the United Kingdom) that have Social Security programs. The purpose of the agreements is for an individual to qualify for Social Security benefits in one country and avoid double taxation. In these agreements, an alien sent to work for less than 5 years in the U.S. by a foreign employer will generally not be required to pay FICA taxes in the U.S. if he/she can provide proof of paying social security taxes in the home country. Otherwise, the foreign worker will pay FICA taxes in the U.S., but not be subject to taxes in his/her home country.

Permit upon leaving the U.S. "Sailing Permit"

Aliens leaving the U.S. are generally required to obtain a certificate of compliance (i.e., a sailing permit) from the IRS that shows the individual "has complied with all the obligations imposed upon him by the income tax laws." The IRS can examine individuals at the point of departure if they do not have this permit and require payment of any tax due "if its collection would be jeopardized by the departure." The following individuals may be exempt from having this permit: employees of international organizations and foreign governments; students and trainees with F, H, J, and M visas; military trainees; visitors (including B-1 and B-2 visa holders); aliens in transit through the U.S. on a C-1 visa; and commuters from Canada and Mexico.

Again, if you are unsure about any of these complex provisions, it is very important to talk to a financial professional.