Crypto taxes for non-US citizens can be categorized into: non-resident alien and resident alien taxes. Generally speaking, resident aliens have the same tax obligations as US residents, while non-resident aliens may have to pay a fixed 30% tax rate on their US-sourced capital gains.
However, there are too many factors and exceptions to consider.
But worry not. In this guide, we’ll delve into all the intricacies of crypto taxes for non-US citizens, exploring the difference between resident aliens and nonresident aliens, discussing what determines tax residency of an individual and the tax implications based on residency status.
Difference Between Non-Resident Alien Vs Resident Alien
When navigating the world of crypto taxes for non-US citizens, it’s essential to understand the different tax residency statuses you may fall into and how they may play a significant role in determining the tax implications of your crypto holdings, sales, and earnings.
For tax purposes, non-US citizens can be classified as either resident aliens or nonresident aliens. Let’s look at both these residency statuses and how they differentiate.
Resident aliens are individuals who meet specific criteria to be considered as US residents for tax purposes. These criteria typically revolve around the following two factors:
The substantial presence test: The substantial presence test accounts for the number of days you have been physically present in the US over a three-year period. You’re generally considered a resident alien if your total reaches or exceeds 183 days.
For example, suppose you’re a citizen of Canada and spent 183 days or more in the US during the current year, or you spent 31 days or more in the US during the current year, and the sum of the days in the current year, one-third of the days in the preceding year, and one-sixth of the days in the second preceding year totals 183 days or more. In this case, you would be classified as a resident alien.
Green card holders: If you hold a valid green card (lawful permanent resident status) at any time during the tax year, you’re automatically considered a resident alien for tax purposes, regardless of how many days you spent in the country.
Nonresident aliens, on the other hand, are individuals who do not meet the criteria to be considered resident aliens. They may still have certain US income, but their tax obligations and reporting requirements will differ from those of resident aliens.
For example, suppose you’re a citizen of Germany and visit the US for a vacation or short-term work assignment but do not meet the substantial presence test. In this scenario, you would be classified as a nonresident alien.
Exceptions: Several factors come into play when determining tax residency in the US, including your visa status, employment type, and specific tax treaties between countries.
For example, suppose you’re a citizen of Australia and have been granted a US visa to work for a US-based company for an extended period (e.g., several years). In this case, even if you meet the substantial presence test, you might still be considered a nonresident alien if your visa status does not allow permanent residency.
Now that we know the difference between non-resident aliens and resident aliens. Let’s look at how their tax obligations differ.
Crypto Taxes for Non-US Citizens Based on their Residency Status
Crypto taxes for non-US citizens will differ based on their residency status. The more factors you include, the further it gets complicated. But here is a gist of it:
Resident aliens are subject to tax on their worldwide income, including income generated from crypto transactions, both within and outside the US. They must report their crypto holdings, sales, and earnings on their US tax returns.
Nonresident aliens, on the other hand, generally only need to report and pay taxes on income that is effectively connected to a US trade or business. This means that crypto transactions occurring outside the US may not be subject to US taxes for nonresident aliens.
For example, as a nonresident alien, if you hold crypto assets outside the US and only engage in crypto transactions on non-US platforms, you might not have any US tax obligations. However, if you sell crypto assets on a US-based exchange, the resulting capital gains may be subject to US taxes.
But your tax home status may also affect your tax obligations as a non-resident alien, something we’ll cover in-depth in the next section.
Crypto Taxes for Non-Resident Alien
Crypto taxes for non-resident aliens can be categorised into – capital gains and income taxes.
While non-resident aliens are generally exempt from US taxes and only liable to taxes in their home country, there are some exceptions we must discuss.
Non-resident alien citizens are subject to a flat 30% tax rate on US-sourced capital gains, provided they are present in the US for 183 days or more during the taxable year. Just to clarify, this 183 days rule is not related to the substantial presence test for determining tax residency.
However, merely being present in the US for 183 days or more during the taxable year does not automatically make non-resident aliens liable for taxes. The key determining factor is whether they have shifted their tax home to the US.
If a non-resident alien establishes their tax home in the US, their crypto gains will be considered US-sourced capital gains. To give a quick rundown, if you plan to live there for more than a year, your new tax home will be considered in the US.
For example, if you come to the US as a student or for a job that requires you to be here for over a year, your tax home will shift to the US from the day you arrive.
So, in summary, as a non-resident alien, you are only subject to the flat 30% tax (or lower tax treaty) rate on your crypto gains when your tax home is in the US and you are present in the country for 183 days or more during a calendar year.
Another important side note, non-resident aliens can’t deduct crypto losses from their gains.
Receiving Income in Crypto
In general, the IRS treats receiving income in crypto similarly to receiving income in fiat currency. However, as a non-resident alien, your tax obligations may differ depending on the nature of the income.
If your income in crypto is effectively connected with a trade or business in the US and falls under the category of Fixed, Determinable, Annual, or Periodical (FDAP), you may be subject to income taxes. These tax rates range from 10% to 37% (same as those applied to US citizens).
For instance, if you receive rental income from a property located in the US and the payment is made in crypto, it would likely be considered FDAP income.
Crypto Taxes for Resident Alien
As a resident alien, you are subject to the same crypto taxes as regular US citizens.
Capital Gains Taxes
When you sell, spend, swap, or dispose of your crypto and realize a capital gain, you will be liable for capital gains taxes. The tax rates for short-term and long-term capital gains depend on your income bracket and the holding period of your assets.
For short-term capital gains (assets held for less than a year), the tax rates range from 10% to 37%. Long-term capital gains (assets held for more than a year) are subject to tax rates ranging from 0% to 20%.
Unlike non-resident aliens, resident aliens can offset their losses against capital gains or gains from other asset classes.
Crypto received as income or salary is also subject to income taxes for resident aliens. If you earn crypto by selling products or services, or if you receive crypto as part of your employment compensation, you will need to report it as income and pay taxes accordingly.
As mentioned, the income tax rates in the US range from 10% to 37%, depending on your income bracket.
Check out our comprehensive guide on crypto taxes in the US to learn about the tax implications for different crypto transactions, such as staking rewards, airdrops, mining crypto, gifting crypto, etc.
Can you Avoid Paying Crypto Taxes as a Non-US Citizen?
Avoiding your crypto tax obligations as a non-US citizen is simply not a viable path to take. The IRS has a firm grip on tracking crypto transactions, thanks to the obligation of most US crypto exchanges to share user information and transaction data.
So, it’s only a matter of time before the tax authorities catch wind of any attempts to dodge your tax responsibilities. And the consequences can be quite severe – think hefty fines, penalties, and even the possibility of imprisonment. Furthermore, the IRS has intensified its focus on crypto taxes in recent years, actively sending out thousands of letters and audit notices to taxpayers.
Trying to evade your tax obligations is a criminal offense, regardless of whether or not you get caught. It’s simply not worth jeopardizing your financial and legal standing.
As a non-US citizen, it’s even more crucial to handle your tax affairs with utmost care and precision, as non-compliance with tax regulations can have long-term implications, potentially impacting your future green card and US visa applications.
How to Report Crypto Taxes for Non-US Citizens?
Non-US citizens engaged in crypto transactions have specific reporting obligations when it comes to their capital gains and income. Here’s an overview of how to report crypto taxes for non-US citizens:
Reporting for Nonresident Aliens:
Nonresident aliens must report their capital gains and income from crypto on Form 1040-NR, which stands for U.S. Nonresident Alien Income Tax Return. This form is specifically designed for nonresident aliens to report their income and tax liability.
In certain cases, if you earn income in cryptocurrency as a non-US resident, you might be classified as a non-employee, meaning you could have additional responsibilities to report your income on Form 1099-NEC. Consult a tax professional for better guidance on this matter.
Reporting for Resident Aliens:
For resident aliens, the reporting obligations for crypto taxes are the same as those for US citizens, which are:
Capital gains and losses should be reported on Schedule D (Form 1040) and Form 8949. And crypto income must be reported on either Schedule 1 (Form 1040) or Schedule C (Form 1040), depending on the nature of the income.
To ensure accurate reporting and compliance, you must maintain detailed records of your crypto transactions, including dates, transaction amounts, and fair market values.
It’s advisable to use a crypto tax software, like Bitcoin.Tax, that can streamline the process of collecting and organizing all your transactions from different exchanges and wallets in a centralized platform. Furthermore, it can automatically calculate your gains and losses and create a tax report for you.