Essential Guide to Form 1040-NR: What Nonresident Aliens Need to Know

Form 1040-NR: Overview and Purpose

• What is Form 1040-NR? Form 1040-NR is the U.S. Individual Income Tax Return for nonresident aliens. It is used by foreign individuals who are not U.S. citizens or resident aliens to report their U.S.-source income and calculate any tax owed.
• Purpose of the Form: The primary purpose is to determine and report taxable income earned in the United States, including wages, salaries, dividends, interest, and other income subject to U.S. taxation. It also allows nonresident aliens to claim credits, deductions, and treaty-based exemptions as permitted by U.S. tax law.
• Who Must File: Nonresident aliens who have U.S.-source income that is not already fully taxed by withholding (e.g., certain types of investment income or self-employment income) must file Form 1040-NR to report their income and pay any additional tax owed.
• Special Cases: Foreign trusts and estates that are required to file must use Form 1040-NR and may need to attach additional forms like Form 8805 or Schedule T. The form is also used when amending a previously filed return, in which case Form 1040-X is used for corrections.
• Reporting Requirements: The form includes sections for reporting income, claiming deductions, and calculating tax liability. It may also require attaching supporting documents such as Form 1042-S for certain types of income subject to withholding.

• Who Needs to File Form 1040-NR? Eligibility and Requirements

Form 1040-NR is the U.S. Individual Income Tax Return for nonresident aliens. You must file this form if any of the following conditions apply to you for the 2025 tax year:

1. You were a nonresident alien engaged in a trade or business in the United States during 2025.
2. You have U.S. source income, even if it is exempt under a tax treaty or section of the Internal Revenue Code.
3. You are a foreign trust or estate required to report U.S. income.

Even if you have no income from a U.S. trade or business or no U.S. source income, you are still required to file Form 1040-NR if you meet any of the above conditions.

Exemptions from filing are limited. You must meet one of the three specific conditions (not detailed in context) to be exempt from filing Form 1040-NR for 2025. The previous exemption for nonresident aliens with only personal service income below the personal exemption amount is no longer available.

If you claim exemption from U.S. tax under a treaty, you must attach a statement to Form 1040-NR identifying your country of residence and the treaty provisions under which you claim exemption.

Key Sections of Form 1040-NR: Important Parts and What They Cover

Form 1040-NR is used by nonresident aliens to report U.S. income and pay taxes. It includes several key sections designed to capture income, deductions, and tax liabilities specific to nonresident status.

1. Taxpayer Information & Filing Status: Identifies the filer by SSN/ITIN and foreign/U.S. addresses. Nonresidents are generally restricted to "Single," "Married Filing Separately," or "Qualifying Surviving Spouse (QSS)" status unless specific treaty exceptions apply.
2. • Effectively Connected Income (ECI): Reports "active" U.S. income (wages, tips, business profits) taxed at graduated rates. In 2025, this includes references to Schedule 1-A for the new No Tax on Tips and Overtime deductions.
3. • Adjustments to Income: Reductions to your total ECI to determine Adjusted Gross Income (AGI). Common adjustments include student loan interest and certain educator expenses.
4. • Deductions (Standard/Itemized): Most 1040-NR filers cannot claim the standard deduction and must use Schedule A (1040-NR) to itemize. This section also includes the Qualified Business Income (QBI) deduction and the new additional deductions from Schedule 1-A.
5. • Tax and Credits: Calculates total tax liability. It combines tax on ECI (graduated rates) with tax on non-ECI (typically a flat 30% from Schedule NEC). It also subtracts nonrefundable credits such as the Child Tax Credit.
6. • Payments & Refundable Credits: Lists all taxes already paid (withholdings from W-2, 1042-S, or 8288-A) and refundable credits such as the Additional Child Tax Credit (ACTC).
7. • Refund/Amount You Owe: The final tally. If payments exceed total tax, you receive a refund (via check or direct deposit); otherwise, you must pay the balance.

8. • Signatures & Designee: The Third Party Designee allows a friend or preparer to discuss the return with the IRS. The Signature section validates the return under penalty of perjury.

   Essential Attached Schedules

   1. Schedule OI (Other Information): Mandatory. Used to verify your visa type, country of citizenship, and details of tax treaty benefits claimed.

   2. Schedule 1: Additional Income and Adjustments to Income

   Part I (Additional Income): Used for income not listed on the 1040, such as Business Income (Schedule C), Rental/Royalty Income (Schedule E), unemployment compensation, and gambling winnings.

   Part II (Adjustments to Income): These are "above-the-line" deductions that reduce your AGI. Common examples include the Student Loan Interest Deduction, educator expenses, and HSA deductions.

   3. Schedule 1-A: New for 2025; used to claim the $25k tip deduction, $12.5k overtime deduction, or the senior/car loan interest deductions.

   4. Schedule 2: Additional Taxes

   Part I (Tax): Primarily for the Alternative Minimum Tax (AMT) and excess Premium Tax Credit repayments.

   Part II (Other Taxes): Covers taxes such as Self-Employment Tax, household employment taxes (Nanny tax), and additional taxes on IRAs or other qualified retirement plans.

   5. Schedule 3: Additional Credits and Payments

   Part I (Nonrefundable Credits): For credits that can reduce your tax to zero but will not trigger a refund, such as the Foreign Tax Credit, Child and Dependent Care Credit, and education credits.

   Part II (Other Payments and Refundable Credits): Reports payments such as those made with a Filing Extension (Form 4868) and specific refundable credits not reported on the main 1040.

   6. Schedule A (1040-NR): Specifically for nonresident itemized deductions (e.g., state/local taxes, U.S. charitable contributions).

   7. Schedule NEC: Used to report passive income (dividends, interest, royalties) not connected to a U.S. trade or business.

   8. Schedule P (Form 1040-NR) – Used by nonresident aliens, foreign trusts, or foreign estates to report gain or loss from transferring an interest in a U.S. partnership or real property.

These sections ensure compliance with U.S. tax laws for nonresident aliens while allowing for accurate reporting of income and tax obligations.

What's New for Form 1040-NR: Recent Tax Law Changes and Updates for 2025

For the 2025 tax year, Form 1040-NR has been updated to reflect provisions under subchapter J, chapter 1 of the Internal Revenue Code, particularly for estates and trusts. This includes alignment with Form 1041 instructions, which may be referenced for guidance when completing Form 1040-NR.

• Provisions of Subchapter J: The 2025 Instructions for Form 1040-NR have been updated to reflect the provisions of subchapter J, chapter 1, of the Internal Revenue Code. This change is significant for estates or trusts filing Form 1040-NR, as it may be helpful to refer to Form 1041 and its instructions when completing the form.
• Permanent Establishment or Fixed Base: The instructions include guidance for individuals who have a permanent establishment or fixed base in the United States. Taxpayers can access the complete text of most U.S. tax treaties at IRS.gov to understand how these treaties might affect their tax obligations.
• Required E-filing: Paid tax return preparers are generally required to e-file Forms 1040-NR for tax returns filed for tax years ending on or after December 31, 2020. Exceptions include dual-status taxpayers, fiscal-year taxpayers, trusts, or estates, as detailed in Notice 2020-70.
• Look-Back Interest and Tax on Non effectively Connected Income: The instructions provide details on look-back interest under section 167(g) or 460(b) from Form 8697 or 8866, and tax on non effectively connected income for nonresident aliens, which are important considerations for certain taxpayers.
• Due date of return: File Form 1040-NR by April 15, 2026, if you were an employee and received wages subject to U.S. income tax withholding.
• Death of a taxpayer: If filing a return for someone who died before filing a 2025 return, check the “Deceased” box at the top of Form 1040-NR and enter the date of death.
• Write-in information: Beginning in 2025, most explanatory words, codes, and dollar amounts now have dedicated checkboxes or entry spaces instead of requiring write-in text.
• Form 1099-DA (Digital assets): If you sold a digital asset through a broker in 2025, you may receive Form 1099-DA. You must still answer the digital asset question on page 1 of Form 1040-NR, even if you receive this form.
• Electronic payments and direct deposit: The IRS recommends using direct deposit for refunds and electronic payment options such as Direct Pay, debit or credit cards, digital wallets, or online accounts.
• Updated reporting requirements for Form 1099-K: Third-party payment networks are required to issue Form 1099-K only if business transactions exceed $20,000 and 200 transactions during the year.
• New Schedule 1-A. A new Schedule to Form 1040, Schedule 1-A, has been created for eligible taxpayers to claim a deduction for the recently enacted deductions that include no tax on tips, no tax on overtime, and the enhanced senior deduction. For more information, see the Instructions for Schedule 1-A.
• Changes to child tax credit and additional child tax credit. Recent legislation made permanent the increase to the child tax credit (CTC) and additional child tax credit (ACTC) amount. For 2025, the maximum CTC has increased to $2,200 per qualifying child, of which $1,700 can be claimed for the ACTC. In addition, beginning in 2025, to be eligible to claim the CTC or ACTC, you must have a valid SSN issued before the due date of your return (including extensions).
• Up to $5,000 of adoption credit is refundable. Up to $5,000 of your adoption credit may be refundable. The amount of the refundable portion is determined separately for each eligible child.
• Trump accounts and new Form 4547. Recent legislation allows parents, guardians, and other authorized individuals to elect to establish a new type of individual retirement account, called a Trump account, for the exclusive benefit of certain children. If the child was born after 2024 and before 2029, is a U.S. citizen, and meets certain other requirements, the authorized individual may also elect to receive a $1,000 pilot program contribution to the child’s Trump account. Both elections can be made on Form 4547, which can be filed at the same time as the authorized individual’s 2025 income tax return. For more information on Trump accounts, and to learn how to make these elections, see Form 4547 and its instructions.
• State and local tax deduction limit increased. The overall limit on the deduction for state and local income, sales, and property taxes has increased to $40,000 ($20,000 if married filing separately). The overall limit is reduced if your modified adjusted gross income is more than $500,000 ($250,000 if married filing separately) but will not be reduced below $10,000 ($5,000 if married filing separately). For more information, see the Instructions for Schedule A (Form 1040-NR).

Related Schedules and Forms for Form 1040-NR

When filing Form 1040-NR, nonresident aliens may need to refer to several related schedules and forms to properly report income, adjustments, credits, and other tax-related information.

• Schedule 1 (Form 1040) – Used to report additional income and adjustments to income that cannot be entered directly on Form 1040-NR. The total from this schedule is transferred to Form 1040-NR.
• Schedule 1-A (New for 2025): Used to report Additional Deductions, such as No Tax on Tips deduction , No Tax on Overtime deduction, Car Loan Interest deduction and an Enhanced Deduction for Seniors.
• Schedule 2 (Form 1040): Used to report additional taxes, such as alternative minimum tax and self-employment tax.
• Schedule 3 (Form 1040): Used to report additional credits and payments, such as the foreign tax credit and education credits. However, certain lines are left blank for Form 1040-NR filers, such as education credits.
• Schedule NEC (Form 1040-NR) – Reports nonemployee compensation, typically from U.S. sources, and is directly linked to Form 1040-NR.
• Schedule OI (Form 1040-NR) – Required for taxpayers claiming a refund under a tax treaty. Must include details about the treaty, prior-year claims, and exempt income. Attach Form 8833 if applicable.
• Schedule P (Form 1040-NR) – Used by nonresident aliens, foreign trusts, or foreign estates to report gain or loss from transferring an interest in a U.S. partnership or real property.
• Form 8833 – Must be attached if claiming benefits under an income tax treaty, especially when filing Schedule OI.

Taxpayers should consult the Instructions for Form 1040-NR and cross-reference with the Instructions for Form 1040 for guidance on how to complete these schedules and forms accurately.

Important Deadlines for Form 1040-NR: When to File and Penalties for Late Filing

Form 1040-NR is used by nonresident aliens to file U.S. income tax returns. The filing deadline depends on whether you received wages subject to U.S. income tax withholding.

• If you received wages subject to U.S. income tax withholding: File Form 1040-NR by April 15, 2026 for the 2025 calendar year. If the due date falls on a weekend or legal holiday, file by the next business day.
• If you did not receive such wages: File by June 15, 2026 for the 2025 calendar year.
• Extensions: If you cannot file on time, you may request an extension. See the Instructions for Form 1040 for details on how to request one.
• Penalties for Late Filing: Filing after the due date may result in interest and penalties. The IRS may also impose a failure-to-file penalty, which is typically 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25%.
• E-filing Requirement: Paid tax return preparers must generally e-file Form 1040-NR for tax years ending on or after December 31, 2020, unless filing for certain exceptions like dual-status taxpayers or trusts.

Common Mistakes to Avoid on Form 1040-NR

Nonresident aliens filing Form 1040-NR must avoid several common errors to ensure accurate and timely tax reporting. Key mistakes include:

1. Incorrectly reporting withheld taxes: Taxpayers often mistakenly include tax withheld on Forms 1042-S, 8805, or 8288-A on line 25c. These should be reported on lines 25e, 25f, and 25g respectively.
2. Missing required attachments: Failing to attach necessary forms such as W-2, 1042-S, SSA-1042S, RRB-1042S, 2439, or 1099-R when tax was withheld can lead to processing delays or penalties.
3. Improper use of Schedule 1-A: Not using Schedule 1-A to report additional deductions like no tax on tips, overtime, or car loan interest may result in missed deductions.
4. Confusing Form 1040-NR with Form 1040: While some instructions reference Form 1040, taxpayers must adjust for differences—such as substituting “lines 25d through 25g” for “line 25d” and ignoring references to line 27.
5. Incorrectly claiming exemptions: If claiming exemption from tax under a tax treaty, taxpayers must attach a statement identifying their country of residence and the treaty provisions used.
6. Overlooking estimated tax penalties: Failing to account for estimated tax penalties when computing total tax liability can result in underpayment penalties.
7. Not referring to Form 1041 for estates/trusts: Estates or trusts must adjust Form 1040-NR according to subchapter J and may find Form 1041 instructions helpful for guidance.

Always review the Form 1040-NR instructions carefully and consider consulting a tax professional for complex situations.

Helpful Tips for Completing Form 1040-NR

Form 1040-NR is used by nonresident aliens to report U.S. income and pay taxes. Here are best practices for completing it accurately:

1. Provide Complete Personal Information: Enter your full name, identifying number (such as ITIN or passport number), and foreign address at the top of page 1. If your income is exempt under a tax treaty, report only the exempt income on line 1k and leave the rest of page 1 blank.
2. Use Schedule NEC for Non-Connected Income: Report income not effectively connected with a U.S. trade or business on Schedule NEC. This includes income from foreign sources that is not tied to a U.S. business activity.
3. Report Income from Forms 1099-R and 1042-S: When entering income from Form 1099-R, also include amounts from Form 1042-S on the same line. This ensures all foreign-source income is properly reported.
4. Complete Page 2 Accurately: On page 2, enter tax on non-connected income from Schedule NEC, total tax liability, and total U.S. tax withheld. These figures are critical for calculating your final tax obligation.
5. Use Schedule 1-A for Additional Deductions: If you have deductions not directly reportable on Form 1040-NR (such as no tax on tips or car loan interest), use Schedule 1-A (Form 1040) and transfer the total to line 13c of Form 1040-NR.
6. Do Not Claim Certain Credits or Deductions: Nonresident aliens cannot claim education credits or use Schedule 3 (Form 1040) for education-related benefits. Also, leave lines related to Form 8621 blank as Form 1040-NR filers do not file Form 8621.
7. Refer to Form 1040 Instructions When Needed: While Form 1040-NR has its own instructions, you may need to consult the Instructions for Form 1040 for guidance on certain lines, especially if you're using the Simplified Method or reporting specific types of income.
8. Special Considerations for Estates and Trusts: If you represent an estate or trust, adjust the form to reflect subchapter J provisions. Refer to Form 1041 and its instructions for guidance, as these are more relevant than the standard Form 1040-NR instructions.
9. Attach Required Statements: If you are engaged in a U.S. trade or business, attach a statement with your name, title, address, and the names and addresses of all beneficiaries.

Source

• For more up-to-date information visit https://www.irs.gov Government website.
• For the most accurate and detailed information regarding which schedules and forms are necessary for your specific tax situation, refer to the Instructions for Form 1040-NR or consult a tax professional.

How to add Form 1040-NR?

Software can guide you through how to add Form 1040-NR while filing your tax return using our software. To file Form 1040-NR, follow these steps:

1. Sign up or log in: Go to www.olt.com and sign in to your account.
2. Then choose 1040NR as your return type and answer for the eligibility question. if eligibility criteria meets, OLT will automatically create Form 1040NR.Enter your details: Follow the on-screen prompts to enter your personal, income, and deduction information.
3. The software will guide you step by step. Review your return: When you reach the 'Tax Summary' section, review all your entries.
4. OLT will check for errors and show your refund or balance due. E-file or print: Once everything looks correct, follow the on-screen instructions to e-file your return directly with the IRS or print and mail it if preferred.