Allowable Deductions and Credits
Check Out Our Other Tax Guides!
Get all the information you need for your next tax season, all in one place
Allowable Deductions and Credits for Foreign Nationals
Deductions and credits are generally less available for nonresident aliens than for residents. Firstly, deductions and credits can ONLY offset effectively connected income; income that is not effectively connected to a U.S. trade or business CANNOT be reduced by deductions and credits.
While residents can claim the standard deduction instead of itemized deductions, nonresidents (other than students and business apprentices from India) aren't allowed to claim the standard deduction. Most nonresidents must itemize their deductions, however, the options are limited. Following are brief descriptions of some of the more common deductions and credits that might be available to you.
For more information see IRS Publication 519.
Moving Expenses
Prior to 2018, if you moved to the United States, or from one city to another during the year, you could deduct moving expenses if you worked full-time for at least 39 weeks during the 12 months right after you moved. This deduction has been disallowed for the years 2018 through 2025.
Itemized Deductions
Itemized deductions are a special category of deductions listed on Schedule A (page 3) of Form 1040NR. Nonresidents from India can elect to claim the greater of their itemized deductions or the standard deduction (described below).
If you are a nonresident from a country other than India, you cannot claim the standard deduction; you are only allowed to claim itemized deductions for costs that were paid during the year. Look through the types of allowable itemized deductions on Schedule A. Also, see descriptions of the individual deductions in IRS Publication 519. The deductions are totaled on Schedule A and then reported on page one of Form 1040NR.
State Income Taxes
If you had state and/or local income tax withheld from your wages during the year, you can claim the amount withheld on line 1 of Schedule A (the amount is shown on your W-2). This is typically the only itemized deduction nonresident aliens can claim. Beginning in 2018, the deduction for the combined total of state and local taxes is limited to $10,000 per return ($5,000 if you are married filing separately).
The Standard Deduction for Resident Aliens
The standard deduction is a statutory allowance available to all residents. It is generally not allowed on nonresident and dual status returns, other than to nonresident students and business apprentices from India under Article 21(2) of the United States/India tax treaty.
Taxpayers from India who claim the standard deduction cannot also claim itemized deductions. Additionally, if you are married and filing separately, and your spouse itemizes deductions, you cannot claim the standard deduction. The standard deduction for single taxpayers and married taxpayers filing separately for 2024 is $14,600. This will not benefit the vast majority of nonresident aliens.
Personal and Dependency Exemptions for Years Before 2018
For years before 2018, personal and dependency exemptions were statutory deductions representing the taxpayer, the spouse of the taxpayer, and any allowable dependents of the taxpayer. The exemption amount was adjusted for inflation each year. For 2017 the amount was $4,050. That means eligible foreign nationals could deduct $4,050 on their 2017 tax return for each allowable exemption. An explanation of exemptions is in Chapter Five of IRS Publication 519 and the Form 1040NR instructions.
Generally, whether you were married or single, you could not deduct dependency exemptions as a nonresident, even if you were supporting family members. That means only one exemption (your personal exemption) was typically allowed on Form 1040NR. However, residents of Mexico and Canada and nationals of the United States were allowed to deduct the spousal and dependency exemptions under the same rules as U.S. residents (IRC Section 873(b)(3)). Also, residents of South Korea and students and business apprentices from India were eligible, under their countries' treaties, to claim spousal and dependency exemptions under certain circumstances.
The 2017 Tax Cuts and Jobs Act (P.L. 115-97) (the "Act") repealed personal and dependency exemptions for the years 2018 - 2025.
New Child Tax Credit & Other Dependents Credit for After 2017
Child Tax Credit
As a partial replacement for dependency exemptions after 2017, the Act expanded the Child Tax Credit (IRC Section 24) from $1,000 to $2,000 for those previously qualifying for the credit. (The credit was increased further for 2021, but is back to $2,000 for 2022.) However, it further narrowed the allowance of this credit for the small category of nonresident aliens who could previously claim it (those from Canada, Mexico, and South Korea, U.S. nationals, and students and business apprentices from India) by requiring the dependent to have a Social Security number before the due date for filing the tax return.
Previously, a dependent was required to qualify as a resident of the U.S. for tax purposes but could've had an ITIN. Alien dependents qualifying as residents under the substantial presence test are generally not eligible for a Social Security number. However, if a nonresident in one of the above categories has a resident dependent with a Social Security number (because of U.S. citizenship or permanent residence), the credit is available. All of the following must apply:
- The child must be a U.S. citizen, national, or resident alien who resides with the taxpayer
- The child must be a son, daughter, adopted child, grandchild, stepchild, or foster child
- The child must be under 17 at the end of the year
- The child must qualify as a dependent
- The child must have a valid Social Security number by the return due date
Other Dependents Credit
An additional $500 credit was added by the Act for dependents who do not qualify for the $2,000 credit, and some nonresident alien taxpayers will qualify for this. This credit is also limited to nonresidents claiming dependents who are residents of the U.S., but the dependent can be issued an ITIN (as long as it's before the return due date).
Example V.
Jerome is a resident of Canada, entering the United States in 2022 as a J-1 visa holder working for an American university. Jerome is a nonresident for 2022. Jerome's spouse, Angela, is a U.S. permanent resident who has no income and does not file a tax return. They have a child, Kenny, who is under 17, a permanent resident and has a Social Security number. Jerome provides more than half of Kenny's support, and Kenny lives with Jerome. Jerome will file a nonresident return using Form 1040NR for 2022. Jerome can claim the $2,000 Child Tax Credit for Kenny on his nonresident return.
Example VI.
The same facts as Example 1, except Angela is present in the United States as an H-1b visa holder and Kenny is present as an H-4 visa holder. Both Angela and Kenny have passed the substantial presence test, and Kenny has been issued an ITIN. Angela will file a U.S. resident tax return and Jerome will file a nonresident tax return. Jerome and Angela together provide over half of Kenny's support, and Kenny lives with Jerome and Angela. Jerome's adjusted gross income is higher than Angela's adjusted gross income in 2022, so Jerome is eligible to claim the Other Dependents Credit of $500 on his nonresident tax return. (See IRC Section 152(c)(4).) Jerome is not eligible to claim the $2,000 Child Tax Credit because Kenny does not have a social security number.
Example VII.
The same facts as Example 1, except Angela and Kenny are present in the United States with J-2 family member visas. Angela has no income and will not file a tax return. Jerome is not eligible to claim a Child Tax Credit or Other Dependents Credit for Kenny on his nonresident return because Kenny is considered a non-resident alien in 2022, the same as Jerome.
For those nonresidents formerly eligible to claim dependency exemptions through the tax treaty with India, the treaty appears to allow the Other Dependents Credit if they have dependents who pass the substantial presence test, otherwise qualify, and have been issued an ITIN. If a dependent has been issued a Social Security number and otherwise qualifies, the $2,000 Child Tax Credit could be claimed. It is not clear that the U.S. tax treaty with South Korea (Article 4(7)) will allow the Child Tax Credit or Other Dependents Credit.
Any taxpayer claiming either the regular Child Tax Credit or the Other Dependents Credit must be issued a taxpayer identification number by the due date of the tax return.
Earned Income Credit
If you are a nonresident alien for any part of the year, the earned income credit is not available.
Education Credits
If you are a nonresident alien for any part of the year, educational credits such as the American Opportunity Credit and Lifetime Learning Credit are not available.
Foreign National Child and Dependent Care Expense Credit
Although this credit has a line on Form 1040NR, it is very unlikely you will qualify for it. If you are married, you must file a joint return with your spouse to claim the credit. But as you see under Filing Status above, you are not allowed to file a joint return as a nonresident alien. If you are single, you must have a dependent who is a "qualifying individual" to get the credit. A qualifying individual is a dependent under the age of 13 or a disabled dependent. As you will find under Personal and Dependency Exemptions for Years Prior to 2018, dependency exemptions are typically not allowed to nonresident aliens.
For more information on this credit, see Chapter Five of IRS Publication 519.
The Foreign Tax Credit for Resident Aliens
If you receive foreign source income that you also pay U.S. tax on, you can claim a foreign tax credit. However, since foreign nationals generally do not pay U.S. tax on foreign source income, this credit is typically not available on the nonresident return. Additionally, you cannot take any credit for taxes imposed by a foreign country on your U.S. source income if those taxes were imposed because you are a citizen or resident of the foreign country.