Allowable Deductions and Credits
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Allowable Deductions and Credits for Foreign Nationals
Nonresident aliens generally qualify for fewer deductions and credits than residents. You can ONLY use deductions and credits to offset effectively connected income; you CANNOT use them to reduce income that is not effectively connected to a U.S. trade or business.
Residents can choose the standard deduction instead of itemized deductions, but nonresidents (other than students and business apprentices from India) cannot claim the standard deduction. Most nonresidents must itemize deductions, though their options are limited. Below are brief descriptions of some of the more common deductions and credits you might claim.
For more details, see IRS Publication 519.
Moving Expenses
Before 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. The law disallowed this deduction for tax years 2018 through 2025.
Itemized Deductions
Schedule A (page 3) of Form 1040NR lists itemized deductions as a special category of deductions. Nonresidents from India can elect to claim the higher of their itemized deductions or the standard deduction (explained below).
If you are a nonresident from a country other than India, you cannot claim the standard deduction. You can only claim itemized deductions for costs you paid during the year. Review the allowable types of itemized deductions on Schedule A, and read IRS Publication 519 for detailed explanations. You total your deductions on Schedule A and then report them on page one of Form 1040NR.
State Income Taxes
If your employer withheld state and/or local income tax from your wages, you can claim the amount withheld on line 1 of Schedule A (the amount appears on your W-2). This deduction is typically the only itemized deduction nonresident aliens can claim. Beginning in 2018, the law limited the deduction for the combined total of state and local taxes to $10,000 per return ($5,000 if you file as married filing separately).
The Standard Deduction for Resident Aliens
All residents qualify for the standard deduction as a statutory allowance. Nonresidents and dual-status aliens generally cannot claim it, except 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. If you are married, filing separately, and your spouse itemizes deductions, you also cannot claim the standard deduction. For 2024, the standard deduction is $14,600 for single taxpayers and married taxpayers filing separately. This deduction does not benefit most nonresident aliens.
Personal and Dependency Exemptions for Years Before 2018
Before 2018, personal and dependency exemptions served as statutory deductions for the taxpayer, the taxpayer’s spouse, and any eligible dependents. The IRS adjusted the exemption amount annually for inflation. In 2017, the amount was $4,050. Eligible foreign nationals could deduct $4,050 for each allowable exemption on their 2017 tax return. Chapter Five of IRS Publication 519 and the Form 1040NR instructions explain exemptions.
As a nonresident, you generally could not deduct dependency exemptions, even if you supported family members. You could typically claim only one exemption (your personal exemption) on Form 1040NR. However, residents of Mexico and Canada and U.S. nationals could claim spousal and dependency exemptions under the same rules as U.S. residents (IRC Section 873(b)(3)). In addition, residents of South Korea and students and business apprentices from India could claim spousal and dependency exemptions under specific treaty provisions.
The 2017 Tax Cuts and Jobs Act (P.L. 115-97) repealed personal and dependency exemptions for 2018 through 2025.
New Child Tax Credit & Other Dependents Credit for After 2017
Child Tax Credit
To partly replace dependency exemptions, the Act expanded the Child Tax Credit (IRC Section 24) after 2017 from $1,000 to $2,000. (For 2021, the amount was temporarily higher but has returned to $2,000 for 2022.) However, the Act restricted this credit for the limited group of nonresident aliens who could previously claim it (from Canada, Mexico, South Korea, U.S. nationals, and students and business apprentices from India). The dependent must now have a Social Security number before the filing deadline.
Previously, a dependent only needed to qualify as a U.S. resident for tax purposes and could have had an ITIN. Alien dependents who qualify as residents under the substantial presence test usually do not qualify for a Social Security number. However, if you are a nonresident in one of the above categories and you have a resident dependent with a Social Security number (due to U.S. citizenship or permanent residence), you can claim the credit. To qualify, all 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
The Act also added a $500 credit for dependents who do not qualify for the $2,000 credit. Some nonresident aliens can claim this credit. The credit applies only if your dependent is a U.S. resident, but the dependent can have an ITIN (as long as issued before the tax return deadline).
Example V.
Jerome, a Canadian resident, entered the U.S. in 2022 as a J-1 visa holder working at an American university. He is a nonresident for 2022. Jerome’s spouse, Angela, is a U.S. permanent resident with no income and does not file a tax return. Their child, Kenny, 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 him. Jerome will file Form 1040NR for 2022 and can claim the $2,000 Child Tax Credit for Kenny.
Example VI.
The facts are the same as Example V, except Angela holds an H-1b visa and Kenny holds an H-4 visa. Both pass the substantial presence test, and Kenny has an ITIN. Angela will file a resident tax return, and Jerome will file a nonresident tax return. Together they provide more than half of Kenny’s support, and Kenny lives with them. Jerome’s adjusted gross income is higher than Angela’s in 2022, so he can claim the $500 Other Dependents Credit (see IRC Section 152(c)(4)). Jerome cannot claim the $2,000 Child Tax Credit because Kenny does not have a Social Security number.
Example VII.
The facts are the same as Example V, except Angela and Kenny hold J-2 family member visas. Angela has no income and does not file a tax return. Jerome cannot claim either the Child Tax Credit or the Other Dependents Credit for Kenny in 2022 because Kenny is considered a nonresident alien, the same as Jerome.
For nonresidents previously eligible to claim dependency exemptions under the India treaty, the treaty appears to allow the Other Dependents Credit if the dependent passes the substantial presence test, otherwise qualifies, and has an ITIN. If the dependent has a Social Security number and otherwise qualifies, the $2,000 Child Tax Credit may apply. It remains unclear whether the U.S.–South Korea treaty (Article 4(7)) allows either credit.
Any taxpayer who claims the Child Tax Credit or the Other Dependents Credit must have a taxpayer identification number by the tax return due date.
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 Form 1040NR includes a line for this credit, you will almost never qualify. If you are married, you must file jointly to claim it, but nonresidents cannot file joint returns. If you are single, you must have a dependent who qualifies as a “qualifying individual.” A qualifying individual is a dependent under age 13 or a disabled dependent. As explained under Personal and Dependency Exemptions for Years Before 2018, nonresidents usually cannot claim dependency exemptions.
For details, see Chapter Five of IRS Publication 519.
The Foreign Tax Credit for Resident Aliens
If you receive foreign-source income and also pay U.S. tax on it, you can claim a foreign tax credit. However, most foreign nationals do not pay U.S. tax on foreign-source income, so this credit usually does not apply to nonresident returns. In addition, you cannot claim a credit for foreign taxes imposed on your U.S.-source income if the foreign country taxed you because of your citizenship or residency there.