Tax Credits and Payments

This discussion covers tax credits and payments for resident aliens, followed by a discussion of the credits and payments for nonresident aliens.

Resident Aliens

Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U.S. citizens.

The following items are some of the credits you may be able to claim.

Child and dependent care credit.   You may be able to take this credit if you pay someone to care for your dependent who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Generally, you must be able to claim an exemption for your dependent.

For more information, get Publication 503, Child and Dependent Care Expenses, and Form 2441, Child and Dependent Care Expenses.

Credit for the elderly or the disabled.   You may qualify for this credit if you are 65 or over or if you retired on permanent and total disability. For more information on this credit, get Publication 524, Credit for the Elderly or the Disabled, and Schedule R (Form 1040).

Child tax credit.   You may be able to take this credit if you have a qualifying child. For this credit, a qualifying child:

• Is a U.S. citizen, national, or resident alien,
• Is claimed as a dependent on your tax return,
• Is your son, daughter, adopted child, grandchild, stepchild, or foster child, and
• Was under age 17 at the end of the year.

Use the Child Tax Credit Worksheet in your form instructions to figure the amount of your credit.

Education credits.   You may qualify for these credits if you paid qualified tuition and related expenses for yourself, your spouse, or your dependent. There are two education credits: the Hope credit and the lifetime learning credit. You cannot claim these credits if you are married filing separately. Use Form 8863, Education Credits (Hope and Lifetime Learning Credits), to figure the credit. For more information, see Publication 970.

Foreign tax credit.   You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. To claim a credit for income taxes paid or accrued to a foreign country, you generally will file Form 1116, Foreign Tax Credit (Individual, Estate, Trust, or Nonresident Alien Individual), with your Form 1040.

For more information, get Publication 514, Foreign Tax Credit for Individuals.

Earned income credit.   You may qualify for an earned income credit of up to $2,428 if your child lived with you in the United States and your earned income and modified adjusted gross income were each less than $28,281. If two or more children lived with you in the United States and your earned income and modified adjusted gross income were each less than $32,121, your credit could be as much as $4,008. If you do not have a qualifying child and your earned income and modified adjusted gross income were each less than $10,710, your credit could be as much as $364. If you are married, you must file a joint return to qualify unless you lived apart from your spouse during the last 6 months of the year and you are eligible to file as head of household.

You and your spouse (if filing a joint return) and any qualifying child must have valid SSNs to claim this credit. You cannot claim the credit using an ITIN. If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. An example of a federally funded benefit is Medicaid. If a card has this legend and the individual's immigration status has changed so that the individual is now a U.S. citizen or lawful permanent resident, you should request that the SSA issue a new social security card without the legend.

Advance earned income credit.   You may be able to get advance payments of part of the credit for one child in 2002 instead of waiting until you file your 2002 tax return. Fill out the 2002 Form W-5, Earned Income Credit Advance Payment Certificate. If you expect to qualify for the credit in 2002, give the bottom part of the form to your employer. Your employer will include part of the credit regularly in your pay during 2002.

If you received advance payments of the earned income credit in 2001, you must file a 2001 tax return to report the payments. Your Form W-2 will show the amount you received.

Other information.   There are other eligibility rules that are not discussed here. For more information, get Publication 596, Earned Income Credit.

Adoption credit.   You may qualify to take a tax credit of up to $5,000 for qualifying expenses paid to adopt an eligible child. The credit can be as much as $6,000 if the expenses are for the adoption of a child with special needs. To claim the adoption credit, file Form 8839, Qualified Adoption Expenses, with your Form 1040 or Form 1040A. For more information, get Publication 968, Tax Benefits for Adoption.

Nonresident Aliens

You can claim some of the same credits that resident aliens can claim. You can also report certain taxes you paid, are considered to have paid, or that were withheld from your income.

Credits

Credits are allowed only if you receive effectively connected income. You may be able to claim some of the following credits.

Child and dependent care credit.   You may qualify for this credit if you pay someone to care for your dependent who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Generally, you must be able to claim an exemption for your dependent.

Married nonresident aliens can claim the credit only if they choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Who Live Apart under Filing Status in the Form 1040NR instructions).

The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. Earned income generally means wages, salaries, and professional fees for personal services performed.

For more information, get Publication 503.

Child tax credit.   You may be able to take this credit if you have a qualifying child. For this credit, a qualifying child:

• Is a U.S. citizen, national, or resident alien,
• Is claimed as a dependent on your tax return,
• Is your son, daughter, adopted child, grandchild, stepchild, or foster child, and
• Was under age 17 at the end of the year.

Use the Child Tax Credit Worksheet in the Form 1040 instructions to figure the amount of your credit.

Education credits.   If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. However, if you are married and choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, you may be eligible for these credits.

Foreign tax credit.   If you receive income from sources outside the United States that is effectively connected with a trade or business in the United States, you can claim a credit for any income taxes paid or accrued to any foreign country or U.S. possession on that income.

If you do not have foreign source income effectively connected with a U.S. trade or business, you cannot claim credits against your U.S. tax for taxes paid or accrued to a foreign country or U.S. possession.

You cannot take any credit for taxes imposed by a foreign country or U.S. possession on your U.S. source income if those taxes were imposed only because you are a citizen or resident of the foreign country or possession.

If you claim a foreign tax credit, you generally will have to attach to your return a Form 1116 which contains additional information about the credit and limits. See Publication 514 for more information.

Credit for prior year minimum tax.   If you paid alternative minimum tax in a prior year, get Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts, to see if you qualify for this credit.

Earned income credit.   If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. However, if you are married and choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, you may be eligible for the credit.

You, your spouse, and any qualifying child must have valid SSNs to claim this credit. You cannot claim the credit using an ITIN. If a social security card has a legend that says Not Valid for Employment and the number was issued so that you (or your spouse or your qualifying child) could receive a federally funded benefit, you cannot claim the earned income credit. An example of a federally funded benefit is Medicaid. If a card has this legend and the individual's immigration status has changed so that the individual is now a U.S. citizen or lawful permanent resident, you should request that the SSA issue a new social security card without the legend.

See Publication 596 for more information on the credit.

Adoption credit.   You may qualify to take a tax credit of up to $5,000 for qualifying expenses paid to adopt an eligible child. The credit can be as much as $6,000 if the expenses are for the adoption of a child with special needs. For expenses paid after 2001, the credit increases to $10,000 per eligible child, including special needs children. To claim the adoption credit, file Form 8839 with your Form 1040NR. For more information, get Publication 968.

Married nonresident aliens can claim the credit only if they choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Who Live Apart under Filing Status in the Form 1040NR instructions).

Tax Withheld

You can claim the tax withheld during the year as a payment against your U.S. tax. You claim it in the Payments section on page 2 of Form 1040NR. The tax withheld reduces any tax you owe with Form 1040NR.

Withholding from wages.   Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a payment against your U.S. income tax liability for the same year. You can claim the income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wages (or any other income) were connected with a trade or business in the United States.

Excess social security tax withheld.   If you have two or more employers, you may be able to claim a credit against your U.S. income tax liability for social security tax withheld in excess of the maximum required. See Social Security and Medicare Taxes in chapter 8 for more information.

Regulated investment company credit.   If you are a shareholder in a regulated investment company or mutual fund, you can claim a credit for your share of any taxes paid by the company on its undistributed capital gains. You will receive information on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, which you must attach to your return.

Tax withheld at the source.   You can claim as a payment any tax withheld at the source on investment and other fixed or determinable annual or periodic income paid to you. Fixed or determinable income includes interest, dividend, rental, and royalty income that you do not claim to be effectively connected income. Wage or salary payments can be fixed or determinable income to you, but usually are subject to withholding as discussed above. Taxes on fixed or determinable income are withheld at a 30% rate or at a lower treaty rate.

Tax withheld on partnership income.   If you are a foreign partner in a partnership, the partnership will withhold tax on your share of effectively connected taxable income from the partnership. The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. A partnership that is publicly traded may withhold on your actual distributions of effectively connected income. In this case, the partnership will give you a statement on Form 1042-S. In either case, claim the tax withheld as a payment on line 62b of Form 1040NR.

Claiming tax withheld on your return.   When you fill out your tax return, take extra care to enter the correct amount of any tax withheld shown on your information documents. The following table lists some of the more common information documents and shows where to find the amount of tax withheld.

Form Number	Location of Tax Withheld
RRB-1042S	Box 12
SSA-1042S	Box 9
W-2	Box 2
W-2c	Line 2
1042-S	Box 7
8805	Line 11
8288-A	Box 2

Bona Fide Residents of American Samoa or Puerto Rico

If you are a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you generally are taxed the same as resident aliens. You should file Form 1040 and report all income from sources both in and outside the United States.

Residents of Puerto Rico.   If you are a bona fide resident of Puerto Rico for the entire year, you can exclude from gross income all income from sources in Puerto Rico (other than amounts for services performed as an employee of the United States or any of its agencies).

If you report income on a calendar year basis and you do not have wages subject to withholding, file your return and pay your tax by June 15. You must also make your first payment of estimated tax by June 15. You cannot file a joint income tax return or make joint payments of estimated tax. However, if you are married to a U.S. citizen or resident, see Nonresident Spouse Treated as a Resident in chapter 1.

If you earn wages subject to withholding, your U.S. income tax return is due on April 15. Your first payment of estimated tax is also due by April 15. For information on withholding and estimated tax, see chapter 8.

You cannot claim exemptions for dependents who are residents of Puerto Rico unless the dependents are citizens of the United States.

Residents of American Samoa.   If you are a bona fide resident of American Samoa for the entire year, you can exclude from gross income all income from sources in American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands (other than amounts for services performed as an employee of the U.S. government or any of its agencies). For more information about this exclusion, get Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

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