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Publication 519 2003 Tax Year

Publication 519
Introductory Material

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Introduction

For tax purposes, an alien is an individual who is not a U.S. citizen. Aliens are classified as nonresident aliens and resident aliens. This publication will help you determine your status and give you information you will need to file your U.S. tax return. Resident aliens generally are taxed on their worldwide income, the same as U.S. citizens. Nonresident aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States.

Table A, What You Need To Know About U.S. Taxes, provides a list of questions and the chapter or chapters in this publication where you will find the related discussion.

Table A. What You Need To Know About U.S. Taxes

Commonly Asked Questions Where To Find The Answer
Am I a nonresident alien or resident alien? See chapter 1.
Can I be a nonresident alien and a resident alien in the same year?
  • See Dual-Status Aliens in chapter 1.
  • See chapter 6.
I am a resident alien and my spouse is a nonresident alien. Are there special rules for us?
  • See Nonresident Spouse Treated as a Resident in chapter 1.
  • See Community Income in chapter 2.
Is all my income subject to U.S. tax?
  • See chapter 2.
  • See chapter 3.
Is my scholarship subject to U.S. tax?
  • See Scholarship Grants, Prizes, and Awards in chapter 2.
  • See Scholarship and Fellowship Grants in chapter 3.
  • See chapter 9.
What is the tax rate on my income subject to U.S. tax? See chapter 4.
I moved to the United States this year. Can I deduct my moving expenses on my U.S. return? See Deductions in chapter 5.
Can I claim exemptions for my spouse and children? See Exemptions in chapter 5.
I pay income taxes to my home country. Can I get credit for these taxes on my U.S. tax return? See Tax Credits and Payments in chapter 5.
What forms must I file and when and where do I file them? See chapter 7.
How should I pay my U.S. income taxes? See chapter 8.
Am I eligible for any benefits under a tax treaty?
  • See Income Entitled to Tax Treaty Benefits in chapter 8.
  • See chapter 9.
Are employees of foreign governments and international organizations exempt from U.S. tax? See chapter 10.
Is there anything special I have to do before leaving the United States?
  • See chapter 11.
  • See Expatriation Tax in chapter 4.

Answers to frequently asked questions are presented in the back of the publication.

The information in this publication is not as comprehensive for resident aliens as it is for nonresident aliens. Resident aliens are generally treated the same as U.S. citizens and can find more information in other IRS publications.

Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

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Internal Revenue Service
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Important Changes for 2002

Reduced tax rates. For tax years beginning in 2002 and 2003, the 27.5%, 30.5%, 35.5%, and 39.1% graduated income tax rates are reduced to 27%, 30%, 35%, and 38.6%, respectively. A part of your income may be subject to a rate of 10%. The 10% rate is reflected in the tax tables and tax rate schedules for resident and nonresident aliens.

Interest on student loans. There is no longer a 60-month limit on deducting student loan interest. Also, the income phaseout limit increased to $65,000.

Individual retirement arrangements (IRAs). . Your maximum contribution (and any allowable deduction) limit is increased. Previously, the limit was $2,000. The new limit depends on your age at the end of the year.

  • If you are under age 50, the most you can contribute is the smaller of $3,000, or your taxable compensation.
  • If you are age 50 or older in 2002, the most you can contribute is the smaller of $3,500, or your taxable compensation.

Adoption credit. . The maximum credit for qualifying expenses paid to adopt an eligible child increased to $10,000.

Earned income credit (EIC). In 2002, the EIC is based, in part, on adjusted gross income, not modified adjusted gross income. For information about other changes to the EIC, see Publication 596, Earned Income Credit (EIC).

Educator expenses. If you are an eligible educator, you can deduct as an adjustment to income up to $250 in unreimbursed qualified expenses you paid or incurred during 2002 for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment, and other equipment and materials used in the classroom. For more information, see your form instructions.

Tuition and fees deduction. You may be able to deduct as an adjustment to income up to $3,000 of qualified higher education tuition and related expenses you paid. The expenses can be for you, your spouse, or your dependent. If you are a nonresident alien for any part of the year, you can only take this deduction if you are married and choose to be treated as a resident alien for the entire year under either Choosing Resident Alien Status, or Nonresident Alien Spouse Treated as a Resident in chapter 1. For more information, see Publication 970, Tax Benefits for Education.

Foreign earned income exclusion. For 2002, the foreign earned income exclusion is $80,000. For more information, see chapter 3.

Retirement savings contributions credit. There is a new credit for eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) made by qualified individuals. For more information, see Retirement savings contributions credit, under Tax Credits and Payments, in chapter 5.

Important Changes for 2003

Estimated tax safe harbor for higher income individuals.  For installment payments for tax years beginning in 2003, the estimated tax safe harbor for higher income individuals (other than farmers and fishermen) has been modified. If your 2002 adjusted gross income is more than $150,000 ($75,000 if married filing a separate return in 2003), you will have to deposit the smaller of 90% of your expected tax for 2003 or 110% of the tax shown on your 2002 return to avoid an estimated tax penalty. For more information, see Estimated Tax Form 1040–ES (NR) in chapter 8.

Immigration and Naturalization Service (INS). Early in 2003, the Immigration and Naturalization Service (INS) was superseded by the Directorate of Border and Transportation Security (DBTS) (for immigration enforcement), and the Bureau of Citizenship and Immigration Services (BCIS) (for immigration services) under the Department of Homeland Security. References in this publication to the INS should be considered to refer to the DBTS and/or BCIS where applicable.

Important Reminders

Individual taxpayer identification number (ITIN). The IRS will issue an ITIN to a nonresident or resident alien who does not have and is not eligible to get a social security number. To apply for an ITIN, file Form W–7, Application for IRS Individual Taxpayer Identification Number, with the IRS. An ITIN is for tax use only. It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U.S. law. See Identification Number in chapter 5.

Disclosure of a treaty-based position that reduces your tax. If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. treaty (a treaty-based position), you generally must disclose that position on your affected return. See Effect of Tax Treaties in chapter 1.

Form 1040NR–EZ. You may be able to use Form 1040NR–EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. This form is shorter and easier to prepare than Form 1040NR. To see if you meet the conditions for filing this form, see Form 1040NR–EZ in chapter 7.

Earned income credit for nonresident aliens. If you are a nonresident alien for any part of the year, you cannot claim the earned income credit unless you are married and choose to be treated as a resident alien for the entire year. See Choosing Resident Alien Status and Nonresident Spouse Treated as a Resident in chapter 1.

Third party designee. You can check the “Yes” box in the “Third Party Designee” area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See your income tax package for details.

Leaving the United States. Generally, aliens must obtain a sailing permit or departure permit before leaving the United States. See chapter 11 for more information.

Change of address. If you change your mailing address, be sure to notify the Internal Revenue Service using Form 8822, Change of Address. Nonresident aliens who filed Form 1040NR or Form 1040NR–EZ with the Internal Revenue Service Center, Philadelphia, PA 19255, should send the form there. Resident aliens should send the form to the Internal Revenue Service Center for their old address (addresses for the Service Centers are on the back of the form).

Expatriation tax. If you are a former U.S. citizen or former long-term U.S. resident, special tax rules may apply to you. See Expatriation Tax in chapter 4.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child.

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