When exiting the U.S., foreign individuals must complete several critical compliance steps to ensure a smooth departure. Below are important considerations regarding compliance for foreigners with U.S. source income:
Foreign individuals who have permission to work in the U.S. should adhere to the following requirements before leaving the country:
Departing foreign individuals may need to file Form 1040-C if they have earned income from U.S. sources during the tax year. This includes income from:
Filing Form 1040-C is essential for calculating tax liability prior to leaving the U.S. This federal tax form is used by departing aliens to report their U.S.-sourced income for the tax year. It serves to determine the tax liability of both resident and non-resident aliens leaving the country, encompassing U.S. residents as well as foreign residents.
For example, if you are a foreigner on a temporary work visa, such as an H-1B, you are generally required to file Form 1040-C upon leaving the U.S. However, if you hold a diplomatic passport, you may be exempt from filing Form 1040-C and the associated sailing permit requirements
Regarding scholars and students, the need to file Form 1040-C depends on the visa type and whether they receive any U.S.-sourced income. For instance, if you are a student on a J-1 visa and receive U.S.-sourced compensation exceeding exempt amounts, as defined by the IRS, you will need to file Form 1040-C.
If the IRS is satisfied with your filing, a Sailing Permit will be issued. This permit, also known as a “certificate of compliance” or a “tax clearance certificate,” is valid for your initial departure and all subsequent departures from the U.S. within the same taxable year.
It is important to note that Form 1040-C is not a final return. You should file a final income tax return once your tax year concludes.
Departing foreign individuals may need to file Form 2063 (U.S. Departing Alien Income Tax Statement) if they have no taxable income earned income up to their departure date and in the prior taxable year. This filing allows for the issuance of a Sailing Permit, which remains valid for the entire current taxable year. The foreigner should file the following:
If the individual is not a U.S. citizen or resident alien on the final day of the year, they must file Form 1040-NR. Any taxes paid with Form 1040-C will count as a credit against the final tax return. Additionally, any overpayment shown on Form 1040-C will only be refunded if the final return for that tax year indicates an overpayment.
Form 8233 should be completed by a foreign artist to claim an exemption from tax withholding under a tax treaty. The artist is required to provide either an ITIN or a SSN on Form 8233. After filling out the form, the artist submits it to the U.S. presenter, agent, or manager—essentially, whoever in the U.S. will be paying the artist. The U.S. payor must review the form for accuracy and complete Part IV of the form. To ensure the form is valid, the U.S. payor must send the completed Form 8233 along with its attachments to the IRS within five days of receiving it.
Following these guidelines helps ensure compliance with U.S. tax regulations for nonresident aliens and facilitates any necessary tax treaty benefits.