General Instructions

For details on the changes for 2002 and 2003, see Pub. 553.

What's New for 2002?

Tax rates reduced.   Most of the tax rates have decreased by ½%. The new rates are reflected in the Tax Table that begins on page 27 and the Tax Rate Schedules on page 39.

Educator expenses.   If you were an educator, you may be able to deduct up to $250 of expenses you paid. See the instructions for line 24 on page 13.

Student loan interest deduction.   The 60-month limit on interest payments no longer applies and the modified adjusted gross income (AGI) limit has increased. See the instructions for line 26 on page 13.

Retirement savings contributions credit.   You may be able to take a credit of up to $1,000 for qualified retirement savings contributions. However, you cannot take this credit if your AGI on line 35 is more than $25,000. See the instructions for line 45 on page 17.

Health insurance credit for eligible recipients.   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA), alternative TAA, or Pension Benefit Guaranty Corporation pension recipient. By February 18, 2003, Form 8887 showing that you were an eligible recipient should be sent to you. Use Form 8885 to figure the amount, if any, of your health insurance credit.

IRA deduction expanded.   You may be able to deduct up to $3,000 ($3,500 if age 50 or older at the end of 2002). If you were covered by a retirement plan, you may be able to take an IRA deduction if your modified AGI is less than $44,000 ($64,000 if a qualifying widow(er)). See the instructions for line 25 on page 13.

Adoption credit.   You may be able to take a credit of up to $10,000 per child for qualified adoption expenses you paid. See Form 8839 for details.

Self-employed health insurance deduction.   You may be able to deduct up to 70% of your health insurance expenses. See the instructions for line 29 on page 14.

Standard mileage rate.   The 2002 rate for business use of your vehicle is 36½ cents a mile.

Coverdell education savings account (ESA) distributions.   If you received a distribution from a Coverdell ESA in 2002, you now report only the taxable amount of the distribution on line 21. Also, a distribution may not be taxable if it was used to pay qualified elementary and secondary school expenses. See Pub. 970.

Qualified state tuition program earnings.   If you received a distribution, you may now be able to exclude part or all of the earnings from income. See the instructions for line 21 on page 12.

Qualifying child - New definition.   New rules apply to determine who is a qualifying child for purposes of the child tax credit. See the instructions for line 7(c), column (4), on page 8.

What to Look for in 2003

IRA deduction allowed to more people covered by retirement plans.   You may be able to take an IRA deduction if you were covered by a retirement plan and your 2003 modified AGI is less than $50,000 ($70,000 if a qualifying widow(er)).

Self-employed health insurance deduction.   You may be able to deduct up to 100% of your health insurance expenses.

Adoption credit.   If you adopt a child with special needs, you may be able to take a $10,000 credit regardless of the amount of your expenses.

Child and dependent care credit increased.   You may be able to take a credit of up to $1,050 for the expenses you pay for the care of one qualifying person; $2,100 if you pay for the care of two or more qualifying persons.

Standard mileage rate.   The 2003 rate for business use of your vehicle is 36 cents a mile.

Items To Note

Form 1040NR-EZ.   You may be able to use Form 1040NR-EZ if your only income from U.S. sources is wages, salaries, tips, taxable refunds of state and local income taxes, and scholarship or fellowship grants. For more details, see Form 1040NR-EZ and its instructions.

Other reporting requirements.   If you meet the closer connection to a foreign country exception to the substantial presence test, you must file Form 8840. If you exclude days of presence in the United States for purposes of the substantial presence test, you must file Form 8843. This rule does not apply to foreign-government- related individuals who exclude days of presence in the United States. Certain dual-resident taxpayers who claim tax treaty benefits must file Form 8833. A dual-resident taxpayer is one who is a resident of both the United States and another country under each country's tax laws.

Additional Information

If you need more information, our free publications may help you. Pub. 519, U.S. Tax Guide for Aliens, will be the most important, but the following publications may also help.

Pub. 525	Taxable and Nontaxable Income
Pub. 529	Miscellaneous Deductions
Pub. 552	Recordkeeping for Individuals
Pub. 597	Information on the United States-Canada Income Tax Treaty
Pub. 901	U.S. Tax Treaties
Pub. 910	Guide to Free Tax Services (includes a list of all publications)

These free publications and the forms and schedules you will need are available on request from the Internal Revenue Service. You may download them from the IRS Web Site at www.irs.gov. Also see Taxpayer Assistance on page 26 for other ways to get them (as well as information on receiving IRS assistance in completing the forms).

Resident Alien or Nonresident Alien

If you are not a citizen of the United States, specific rules apply to determine if you are a resident alien or a nonresident alien for tax purposes. Generally, you are considered a resident alien if you meet either the green card test or the substantial presence test for 2002. (These tests are explained below.) Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S. resident for part of 2002. See First-Year Choice in Pub. 519 for details.

You are generally considered a nonresident alien for the year if you are not a U.S. resident under either of these tests. However, even if you are a U.S. resident under one of these tests, you may still be considered a nonresident alien if you qualify as a resident of a treaty country within the meaning of the tax treaty between the United States and that country. You may download the complete text of most U.S. tax treaties at www.irs.gov. Technical explanations for many of those treaties are also available at that site.

For more details on resident and nonresident status, the tests for residence, and the exceptions to them, see Pub. 519.

Green Card Test

You are a resident for tax purposes if you were a lawful permanent resident (immigrant) of the United States at any time during 2002.

Substantial Presence Test

You are considered a U.S. resident if you meet the substantial presence test for 2002. You meet this test if you were physically present in the United States for at least:

1. 31 days during 2002 and
2. 183 days during the period 2002, 2001, and 2000, counting all the days of physical presence in 2002, but only 1/3 the number of days of presence in 2001 and only 1/6 the number of days in 2000.

Generally, you are treated as present in the United States on any day that you are physically present in the country at any time during the day. However, there are exceptions to this rule. In general, do not count the following as days of presence in the United States for the substantial presence test.

• Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or Mexico.
• Days you are in the United States for less than 24 hours when you are in transit between two places outside of the United States.
• Days you are in the United States as a crew member of a foreign vessel.
• Days you intend, but are unable, to leave the United States because of a medical condition that develops while you are in the United States.
• Days you are an exempt individual (defined below).

Exempt individual.   For these purposes, an exempt individual is generally an individual who is a:

• Foreign-government-related individual,
• Teacher or trainee,
• Student, or
• Professional athlete who is temporarily in the United States to compete in a charitable sports event.

  Note:   Alien individuals with Q visas are treated as either students, teachers, or trainees and, as such, are exempt individuals for purposes of the substantial presence test if they otherwise qualify. Q visas are issued to aliens participating in certain international cultural exchange programs.

  See Pub. 519 for more details regarding days of presence in the United States for the substantial presence test.

Closer Connection to Foreign Country

Even though you would otherwise meet the substantial presence test, you can be treated as a nonresident alien if you:

• Were present in the United States for fewer than 183 days during 2002,
• Establish that during 2002 you had a tax home in a foreign country, and
• Establish that during 2002 you had a closer connection to one foreign country in which you had a tax home than to the United States unless you had a closer connection to two foreign countries.

See Pub. 519 for more information.

Who Must File

File Form 1040NR if any of the following four conditions applies to you.

1. You were a nonresident alien engaged in a trade or business in the United States during 2002. You must file even if -
   • None of your income came from a trade or business conducted in the United States,
   • You have no U.S. source income, or
   • Your income is exempt from U.S. tax.

   However, if you have no gross income for 2002, do not complete the schedules for Form 1040NR. Instead, attach a list of the kinds of exclusions you claim and the amount of each.

   Exception. If you were a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an F, J, M, or Q visa, you must file Form 1040NR (or Form 1040NR-EZ) only if you have income that is subject to tax under section 871 (that is, the income items listed on lines 8 through 21 on page 1 of Form 1040NR and on lines 74a through 83 on page 4 of Form 1040NR).

2. You were a nonresident alien not engaged in a trade or business in the United States during 2002 and:
   • You received income from U.S. sources that is reportable on lines 74a through 83 and
   • Not all of the U.S. tax that you owe was withheld from that income.
3. You represent a deceased person who would have had to file Form 1040NR.
4. You represent an estate or trust that has to file Form 1040NR.

Exception for children under age 14.   If your child was under age 14 at the end of 2002, had income only from interest and dividends that are effectively connected with a U.S. trade or business, and that income totaled less than $7,500, you may be able to elect to report your child's income on your return. But you must use Form 8814 to do so. If you make this election, your child does not have to file a return. For more details, see Form 8814.

Filing a deceased person's return.   The personal representative must file the return for a deceased person who was required to file a return for 2002. A personal representative can be an executor, administrator, or anyone who is in charge of the deceased person's property.

Filing for an estate or trust.   If you are filing Form 1040NR for a nonresident alien estate or trust, change the form to reflect the provisions of Subchapter J, Chapter 1, of the Internal Revenue Code. You may find it helpful to refer to Form 1041 and its instructions.

Simplified Procedure for Claiming Certain Refunds

You may use this procedure only if you meet all of the following conditions for the tax year.

• You were a nonresident alien.
• You were not engaged in a trade or business in the United States at any time.
• You had no income that was effectively connected with the conduct of a U.S. trade or business.
• Your U.S. income tax liability was fully satisfied through withholding of tax at source.
• You are filing Form 1040NR solely to claim a refund of U.S. tax withheld at source.

Example.   X is a nonresident alien individual. The only U.S. source income he received during the year was dividend income from U.S. stocks. The dividend income was reported to him on Form(s) 1042-S. On one of the dividend payments, the withholding agent incorrectly withheld at a rate of 30% (instead of 15%). X is eligible to use the simplified procedure.

If you meet all of the conditions listed earlier for the tax year, complete Form 1040NR as follows.

Page 1.   Enter your name, identifying number (defined on page 7), country of citizenship, and all address information requested at the top of page 1. Leave the rest of page 1 blank.

Page 4, lines 74a through 83.   Enter the amounts of gross income you received from dividends, interest, royalties, pensions, annuities, and other income. If any income you received was subject to backup withholding or withholding at source, you must include all gross income of that type that you received. The amount of each type of income should be shown in the column under the appropriate U.S. tax rate, if any, that applies to that type of income in your particular circumstances.

If you are entitled to a reduced rate of, or exemption from, withholding on the income pursuant to a tax treaty, the applicable rate of U.S. tax is the same as the treaty rate. Use column (e) if the applicable tax rate is 0%.

Example.   Y is a nonresident alien individual. The only U.S. source income he received during the year was as follows:

• 4 dividend payments
• 12 interest payments

All payments were reported to Y on Form(s) 1042-S. On one of the dividend payments, the withholding agent incorrectly withheld at a rate of 30% (instead of 15%). There were no other withholding discrepancies. Y must report all four dividend payments. He is not required to report any of the interest payments.

Note:   Payments of gross proceeds from the sale of securities or regulated futures contracts are generally exempt from U.S. tax. If you received such payments and they were subjected to backup withholding, specify the type of payment on line 83 and show the amount in column (e).

Line 84. Enter the total amount of U.S. tax withheld at source (and not refunded by the payer or withholding agent) for the income you included on lines 74a through 83.

Lines 85 through 87. Complete these lines as instructed on the form.

Page 5.   You must answer all questions that apply. For item M, you must identify the income tax treaty and treaty article(s) under which you are applying for a refund of tax. Also, enter the type of income (for example, dividends, royalties) and amount in the appropriate space. You must provide the information required for each type of income for which a treaty claim is made.

Note:   If you are claiming a reduced rate of, or exemption from, tax based on a tax treaty, you must generally be a resident of the particular treaty country within the meaning of the treaty and you cannot have a permanent establishment or fixed base in the United States.

Page 2, lines 52 and 57.   Enter your total income tax liability.

Lines 65 and 68. Enter the total amount of U.S. tax withheld (from line 84).

Lines 69 and 70a. Enter the difference between line 57 and line 68. This is your total refund.

Signature. You must sign and date your tax return. See Reminders on page 25.

Documentation.   You must attach acceptable proof of the withholding for which you are claiming a refund. If you are claiming a refund of backup withholding tax based on your status as a nonresident alien, you must attach a copy of the Form 1099 that shows the income and the amount of backup withholding. If you are claiming a refund of U.S. tax withheld at source, you must attach a copy of the Form 1042-S that shows the income and the amount of U.S. tax withheld.

Additional Information

Portfolio interest.   If you are claiming a refund of U.S. tax withheld from portfolio interest, include a description of the relevant debt obligation, including the name of the issuer, CUSIP number (if any), interest rate, and the date the debt was issued.

Withholding on distributions.   If you are claiming an exemption from withholding on a distribution from a U.S. corporation with respect to its stock because the corporation had insufficient earnings and profits to support ordinary income treatment, you must attach a statement that identifies the distributing corporation and provides the basis for the claim.

If you are claiming an exemption from withholding on a distribution from a mutual fund or real estate investment trust (REIT) with respect to its stock because the distribution was designated as long-term capital gain or a return of capital, you must attach a statement that identifies the mutual fund or REIT and provides the basis for the claim.

If you are claiming an exemption from withholding on a distribution from a U.S. corporation with respect to its stock because, in your particular circumstances, the transaction qualifies as a redemption of stock under section 302, you must attach a statement that describes the transaction and presents the facts necessary to establish that the payment was (a) a complete redemption, (b) a disproportional redemption, or (c) not essentially equivalent to a dividend.

Previous| First | Next

Instructions Index | 2002 Tax Help Archives | Tax Help Archives | Home