When the US Taxes Your Income from Everywhere

The year you become a US resident for tax, the question the IRS asks about your money changes. As a nonresident alien it asked mainly about income from US sources. As a resident alien it asks about everything: the salary here, and the interest on a fixed deposit at home, the rent from a flat your parents look after, the dividends in an old brokerage account, the gain when you sell land you inherited. Most people on an H-1B, an L-1, or an F-1 student past the exempt years cross this line without noticing, because nothing in their paycheck changes. This chapter explains where the line sits, what moves inside it, and the first decisions that follow.

Two kinds of taxpayer, decided by days, not by visa

Your immigration status and your tax status are different things. A visa says what you may do in the United States; the tax rules say how the IRS treats you. IRS Publication 519 puts the difference in one sentence: resident aliens are generally taxed on their worldwide income, the same as US citizens, while nonresident aliens are taxed only on income from US sources and on income connected with a US business.

You become a resident for tax in one of two ways: you hold a green card, or you pass the substantial presence test. That test counts every day you were present this year, a third of last year's days and a sixth of the year before, and asks whether the total reaches 183, with at least 31 days in the current year. Days as an exempt individual, for example most F-1 and J-1 students in their first five calendar years, do not count. Volume 1 of this shelf walks through the test in full; here is the case that matters for this book.

Someone who arrives on a work visa and spends 190 days in the country in the first year reaches 190 weighted days, so the answer to "meets the test" is yes. From the residency starting date onward, all of their income, wherever it arises, is reportable on a US return.

Arrive later in the year and spend 150 days, and the test is not met (no): that year stays nonresident, unless you make a choice described below. The following year, with a full year of presence, almost everyone on a work visa becomes a resident.

The dual-status year

The year you arrive, or the year you leave, is often split. You are a nonresident for part of it and a resident for the rest, which Publication 519 calls a dual-status year. Income you earn while you are a nonresident is taxed under the nonresident rules, and income you earn after your residency starting date is taxed as a resident's, worldwide. A dual-status return comes with restrictions: generally no standard deduction, no head of household status, and no joint return unless you make one of the elections for a married couple covered in chapter 8.

Two practical points follow. First, interest or rent from home that you received before your residency starting date is generally not part of the resident portion. Second, there are choices that can change the shape of the year, such as the first-year choice for someone who will pass the test the following year. They have conditions and deadlines, and Publication 519 is the place to read them before you file.

What becomes reportable

Once you are a resident, the list is wider than most people expect. Common items for people with roots abroad include:

• Interest on savings accounts and fixed deposits abroad, including accounts that are tax-free in the other country. Chapter 6 explains why an NRE deposit in India can be exempt there and still taxable here.
• Rent from property abroad, with its own deduction and depreciation rules (chapter 3).
• Dividends and capital gains from shares or funds abroad, including foreign mutual funds, which carry a special and expensive regime (chapter 4).
• Gains on selling property, measured in dollars, so a change in the exchange rate alone can create a gain or shrink one.
• Pension and provident-fund accounts abroad. Their US treatment varies by account and by treaty, and some are genuinely unsettled. If you hold one, this is a point to raise with a preparer who knows that country.

Gifts and inheritances you receive are generally not income, but large ones from abroad must be reported (chapter 7). And reporting accounts is a separate job from reporting income: a resident with foreign accounts may also owe the FBAR and Form 8938, covered in chapter 2.

What it costs: your top bracket, not your average

Foreign income is added on top of your salary, so it is taxed at the rate of the highest bracket it reaches, not at your average rate.

A single filer with $110,000 of wages owes $15,370 of federal income tax for 2026, after a standard deduction of $16,100, which is 14.0% of income. Add interest from deposits at home, bringing total income to $114,000, and the tax becomes $16,250. Every extra dollar was taxed at 22.0%, the top bracket reached, even though the average stays near 14.3%. State tax may come on top, depending on where you live.

Two currencies, one return

Your return is in dollars, so every foreign amount must be converted. The IRS says it has no official exchange rate and generally accepts any posted rate used consistently. Its general rule is to use the rate on the day you receive, pay or accrue an item, and it publishes yearly average rates that many filers use for income that arrives through the year. Reporting forms are different: the FBAR and Form 8938 use the Treasury's rate for the last day of the year (chapter 2). Pick a method, write it down, and use it the same way every year.

Tax already paid abroad

If the other country taxed the same income, you are usually not taxed twice in full. A resident can claim a foreign tax credit for qualifying foreign income tax, under the same general rules as a citizen, or deduct it instead. The credit is limited to the US tax on that foreign income, and unused amounts can be carried back one year or forward ten. A tax treaty may also lower what the other country withholds. Chapter 3 covers the credit and chapter 5 the treaties, including the saving clause, which stops most residents from using a treaty to reduce US tax.