A foreign student is physically present in the U.S. for 150 days in 2026, 150 days in 2025, and 150 days in 2024. For 2026, are they a resident alien under the Substantial Presence Test? If your immediate answer is "yes" because the 183-day formula is met (150 + 150/3 + 150/6 = 225 days), you've just identified the #1 trap on this topic. The correct answer is no. The reason reveals how the exam tests your judgment, not just your ability to apply a formula.
For the EA exam, nonresident alien (NRA) questions test your ability to first determine U.S. tax residency using the Green Card and Substantial Presence Tests (including exceptions), then correctly segregate and tax U.S. source income as either Effectively Connected Income (ECI) or Fixed, Determinable, Annual, or Periodical (FDAP) income.
Key facts
- Official Exam Name: Special Enrollment Examination (SEE)
- Sections: Part 1 (Individuals), Part 2 (Businesses), Part 3 (Representation, Practices and Procedures)
- Passing Score: 105 on a scaled score of 40-130
- Exam Fee: $206 per part for the 2024-2025 testing window (subject to change)
- Testing Window: May 1 – February 28, annually
- Official Body: Internal Revenue Service (IRS)
How Does the IRS Define Residency for Tax Purposes?
Your first job on any NRA question is to determine the taxpayer's residency status for the year. This single decision dictates which rules, forms, and tax rates apply. An individual is a U.S. resident for tax purposes if they meet either the Green Card Test or the Substantial Presence Test for the calendar year.
The Green Card Test
If an individual was a lawful permanent resident of the United States (i.e., held a "green card") at any time during the calendar year, they are a resident alien for tax purposes. This status remains until it is formally rescinded or determined to be abandoned through administrative or judicial process.
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The Substantial Presence Test (SPT)
This is a mathematical test with critical exceptions. An individual meets the SPT if they were physically present in the U.S. for at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the two preceding years.
The 183-day total is calculated using a weighted formula:
- All days present in the current year
- 1/3 of the days present in the first preceding year
- 1/6 of the days present in the second preceding year
This formula is where the exam sets its traps. You must know the exceptions that override the math.
The "Exempt Individual" Exception
Days present in the U.S. as an "exempt individual" do not count toward the SPT. This is the solution to our opening question. The student, likely on an F or J visa, is an exempt individual. For students, days of presence are not counted for any part of 5 calendar years. This is not necessarily five consecutive years. After the 5-year limit is reached, their days begin to count.This category also includes teachers, trainees, and individuals on certain other visas, each with their own time limits.
The "Closer Connection" Exception
Even if a person meets the day count for the SPT, they can still be treated as a nonresident alien if they meet all three of the following conditions:- They were present in the U.S. for fewer than 183 days during the current year.
- They maintained a tax home in a foreign country during the year.
- They had a closer connection to that foreign country than to the U.S.
The exam might present a scenario where someone meets the 183-day weighted formula but was only in the U.S. for 120 days in the current year while maintaining a home, family, and business in their home country. The correct answer would be to apply the Closer Connection Exception and treat them as an NRA.
How is Nonresident Alien Income Taxed?
Once you establish someone is an NRA, you must classify their U.S. source income. This is the second major decision point that determines the entire tax calculation. U.S. source income for an NRA falls into two primary buckets, each taxed differently.
| Income Type | Effectively Connected Income (ECI) | Fixed, Determinable, Annual, or Periodical (FDAP) |
|---|---|---|
| Definition | Income earned from a trade or business conducted within the U.S. (e.g., salary, self-employment income). | Primarily passive investment income (interest, dividends, rents, royalties) from U.S. sources. |
| Tax Rate | Taxed at graduated rates, same as a U.S. citizen. | Flat 30% withholding tax (or a lower rate specified in a tax treaty). |
| Deductions | Certain connected deductions are allowed. | No deductions are allowed. |
| Tax Form | Reported by the NRA on Form 1040-NR. | Tax is typically withheld at the source by the payer. |
| Example | Salary earned while working in Miami for a U.S. company. | Dividends received from stock in a U.S. corporation. |
Effectively Connected Income (ECI)
ECI is taxed on a net basis. The NRA files Form 1040-NR to report this income and can claim deductions connected to it. While NRAs cannot take the standard deduction, they can claim certain itemized deductions like state and local income taxes, charitable contributions to U.S. charities, and some casualty losses. Getting this right is a key skill tested on the EA exam's Part 1.
Fixed, Determinable, Annual, or Periodical (FDAP) Income
FDAP is taxed on a gross basis. The tax is typically satisfied through withholding by the U.S. entity paying the income. The default rate is 30%, but a tax treaty between the U.S. and the NRA's home country can reduce this rate significantly (e.g., to 15% or 10% for dividends).
Special Rule: U.S. Source Capital Gains
Here is a rule the exam loves to test. U.S. source capital gains not connected with a U.S. business are treated under a special provision, IRC § 871(a)(2).
- If the NRA was present in the U.S. for fewer than 183 days during the tax year, these capital gains are generally not taxed by the U.S.
- If the NRA was present in the U.S. for 183 days or more, these capital gains are taxed at a flat 30% rate (or lower treaty rate).
Note that these capital gains are not technically FDAP income. The exam will test whether you know to check the 183-day presence threshold before applying the 30% tax.
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What About Dual-Status Aliens and Special Elections?
Sometimes, an individual is a nonresident alien for part of the year and a resident alien for the other part. This is common in the year of arrival or departure from the U.S.
Understanding Dual-Status Years
A dual-status taxpayer files one U.S. tax return for the year, but the return has two parts. For the part of the year they were a resident, they are taxed like a U.S. citizen on their worldwide income. For the part of the year they were a nonresident, they are taxed only on their U.S. source income under the NRA rules. This creates complex situations regarding deductions and credits that are prime material for exam questions.
The First-Year Choice Election
Under certain conditions, an individual who arrives late in the year and does not meet the Green Card Test or SPT for that year can elect to be treated as a resident alien for the entire year. This can be beneficial if, for example, it allows them to file a joint return (which NRAs generally cannot do). This is a niche rule, but it tests your knowledge of the options available to taxpayers.
Worked Example: Calculating NRA Tax Liability Step-by-Step
Let's apply these rules to a realistic exam scenario.
Scenario: Anja is a citizen of a country with no applicable U.S. income tax treaty. She is single and a nonresident alien for the entire 2026 tax year. She worked for a U.S. company in Miami for three months and earned a salary of $30,000. She also owns stock in a U.S. corporation, which paid her $5,000 in dividends. The payer did not withhold any tax. Anja has no itemized deductions. What is Anja's total U.S. tax liability for 2026? The tempting wrong answer: A candidate under pressure might combine all income ($30,000 + $5,000 = $35,000), apply the standard tax brackets for a single person, and choose that answer. This is wrong because it fails to segregate ECI and FDAP income, which are subject to entirely different tax regimes. Step-by-Step Correct Solution:- Classify the Income: You must separate Anja's income into the correct categories first.
- The $30,000 salary is from performing services in the U.S. This is Effectively Connected Income (ECI).
- The $5,000 in dividends from a U.S. corporation is U.S. source passive income. This is FDAP income.
- Calculate Tax on ECI: ECI is taxed using graduated rates. Since Anja has no itemized deductions and cannot take the standard deduction, her taxable income from ECI is $30,000.
- Using hypothetical 2026 tax brackets for a single individual:
- 10% on income up to $11,600 = $1,160
- 12% on income from $11,601 to $47,150.
- Tax on ECI = $1,160 + ( ($30,000 - $11,600) * 12% )
- Tax on ECI = $1,160 + ($18,400 * 0.12) = $1,160 + $2,208 = $3,368
- Calculate Tax on FDAP Income: FDAP income is subject to a flat 30% tax rate, as there is no treaty.
- Tax on FDAP = $5,000 * 30% = $1,500
- Combine the Tax Liabilities: The final step is to add the tax from both income types.
- Total Tax Liability = Tax on ECI + Tax on FDAP
- Total Tax Liability = $3,368 + $1,500 = $4,868
The correct answer is $4,868. This multi-step process, starting with classification, is exactly the kind of judgment the EA exam demands. Understanding this workflow is what we teach at VoraPrep—how to think like the examiner.
How to Approach NRA Questions on the EA Exam
Your study sheet for this topic should be a flowchart, not just a list of rules. When you encounter a question involving a foreign person, follow this sequence before touching your calculator.
- Determine Residency: Is the person a resident or nonresident? (Green Card Test → Substantial Presence Test → Exempt Individual / Closer Connection exceptions).
- Classify Income: If they are an NRA, is their U.S. source income ECI, FDAP, or a capital gain subject to the 183-day rule?
- Check for Treaties: Does a tax treaty change the default rate (usually for FDAP income)?
This structured thinking prevents errors. Your conclusions about NRA status will affect everything from the basic filing requirements and due dates to their eligibility for specific credits for higher education. Master this decision tree by working through dozens of scenario-based questions in the VoraPrep EA question bank.