TN 12 (10-09)
RS 01803.050 Citizenship, Residence, and Geographical Source of Income
A. Policy for Citizenship, Residence, and Geographical Source of Income
1. U.S. Citizen or Resident
Income from a trade or business carried on by a U.S. citizen or resident is always NESE (and SEI if over $400) regardless of the residence of the operator of the business or the geographical source of the income unless exempt under a U.S. Totalization agreement.
Special deductions or exclusions from foreign earned income of Americans working outside the U.S. do not apply when computing SEI after the taxable year ending 12/31/83.
2. Nonresident Alien
Generally, income from a trade or business operated within the U.S. by a nonresident alien is NESE but it is not subject to Self-Employment Contributions Act (SECA) taxes for social security coverage purposes. The individual is required to file a tax return and pay the required federal income taxes. However, if the nonresident alien meets the “substantial presence test” or has been lawfully admitted for permanent residence, as shown by the issuance of an I-551 (“green card”), the individual is treated the same as a “resident alien” and is required to pay SECA taxes for social security coverage purposes unless exempt under a U.S. Totalization agreement. For additional information regarding the “substantial presence test,” see GN05010.040C. For definitions on nonresident alien vs. resident alien, see GN05010.030B.
NOTE: Residents of the Virgin Islands, Puerto Rico, Commonwealth of the Northern Mariana Islands, Guam, or American Samoa are not considered nonresident aliens for social security coverage purposes and are required to pay SECA taxes.
3. Illegal Alien
Income derived by an illegal alien is subject to SECA taxes for social security coverage purposes. The “substantial presence test” is not relevant because there is no way to determine or document when the individual arrived in this country. For policy on payment of benefits, see RS 00201.002 and RS 00204.010.
B. Related References
For NESE under totalization agreements, see RS 02001.000.
For coverage issues for employees of foreign government and international organizations, see RS 01802.050 - RS 01802.051.
IRS Publication - 519 – U.S. Tax Guide for Aliens
Section 211(b) of the Act
Section 233 of the Act
Section 1402(b) of the Internal Revenue Code
Regulations 404.1089, 404.1092, 404.1093, and 404.1096(d)