Tax Credits 
and Payments(p31)

This discussion covers tax credits and payments for resident aliens, followed by a discussion of the credits and payments for nonresident aliens.

Resident aliens generally claim tax credits and report tax payments, including withholding, using the same rules that apply to U.S. citizens.

The following items are some of the credits you may be able to claim.

You can claim a credit, subject to certain limits, for income tax you paid or accrued to a foreign country on foreign source income. You cannot claim a credit for taxes paid or accrued on excluded foreign earned income. To claim a credit for income taxes paid or accrued to a foreign country, you generally will file Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), with your Form 1040.

For more information, get Publication 514, Foreign Tax Credit for Individuals.

You may be able to take this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Generally, you must be able to claim an exemption for your dependent.

For more information, get Publication 503, Child and Dependent Care Expenses, and Form 2441, Child and Dependent Care Expenses.

You may qualify for this credit if you are 65 or older or if you retired on permanent and total disability. For more information on this credit, get Publication 524, Credit for the Elderly or the Disabled, and Schedule R (Form 1040A or 1040).

You may qualify for these credits if you paid qualified education expenses for yourself, your spouse, or your dependent. There are two education credits: the American Opportunity Credit and the lifetime learning credit. You cannot claim these credits if you are married filing separately. Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to figure the credit. For more information, see Publication 970.

You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2010. You cannot claim this credit if:

1. You were born after January 1, 1993,
2. You were a full-time student,
3. Your exemption is claimed by someone else on his or her 2010 tax return, or
4. Your adjusted gross income is more than:
   1. $55,500, if your filing status is married filing jointly,
   2. $41,625, if your filing status is head of household, or
   3. $27,750, if your filing status is single, married filing separately, or qualifying widow(er).

Use Form 8880, Credit for Qualified Retirement Savings Contributions, to figure the credit. For more information, see Publication 590.

You may be able to take this credit if you have a qualifying child.

A qualifying child for purposes of the child tax credit is a child who:

• Was under age 17 at the end of 2010.
• Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew).
• Is a U.S. citizen, a U.S. national, or a resident alien.
• Did not provide over half of his or her own support for 2010.
• Lived with you more than half of 2010. Temporary absences, such as for school, vacation, or medical care, count as time lived in the home.
• Is claimed as a dependent on your return.

An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

See your form instructions for additional details.

You may qualify to take a tax credit of up to $13,170 for qualifying expenses paid to adopt an eligible child. This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. To claim the adoption credit, file Form 8839, Qualified Adoption Expenses, with your Form 1040.

You may qualify for an earned income credit of up to $3,050 if a child lived with you in the United States and your earned income and adjusted gross income were each less than $35,535 ($40,545 if married filing jointly). If two children lived with you in the United States and your earned income and adjusted gross income were each less than $40,363 ($45,373 if married filing jointly), your credit could be as much as $5,036. If three or more children lived with you in the United States and your earned income and adjusted gross income were each less than $43,352 ($48,362 if married filing jointly), your credit could be as much as $5,666. If you do not have a qualifying child and your earned income and adjusted gross income were each less than $13,460 ($18,470 if married filing jointly), your credit could be as much as $457. You cannot claim the earned income credit if your filing status is married filing separately.

There are other eligibility rules that are not discussed here. For more information, get Publication 596, Earned Income Credit.

You may be able to take this credit if you bought a main home in the United States before May 1, 2010 (after April 30, 2010, and before October 1, 2010, and you entered into a binding contract before May 1, 2010, to purchase the home before July 1, 2010) and you meet either of the following conditions.

1. You (and your spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.
2. You (and your spouse if married) previously owned and used the same main home as your main home for any 5-consecutive-year period during the 8-year period ending on the date you purchased your new main home.

This credit can be as much as:

• $8,000 ($4,000 if married filing separately) if you meet condition 1 above, or
• $6,500 ($3,250 if married filing separately) if you meet condition 2 above.

For more information, see Form 5405 and its separate instructions.

You can claim some of the same credits that resident aliens can claim. You can also report certain taxes you paid, are considered to have paid, or that were withheld from your income.

Credits are allowed only if you receive effectively connected income. You may be able to claim some of the following credits.

If you receive foreign source income that is effectively connected with a trade or business in the United States, you can claim a credit for any income taxes paid or accrued to any foreign country or U.S. possession on that income.

If you do not have foreign source income effectively connected with a U.S. trade or business, you cannot claim credits against your U.S. tax for taxes paid or accrued to a foreign country or U.S. possession.

You cannot take any credit for taxes imposed by a foreign country or U.S. possession on your U.S. source income if those taxes were imposed only because you are a citizen or resident of the foreign country or possession.

If you claim a foreign tax credit, you generally will have to attach to your return a Form 1116. See Publication 514 for more information.

You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse, so that you can work or look for work. Generally, you must be able to claim an exemption for your dependent.

Married nonresident aliens can claim the credit only if they choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Joint Return Test in Publication 503).

The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income from the United States for that tax year. Earned income generally means wages, salaries, and professional fees for personal services performed.

For more information, get Publication 503.

If you are a nonresident alien for any part of the year, you generally cannot claim the education credits. However, if you are married and choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, you may be eligible for these credits.

You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2010. You cannot claim this credit if:

• You were born after January 1, 1993,
• You were a full-time student,
• Your exemption is claimed by someone else on his or her 2010 tax return, or
• Your adjusted gross income is more than $27,750.

Use Form 8880 to figure the credit. For more information, see Publication 590.

You may be able to take this credit if you have a qualifying child.

A qualifying child for purposes of the child tax credit is a child who:

• Was under age 17 at the end of 2010.
• Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew).
• Is a U.S. citizen, a U.S. national, or a resident alien.
• Did not provide over half of his or her own support for 2010.
• Lived with you more than half of 2010. Temporary absences, such as for school, vacation, or medical care, count as time lived in the home.
• Is claimed as a dependent on your return.

An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

See your form instructions for additional details.

You may qualify to take a tax credit of up to $13,170 for qualifying expenses paid to adopt an eligible child. This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. To claim the adoption credit, file Form 8839 with your Form 1040NR.

Married nonresident aliens can claim the credit only if they choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Filing Separate Returns in the Form 8839 instructions).

If you paid alternative minimum tax in a prior year, get Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts, to see if you qualify for this credit.

If you are a nonresident alien for any part of the tax year, you generally cannot get the earned income credit. However, if you are married and choose to file a joint return with a U.S. citizen or resident spouse as discussed in chapter 1, you may be eligible for the credit.

See Publication 596 for more information on the credit.

You can claim the tax withheld during the year as a payment against your U.S. tax. You claim it in the "Payments" section on page 2 of Form 1040NR or on line 18 of Form 1040NR-EZ. The tax withheld reduces any tax you owe with Form 1040NR or Form 1040NR-EZ.

Any federal income tax withheld from your wages during the tax year while you were a nonresident alien is allowed as a payment against your U.S. income tax liability for the same year. You can claim the income tax withheld whether or not you were engaged in a trade or business in the United States during the year, and whether or not the wages (or any other income) were connected with a trade or business in the United States.

If you have two or more employers, you may be able to claim a credit against your U.S. income tax liability for social security tax withheld in excess of the maximum required. See Social Security and Medicare Taxes in chapter 8 for more information.

If you are a shareholder in a mutual fund (or other regulated investment company) or real estate investment trust, you can claim a credit for your share of any taxes paid by the company on its undistributed long-term capital gains. You will receive information on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, which you must attach to your return.

You can claim as a payment any tax withheld at the source on investment and other fixed or determinable annual or periodic income paid to you. Fixed or determinable income includes interest, dividend, rental, and royalty income that you do not claim to be effectively connected income. Wage or salary payments can be fixed or determinable income to you, but usually are subject to withholding as discussed above. Taxes on fixed or determinable income are withheld at a 30% rate or at a lower treaty rate.

If you are a foreign partner in a partnership, the partnership will withhold tax on your share of effectively connected taxable income from the partnership. The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. A partnership that is publicly traded may withhold on your actual distributions of effectively connected income. In this case, the partnership will give you a statement on Form 1042-S. Claim the tax withheld as a payment on line 60b or 60d of Form 1040NR, as appropriate.

When you fill out your tax return, take extra care to enter the correct amount of any tax withheld shown on your information documents. The following table lists some of the more common information documents and shows where to find the amount of tax withheld.

Form number	Location of tax withheld
RRB-1042S	Box 12
SSA-1042S	Box 9
W-2	Box 2
W-2c	Box 2
1042-S	Box 9
8805	Line 10
8288-A	Box 2