US Salary Income Taxation for NRIs

In the US, the main question of how your salary is taxed comes down to one thing: whether you are a US resident alien or a nonresident alien for tax purposes. Understanding your US tax residency is very important, as it determines several key factors. It includes which income will be subject to US tax, which return you need to file, deductions available to you, and how your global income will be treated.

Generally, resident aliens face rules similar to those for US citizens and must report their worldwide income. Conversely, nonresident aliens are taxed on their US source income and effectively connected income under special rules. As of 2026, the US federal individual income tax rate ranges from 10% to 37%.

However, a nonresident alien earning a salary for services performed in the US will be taxed at graduated rates. This means they will not automatically be subject to the 30% rate often linked with nonresident taxation. It's because the 30% statutory rate usually applies to certain US- source FDAP income that is not effectively connected with a US trade or business.

Similarly, if you are an Indian student, you may receive additional benefits. Under Article 21(2) of the India-U.S. tax treaty, eligible students and business apprentices from India may claim the US standard deduction, even when they file as nonresident aliens.

In this blog, we will learn how US salary income is taxed for NRIs, how your residency status affects your return, the 2026 tax brackets, the filing deadline, and much more.

Determining Resident Alien or Nonresident Alien Status

The IRS determines your US tax residency based on two different tests. You will be treated as a resident if you meet either one of the following tests:

• Green Card Test: If you hold a legal permanent resident status at any point of the year.
• Substantial Presence Test: If you were physically present in the US for more than 31 days this year. Also, if the weighted total of this year's days plus 1/2 of last year's days, plus 1/6 of the year before, adds up to 183 days or more.

You will be treated as a resident in the US for tax purposes if you meet any of the aforementioned tests. Most Indian students on an F-1 visa are treated as nonresident aliens for their first 5 calendar years because their days are exempt from this calculation. Conversely, professionals on an H-1B visa are immediately subject to the test upon arrival.

The three-year weighted calculation counts all days from the current year, one-third of the days from the previous year, and one-sixth of the days from the second last year. However, this calculation is affected by certain visa category exceptions.

Now comes the main question: why does understanding the difference between resident and nonresident alien matter? Resident aliens are taxed just like US citizens, as they file Form 1040 and are taxed on their global income. On the other hand, nonresident aliens file Form 1040-NR and are taxed only on their U.S.-source income. Next, we will learn how salary income is taxed.

How Is Salary Income Taxed?

Nonresident aliens are taxed only on income sourced within the US, which is generally treated as effectively connected income (ECI). After claiming the permitted deductions, it is taxed at the graduated rates, similar to those for US citizens and resident aliens.

Now you might be wondering: how comparable is this to US citizens? If you're a nonresident alien earning a salary in the US, you won't automatically face a 30% flat income tax. Instead, that 30% rate applies to specific US-source FDAP income that isn't effectively connected to a US trade or business. However, this rate can be reduced by claiming benefits under various treaties.

Confused? Don't worry, let's look at an example to understand this better.

2026 Federal Income Tax Brackets

The table below lists the federal income tax brackets for 2026 for single filers and married filing jointly.

Apart from the tax brackets, there are two more important things to know: the standard deduction for 2026 and the personal exemption. Let's understand these two.

Standard Deduction (2026)

The standard deduction varies based on filing status. So, for single filers, it is $16,100, while for married filing jointly, it is $32,200. Importantly, nonresident aliens are not allowed to claim the standard deduction.

However, there is one important exception: Indian students and business apprentices on an F-1 or J-1 visa can claim the standard deduction just like a US citizen.

Personal Exemption

Under U.S. tax law, you don't get any personal exemption deduction as of now. However, eligible Indian students and business apprentices may qualify for certain treaty-based benefits for dependents under Article 21(2).

Moreover, you must not confuse the treaty rules with the ordinary personal exemption, as it currently offers no deduction.

Next, we will learn about the payroll tax withholding and Social Security (FICA)

Payroll Withholding and Social Security (FICA)

With the help of IRS tables, your employer withholds federal income tax from every paycheck. Nonresident aliens must complete IRS Form W-4 using special instructions from IRS Notice 1392. They must check the "Single" status, leave the dependent fields largely blank (unless an exception for a student from India applies), and add a fixed amount to withhold per pay period.

FICA, on the other hand, has a separate 7.65% portion for Social Security and Medicare taxes. However, FICA on wages linked to visa purposes is exempt for nonresident students and scholars on F-1, J-1, M-1, or Q visas. This exemption will immediately disappear after you become a resident alien or get the H-1B status, and FICA will apply to you.

Here comes another question: after claiming the deductions and enjoying the treaty benefits, how much does an NRI actually pay? So, we will now understand the answer to this question.

How Much Tax Does an NRI Actually Pay?

Instead of looking at the complex rules, let's use Priya's example to make it easier to understand. 

So, Priya is an Indian citizen on an H-1B visa working as a software engineer with a $95,000 annual salary, filing single. She files as a resident alien on Form 1040 because she has already met the substantial presence test. The table below lists Priya's federal tax for 2026:

If we look at this table, we can identify that her effective tax rate is 12.7%. Since only the income inside each bracket is taxed at that bracket's rate, it is basically much lower than her 22% bracket. Besides, since she is on an H-1B visa, and as mentioned above, H-1B visa holders aren't exempt, she will also pay 7.65% FICA, which is about $7,268, plus state income tax.

Now, let's compare her situation with Arjun. Arjun is an Indian student on F-1 OPT. He qualifies for the Article 21(2) benefits of the India-US tax treaty as he remains a nonresident alien.

So, if he meets all applicable requirements and has $28,000 of taxable wage income, he gets a benefit. He qualifies to claim the standard deduction of $16,100. It means his taxable income would be nearly $11,900 before any other applicable adjustments or deductions are taken into account.

Next, let's look at how the DTAA treaty between India and the US helps.

The India-US Tax Treaty: Avoiding Double Taxation

If you are a cross-border taxpayer, you may face double taxation, as both India and the US can tax certain income based on your source of income and tax residency. However, various mechanisms are designed to help reduce this risk.

By claiming the benefit of the foreign tax credit provisions under domestic law, eligible taxpayers may receive a credit for qualifying taxes paid to another country. However, it is subject to applicable limitations.

To make it easier to understand, let's look at an example. Suppose you are an Indian tax resident earning income that is also taxable in the US. So, you can claim relief for your US taxes under specific treaties and Indian tax laws. The exact relief varies based on your residency status and the source of the income.

Additionally, Article 21(2) provides a special benefit allowing Indian students and business apprentices to claim the standard deductions even if they are nonresident aliens.

If you take a treaty-based return position that falls within the disclosure rules, you may need to provide Form 8833. However, you will get several exceptions from the IRS, including certain treaty benefits involving students, trainees, teachers, and other specified categories. Hence, do not assume that you always need to fill out the form. Instead, review the current instructions on Form 8833.

Lastly, we will look at the important forms, deadlines, and state taxes that you must keep in mind.

Important Forms, Deadlines, and State Taxes

Here are some of the important deadlines, forms, and information that you must keep in mind:

• Form 1040-NR: It is the federal return for nonresident aliens with US wages.
• Form 8843: It is required for exempt individuals, even if they have zero income. It includes most F-1 and J-1 students and scholars.
• Deadline: If wages were subject to withholding, the deadline is the 15th of April. If not, the deadline is the 15th of June. You can file Form 4868 to get an extension of six-month.
• State Income Tax vs Federal Tax: State income tax and federal tax are entirely different and depend mainly on the state you work in. Some states might not charge at all, such as Texas and Florida.

The Bottom Line

US salary income taxation for NRIs is not as confusing or stressful as it may seem. You only need to figure out two main things: your residency status and whether your income counts as effectively connected. Just simply get these two key things right, and everything else, including FICA, treaty, credits, etc., will follow a predictable path.

Also, ensure you avoid any mistakes that could cost you a lot, such as assuming a flat 30% rate, missing Form 8843, or overlooking treaty benefits specifically available to Indian students. Moreover, tax rules keep changing with shifts in legislation and other rules. Hence, working with a professional and experienced CPA at Savetaxs can help.

At Savetaxs, we have an entire team of experts who can help you determine your residency status, claim the available treaty benefits, and ensure compliance with every obligation you have. Connect with us right away, as we are actively working 24/7 across all time zones.