Determining your resident status, particularly for tax purposes in the United States, primarily depends on two specific legal criteria: whether you hold a U.S. Green Card or if you meet the conditions of the Substantial Presence Test.
Your residency status is a crucial factor that impacts how your income is taxed by the U.S. government. Generally, U.S. residents are taxed on their worldwide income, while nonresidents are only taxed on their income from U.S. sources. The Internal Revenue Service (IRS) provides clear guidelines to define who is considered a resident for tax purposes.
The Green Card Test
You are considered a resident for tax purposes if you were a lawful permanent resident of the United States at any time during the past calendar year. This status is typically granted when you receive a "Green Card."
- If you held a Green Card even for a single day in the past calendar year, you meet this test and are treated as a U.S. resident for tax purposes for that entire year.
- For more detailed information on Green Card holders' tax obligations, you can refer to IRS Publication 519, U.S. Tax Guide for Aliens.
The Substantial Presence Test
If you do not have a Green Card, you might still be considered a resident for tax purposes if you meet the Substantial Presence Test. This test evaluates the number of days you were physically present in the United States over a three-year period. You will be considered a resident for tax purposes if you meet this test for the previous calendar year.
To meet the Substantial Presence Test, you must be present in the U.S. for:
- At least 31 days during the current year, AND
- A total of 183 days or more over a three-year period, calculated as follows:
- All the days you were present in the current year, plus
- One-third of the days you were present in the first preceding year, plus
- One-sixth of the days you were present in the second preceding year.
Example of Calculating Substantial Presence
Let's assume you want to determine your residency for 2023:
- You were in the U.S. for 120 days in 2023.
- You were in the U.S. for 120 days in 2022.
- You were in the U.S. for 120 days in 2021.
To calculate your total days for the Substantial Presence Test:
- Days for 2023: 120 days
- Days for 2022: (1/3) * 120 days = 40 days
- Days for 2021: (1/6) * 120 days = 20 days
- Total for Substantial Presence Test: 120 + 40 + 20 = 180 days
In this example, even though you meet the 31-day rule for the current year (120 days in 2023), your total calculated days (180) are less than the required 183. Therefore, you do not meet the Substantial Presence Test and would likely be considered a nonresident alien for tax purposes in 2023 (unless you also have a Green Card).
Days That Don't Count Towards Substantial Presence
Certain individuals and days of presence are exempt from being counted toward the Substantial Presence Test. These "exempt individuals" include:
- Foreign government-related individuals: Such as diplomats and their immediate families temporarily in the U.S.
- Teachers or trainees: On J or Q visas who substantially comply with the requirements of their visa.
- Students: On F, J, M, or Q visas who substantially comply with the requirements of their visa.
- Professional athletes: Competing in charitable sports events.
- Individuals with a medical condition: If a medical condition arose while in the U.S. and prevented them from leaving the country.
For specific criteria and comprehensive details on exempt individuals, always consult IRS Publication 519.
The Closer Connection Exception
Even if you meet the Substantial Presence Test, you might still be treated as a nonresident alien if you can establish a "closer connection" to a foreign country. To qualify for this exception, you must:
- Be present in the U.S. for fewer than 183 days in the current year.
- Maintain a tax home in a foreign country.
- Have a closer connection to that foreign country than to the U.S.
- It's important to note: You cannot claim this exception if you have an application for lawful permanent resident status pending or have taken other steps toward obtaining permanent residency.
For more information on this exception, refer to IRS Topic No. 851, Resident and Nonresident Aliens.
Summary of U.S. Tax Residency Tests
| Test Name | Criteria | Outcome |
|---|---|---|
| Green Card Test | You were a lawful permanent resident (Green Card holder) of the U.S. at any time during the calendar year. | Considered a U.S. resident for tax purposes. |
| Substantial Presence Test | 1. Present in the U.S. for at least 31 days in the current year, AND 2. Present for a total of 183 days or more over a 3-year period (current year days + 1/3 prior year days + 1/6 second prior year days). (Exempt individuals and certain days do not count.) |
Considered a U.S. resident for tax purposes. |
| Closer Connection Exception | Potentially allows you to be treated as a nonresident even if you meet the Substantial Presence Test, provided you meet specific criteria (fewer than 183 days in current year, tax home and closer connection to a foreign country, no pending green card application). | Considered a U.S. nonresident for tax purposes. |
Understanding your residency status is crucial for fulfilling your tax obligations accurately. When in doubt, consulting with a qualified tax professional is recommended.
