Ongoing compliance with the IRS substantial presence test can be a complicated undertaking. However, proper record keeping is imperative because it involves not only the current year, but three years.
To be considered a U.S. resident for tax purposes, you must meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the U.S. on at least 31 days during the current year, and 183 days during the three-year period that includes the current year and the two years immediately before that, counting (1) all the days you were present in the current year; one-third of the days you were present in the first year before the current year; and (3) one-sixth of the days you were present in the second year before the current year.
Say, for example, you were physically present in the U.S. for 120 days in each of the years 2016, 2017, and 2018. To determine if you meet the substantial presence test for 2018, count the full 120 days of presence in 2018, 40 days in 2017 (1/3 of 120), and 20 days in 2016 (1/6 of 120).Ā
Since the total for the three years is 180 days, you are not considered a resident under the substantial presence test for 2018.ā
You are treated as present in the U.S. on any day on which you are physically present in the country, at any time during the day. However, there are exceptions to this rule. Consult your tax advisor to see if certain exceptions apply.
Do not count days for which you are an exempt individual. The term āexempt individualā does not refer to someone exempt from U.S. tax, but anyone in the following categories:
If you are deemed to be a resident for tax purposes, you are required to file both U.S. tax returns and international tax forms to report your worldwide income. There are certain tax treaties with the U.S. and other countries that outline certain tax treatments, and there are certain tax credits for non-U.S. tax filers, most notably the foreign tax credit.
The filing of tax returns and international forms by non-U.S. individuals and/or businesses can be complicated and time-consuming. Thus, it is important to work with a trusted tax advisor who has international taxation experience.