Richard A. Cahlin, CPA
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 a three-year period.
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. on 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). Since the total for the three-year period is 180 days, you are not considered a resident under the substantial presence test for 2018.
Days of Presence in the United States
You are treated as present in the U.S. on any day in 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 “exempt individual” does not refer to someone exempt from U.S. tax, but to anyone in the following categories:
- An individual temporarily present in the U.S. as a foreign government-related individual under an A or G visa, other than individuals holding A-3 or G-5 class visas.
- A teacher, professor, researcher or trainee temporarily present in the U.S. under a J or Q visa who substantially complies with the visa’s requirements.
- A student on an F, J, M or Q visa must wait five calendar years before counting 183 days.
- A professional athlete temporarily in the U.S. to compete in a charitable sporting event.
There are certain tax forms that must be filed as an exempt individual because of a medical condition, as such, consult your tax advisor for the proper compliance.
Resident for Tax Purposes
If you are, in fact, 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.
Richard Cahlin is a Director in EisnerAmper’s Tax Services Group and has significant expertise in the U.S. taxation of international transactions, both inbound and outbound. He brings a comprehensive approach to both domestic and international tax compliance, consulting and deal structuring. Contact him at 305-371-6200, or email firstname.lastname@example.org.