by Michael Wiener, E.A.
Under current tax provisions a United States Citizen is taxed on worldwide income. A non-U.S. citizen is taxed in various ways depending upon marital status, visa type, and residency status. If a non-U.S. citizen is found to be a “resident alien,” then he or she is taxed in the same manner as a U.S. Citizen.
The primary determinants that establish United States Residency (for a non-U.S. citizen) are known as the “green card test” or the “substantial presence test.”
- Green Card Test – The person is a lawful permanent United States resident if he or she has been given the privilege, according to immigration laws of residency, as a permanent immigrant. The person has this status if the U.S. Citizenship and Immigration Service (USCIS) has issued an alien registration card, known as a green card.
- Substantial Presence Test – The substantial presence test consists of a two-step process. If you were physically present in the United States for less than 31 days in the current year, then you are not considered a resident alien. If you were present in the U.S. for 183 days or more, then you automatically meet the substantial presence test (SPT).
Finally, if you were in the U.S. more than 31 days but less than 183, then the residency status is determined using the following formula:
Add all days in the U.S. during the current year; plus 1/3 of the days in the U.S. of the preceding year; plus 1/6 of the days in the U.S of the second preceding year. If the total days are more than 183, then you meet the SPT.
There are certain exceptions to the days counted towards the SPT. For example commuting to and from work from a Canadian or Mexican residence, days spent while working on a foreign vessel or days an individual is unable to leave the U.S. because of a medical condition that arose while the individual was in the U.S.
If an individual can demonstrate they have a closer connection to a foreign country during the year, they can be treated as a non-resident alien, even though the substantial
presence test is met using the “closer connection exception.”
- Factors that determine a closer connection include (but are not limited to):
- Must be present in the U.S. less than 183 days in the current year
- Maintain a tax home in a foreign country
- Country of residence designated on forms and documents
- Location of the person’s family, personal belongings, business activities, and driver’s license
- Current social, political, cultural, or religious activities
In addition tax treaty provisions can override the definition of residency. The income tax treaty with a foreign country must contain a provision that provides for resolution
of conflicting claims of residence. If the person is treated as a resident of a foreign country under a tax treaty, then he/she is treated as a non-resident alien for computing U.S. income tax.
As in most areas of tax law, the taxation of resident and non-resident aliens can be quite complex and careful consideration needs to be given on a case by case basis.
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