United States Tax Residency

Introduction

Determining your tax residency status in the United States is a critical step in understanding your tax obligations. For non-U.S. citizens, the IRS uses the Substantial Presence Test to determine if you are considered a U.S. resident for tax purposes. If you meet the criteria of this test, you are generally treated as a U.S. resident and are subject to tax on your worldwide income, much like a U.S. citizen.

The Substantial Presence Test Calculation

To meet the Substantial Presence Test, you must be physically present in the United States on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that.

The 183-day requirement is calculated using a weighted formula:

• All the days you were present in the current year, plus
• 1/3 of the days you were present in the first preceding year, plus
• 1/6 of the days you were present in the second preceding year.

If the sum of these calculations equals or exceeds 183 days, and you meet the 31-day minimum for the current year, you meet the Substantial Presence Test.

Exceptions to the Rule

Even if you meet the substantial presence test, there are important exceptions that may allow you to maintain non-resident status:

Exempt Individuals

Days spent in the U.S. by an "exempt individual" do not count toward the Substantial Presence Test. Categories of exempt individuals include:

• Foreign government-related individuals (A or G visas).
• Teachers or trainees (J or Q visas).
• Students (F, J, M, or Q visas).
• Professional athletes competing in charitable sports events.

The Closer Connection Exception

If you meet the Substantial Presence Test but are present in the U.S. for fewer than 183 days in the current year, you may still be treated as a non-resident alien if you can establish a "closer connection" to a foreign country. To qualify, you must:

• Maintain a tax home in a foreign country during the year.
• Have a closer connection to that foreign country than to the United States.

This exception requires filing Form 8840 (Closer Connection Exception Statement for Aliens) with the IRS.

Burden of Proof and Record Keeping

As with many tax matters, the burden of proving your presence (or lack thereof) falls on you. Accurate record-keeping is essential. You should maintain detailed records of your travel dates, including arrival and departure days.

Use the Domicile365 App to record a detailed day-by-day log of your location. It simplifies the process of tracking your days for the Substantial Presence Test and provides the documentation you might need to support your residency status claims.

Conclusion

Navigating U.S. tax residency rules can be complex, but understanding the Substantial Presence Test is the first step. Whether you are counting days to avoid residency or checking if you qualify for an exception, precision is key.

The Domicile365 App is your partner in compliance, offering an easy way to log your location automatically and generate the reports you need.

Take control of your tax planning and ensure compliance by downloading the Domicile365 App today for Apple iOS or Google Android.

---