Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Substantial Presence Test

Even if you don’t hold a green card, you may be considered a U.S. resident if you are physically present in the U.S. for 183 days in a calendar year.  Even if you don’t meet the 183 days in one year, you could still be considered a U.S. resident if you fall under the look back rule.  This rule counts a day of presence in the current year as one full day, a day of presence during the first preceding year as one-third of a day, and a day of presence during the second preceding year as one-sixth of a day.  You would need to be present for at least 31 days during the current year and 183 days total during the current and preceding 2 years to be considered a resident in the current year. 

This boils down to being treated like a U.S. resident if you consistently spend just one-third of each year in the U.S.  The IRS has provided some relief to this test if you can prove you have a closer connection to another foreign country.  You may have a closer connection to another country if you spend less than 183 days in the U.S. during the year, your tax home is in another country, and you can prove a closer connection to the other country by looking at all your fact and circumstances.  For example, where is your permanent home?  Where are most of your personal and economic relations?  Form 8840 must be filed annually with the IRS if you are requesting relief under this exemption.

Since each country has its own definition of what represents a resident, a taxpayer may be considered a resident of the U.S. as well as a foreign country.  Don’t fret!  If you can’t meet the closer connection exemption, you might be eligible to qualify for exemption under the tie-breaker provision if your country of residence has a dual income tax treaty with the US.

Jill Helm, CPA

Comments

  1. Sidharth says:

    Hi, I came in US on July 9th 2012 and present here till today without any gap. I was given L1 visa and my wife and son got L2. This is the first time we came in to US, never been here before. Till, Dec 31,2012 we completed 175 days which doesn’t fulfill the requirement of 183 days for resident alien. substantial presence test is considered for precedence years, does it also calculate anything for following years, our visa is till 2015. I will be filing as married jointly, my question is, Will i be filing as resident alien or non resident alien? Thanks

    • admin says:

      Hi Sidharth,

      Thank you for your question. Please check your email for a message from me about your inquiry.

      Thanks,

      Debra Callicutt, CPA

    • Karthikeyan Mahadevan says:

      Sidharth,

      Could you please share debra’s email with me I also in the exact situation.

    • admin says:

      Hi Karthikeyan,

      Please check your email.

      Thanks,

      Debra Callicutt, CPA

    • Gaurav Mohite says:

      Hi, I am having same situation. I came to US on July 1 2012 on L1 and my family (Wife and Son) came to US in August 18 2012 on L2. We (Wife and I) were here from July 2010 till Sep 2011, but my son born in India in the month of November 2011. This is his first visit to US (came here in August 2012). Can we claim for “Child Tax Credit” and did he pass “Substantial Precense Test”.

      Thanks,
      Gaurav

    • admin says:

      Gaurav,

      We cannot give tax advice: the information below is general in nature and should not be relied upon. You should contact a US tax advisor in order to obtain specific tax advice. As with any tax advice, conclusions are often fact specific and hence giving advice without knowing all the facts would not be in your best interest. Our firm may be engaged to assist with your US tax filings should you require our services.

      Based on the number of days he was present in the U.S., it appears your son may not meet the substantial presence test for 2012 for purposes of the child tax credit.

      Thank you,

      Jill Helm, CPA

  2. Dave says:

    Hi
    I have recently arrived in the USA on an H1B and expect to be considered resident by the IRS due to the Substantial Presence Test on the 1st September 2012.

    My question – For the 2012 tax year, will I have to declare (and be taxed on) my non-US income from 1st September 2012 or for the whole of 2012?

    regards
    Dave

    • admin says:

      Dave,

      Generally speaking, if you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year. You are taxed on your worldwide income during the time you are considered a resident of the U.S. In certain circumstances it may be advantageous to elect to be treated as a US resident for the entirety of the year.

  3. admin says:

    Appears you would meet the substantial presence test unless you are qualified for the closer connection test. It does not appear, based on just this email , that you would qualify.

    Sorry, but the issues are very fact specific and we would have to be engaged and consult with you directly to provide specific answers.

    Jill Helm, CPA

  4. admin says:

    Please note that our blogs and follow up responses are for discussion purposes only and should not be relied upon for tax filings or to obtain relief from any interest or penalties.

    Generally speaking, you should meet the substantial presence test for part of the year. Under certain conditions treaties (such as closer connection to foreign country test) may provide for a sooner residency termination date and you may be required to file a dual-status return. Form 1040/1040NR. You should be able to qualify for the child tax credit if you aren’t subject to any of the limitations. Check with your tax software provider to confirm whether you are able to efile. Forms 1040NR cannot be efiled. You should get specific tax advise from your tax advisors for 2011. Let us know if we can help.

    Jill Helm, CPA

    • Sabine walker-Deemin says:

      Thank you Jill . For the closer connection we do not have a tax home for the entire current year in the foreign country ( france) So it means that we can be considered as resident aliens only. Can you confirm it?

      Thank you

      Sabine

  5. sabine walker-deemin says:

    hello,

    I was wondering if my family and I could be considered as residents alien?
    my husband and I came in the USA on May 2007 under an F1/J1 and transferred both visa in H1B then we left the USA on July 4th 2011.
    we now have a baby girl born on February 2011 in the USA .
    Do we meet the substantial presence test for 2011 to file our taxes as residents alien and if it is the case do we qualify for the child tax credit? Can we file our tax return for the 2011 year through e-file or turbo tax for example as we used to do for the past 3 years?

    thank you for you help.
    Sabine

  6. Yuri says:

    Hi,

    I need an advise for one of our H1-B visa employees, who just started working on October 1st, 2011. He will not go outside the U.S. at least for next 15 months (’til the end of 2012 or beyond.) I believe it will make him considered a Resident Alien in his 2012 income tax return (am I correct?) He completed a Form W4 as a Nonresident Alien for 2011. When he updates W4 in the beginnign of 2012, can he fill it out as a Resident Alien, assuming that will be his status in 2012 tax return?

    Thank you for your help!

    • admin says:

      Thank you for your comment. Generally speaking under the substantial presence test he should meet the test. In the tax arena, answers are usually never without exceptions or issues. For example, one caveat is his first year of residency. If he doesn’t have a full year in the USA and is married, then unless he makes a special election, he would have to file under the status married filing separately MFS as opposed to MFJ married filed jointly.

      Debra Callicutt, CPA

  7. Ansh says:

    Hi Debra,

    First of all thanks for your reply.

    I called you today, but I was told that, you were in meeting. Please let me know when you are back from the meeting, I will call you to discuss on my query.

    Thanks,

    Ansh

  8. admin says:

    Please note that our blogs and follow up responses are for discussion purposes only and should not be relied upon for tax filings or to obtain relief from any interest or penalties.

    Generally speaking, since you were present in the US more than 183 days during the lookback period, you would be considered a resident alien during part of 2010. If considered a resident alien, you would be required to file a US income tax return reporting your worldwide income. Please note, there are sometimes exceptions to this rule such as a treaty tie breaker rule. Also, sometimes an election can be made to enable you to file as a resident alien for the entire year. Generally speaking, if your spouse also met the physical presence test, you could file married filing joint and claim the standard deduction.

    Again this is just a basic summary and cannot be relied upon for any tax position you plan to take. We would like to consult with you to learn more and assist you. Please find our contact details below.

    Debra Callicutt
    debrac@hhcpa.com
    (480) 483-1170

    Or

    Robert McCanless
    robertm@hhcpa.com
    (480) 483-11770

  9. Ansh says:

    Hi,

    I had visited USA in the year 2007 for 91 days, and in the year 2008 for 63 days on B1 visa. Then in the year 2009 i.e. on 10/19/2009, I had visited USA on L1 visa along with my wife and my son, and I left USA on 2nd June 2010.

    Now, I am filing Federal and CA State tax returns for the year 2010. Could you please let me know if I could be considered as Resident Alien? Also, whether I am eligibile to file the returns as ‘Married Filing Jointly’ and can claim the standard deductions in my return?

    Thanks,

    Ansh

  10. admin says:

    Please note that our blogs and follow up responses are for discussion purposes only and should not be relied upon for tax filings or to obtain relief from any interset or penalties.

    Generally speaking, since you were present in the US more than 183 days during 2010, you would generally be considered a resident alien during part of 2010. If considered a resident alien, you would be required to file a US income tax return reporting your worldwide income. Please note, there are sometimes exceptions to this rule such as a treaty tie breaker rule. Also, sometimes an election can be made to enable you to file as a resident alien for the entire year.

    Thank you,

    Jill

  11. Grace says:

    hi there,

    thank you for this website, it is very infomative. I just have a question on the substantial presence test. I arrived in the US under an L1 visa on Jan 4, 2010 and haven’t left ever since. Considering your explantion above, am I qualified as a resident alien even though I wasn’t here in 2009?

    Many Thanks!