Substantial Presence Test

Global families residing in multiple countries may run the risk of being considered a resident alien (“RA”) of the United States for tax purposes even without obtaining a green card.  This risk is very problematic as the United States taxes its citizens and residents on their worldwide income.  When an individual does not have a green card and is transiently present in the United States s/he runs the risk of satisfying the substantial presence test, pursuant to which an alien individual may be considered a RA, and subsequently subject to U.S. income tax on his/her worldwide income.

An alien individual is classified as a RA if s/he is present in the United States for thirty-one (31) or more days in the current year and has been present in the United States for one hundred eighty-three (183) days or more during a three (3) year period, weighted toward the current year.  This weighting takes place as follows:  an alien is considered a RA during the current year if the sum of the days he is present in the United States during the current year, plus one-third (1/3) of the days present during the first preceding year, plus one-sixth (1/6) of the days present during the second preceding year, equals or exceeds one hundred eighty-three (183) days.[1]  For example, a NRA could be present for one hundred twenty (120) days on an annual basis over a period of years without being considered a RA as being present in the U.S. for that number of days on an annual basis would not satisfy the substantial presence test.

Exempt Individuals

An exempt individual is someone whose days in the United States are not counted toward the substantial presence test, not someone who is exempt from tax. If you are an exempt individual, you are a nonresident alien until you are no longer an exempt individual, or until you receive permanent residency status.

For a full discussion of what affects the outcome of your own substantial presence test  you may dowload our article “Substantial Presence Test for International Citizens” here.

[1] I.R.C. § 7701(b).