Claiming U.S. Residency for Tax Purposes - Substantial Presence
Determining Substantial Presence
The substantial presence test helps determine if nonresident aliens should be treated as U.S. residents for income tax purposes. Following are the general rules and exceptions that apply when determining substantial presence for residency.
Green Card Test
Under the green card test the alien is treated as a U.S. resident for tax purposes if INS issues him/her lawful permanent residency ("green card") at any time during the calendar year. The permanent residence status remains in effect until it is either rescinded or judicially determined to be abandoned (Treas. Reg. 301.7701(b)-1(b)(1)).
Substantial Presence Test
The substantial presence test is comprised for two parts - the 31 day test and the 183 day test. The alien must be present in the U.S. for at least 31 days during the calendar year, and 183 days during the three-year period that includes the current year and the two years preceding the current year. The calculation for the 183-day test is as follows, but keep in mind that there are exceptions to the way the days are counted. Those will be discussed later.
All the days present in the U.S. during the current calendar year
+⅓ of the days present in the U.S. in the preceding calendar year
+⅙ of the days present in the U.S. during the second preceding calendar year
= Total days counted for U.S. tax residency
Counting Days of Presence in the U.S.
If the alien is present in the U.S. during any part of a day (24-hour period), that day will be counted towards substantial presence. There are, however certain exceptions from having to count days towards substantial presence. Those exceptions are as follows.
- Any days the individual regularly commutes to work in the U.S. from a resident in Canada or Mexico
- Any days the individual is in the U.S. for less than 24 hours in transit between two places outside the U.S. (e.g. airline layovers)
- Any days the individual was unable to leave the U.S. because of a medical condition that developed while in the U.S.
- Any days the individual was present in the U.S. as an "exempt individual"
"Exempt Individual" rules
An alien is an "exempt individual" not permitted to count days towards the substantial presence test if he/she is present in the U.S. under an F, J, M, or Q student visa status, or under a J or Q non-student visa status.
- Students under an F, J, M, or Q status are exempt from counting days for five years.
- Non-student J, and Q visa holders (e.g., teaching, research, trainee, short-term scholar) are exempt from counting days towards substantial presence for two years out of the last six years.
For purposes of both the two and five year exempt individual limitation rules, the IRS uses a calendar year (January 1 through December 31), not 12 consecutive months. If the individual is present in the U.S. as an exempt individual for any part of a calendar year, it is counted as a full year.
For the purposes of determining exempt individual year for those in a student visa status (e.g., F-1 and J-1 student status), the student is only allowed one five-year time period. Those years do not need to be consecutive, but cannot total more than five.
A current J-1 non-student visa holder will not qualify as an exempt individual if he was exempt as a teacher, trainee, non-student or student for any two of the last six calendar years. The exempt individual rule is applicable to the current visa status at the time the test is applied. For those who have previously entered under both student and non-student status, all of the years of exempt individual status, regardless of whether the year was originally applied toward a student or non-student status should be applied to the total exempt years. In no case can the total of exempt years ever exceed five.
Residency Starting and Termination Dates
The residency starting date is the first day the alien was present in the U.S. during the calendar year in which he/she met the substantial presence test. If the individual meets the green card test, the residency starting date is the first day of the calendar year during which he/she was physically present in the U.S. For those who meet both tests, the residency starting date is the earlier of the two dates.
For the residency termination date, the date that the individual's resident alien status terminates is the last day of the calendar year in which he/she ceases to be a U.S. resident for tax purposes (e.g., if the last day of residency is September 10, the residency termination date is December 31 of that year).
To determine U.S. residency for tax purposes, see the Substantial Presence Worksheet. (.pdf)