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Determining Alien Tax Status

December 9, 2022


Determining whether a person is a resident alien is important because resident and nonresident aliens are taxed differently. Resident aliens are taxed on their worldwide income in the same manner as U.S. citizens, while nonresident aliens are taxed only on their U.S. source income. Residency status is sometimes determined by a tax treaty. If no treaty exists, an alien who passes either the lawful permanent residence test or the substantial presence test is considered as a resident alien. Otherwise, they are considered nonresident aliens.

Lawful permanent residence test (also known as the Green card test)

The lawful permanent resident test is based on the immigration status of the alien. When a green card is issued, the person becomes a lawful permanent resident of the United States. Once the individual physically enters the United States while holding a green card, he or she is a resident alien from thereon, even they depart again and live outside the United States, unless they relinquish the green card.

Substantial presence test

The substantial presence test determines a person’s residency status based on the total number of days a person is physically present in the U.S. during the year. An individual passes the substantial presence test, by being physically present for:

o 31 days during the current year, and

o 183 days during the 3-year period that includes the current year and the 2 years immediately preceding the current year. To satisfy the 183-day requirement, count:

  • All the days present in the current year,

  • One-third of the days present in the first year before the current year, and

  • One-sixth of the days present in the second year before the current year.

There are several exempt days that need to be deducted from the number of days under the substantial presence test, which include:

  • Days commuting to work in the United States from Canada or Mexico

  • Days in transit in the U.S. for 24 hours or less

  • Days spent in the U.S. as a crew member of a foreign vessel

  • Days one is unable to travel due to medical condition

  • Days that one is an exempt individual

For example, a professional athlete temporarily in the United States to compete in a charitable sports event. The professional athlete may exclude ONLY the days on which he or she actually competed in a charitable sports event. Thus, days on which the individual is present in the United States practicing for the event, engaging in promotional or other activities related to the event, or traveling between events must be included for purposes of the substantial presence test. An individual must file Form 8843 to claim exemption as an exempt individual. The form must be attached to the individual's income tax return for the relevant tax year.

Once the two tests are performed and if a test is met, the residency starting date is the earlier of either the date the green card test or the date the substantial presence test is met.

Other residency considerations

However, there are several exceptions to the general rule. For example, an alien who meets the substantial presence test may still be considered as a nonresident alien if a closer connection is established with a tax home outside the United States. In addition, an alien may qualify for dual status residency with two separate tax periods in the tax year. In that case, the alien would be taxed as a resident during one period and as a nonresident during the other. For example, a dual status residency alien who arrives in the United States during the year would be taxed as a resident during the period after arrival and as a nonresident during the period before arrival. Similarly, a dual status residency alien who departs the United States during the year would be taxed as a resident during the period before departure and as a nonresident during the period after departure.

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