How to Find if You Are Tax Resident of USA ?

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In order to determine the  tax liability of a persons who visits USA or stays in USA or works in USA or earns any income connected to USA , the first and foremost criteria is to find out the residential status of the person as per Internal Revenue Code . This is so , because the tax law for residents and non -residents are quite different. So , how do you determine if you are resident as per US tax laws ? Well the Internal Revenue Code (26 US Code )  7701 provides the residency rules that define residency for tax purposes in a way that is very different from the immigration laws.

Rules for Determining Residential Status

If you are an alien , it means you are not a U.S. citizen. Now an alien can be resident alien or nonresident alien .You are not a nonresident alien, if you pass one of two tests for the calendar year (January 1 – December 31). You are a tax resident of USA under Internal Revenue Code if you satisfies any of the following conditions :

  1. You are citizen of USA
  2. If the U.S. Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, known as a “green card.”
  3. You passed the Substantial Presence Test .

What is substantial presence test ?

The substantial presence test for calendar year 2020 means it shall be determined whether you were physically present in USA on at least

  1.  31 days during 2020, and
  2. 183 days during the 3-year period that includes 2020, 2019, and 2018, counting:
    1.  All the days you were present in 2020, and
    2. 1 /3rd of the days you were present in 2019, and
    3. 1/ 6th of the days you were present in 2018.

For example ,

Mr X was present in the United States on 120 days in each of the years 2018, 20119, and 2020.Although , it seems, he was present in USA for 3 x 120 days = 360 days , so , he passes the test of 31 days in 2020 and 183 days in previous 3 years including 2020.But that is not so, when the formula for determination of the tax resident is applied . So it will be counted as

120 days in 2020

1/3 of 2019= 1/3 * 120= 40 

1/6th of 120 days in 2018 = 20 days 

So total number of days as per formula = 120+ 40+ 20= 180 days

That does not satisfies the condition of 183 days in previous 3 years .Thus Mr X will not be considered a Tax Resident in the year 2015. You can check the substantial presence test calculator under IRC

What is meaning of USA for determining physical presence ?

Since the rule of physical presence is with respect to the term United States ,it is important to understand the geographical boundaries of USA for th purpose of determining tax residency . USA means

  • All 50 states and the District of Columbia.
  • The territorial waters of the United States.
  • The seabed and subsoil of those submarine areas that are adjacent to U.S. territorial waters and over which the United States has exclusive rights under international law to explore and exploit natural resources.

The term does not include U.S. possessions and territories or U.S. airspace

Based on aforesaid rule, we have created a US tax residency calculator to make your life easy !

By Prashant Thakur

Prashant Thakur is a tax advisor . He has written two books on tax laws of India. He regularly writes on his paid-only website http://taxworry.com. He is learning about the Internal Revenue Code of USA as many of clients and readers are of India origin and also are tax resident of USA . So . solving their tax issues require reference to IRC of USA.