In order to determine the tax laibility 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 creteria is to find out the residential status of the person as per Internal Revenue Code . This is so , because the law for residents anbd 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
Rules for Determining Residential Status
You are a tax resident of USA under Internal Revenue Code if you satisfies any of the following considtions :
- You are citizen of USA
- 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.”
- You passed the Substantial Presence Test .
What is substantial presence test ?
The substantial presence test for calendar year 2015 means it shall be determined whether you were physcially present in USA on at least
- 31 days during 2015, and
- 183 days during the 3-year period that includes 2015, 2014, and 2013, counting:
- All the days you were present in 2015, and
- 1 /3rd of the days you were present in 2014, and
- 1/ 6th of the days you were present in 2013.
For example ,
Mr X was present in the United States on 120 days in each of the years 2013, 2014, and 2015.
Although , it looks like he was present in USA for 3 x 120 days = 360 days , so , he passes the test of 31 days in 2015 and 183 days in previous 3 years including 2015.
But that is not so, when the formula for determination of the tax resideny is applied . So it will be counted as
120 days in 2015
1/3 of 2014= 1/3 * 120= 40
1/6th of 120 days = 20 days
So total number of days as per formula = 120+ 40+ 20= 180 days
That does not satosfies 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 online calculator for determining residential status under IRC
What is meaning of USA for determining physical presence ?
The term United States includes the following areas.
- 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
That is all , if you want to know if you are tax resident in USA as per Internal Revenue Code