For many taxpayers, determining residency can be as simple as indicating that you are a legal U.S. citizen. However, for those who are nonresident aliens, the tax implications are different from legal U.S. citizens. Therefore, it is important to use the IRS decision tree to determine your residency to make sure that you are paying the proper taxes. Working with a tax professional or accountant, such as Brian Walsh EA in Mahwah, NJ, they can assist you in determining your residency for the current tax year, based on your unique circumstances. Additionally, below are a few of the tests the IRS uses to determine your residency.
Resident Aliens
You would qualify as a resident alien if you meet one of these two tests during a particular calendar year. The first is the green card test. If at any time during the calendar year, you were a lawful permanent resident of U.S., based on current immigration laws. However, this status must not have been revoked or administratively or judicially determined to have been abandoned.
The other test is the substantial presence test. For the purposes of this test, the term United States includes only the following areas:
In order to meet this test, one has to have been physically present in the U.S. on at least:
You may also satisfy the 183-day requirement with all the days being counted in the current year, one-third of the days you were present within the first year before the current year or one-sixth of the days you were present in the second year before the current year.
However, it is important to note that you cannot count days that you commute to work within the U.S. from a residence in Canada or Mexico, if this is a regular occurrence. This would be considered a regular occurrence if you commuted to work on more than 75% of the workdays during your working period of the current year.
If you are in transit within the United States as part of your travel from one place outside of the U.S. to another place outside of the U.S., especially if you are in the United States for less than 24 hours, then those days cannot be counted toward your 183-day requirement. Additionally, if you are in the U.S. but were not able to leave due to a medical condition that derailed your planned departure, those days also cannot be counted.
There are other circumstances where the days cannot be counted, so it is important to work with your tax preparer to determine if you have met this test.
Exempt Individuals
There are several categories of exempt individuals that would not have to necessarily meet the 183-day test. However, there are multiple things to consider in each of these categories. Therefore, you will want to work with your tax preparer or tax professional to determine if you qualify for an exemption.
However, you may still be treated as a nonresident alien if you are present in the United States for fewer than 183-days during the calendar year, you kept a tax home within a foreign country and you maintain a closer connection to that country versus that of the United States. Additionally, tax treaties between the United States and another country may play a part in determining residency.
You will need to file a 1040NR as a non-resident alien that has a source of U.S. income, or if you engaged in trade or other business within the United States. As a result, you may need to pay additional tax that could be due or you may be able to claim a refund.
For the residents, you will be held to the same tax laws that a normal U.S. citizen would have to abide by. This includes reporting all income earned on a worldwide basis. Keep in mind, this residency determination will allow you to file the necessary forms to know what income needs to be reported.
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