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Frequently Asked Questions

What is tax residency?

Tax residency determines which country has the right to tax your worldwide income. In the US, you are a tax resident if you are a US citizen, a lawful permanent resident (green card holder), or meet the Substantial Presence Test (183+ days over 3 years).

What is the Substantial Presence Test?

The Substantial Presence Test counts days in the US over a 3-year period: current year days + 1/3 of prior year days + 1/6 of second prior year days. If the total is 183 or more, and you were present in the US for at least 31 days in the current year, you are a US tax resident.

How many days can I be in the US without being a tax resident?

You can be in the US up to 120 days per year and likely not meet the Substantial Presence Test (120 + 40 + 20 = 180, under 183). However, the closer you get to 183, the more careful you need to be. The 31-day minimum rule also applies.

What is the Closer Connection Exception?

The Closer Connection Exception (Form 8840) allows certain individuals present in the US for fewer than 183 days in the current year to avoid tax residency if they demonstrate a closer connection to a foreign country (tax home, permanent home, family, business, etc.).

What is the difference between a resident and nonresident alien?

Resident aliens are taxed on worldwide income like US citizens. Nonresident aliens are taxed only on US-source income and certain foreign income connected to a US trade or business. Residents use Form 1040; nonresidents use Form 1040-NR.

How does tax residency work for green card holders?

Green card holders are US tax residents from the date they receive lawful permanent residence. They are taxed on worldwide income regardless of where they live. Giving up a green card may trigger exit taxes (Section 877) for certain long-term residents.

What is the expatriation tax?

The expatriation tax (Section 877A) applies to individuals who relinquish US citizenship or long-term residency with a net worth over $2 million, average tax liability over $190,000 (2024, adjusted), or failure to certify tax compliance. It taxes unrealized gains as if assets were sold.

How does tax residency affect foreign income?

US tax residents must report and pay tax on their worldwide income, including foreign wages, business income, rental income, and investments. The Foreign Tax Credit (Form 1116) or Foreign Earned Income Exclusion (Form 2555) may reduce double taxation.

What is Form 8840?

Form 8840 (Closer Connection Exception Statement) is filed by individuals who meet the Substantial Presence Test but have a closer connection to a foreign country. It must be filed by June 15 of the following year and is attached to Form 1040-NR.

What is Form 8843?

Form 8843 (Statement for Exempt Individuals) is filed by individuals who are exempt from the Substantial Presence Test: F-1, J-1, M-1, Q-1 students (first 5 years), J-1 teachers/trainees (first 2 years), and other exempt categories. It must be filed even if no tax return is required.

How does tax residency work for students?

F-1 and J-1 visa holders are exempt from the Substantial Presence Test for the first 5 calendar years (students) or 2 calendar years (teachers/trainees). After the exemption period, they must apply the test. Days in the US before the exemption are not counted.

What is the tax residency start date?

For green card holders, residency starts on the date of admission as a permanent resident. For Substantial Presence Test, residency starts on the first day you are present in the US during the year you meet the test. The start date affects which income is taxable.

What is the tax residency end date?

Residency ends on the last day you are present in the US if you establish a closer connection to a foreign country for the rest of the year. For green card holders, residency ends when the green card is revoked or abandoned. For citizens, expatriation requires formal renunciation.

How do tax treaties affect residency?

Tax treaties between the US and other countries contain "tiebreaker" rules that determine residency when both countries claim you. Factors include: permanent home, center of vital interests, habitual abode, and nationality. The treaty may override the Substantial Presence Test.

What happens if I am a tax resident of two countries?

If both countries claim you as a resident, the tax treaty (if one exists) will break the tie based on specific criteria. If no treaty exists, you may be double-taxed. The Foreign Tax Credit can reduce US tax on foreign-source income.

How does tax residency work for digital nomads?

Digital nomads who spend significant time abroad may still be US tax residents if they meet the Substantial Presence Test. Short visits to the US can trigger residency. Many countries require visas that limit stays. US citizens remain US tax residents regardless of where they live.

Do I need to file a US tax return if I live abroad?

US citizens and green card holders must file US tax returns regardless of where they live. The Foreign Earned Income Exclusion ($120,000 for 2024) and Foreign Tax Credit can reduce or eliminate US tax. Nonresident aliens file only if they have US-source income.

What is the bona fide residence test?

The bona fide residence test is used for the Foreign Earned Income Exclusion (Form 2555). You are a bona fide resident of a foreign country if you have established a residence there with the intention of living there indefinitely. This is determined by facts and circumstances.

What is the physical presence test?

The physical presence test (Form 2555) requires you to be physically present in a foreign country for at least 330 full days during any 12 consecutive months. This qualifies you for the Foreign Earned Income Exclusion regardless of your residency intentions.

How does the IRS track days in the US?

The IRS uses passport entry/exit records from the Department of Homeland Security (I-94 arrival/departure records). CBP tracks all entries and exits. The IRS can access this data for Substantial Presence Test verification and audits.

What is the medical condition exception;

The medical condition exception allows you to exclude days in the US if your intent to leave was prevented by a medical condition that arose while in the US. Days spent for medical treatment are not counted. A physician's statement is required (Form 8843).

How does tax residency affect state taxes?

State tax residency is determined separately from federal residency. Spending more than 183 days in a state (and having a permanent home there) generally makes you a state resident. Some states (CA, NY) aggressively assert residency for telecommuters.

What is the Sledd Rule?

The Sledd Rule deems that days in transit (arrival and departure days) count as full days in the US for Substantial Presence purposes. The day you arrive, the day you depart, and any partial days all count as full days in the US.

How does tax residency work for Canadians in the US?

Canadians in the US on TN, L-1, or H-1B visas are subject to the Substantial Presence Test. Snowbirds spending 6+ months in the US may become US tax residents. The US-Canada tax treaty provides tiebreaker rules and may allow closer connection claims.

What is the 183-day rule for immigrants?

The 183-day rule in the Substantial Presence Test: current year days + 1/3 prior year days + 1/6 second prior year days must be under 183 to avoid residency. For new immigrants, days before becoming a permanent resident count for the test.