Substantial Presence Test

If you are a snowbird or a person that likes to spend a considerable amount of time in the U.S. (often to escape the winters in your country), you should be aware that you might be liable for U.S. income tax.

A person is considered a United States resident for tax purposes if she meets the substantial presence test for the calendar year. To meet this test, you must physically be present in the U.S. for at least 31 days during the current year, and 183 days during the 3 year period, meaning the current year and the 2 years immediately before.

The 183 days are counted as follow:

  • All the days present in the current year, and
  • 1/3 of the days present in the first year before the current year, and
  • 1/6 of the days present in the second year before the current year.

However, there is an exception to the substantial presence test. To avoid U.S. taxation, IRS form 8840 (Closer Connection Exemption Statement for Aliens) needs to be filed annually with the U.S. Internal Revenue Service.

The form, in essence, acknowledges that you met or exceeded the “substantial presence test” BUT are not going to be filing a U.S. income tax return due to the fact that you maintain “a closer connection” to a foreign country, such as Canada, where you will be paying annual income tax.

How to count the days for the test in the U.S.:

The rule is that a person must count every day they are physically present in the U.S. However, there are exceptions to this rule. The following days should not be counted as days of presence in the U.S. for the substantial presence test:

  • Days you commute to work in the U.S. from a residence in Canada or Mexico, if you regularly commute from Canada or Mexico.
  • Days you are in the U.S. for less than 24 hours, when you are in transit between two places outside the United States.
  • Days you are in the U.S. as a crew member of a foreign vessel.
  • Days you are unable to leave the U.S. because of a medical condition that develops while you are in the United States.
  • Days you are an exempt individual (see below).

 

A person does not count the days for which he is an exempt individual. An exempt individual is one that falls within these categories:

  • An individual temporarily present in the U.S. as a foreign government-related individualunder an “A” or “G” visa, other than individuals holding “A-3” or “G-5” class visas.
  • teacher or traineetemporarily present in the U.S. under a “J” or “Q” visa, who substantially complies with the requirements of the visa.
  • studenttemporarily present in the U.S. under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa.
  • professional athletetemporarily in the U.S. to compete in a charitable sports event.

If a person excludes days of presence in the U.S. for purposes of the substantial presence test due to the exempt individual exception or because of being unable to leave the U.S. because of a medical condition or problem, he must include Form 8843 (Statement for Exempt Individuals and Individuals With a Medical Condition) with his income tax return. A person, who does not timely file Form 8843, cannot exclude days of presence for those particular reasons.

EPGD Law is here to help all the snowbirds out there that visit often. Send us an email info@epgdlaw.com or give us a call (786) 837-6787

*Disclaimer: This blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*