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Foreign National Tax Guide

Your Residency Status

In this section:

• Why Residency Status Is Important

• Determining Residency Status

• The Green Card Test

• The Substantial Presence Test and Definition of Exempt Individual

• Dual-Status Aliens

• Nonresident Spouse Treated as a Resident

Why Residency Status Is Important

The first thing you must know in order to file your tax return is whether you are a resident or nonresident for U.S. tax purposes. If you find that you are both a resident and nonresident in the same year, you are a dual status alien for which special rules apply. The designation of resident for tax purposes is completely separate from your immigration status. You might qualify as a resident for tax purposes while remaining a nonimmigrant alien for immigration purposes.

A nonresident files a special tax form, pays tax only on U.S. source income, is subject to special rates, and might qualify for treaty exemptions. Conversely, if you are a resident for U.S. tax purposes, you are under the same rules and file the same forms as a U.S. citizen. That means you pay tax on your worldwide income rather than just U.S. source income.

The rules you will find on these pages do not apply if you are a resident of the U.S. for tax purposes. A great deal of help is available elsewhere, however. Free taxpayer assistance workshops for residents are much more available than for nonresidents, and it is easier to find a competent preparer.

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Determining Your Residency Status

If you have not already obtained a copy of IRS Publication 519, U.S. Tax Guide for Aliens, you should do so. You can either print out a copy from the IRS Web site at Forms and Publications, or call 1-800-TAX-FORM (1-800-829-3676) and ask them to mail it to you. On the first few pages of Publication 519 it explains the two tests for determining whether you are a resident or nonresident alien: The green card test and the substantial presence test. Following is a condensed version of that explanation.

The Green Card Test

You are a lawful permanent resident of the United States if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the Immigration and Naturalization Service (INS) has issued you an alien registration card, also known as a "green card" (although it is not really green).

You are a U.S. resident for tax purposes beginning on the first day you are present in the U.S. as a lawful permanent resident. As a resident taxpayer you must report, for U.S. tax purposes, your worldwide income. You are also eligible to claim all deductions and credits available to U.S. citizens. You can file Form 1040, 1040A or 1040EZ, whichever is applicable to your situation, and if you are married you can file a joint return with your spouse. See the instructions for the forms. As a resident taxpayer, you still might be eligible to claim treaty benefits under the U.S. tax treaty with your home country. See Tax Treaties.

If you receive permanent residency status during the year, you are automatically a resident for U.S. tax purposes from that point forward. However, you might not be considered a resident for U.S. tax purposes for the portion of the year you did not have permanent residency status. That means you might be a dual status alien. See the discussion below about dual status aliens.

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The Substantial Presence Test and Definition of Exempt Individual

To meet the substantial presence test, you must be physically present in the U.S. during a period you do not hold an F, J, M or Q visa on at least:

1. 31 days during the current year, and

2. 183 days during the 3-year period that includes the current year and the previous two years, counting:

• all of the days you were present in the current year, and

• 1/3 of the days you were present in the first preceding year, and

• 1/6 of the days you were present in the second preceding year.

An exempt individual is someone whose days in the United States are not counted toward the substantial presence test, not someone who is exempt from tax. If you are an exempt individual, you are a nonresident alien until you are no longer an exempt individual, or until you receive permanent residency status. You are generally in this category under the following conditions.

Teacher or trainee

If you are a teacher or trainee temporarily in the United States on a J or Q visa, and you have been present in the United States during no more than two calendar years out of the last six calendar years, you are an exempt individual. For example, let's say you entered the U.S. on December 28, 2007 as a trainee on a J visa, and have remained here until now. Your days in this country are exempt from the substantial presence test for 2007 and 2008, but they all count in 2009 and later years. That means you were a nonresident alien in 2007 and 2008. But if you were in the U.S. for at least 183 days in 2009, you are considered a resident for U.S. tax purposes in 2009. You will remain so until you leave the country.

Exception: If all of your compensation during the six year period is from a foreign employer, the two year exemption period is extended to four years.

Student

If you are a student temporarily in the United States on an F, J, M or Q visa, and you have been present in the United States during no more than five calendar years, you are an exempt individual. For example, let's say you entered the U. S. on June 4, 2004 as a student on an F visa, and have remained here until 2009. You are a nonresident alien for 2004, 2005, 2006, 2007 and 2008. If you are in the U.S. for at least 183 days in 2009, you will be a resident for tax purposes in 2009.

Members of the family

Note that on page 5 of Publication 519 it tells you that if you are an exempt individual, members of your immediate family who are with you in the United States on visas derived from your visa (J-2, F-2, etc.) are also exempt individuals. If they are employed, make sure their employer withholds taxes from their wages based on their nonresident alien status. That usually means taxes should be withheld allowing for no standard deduction. If the employer does not adequately withhold, your family member will end up owing the balance when their tax return is filed.

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Dual-Status Aliens

Note on page 7 of Publication 519 under Dual-Status Aliens that you could be both a nonresident alien and a resident alien in the same year. That means your tax return becomes more complicated. Publication 519 explains how to figure the tax beginning on page 25. Here are the most common circumstances of dual status:

• When you enter the country and receive permanent residency status (receive a Green Card) during the year of arrival
   

• When you hold a J, F, M, or Q visa the first part of the year and receive permanent residency status during the year
   

• When you hold a J, F, M or Q visa during part of the year, but later change to an H visa or other status eligible to use the substantial presence test, and pass the test
   

• When you leave the United States permanently during a year in which you qualify as a tax resident, but only if certain conditions apply. (See Last Year of Residency on page 8 of Publication 519.)

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