Changing Status, Changing Visa, Changing U.S. Tax Obligation
Part III of III
For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S. See Part I
If this is your second visit, or if you have changed visa type, more possibilities exist, and more analysis is needed. See Part II for the effects of visa type changes
SECOND VISIT/MULTIPLE VISITS TO THE US
If you leave the US, and then return on another visit, you must then look back at your past visa history to determine which form to use to report income, 1040NR or 1040.
Q: Were you a tax resident of the U.S. during any part of your most recent year in the U.S.?
Maybe you were gone only a few months, maybe you were outside the US for several years, but while here you were already a tax resident. You may or may not be a tax resident in your first year of this visit.
Q: Were you outside the U.S. for more than a full calendar year between this visit and your most recent visit? Yes? No?
If you were gone less than a full calendar year, were you a tax resident during any part of last year? And when you returned, did you become a tax resident again during this year?
If so, you continued to be a tax resident of the U.S. while you were outside the U.S.
Even if your only income was from foreign sources, and none of it was from U.S. sources, it is subject to U.S. taxation by the U.S. Internal Revenue Code provisions for form 1040.
Residency persists during this absence from the U.S. by the “no lapse” sections of the U.S. tax code: IRC 301.7701(b)-4(e)(1) and (2)
Q: Was your most recent year in the U.S. within the three-year window for counting days for the substantial presence test (SPT)? Did you have any countable days of presence? As a tourist? On an “all the rest, count your best’ visa type? Or on a student or exchange visitor (teacher, trainee, researcher) visa like F or J, after the eXempt period had ended?
If so, do the calculation over the three years to determine if you meet the SPT during this tax year.
Q: On your most recent visit, were you not able to count days for the SPT because you were on an A or G visa?
If so, double-check back through the three-year window, and do the SPT calculation over the three years, as if this were your first visit to the U.S,
Q: Is your current visa a student visa (F, J, M)? If so, to determine if you have already used up some of the 5 calendar years of the student eXempt/eXclusion period, look back all the way to 1985. Why 1985? That is the year this section of the tax code came into effect. Treasury Regulation governing the transition: 301.7701(b)-3(b)(7)(iv). Look back at your visa history during all your prior visits to the U.S. since 1985. In how many of those calendar years were you on an F, J, M, or Q visa?
Subtract that number of years from the 5 years in the ‘student’ look back period. The result is the remaining number of calendar years during which you are eXempt/eXcluded from counting days to meet the SPT.
Example: 8 years ago you were in the U.S. as a J visa high school exchange student, for an entire academic year. Now you are in the U.S. on a student F visa for a multi-year combined Master’s degree and Ph.D. program. The eXempt period on an F visa is 5 years. During your lookback period you were in the U.S. on a J visa for parts of two calendar years. 5-2=3. You have three years remaining in your eXempt period. You will start counting days of presence for the SPT on your first day in the U.S. of your fourth year in the U.S. on this student visa
Example: You accompanied your parents to the U.S. when you were a child. They left your twin sister back home with Grandmother. You were in the U.S. for all or part of three calendar years. That visit took place sometime between 1985 and last year. Your parents were on J visas. You had a J2 visa, as a dependent. Now you and your twin sister are students in the U.S. on F1 visas.
The student eXempt period lasts five years. You have already spent 3 years in the U.S. on an F, J, M, or Q visa. Only two years remain in your eXempt period. You will start counting days for the SPT on your first day in the U.S. in the third year of this visit. Your sister will not begin counting days until after her fifth year is past. She will begin counting days on her first day in the U.S. in her 6th year on this visit.
If you have income – whether U.S. source or foreign source, you might file on Form 1040 as a tax resident as soon as your third year as a student in the U.S. Your sister would file a U.S. tax return only if she has U.S. source income, until at least her sixth year. Until then, if she needs to file a U.S. tax return, she will use form 1040NR.
Q: Is your current visa a J or Q exchange visitor visa as a teacher, trainee, researcher, etc? Look back at the six previous years to see in how many of them you were in the U.S. on an F, J, M, or Q visa. If that number is two years or more, you have exhausted the eXempt period.
Subtract that number of years from the two years available as eXempt status in the “teacher or trainee” J visa look back period. If you counted one (1) year, you have one eXempt year left before you start counting days for the SPT. If you counted two (2) or more years, you begin counting days for the SPT on your first day in the U.S. on this visit. If you counted zero (0) years on an F, J, M, or Q visa, you have the full two-year eXempt period remaining.
Example: You left the U.S. two years ago this August, after a twenty-four month stay as a J visa researcher. You returned to the U.S. on the two-year anniversary of your departure, again as a J visa researcher.
You had been in the U.S. during parts of three calendar years during the six-year lookback window. You began counting days for the SPT on the day in August that you arrived in the U.S. on this visit. The count did not reach 183 days before December 31st. You file on form 1040NR.
You had been out of the U.S. for a full calendar year, plus some months before and after that full year. Thus, your prior status as a tax resident, during the January through August of your third calendar year in the U.S. during your previous visit, was extinguished during that full year outside the U.S. Your previous visit was within the six-year look back period. It exhausted the two-year eXemption period potentially available for this visit.
This Series
FIRST VISIT / NO VISIT: If you have U.S. source income, how do you choose between form 1040NR or form 1040?. What are the tax and tax residency effects?
See Part I
VISA TYPE CHANGE: What are the tax and tax residency effects when you change visa types?
See Part II
SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?
Part III, above