Changing Status, Changing Visa, Changing U.S. Tax Obligation
Part I 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.
If you have changed visa status, or if this is your second visit, more possibilities exist, and more analysis is needed.
FIRST VISIT/NO VISIT: If you have US source income to report, choosing between form 1040 and form 1040NR is relatively simple. Determine if any days you were physically in the US may be counted towards meeting the substantial presence test (SPT).
If you have no visa, or any visa except F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you usually immediately begin to count all days where you spent any time at all in the US.
A common exception to counting days is for people who live in Mexico or Canada and cross the border regularly to work in the US during some period of the tax year. These “commuters” do not count as days present in the U.S. any day they commuted to or from their U.S. workplace, no matter what their visa type. IRC 7701(b)(7)(B); 301.7701(b)(3)
If you are not in the U.S., there are no days to count.
And A1, A2, and G1, G2, G3, and G4 visa holders are never going to count days.
Counting: Count the days that may be counted to see if they add up to 183 days in the tax year and meet the SPT.
Filing requirement if SPT is not met: If you have any US source income at all you will file form 1040NR. If you were not in the U.S. or this is your first visit to the US and you spent fewer than 183 countable days in the U.S., then 0+ is the threshold even if the income is not taxable. An exception is if the only US source income is from wages, and the wages are less than the amount of one personal exemption. ($4,000 for 2015)
Filing requirement if SPT is met: You will file on form 1040 as a tax resident if you meet the SPT by December 31st, and your income exceeds the form 1040 filing threshold. If you began counting days July 2, you could meet the SPT in your first year in the US.
Taxable income for form 1040 is total worldwide income from any source derived that is not specifically exempt from US income tax. The threshold for filing is when taxable income exceeds the sum of the personal exemption and the standard deduction appropriate to your filing status (single, married filing jointly, married filing separately, etc.). You will also pay FICA tax (Medicare and social security) on wage income if your employer and job are part of the US economy, unless you are a student in an on-campus job.
FIRST VISIT, second year: If you have any visa other than F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you could meet the SPT in your second year in the US and change from tax non-resident to tax resident.
FIRST VISIT, third and sixth year: In the third year of your first visit to the US, J visa exchange visitors usually start counting days for the SPT on their first day in the US after January 1st. Students usually do so in their sixth year in the US. You could meet the SPT by December 31st and become a tax resident for the year if you spend most of your days in the U.S.
Substantial Presence Test (SPT):
When day counting is allowed, and you spent at least 31 countable days in the U.S. in the tax year, then:
Count all countable days present in the U.S. in the tax year, and add:
1/3 of all countable days present in the first prior year, plus
1/6 of all countable days present in the second prior year.
Add any fractions to the whole numbers.
If the total reaches 183 by December 31st, you have met the SPT. You are a U.S. tax resident.
LET ME COUNT!
G or A, No Way!
F, J, M, or Q, There’s a Delay Waiting for you!
All the rest, Count your best!*
*includes A3, G5
This Series
FIRST VISIT/NO VISIT: If you have U.S. source income, how do you choose between form 1040NR and Form 1040? What are the tax and tax residency effects?
See above
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?
See Part III