Tag Archives: Substantial Presence Test

Substantial Presence Test, Treaty Income Exclusion and Covid-19

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IRS has issued a revenue procedure that allows the use of the medical condition exception on Form 8843 to except 60 consecutive days spent in the U.S.  from counting towards presence in the U.S.  during the “COVID-19 Emergency Period”. The sixty-day time period that may be excepted may start on a date of the individual’s choice during a time period between February 1, 2020, and on or before April 1, 2020.

The same procedure provides for an individual to exclude those days of presence in order to claim benefits under an income tax treaty with respect to services income.

This revenue procedure, Rev. Proc. 2020-20 will be published in Internal Revenue Bulletin to be issued on May 11, 2020.

This might affect withholding for 2020, the income tax form to be filed for 2020 (1040NR or 1040).  As appropriate, individuals may want to adjust their tax planning and notify employers. Some individuals are eager to meet the SPT and file on Form 1040, others prefer not to become tax residents filing on Form 1040 any sooner than required.

Diversity Immigrant Visa (Green Card) Holders and U.S. Taxes, by Jean Mammen, EA

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Winners of the U.S. diversity immigrant visa lottery may welcome more information about the U.S. tax system. They may not have considered tax implications when deciding if or when to accept the visa and enter the U.S. Usually they have not previously spent long periods in the U.S. on a visa, and they may not have family or friends familiar with the U.S. tax system.

Taxable Income

A green card holder becomes responsible for reporting and paying U.S. taxes on total worldwide income, by U.S. tax rules, from the date they enter the U.S. on the immigrant visa and become a ‘Lawful Permanent Resident’ (LPR) (green card holder). This continues until the LPR (later perhaps citizen) formally ends that status as well as all tax responsibilities through  ‘expatriation’ procedures.

Resident vs non-resident

Let’s compare:

Taxpayer DIV was just issued an immigrant visa (IV) through the Diversity lottery program. Once admitted to the U.S., they will become a Lawful Permanent Resident, a green card holder.

Taxpayer H was just issued an H1b visa because they were sponsored for a job in the US. This is a non-immigrant visa (NIV) allowing a temporary stay.

The visas of both taxpayers were issued November 5th, 2019.

This will be the first ever visit to the U.S. for both individuals.

First situation:

Both taxpayers enter the U.S. on November 7, 2019.

Taxpayer DIV will have two different U.S. residency statuses in 2019 – non-resident alien from January 1, 2019, through November 6, 2019, and resident alien by green card, and thus a tax resident, from November 7 through December 31. Form 1040 is their tax return and Form 1040NR is attached as a statement. Total worldwide income is included on Form 1040. The Form 1040NR may show zero income if there was no U.S. source income before they entered the U.S.

Taxpayer H will begin counting days of presence in the U.S. towards meeting the Substantial Presence Test (SPT) on November 7. They will not meet the SPT in 2019 but are likely to meet it in mid-2020.

For 2019, Taxpayer H will be a non-resident alien filing on Form 1040NR and include only U.S. source income.

Second situation:

Both taxpayers delay entry into the U.S. until February 7, 2020.

Neither taxpayer will need a 2019 U.S. income tax return.

Taxpayer DIV is considered a Lawful Permanent Resident (and thus a tax resident) beginning January 1, 2020. They did not enter the U.S. until the year following the year the immigration visa was issued. Their status changed on January 1 of the following year, no matter when they entered the U.S. in the following year. Form 1040 will be the tax return. It will include total worldwide income received during the full year of 2020.

Taxpayer H begins counting days of presence in the U.S. on February 7. They will meet the SPT when the total number of days in the U.S. reaches 183. Once the SPT is met, U.S. tax residency begins on their first countable day in the U.S. in 2020, February 7. Taxpayer H will have dual tax residency for 2020 and use both Form 1040 and Form 1040NR to cover the entire year. Form 1040 will be the tax return. It will include total worldwide income from February 7 through December 31, 2020. Form 1040NR will be attached as a statement, and include only U.S. source income received from Jan 1, 2020, through February 6, 2020.

Simple or complicated tax return

If this is not the taxpayers’ first visit to the U.S., determining the date (tax) residency began will require more information and more steps.

How complicated their U.S. tax return will be will vary according to their life situation. A lottery candidate may be a young high school or college graduate, just beginning their work life, a business owner, a self-employed person, or a mid-career professional. They might be single or have a family. They might have assets in the country where they have been living. Their home country tax situation might be simple or complicated. It interacts with their U.S. tax situation.

Seek out a tax professional with experience preparing dual status returns for visa holders and immigrants. Consult the professional as soon as possible after you arrive.

  If you are an employee, you want correct tax withholding and a correct W-4 in place as soon as possible.

  If you have a business in the U.S. or in another country, you want to report this correctly on your U.S. tax return.

If you have filed an incorrect income tax return, you may not be able to renew your LPR status when it expires.

U.S. tax system is different

Perhaps in your home country there is no personal income tax.

Or, the correct tax may be deducted from most income sources before you get the money. What you get is all yours!

The U.S. describes its system as voluntary compliance by its taxpayers. They are expected to be careful to report all income, and accurately record and document any allowable expenses, deductions, or tax credits on the income tax return.

Income is sometimes described as money you have now that you did not have before. If you are the kind of person who sees coins on the ground, picks them up, and keeps them, those coins are income to you. If they add up to more than $1, their sum ought to be added to your income! That sounds silly, and probably few people who sometimes pick up a coin think about whether they have picked up enough to need reporting, but…that shows the U.S. approach to voluntary reporting!

State and Local (Income) Tax

Most states and many local jurisdictions, such as a county, a city, or a town, also require income tax filing.

Your residency status on your federal return (tax resident or a tax non-resident) may be different from on your state or local tax return. See a tax professional.

Tax Year

The U.S. uses the calendar year, January 1 to December 31, for its annual individual income tax return. Other countries use different tax reporting years. If you have income from countries that use different tax years, you will need to use monthly or quarterly statements and records to put together the financial information for use on the income tax returns.

Your tax professional will help you understand tax law and what applies to your situation.

To do list:

Consult a tax professional early.

Check out the areas of expertise of the tax professionals you are considering.

W-4: Submit an accurate W-4 to your employer. If you are married but your spouse will not have a Social Security number during the tax year, your filing status likely is Married Filing Separately. If you think even more money should be withheld to cover taxes on other income, your W-4 should reflect this. If you have children who will not be with you in the U.S. nor have a Social Security number, they will not help you on your tax return.

Keep detailed records as advised by the tax professional.

Swiss Banks Don’t Guarantee Secrecy Today

The International Data Exchange System provides regular, generally automated, exchange of financial information between the U.S. Treasury and many other governments and financial institutions. If an institution or national tax jurisdiction holds some financial information about you, likely it has been shared with other authorities.

Other Tax Forms:

Form 1116: If you pay taxes in another country on income that you must also report on your U.S. tax return, you may be able to take a Foreign Tax Credit on your U.S. income tax using Form 1116.

(Form 2555: You cannot use Form 2555 – the Foreign Earned Income Exclusion – to subtract from U.S. taxable income any money that you earned in another country before you became a U.S. (tax) resident.)

Form 8938: If you have certain specified foreign assets, which may include investment funds or retirement plans, you report them on this form. Also, if they produced income, you may need to report that income on the income section of Form 1040. Form 8938 is part of the income tax return.

Form 3520 – If you receive gifts totaling more than $100,000 from non-U.S. people you report them on Form 3520. It is not part of the income tax return. It is mailed separately to a different address.

Form 3520 is also used to report foreign inheritances, ownership of a foreign trust, or receipt of distributions from a foreign trust.

Foreign Bank and Financial Account Report (FBAR or Form FinCEN 114). If you have foreign accounts whose total value exceeded $10,000 at any time during the year, you report them on the electronic U.S. Treasury Form FinCEN 114. You submit it electronically through the bsaefiling website. Your tax professional can help you submit the form. This is a required form. Penalties begin at $ 10,000 if you knowingly do not submit it.

Leaving the U.S.

Temporary Departure:

Follow the conditions USCIS placed on you about how long you must stay in the U.S. to maintain your resident alien status, how long you can travel outside the U.S. , and when you may apply for a waiver of the conditions.

It can be a good idea to carry a copy of your most recent tax return with you. It might help you convince Customs and Border Protection that you are up-to-date on your responsibilities.

Ending U.S. Residency:

When your green card reaches its expiration date, you can no longer use it to enter the U.S. You must apply to renew it if you do want to remain a green card holder. Your income tax responsibility does not change.

If you decide you no longer wish to be a lawful permanent resident (LPR – green card holder) of the U.S., you must complete all the steps of the formal process called “expatriation”. Until you have done so, you continue to pay U.S. taxes on total worldwide income.

The main expatriation form is Form 8854

You will need the help of an experienced immigration lawyer to correctly complete all the required expatriation steps and end your U.S. tax responsibility.

Lottery Applicants:

DO NOT assume you will complete the application process or be awarded a diversity visa by the September 30 deadline if you are notified that you have been selected to apply for an immigrant visa.

DO NOT assume that you will be admitted to the U.S. when you arrive with your immigrant visa in your passport. The Customs and Border Protection Officer at the Port of Entry could refuse entry to you because of information they learned during the interview or that was added to your file after the U.S. consulate issued the visa.

Good Luck!

 

 

Au Pair Income Tax Filing, by Jean Mammen, EA

 
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An au pair in the U.S. on a J1 visa is participating in a cultural exchange program sponsored by an organization authorized by the State Department Bureau of Educational and Cultural Affairs. The au pair experiences life in an American family while providing child care for up to ten hours a day, not to exceed 45 hours a week.

The au pair must be enrolled in at least six semester hours of classes at a post-secondary institution. The au pair is not a full-time student. The DS 2019 issued by the sponsor is for a cultural exchange program participant (or trainee), not a student.

The au pair must receive a cash stipend.

The au pair will need to file a U.S. income tax return reporting the stipend, even if they do not receive a W-2 reporting the stipend amount. The tax and filing rules are the same for all J visa holders.
The usual au pair income tax reporting form will be a non-resident tax form. A non-resident form must be filed if a non-resident has any U.S. source income, whether or not any income tax will be due. ( IRC 1.6012-1(b)(1)(i)). Often the two-page Form 1040NR-EZ is suitable. The first page is the tax return. The last page, Schedule OI, or Other Information, asks about the foreign status of the filer.
The new tax law effective 2018 – 2025, the Tax Cuts and Jobs Act, eliminates the personal exemption and some deductions that a non-resident might have claimed. Thus, an au pair who files for 2018 on an amount of income similar to the 2017 income will have more taxable income, and likely pay higher taxes, even when the tax brackets and tax rates are more favorable in 2018.

The IRS has stated that Form 1040NR-EZ and Form 1040NR will not be updated for 2018. Thus, there may be lines on the income tax filing form that cannot be used, such as the personal exemption line.

Filing a State tax return. Check to see which filing form to use for the state, a non-resident form or a resident form. Some state rules say anyone who files a non-resident federal tax form also files a non-resident state form, if their income meets the filing requirement. Other states use their own residency rules to determine which form a foreigner should use. When you know which state form would be appropriate, check to see if taxable income by state rules meets the state filing requirement.

First Ever Visit to the U.S. by the J1 Visa Au Pair
A J visa holder who is a first-time visitor to the U.S. will file on a form for non-residents, Form 1040NR-EZ or Form 1040NR, for the first two calendar years. They will be a tax non-resident of the U.S. because they will not meet the Substantial Presence Test (SPT). They are eXempt from counting days spent in the U.S. as days of presence for SPT purposes for any period during those first two calendar years in the U.S. on a J visa. An au pair‘s placement might span two successive calendar years. It might run from June through May of the following year.

Preparing the forms: Gather the information and documents that will be needed
-Income information
-Passport
-Visa or visas
-Form DS-2019 issued by the sponsor agency
-Dates you were physically in the U.S. in the tax year and the two prior calendar years
-Print from the I-94 website all available information, especially the dates you entered and departed the U.S.

Form 8843 (Statement for Exempt Individuals…) is completed and attached to the Form 1040NR-EZ, or Form 1040NR, for each tax year where any days are eXempt from being counted for the SPT. Treas. Reg. 301.7701(b)-8(a)(2); 301.7701(b)-8(b)(2)

Form 8843: Complete it before starting on the income tax return itself. Its results show whether the correct income tax filing form is a non-resident or a resident tax form.

Find Form 8843 on the IRS website, https://www.irs.gov  , by searching Forms and Instructions. The instructions print out with the form.

Heading: on Form 8843: Since the au pair would attach Form 8843 to the non-resident income tax return, it is not necessary to enter the address in the U.S. on Form 8843 or to sign the form. Only the first page of Form 8843 will be required for a J1 visa au pair.

Questions 4a and 4b
4a – for the tax year and the two prior years enter the number of days ( Z ) you were actually physically present in the U.S.
4b – for the tax year, enter the number of days ( X ) that were eXempt from being counted for the Substantial Presence Test (SPT) because you were within the eXempt period on a J visa (or an F, M, or Q visa).

As stated above, the Z and X numbers are entered on Form 8843
The Y number will be entered on Schedule OI, Line H

X = eXempt days, not countable for SPT
Y = ‘present’ days that do count for SPT
Z = actual total days physically present in the U.S.

X + Y = Z, or, Z- X = Y

Form 8843 Part II Teachers and Trainees
Line 6 – An au pair cultural exchange participant would be treated like a Trainee. Enter the information for the person who signed your DS-2019.
Line 7 – complete
Line 8 – check ‘yes’ or ‘no’. The Line 8 information states that if you answer ‘yes’, you cannot exclude actual days in the U.S. for the tax year, unless you meet an exception. That exception could apply only to an individual on a student visa, not to a cultural exchange participant.

Third year, in U.S. on a J1 visa: A visa or program renewal year:
This situation will occur for a first-time visitor to the U.S. as a J1 au pair, only if they have renewed and are now in their third calendar year in the U.S.

A third calendar year au pair calculates whether or not they have met the substantial presence test (SPT) in the third year, to see if they should still file on a non-resident form, or if they have become a tax resident of the U.S.

Look at the Substantial Presence Test (SPT) before deciding whether to complete Form 1040NR-EZ or Form 1040 for the third year:

Substantial Presence in U.S. requires1 a Form 1040. The substantial presence test (SPT) is met when someone has 183 days of countable presence in the U.S., full or partial days, over up to three years, including arrival and departure days. 1Possible ‘student exception.’
If 31 day minimum in the U.S. in the tax year is met, count all tax year days present, plus
1/3 of days present in the U.S. in the immediate first prior tax year, plus
1/6 of days present in the U.S. in the second prior tax year. Add all fractions to the total.   IRC 7701(b)(3)(a)(i) and (ii)

If the J1 visa holder leaves the U.S. by the first few days of July of the third calendar year, likely they will not meet the SPT and will use the non-resident filing form.
But if the individual leaves the U.S. later in the year, their days present will be greater than 183, they will have met the SPT, and they will use the tax resident form (Form 1040).

Completing Form 1040NR-EZ, Page 1
Some online software does not include a Form 1040NR-EZ, Form 1040NR, or Form 8843. You might need to use a fill-in the forms feature and even have to calculate the tax due yourself. You might be unable to file electronically and have to print and mail in the forms.

Getting Ready
On the IRS website, https://www.irs.gov , search Forms and Publications, search for Instructions for Form 1040NR-EZ. Look through the instructions. Print out any pages you want to have at hand.

Choose a data entry method: online software, fill-in the forms, print forms and complete by hand, or, consult a tax professional.

Gather the information you will need on income, deductions, passport and visa, dates…

Complete the heading information, then
On Line 1, check either single or married.
Line 3, enter the total stipend received during the tax year
Line 10 – enter the appropriate number. Probably the same as the number on Line 3
Line 11 – Itemized Deductions: If you paid any state tax during the year, whether by withholding, making estimated payments to the state, or, in your second calendar year, paying the balance due on the first-year state or local income tax return, enter that amount here. No other type of itemized deduction may be entered here. (Use Form 1040NR instead if you want to claim other itemized deductions)
Line 12 – follow the instructions
Line 13 – enter -0- if this line is still available on the 1040NR-EZ tax form.
Line 14 – Taxable Income
Line 15 – Tax : Calculate this using the tax table in the instructions that applies to your personal status, single, or, married.
Lines 18 and 19, 20 and 21 – enter any tax payment already sent to the IRS
Determine if you are due a refund (Line 21) or you owe the IRS (Line 25)
If you owe more than $ 1,000, you may also owe a penalty, Line 26, which you include in the Line 25 amount.

Completing Schedule OI
Complete Lines A, B, C, D
Line E – Enter J if your visa is still valid for entry into the U.S. If your visa expiration date had passed and it could no longer be used to enter the U.S., enter “no immigration status”.
Line F The question says “ever”. If you changed visa type during the calendar year, the three-year SPT period, or the prior six-year period, check ‘yes’ and describe the change and date of change.

Line G – Enter in the boxes only dates within the calendar year.
If you need help, with the dates, visit the I-94 website, enter your passport number, and print out whatever pages are available to you. One of them will show the dates you entered and departed the U.S.

If you were in the U.S. on or before January 1, enter January 1. If you departed before December 31, stop after you enter your last departure date.

Line H – Enter the number of countable days of presence for meeting the SPT for each of the three years listed, the tax year and the first two prior years. If you were not in the U.S., enter -0-. If you only were in the U.S. on a J visa in either the first or second calendar year of eXemption from counting days in the U.S. as days of presence, enter -0-. If you also were in the U.S. on countable days, such as a 15-day tourist visit, enter the number (!5).

Remaining Lines – answer any yes/no question as required. Questions 2 and 3 likely are ‘no’.

Earlier visits to the U.S.
As a tourist only, not on an F, J, M, Q Visa
Apply the Substantial Presence Test (SPT)
On an F, J, M, Q visa, as either the principal or a dependent
See blog post on Second Visit to the U.S.  http://blog.1040nror1040.com/2015/07/03/second-visit-or-multiple-visits-to-the-u-s-changing-statusvisa-u-s-tax-obligations-by-jean-mammen-ea/

FICA and Tax Resident Filing
If the au pair will file as a tax resident because the SPT has been met, the employer must pay / withhold FICA – social security and Medicare tax – on the wages
The employer pays through
–Withholding, or,
–Schedule H attached to the employer’s own tax return

Leaving the U.S.
The au pair may need to obtain a sailing permit from an IRS TAC office to leave, if the employer has not withheld income taxes and provided a W-2. See blog post on Sailing Permit. http://blog.1040nror1040.com/2018/06/04/not-a-u-s-citizen-leaving-the-u-s-returning-before-filing-a-current-year-u-s-tax-return-not-planning-to-return-by-jean-mammen-ea/
The income tax form for a given year is filed the following year. The au pair probably will have left the U.S. before it is time to file the final U.S. income tax return. They should file whether or not they owe taxes. It can be important to demonstrate that they do not owe taxes.

6th Edition – Available Now

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The 6th edition of 1040NR? or 1040?  U.S. Income Tax Returns for Visa Holders   +   International Organization and Foreign Embassy Employees is available for ordering now.

The Sixth presents   new information on

-things to check for when deciding if a treaty provision applies in a specific situation, especially for those consulting Table 2

-Competent Authority Agreements

-Competent Authority determinations and ruling letters

And the new updated charts on:

-1042-S codes.

-Comparison of Form 8938 and FBAR requirements

-and more…

Ordering sites:

On the Amazon website, US and Europe

http://https//www.amazon.com/dp/1543050948,

on the CreateSpace estore at

https://www.createspace.com/6926188

When ordering on Amazon, choose carefully so that you order the 6th edition. It is now the first edition listed among the various editions.

The rosette is in the upper left-hand corner. Its color is like the sky when the sun is near the horizon, at dawn or dusk.

Next year I hope the IRS will post final versions of forms and instructions earlier, so the the next edition will be available to you before the start of filing season.

Second Visit or Multiple Visits to the U.S.: Changing Status,Visa, U.S. Tax Obligations, by Jean Mammen, EA

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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

 

 

First Visit /No Visit to the U.S.: Changing Status, Visa, U.S. Tax Obligation, by Jean Mammen, EA

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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