Overview of the Substantial Presence Test (Determining Tax Residency)

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Among the many legal considerations a foreign national present in the United States must be aware of, one of the most important is their tax status. In other words, should you be classified as a “resident for tax purposes” or “non-resident for tax purposes?”

Tax residency status is based on the length of time the foreign national has been in the U.S, and their current immigration status. By default, foreign nationals are not considered “residents for tax purposes” unless they meet one of the following criteria:

  1. Green Card Holder – If the foreign national was a legal permanent U.S. resident at any point during the previous calendar year, then they are considered a “resident for tax purposes.”
  2. Substantial Presence Test – A foreign national is considered a “resident for tax purposes” should they meet the criteria for the “Substantial Presence Test.”

Substantial Presence Test

The substantial presence test method calculates the numbers of days a foreign national is physically present in the U.S. over a three-year period. The test is weighted in such a way that it places increased importance on the more recent days a foreign national is present, and less importance on days in prior years.

The test has two primary components: The “31-day” test,” followed by the “183-day test,” which are given as follows:

  • The foreign national must first have been present for 31 days during the current calendar year, and
  • 183 total days during the most recent 3-year period, calculated by using the following formula:
    • Each day of the current calendar year
    • 1/3 of days of the prior year
    • 1/6 of the days of the second preceding year

After calculating the total number of days over this three year period, the foreign national is considered a “resident for tax purposes” if the number exceeds 182.

Exceptions to the 183 day rule

There are a few notable exceptions that allow certain foreign nationals to exclude days of their U.S. presence from the calculation of the substantial presence test, which effectively makes them “exempt individuals.” These individuals fall under the following four categories:

  • Foreign government-affiliated individuals
  • Foreign national professional athletes and sportsmen
  • Foreign national students and their qualifying dependents who fall under F, J, M, or Q immigration status
  • Trainees, foreign educators, and teachers and their qualifying dependents who fall under Q or J immigration status for at least two current calendar years out of the past six total