6 Steps for Expats to Determine Your Tax Residency Status

Many Americans move to another state or country for different purposes, such as living close to their family, starting a new life, or working. If you reside or work elsewhere, you must check your tax residency status and rules to ensure you file your taxes accordingly.

Your tax residency status will decide how you will be taxed in the U.S. (if you are not a U.S. citizen) and which tax forms you must submit. Knowing your tax residency status will help determine your tax rates and benefits available to you. Keep reading to understand how tax residency status is determined and the steps to know your tax residency status.

1. Learn the types of residency

For federal income tax purposes, you can be considered for these types of residency depending if you meet certain conditions.

A. Resident for tax purposes: Passing the substantial presence test or green card test for the calendar year (January 1–December 31) is required to be classified as a resident for tax purposes.

B. Non-resident for tax purposes: If you are not a U.S. citizen and have yet to pass the green card test or substantial test, you are classified as a non-resident.

C. Dual-resident: Within the year of the transition process of being a non-resident and a resident for tax purposes, you will be labeled as a dual-status taxpayer or dual-status alien.

2. For foreigners, you are only either resident for tax purposes or non-resident for tax purposes

For foreign nationals, tax residency status is based on the current immigration status and length of residency in the U.S. If you’re not a U.S. citizen, that classifies you as either a “non-resident for tax purposes” or “resident for tax purposes.”

Note that your tax filing status is not the same as your immigration status. This means you can be considered a resident for tax purposes exclusively for your tax filing status, but that does not necessarily mean that you are a permanent U.S. resident.

3. Determine if you can file as a resident for tax purposes

Foreigners are considered non-resident for tax purposes unless they pass one of the following tests:

A. The Green Card Test: To get a lawful status as a U.S. resident for immigrants, you must meet the requirements and pass the U.S. Citizenship and Immigration Services alien registration card or Form I-551, otherwise known as the green card.

You become a resident for tax purposes once you become a legal permanent U.S. resident during the previous calendar year.

B. The Substantial Presence Test: The substantial presence test determines whether foreign people who’ve been present in the U.S. as resident aliens for significant periods can be considered as “residents for tax purposes” if they meet the requirements.

The test will require you to be physically present in the United States for at least:

• 31 days within the current year
• 183 days during the three-year period, including the present year and previous two years immediately preceding that, which counts:
  • All the days you were in attendance in the current year;
  • 1/3 of the days you were in the U.S. during the first year before the current year; and
  • 1/6 of the days you were in the U.S. in the second year before the current year.
• If the total number of days amounts to 183 days or more, you will be considered a resident for tax purposes. Conversely, if the total number of days amounts to 182 days or less, you will be classified as a non-resident for tax purposes.

Exception from the substantial Presence Test: International students on an F, J, M, or Q visa are exempt from this test for the first five years they live in the U.S. or the first two years present in the country as a scholar.

During the exemption period, you will be required to submit non-resident tax forms. After this, you can take the Substantial Presence Test.

4. Be aware of tax exemptions

There are cases, such as follows, where individuals are allowed to override the green card and substantial presence test.

A. Closer connection exception: You may still be considered a non-resident despite meeting the substantial presence test if:

• You were in the States for under 183 days in the year
• Had a closer connection (when you retained significant contacts with a foreign country other than the U.S.) to another foreign country within the year you had a tax home beside the U.S. (unless you have a closer connection to two other foreign nations)
• Maintained a tax home in a close connection foreign country all year round
• When you had not taken any steps to and did not apply for a green card.

B. Non-resident alien spouse: If you got married at the end of the calendar year to a U.S. citizen or resident, you could choose to be treated as a U.S. resident for tax purposes. This will work if you both decide to file a joint income tax return for the first year.

C. Tax treaties: There are over 60 countries that have income tax treaties with the United States. Foreigners in these nations are taxed at a lower rate or exempted from U.S. income tax on certain income they receive in the U.S.

5. Check if you are a dual-status taxpayer

A dual-status taxpayer is someone who submits two tax returns for the calendar year: one for the portion of the year when they were still classified as a non-resident and another for the part of the year where they were considered a resident. This applies to dual-status aliens.

You can sort this out and elect to be considered a full-year resident to file just one tax return instead of two during your transition year. Head to the IRS Taxation of Dual-Status Aliens for more information.

6. File your taxes according to your tax residency status

Once you’ve sorted out your tax residency status, you can proceed to file your income tax return according to your status requirements. Make sure to check the IRS website to know more about tax residency status.

Wrapping It Up

Purchasing a home across states or residing in another country for a significant amount of time can be more complicated than you think tax-wise. Knowing about your tax residency status can help you sort things out easily.

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