Determination Of Resident Or Nonresident Status Under United States

Under United States (U.S.) income tax law, a foreign citizen or national (alien) is subject to U.S. tax in different ways depending on whether he or she is a resident or a nonresident. A resident alien is taxed on worldwide income in much the same manner as a U.S. citizen. When calculating taxable income, a resident alien is generally entitled to claim the same deductions and personal exemptions available to a U.S. citizen. In a year in which an individual arrives in the United States or departs from the United States, the individual may be both a nonresident alien and a resident alien during the same tax year. A foreign citizen with this dual status will be taxed as a resident alien for part of the year and as a nonresident alien for the other part of the year.  The United States has a self-assessing tax system. As a result, individuals generally prepare their own tax returns and compute their own taxes. Any tax owed, less any withholding tax and estimated tax payments, is due with the tax return without assessment by the government. The federal tax authority is the Internal Revenue Service (IRS), a part of the U.S. Treasury Department. Most states and some counties and municipalities also impose income taxes, which are separately administered.

Resident Alien and Nonresident Alien

As a general rule of taxation, a foreign citizen is to be treated as a nonresident alien unless he or she qualifies as a resident alien. A “U.S. resident” is defined as a foreign citizen or national who meets either of two tests: the lawful permanent resident test or the substantial presence test.

Lawful Permanent Resident Test (the “Greencard” Test)

An alien who is a lawful permanent resident (commonly referred to as being a “greencard” holder) under the immigration laws is considered a resident for U.S. income tax purposes. The lawful permanent resident test is based on the legal authority for an alien to enter and remain in the United States, rather than on his or her physical presence in the United States. Therefore, a greencard holder will continue to be treated as a U.S. resident (whether or not physically present in the United States) until such time as his or her permanent resident alien status under U.S. immigration law is officially revoked or abandoned.

Substantial Presence Test

Unlike the lawful permanent resident test, the substantial presence test focuses on physical presence in the United States. Under the above test, an alien would be considering as a U.S. resident for tax purposes if:

• The alien is present in the United States for at least 31 days during the current calendar year; and
• The sum of the number of days of U.S. presence during the current calendar year, plus 1/3^rd of the U.S. days during the first preceding calendar year, plus 1/6^th of the U.S. days during the second preceding calendar year, equals or exceeds 183 days.