The United States Citizenship and Immigration Services (USCIS) uses two different tests to determine an individual’s immigration status for tax purposes. Both tests are used to determine an individual’s immigration status for tax purposes, but they are not mutually exclusive.
- The Green Card Test; and
- The Substantial Presence Test.
An individual may be considered a legal permanent resident of the United States, but still, need to pass the Substantial Presence Test to be considered a resident alien for tax purposes.
It’s important to note that passing the Substantial Presence Test does not necessarily make an individual a legal permanent resident of the United States. An individual may be considered a resident alien for tax purposes, but still, be considered a non-resident alien for immigration purposes.
Key Takeaways | Green Card and Substantial Presence Test
- Green card and substantial presence tests determine the individual’s resident status for tax purposes.
- The Green Card Test is used to determine if an individual is a legal permanent resident (LPR) of the United States. To pass the Green Card Test, an individual must have a valid Green Card (also known as an Alien Registration Receipt Card or Form I-551) and must not have abandoned their permanent resident status.
- The Substantial Presence Test is used to determine if an individual is considered a resident alien for tax purposes. To pass the Substantial Presence Test, an individual must have been physically present in the United States for at least 183 days during the current year, for at least 31 days during the current year and 183 days during the three-year period that includes the current year and the two years immediately preceding it.
- You may (some exceptions apply) still need to pay taxes to the U.S. government whether or not you are a legal permanent resident of the United States. These tests help the IRS determine whether you are a resident for tax purposes.
- Unless you are exempt, it is illegal not to pay taxes. Failure to honor your tax obligations could jeopardize your immigration status. And in most cases, it could lead to deportation from the United States.
Green Card Test, Explained
A Green Card Test is a test that determines whether a green card holder, also known as a lawful permanent resident (LPR), should be treated as such for U.S. federal tax purposes.
To pass the Green Card Test, the green card holder must have a valid green card (Form I-551 or Alien Registration Receipt Card) and be physically present in the United States at any time (for at least a day) during the calendar year. The green card holder must not have abandoned their permanent resident status.
Read More | Can I Stay in the U.S. While Waiting for a Green Card?
Substantial Presence Test, Explained
This test is used by the IRS to determine whether an individual can be considered a resident alien for tax purposes. If you meet both of the conditions below, you are considered a U.S. resident for tax purposes.
- 31 days in the current year; and
- 183 days or more during the three-year period, which consists of the current year and the two immediately preceding years.
Here is how to calculate the total days for the Substantial Presence Test:
- take all days you were present in the U.S during the current calendar year;
- add them to one-third (⅓) of days of presence during the previous calendar year; and
- add them to one-sixth (⅙) of days of presence during the second-preceding calendar year.
If the total number of the figures obtained in the above calculation equals at least 183 days, you have passed the 183-day test or in other words, you will be considered a U.S. resident for tax purposes.
There are some exceptions you need to know about, as discussed below.
Days of presence in the U.S. do not count in the following circumstances:
- you commute from a residence in Mexico or Canada;
- you are physically present in the United States for less than 24 hours in transit;
- you cannot leave the United States due to a medical condition developed during your stay in the U.S.;
- you are considered an exempt individual; or
- you are a regular crew member of a foreign vessel traveling between the U.S. and a foreign country or a possession of the U.S.
Who Is An Exempt Individual for Tax Purposes?
You may be exempted from the Substantial Presence Test if you are a student on an F-1 or J-1 visa or a teacher or researcher on a J-1 visa.
You may be exempt from the Substantial Presence Test for 5 calendar years. To qualify, you must be a student living in the U.S. under the F, J, M, or Q immigration status (nonimmigrant visa classifications in the United States).
- F-1 visas are given to students who are attending an academic program or language training program.
- J-1 visas are given to individuals who are participating in exchange visitor programs, such as students, scholars, trainees, teachers, professors, research assistants, and specialists.
- M-1 visas are given to students who are attending a vocational or nonacademic program.
- Q-1 visas are given to individuals participating in international cultural exchange programs.
- All of these visa classifications have specific requirements, limitations, and expected duration of stay, and they are generally expected to return to their home countries after completing their programs.
Teachers or researchers living in the U.S. under the J or Q immigrant status are excluded from the Substantial Presence Test for any 2 years of the current and past six calendar years.
- J-1 and Q-1 are nonimmigrant visa classifications in the United States.
- J-1 visas are given to individuals who are participating in exchange visitor programs, such as students, scholars, trainees, teachers, professors, research assistants, and specialists.
- Q-1 visas are given to individuals participating in international cultural exchange programs.
- Both J-1 and Q-1 visa holders are generally expected to return to their home countries after completing their programs.
Note that any part of a calendar year the student, teacher, or researcher is physically present in the U.S. counts as a full year.
In addition, a foreign government-related individual with an A or G visa may be considered exempt. The same applies to an athlete in the United States temporarily competing in a charitable event.
- A visa is a diplomatic visa that is issued to foreign government officials, their immediate family members, and other individuals working for their country’s diplomatic mission in the United States. There are two types of A visa: A-1 for ambassadors and other high-ranking officials, and A-2 for other diplomatic staff.
- G visa is a non-diplomatic visa issued to representatives of international organizations and their immediate family members. There are different types of G visas such as G-1, G-2, G-3, and G-4.
- These visa holders have a special status and are generally not subject to immigration laws that apply to other nonimmigrant visa holders. They are also generally not subject to paying taxes in the US.
Lastly, time spent as an ‘exempt individual’ will not count toward the 183 days in the United States.
You can find more information about visa categories here.
I Live In U.S. Territory (Not the Mainland U.S.) Is There An Exception?
For tax purposes, the substantial test determines the total number of days the individual has been residing in the United States. Keep in mind that the term United States, in this case, refers to any of the following:
- All 50 states of the U.S., including the District of Columbia;
- All United States territorial waters; and
- All seabeds and subsoils adjacent to U.S. waters.
You may still need the green card and Substantial Presence Test if you don’t live in U.S. mainland territory.
What Next After Determining Your Tax Residency Status?
Once you have determined your tax status, you must file your taxes under the correct residency status. These include the following:
1) Residency for Tax Purposes
Here are a few things you should know if you are considered a resident alien.
The rules for filing estate, gift, or even income taxes and paying taxes are the same regardless of location. These rules apply whether you are in the United States or abroad.
In addition, your global earned income may be subjected to the same income tax system as a U.S. citizen.
It is also worth noting that, in some cases, an alien may elect to be considered a U.S. resident alien for tax purposes. For example, for insurance, suppose you are a resident alien, and your spouse is a nonresident alien at the end of the tax year. In that case, the two of you can elect to treat the nonresident alien spouse as a U.S. resident alien.
To do this, you will need to file Form 1040 under the married filing jointly filing status.
2) Non-Residents for Tax Purposes
According to the IRS, a nonresident is any individual who:
- engages or is considered to be engaged in a trade or business with the U.S. during the year;
- has a U.S. income on which the withholding of tax at the source of the income did not meet the tax responsibility;
- is a fiduciary of a nonresident alien trust or estate; or
- is a domestic or resident fiduciary or any individual responsible for the care of the individual or property of a non-resident
The above description is an overview of the IRS requirements when determining whether an individual is a non-resident. For more updated information, please refer to the official IRS website.
Should I Apply for a Green Card for Tax Purposes?
Obtaining a permanent resident status can have tax implications for non-U.S. citizens.
- If you are a permanent resident, you are generally subject to the same U.S. federal income tax rules as a U.S. citizen. This means that you must report all worldwide income on your U.S. tax return, regardless of where you earned it or where you currently live.
- If you are only present in the United States for a limited period of time each year, you may qualify as a “nonresident alien” for tax purposes, which would mean you would only be taxed on your U.S. source income. There are tax treaty agreements between the US and other countries that could affect your tax liability as a nonresident alien
Obtaining a green card will make you subject to U.S. tax laws and it’s important to understand the implications before making a decision.
