A foreign national becomes a resident alien for tax purposes by passing either the “green card” or “substantial presence” tests as described in IRS Publication 519, U.S. Tax Guide for Aliens.
Green Card Test
If a foreign national has been issued a Permanent Resident Card, also known as a green card or USCIS Form I-551, the person is said to have passed the “green card” test.
The right to lawful permanent residence is granted at the time of the final interview with the U.S. Citizenship and Immigration Services (USCIS) or the U.S. Department of State (DOS) officials and can be evidenced not only by the Permanent Resident Card but also by a stamp in the applicant’s passport which states “temporary evidence of lawful permanent status”. The Permanent Resident Card may not be manufactured or mailed for several months after the final interview, and this stamp provides immediate proof of permanent status.
Substantial Presence Test
Counting Days
A person is a resident alien for tax purposes for the calendar year if she or he meets the “substantial presence” test. The visa type dictates if there are any years in which a nonresident alien is exempt from the “substantial presence” test.
Note: The counting rules are based on calendar years, not twelve-month periods and days counted do not need to be consecutive.
Days Counted
The person must be physically present in the U.S. on at least:
• 31 days during the current year, and
• 183 days during the three-year period that includes the current year and the two preceding calendar years,
counting:
- All of the days the person was present in the current year, and
- 1/3 of the days the person was present in the first preceding year, and
- 1/6 of the days the person was present in the second preceding year.
Example: An individual is present in the U.S. for 84 days in 2014, 168 days in 2013, and 261 days in 2012, then the test would show residency, with 183.5 days of presence.
SUBSTANTIAL PRESENCE TEST CALCULATION
Days Not Counted
- J-1 non-student visa holder (professor, researcher, etc.), who is substantially complying with the requirements of the visa, does not count days present in the first two calendar years.
- F-1 or J-1 student visa holder, who substantially complies with the requirements of the visa, does not include days present in the first five calendar years.
Note: The counting rules are based on calendar years, not twelve-month periods.
Example 1: A J-1, non-student, foreign visitor enters the U.S. on December 15, 2012. So, 2012 is the "first calendar year", even though the foreigner was only present for 16 days during 2012. 2013 is the "second calendar year". This individual would begin counting days present in the U.S. on 1/1/2014 and would become a resident on July 2, 2014. The full 183 days in the current calendar year are required for residency because there are no countable days in the prior two years.
Example 2: When an individual is exempt from counting days in a year, those days are never used for future SPT periods. An F-1 or J-1 student can be exempt from counting days only once, but the five-year period can be split between visits. J-1 non-students can use their two exempt years repeatedly, being allowed two years in every seven. A J-1 researcher, who first came to the U.S. in 2005 and 2006, was exempt both years, returned as a J-1 teacher in August 2011, and had to count days under the SPT to determine residency and pay FICA taxes in 2011, because he had two exempt years within the prior six. However, in 2012, he is again exempt from counting days (and FICA), because he has only one exempt year in the previous six. In 2013, he would also be exempt, and if he left in 2013 he would be a nonresident for all three years (August - Dec 2011 does not equal 183 days).
SUBSTANTIAL PRESENCE TEST CALCULATION
Circumstances that Disqualify Foreign Nationals from the Substantial Presence Test
A person will not meet the substantial presence test if (1) they are present in the U.S. on fewer than 183 days during the current year, and (2) if they establish that they have a tax home in a foreign country in the current year, and (3) that they have a closer connection to that foreign country than to the U.S. (discussed in detail in IRS Publication 519, U.S. Tax Guide for Aliens).
To retain nonresident status after five years, F-1 student visa holders must establish that they have a closer connection with the foreign country than to the U.S.
Closer Connection Exception to the Substantial Presence Test
Even though a foreign student may pass the substantial presence test, an exception exists in U.S. law which would allow the foreign student to continue to be treated as a nonresident alien.
The Internal Revenue Code contains two exceptions to the substantial presence test which can be used by aliens to maintain nonresident status. First, there is the general exception to the substantial presence test available to all aliens under I.R.C. § 7701(b)(3)(B) and (C) and Treas. Reg. § 301.7701(b)-2 (known as the closer connection exception). Most foreign students cannot use this exception, however, because of the requirement that the alien cannot have been physically present in the United States during the current year for more than 183 days, and the requirement that the alien’s tax home be located outside the United States. Most foreign students fail both of these tests.
The second exception to the substantial presence test for aliens is set forth in I.R.C. § 7701(b)(5)(D) and (E) and in Treas. Reg. § 01.7701(b)(7)(ii). The exception is available only to alien students (not teachers/researchers, etc.), and contains four requirements for its application. The student.
- Does not intend to reside permanently in the United States;
- Has substantially complied with the immigration laws and requirements relating to his student nonimmigrant status;
- Has not taken any steps to change his nonimmigrant status in the United States toward becoming a permanent resident of the United States; and
- Has a closer connection to a foreign country than to the United States as evidenced by the factors listed in Treasury Regulation 301.7701-2(d)(1).
The burden of proof is on the student to prove these four factors. To claim the exception for students on an income tax return, a student should attach Form 8843 to his Form 1040NR or 1040NR-EZ.
Federal Withholding Taxes and Tax Treaties
The George Mason University is a withholding agent for the Internal Revenue Service (IRS) and is required to withhold tax. All payments made to a nonresident alien are taxable unless specifically exempt from tax by IRS Code or a treaty.
If a foreign national has been issued a Permanent Resident Card, also known as a green card or USCIS Form I-551, the person is said to have passed the “green card” test.
The right to lawful permanent residence is granted at the time of the final interview with the U.S. Citizenship and Immigration Services (USCIS) or the U.S. Department of State (DOS) officials and can be evidenced not only by the Permanent Resident Card but also by a stamp in the applicant’s passport which states “temporary evidence of lawful permanent status”. The Permanent Resident Card may not be manufactured or mailed for several months after the final interview, and this stamp provides immediate proof of permanent status.
Substantial Presence Test
Counting Days
A person is a resident alien for tax purposes for the calendar year if she or he meets the “substantial presence” test. The visa type dictates if there are any years in which a nonresident alien is exempt from the “substantial presence” test.
Note: The counting rules are based on calendar years, not twelve-month periods and days counted do not need to be consecutive.
Days Counted
The person must be physically present in the U.S. on at least:
• 31 days during the current year, and
• 183 days during the three-year period that includes the current year and the two preceding calendar years,
counting:
- All of the days the person was present in the current year, and
- 1/3 of the days the person was present in the first preceding year, and
- 1/6 of the days the person was present in the second preceding year.
Example: An individual is present in the U.S. for 84 days in 2014, 168 days in 2013, and 261 days in 2012, then the test would show residency, with 183.5 days of presence.
SUBSTANTIAL PRESENCE TEST CALCULATION
Days Not Counted
- J-1 non-student visa holder (professor, researcher, etc.), who is substantially complying with the requirements of the visa, does not count days present in the first two calendar years.
- F-1 or J-1 student visa holder, who substantially complies with the requirements of the visa, does not include days present in the first five calendar years.
Note: The counting rules are based on calendar years, not twelve-month periods.
Example 1: A J-1, non-student, foreign visitor enters the U.S. on December 15, 2012. So, 2012 is the "first calendar year", even though the foreigner was only present for 16 days during 2012. 2013 is the "second calendar year". This individual would begin counting days present in the U.S. on 1/1/2014 and would become a resident on July 2, 2014. The full 183 days in the current calendar year are required for residency because there are no countable days in the prior two years.
Example 2: When an individual is exempt from counting days in a year, those days are never used for future SPT periods. An F-1 or J-1 student can be exempt from counting days only once, but the five-year period can be split between visits. J-1 non-students can use their two exempt years repeatedly, being allowed two years in every seven. A J-1 researcher, who first came to the U.S. in 2005 and 2006, was exempt both years, returned as a J-1 teacher in August 2011, and had to count days under the SPT to determine residency and pay FICA taxes in 2011, because he had two exempt years within the prior six. However, in 2012, he is again exempt from counting days (and FICA), because he has only one exempt year in the previous six. In 2013, he would also be exempt, and if he left in 2013 he would be a nonresident for all three years (August - Dec 2011 does not equal 183 days).
SUBSTANTIAL PRESENCE TEST CALCULATION
Circumstances that Disqualify Foreign Nationals from the Substantial Presence Test
A person will not meet the substantial presence test if (1) they are present in the U.S. on fewer than 183 days during the current year, and (2) if they establish that they have a tax home in a foreign country in the current year, and (3) that they have a closer connection to that foreign country than to the U.S. (discussed in detail in IRS Publication 519, U.S. Tax Guide for Aliens).
To retain nonresident status after five years, F-1 student visa holders must establish that they have a closer connection with the foreign country than to the U.S.
Closer Connection Exception to the Substantial Presence Test
Even though a foreign student may pass the substantial presence test, an exception exists in U.S. law which would allow the foreign student to continue to be treated as a nonresident alien.
The Internal Revenue Code contains two exceptions to the substantial presence test which can be used by aliens to maintain nonresident status. First, there is the general exception to the substantial presence test available to all aliens under I.R.C. § 7701(b)(3)(B) and (C) and Treas. Reg. § 301.7701(b)-2 (known as the closer connection exception). Most foreign students cannot use this exception, however, because of the requirement that the alien cannot have been physically present in the United States during the current year for more than 183 days, and the requirement that the alien’s tax home be located outside the United States. Most foreign students fail both of these tests.
The second exception to the substantial presence test for aliens is set forth in I.R.C. § 7701(b)(5)(D) and (E) and in Treas. Reg. § 01.7701(b)(7)(ii). The exception is available only to alien students (not teachers/researchers, etc.), and contains four requirements for its application. The student.
- Does not intend to reside permanently in the United States;
- Has substantially complied with the immigration laws and requirements relating to his student nonimmigrant status;
- Has not taken any steps to change his nonimmigrant status in the United States toward becoming a permanent resident of the United States; and
- Has a closer connection to a foreign country than to the United States as evidenced by the factors listed in Treasury Regulation 301.7701-2(d)(1).
The burden of proof is on the student to prove these four factors. To claim the exception for students on an income tax return, a student should attach Form 8843 to his Form 1040NR or 1040NR-EZ.
Federal Withholding Taxes and Tax Treaties
The George Mason University is a withholding agent for the Internal Revenue Service (IRS) and is required to withhold tax. All payments made to a nonresident alien are taxable unless specifically exempt from tax by IRS Code or a treaty.
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