U.S. Residents are taxable, U.S. Persons: So, What is a “U.S. Resident”?

Under the Internal Revenue Code a Person is liable for fulfilling their U.S. tax obligations if they are a “resident” of the United States. This begs the question, what is a resident, and does the Code’s definition stray from our common sense definition of it? The term “resident” is generally defined as a person who lives somewhere on a long-term basis. It would be hard to legally determine who to tax based upon a subjective idea of what classifies as long-term, so instead, the Code turns the definition to an objective one by codifying three residency tests. As such, the Code’s definition doesn’t stray too far away from the general definition, but it requires a person to undertake a thorough analysis of whether their status under each resident test.

Green Card Test

Under the green card test, if a person has a U.S. green card then they are automatically a U.S. resident. This applies even if you do not have your primary residence in the U.S.

Substantial Presence Test

Under the Substantial Presence Test (SPT) a person is a resident if they are physically present in the U.S. for at least 183 days; accordingly, the SPT is also commonly known as the 183-day rule. However, to be a resident under this test, the 183 day count must be fulfilled in the following manner:

  1. 31 days in the current year; and
  2. 183 days in the three year period that includes the current year and the two years immediately prior, counting:
  • All of the days present in the current year,
  • ⅓ of the days present in the first year prior to the current year; and
  • ⅙ of the days present in the second year prior to the current year.

The SPT also outlines a few exceptions to the day count, including days that a person is present in the U.S. for less than 24-hours and days that a person is with an exempt individual. Accordingly, this day count can get quite complicated, especially if a person has failed to keep track of their U.S. travels.

Election Test

Under this test, a person may elect to be a U.S. resident if, for the taxable year for which the election is being made:

  1. The person is a nonresident alien; and
  2. Either, the person is married to a:
  • U.S. Citizen, or
  • Resident alien.

To make the election, the person must attach a statement of residency election to their joint federal income tax return and do so in a timely manner. A person will not be able to elect U.S. residency, however, if they had previously made an election and it was later terminated by either spouse.