The IRS determines residency for tax purposes based on its own rules. Your residency for immigration purposes is not necessarily the same as your residency for tax purposes.
If you are a non-resident alien, you should make sure you understand your tax filing requirements to avoid unexpected IRS tax debt and other issues.
Determining Tax Residency
If you are not a U.S. citizen, there are two ways you can become a resident for tax purposes:
- The green card test.
- The substantial presence test.
The green card test is fairly straightforward. If you have a green card, you become a resident for tax purposes. Like U.S. citizens, you’ll be taxed on your worldwide income.
The substantial presence test is more complicated. To meet the requirements for this test, you must be physically present on U.S. soil for at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the prior two years, counting all the days present in the current year, one-third of the days present in the prior year, and one-sixth of the days present on the year before the prior year.
If you are close to meeting the substantial presence test, make sure you understand the consequences. A non-resident alien will only be taxed on their U.S. source income, while a resident alien will be taxed on their worldwide income.
You should also be aware of foreign tax treaties, which could reduce the amount of tax you pay on U.S. source income.
The other thing to watch out for if you meet the substantial presence test is that you may trigger a Foreign Bank Account Report (FBAR) filing requirement. If your main home is in another country, there’s a good chance you maintain a bank account in that country which may need to be reported on an FBAR.
Residents generally have an FBAR requirement if the total of your foreign financial assets exceeds $10,000 at any time during the year. The FBAR is not filed with your regular tax return and must be filed using the Financial Crimes Enforcement Network’s e-filing system.
The failure to file an FBAR can result in a $10,000 penalty for non-willful violations and much larger penalties for willful violations. If you have unfiled FBARs for prior years, you should talk to a tax attorney about your offshore disclosure options.
The Gartzman Law Firm handles offshore disclosure and other tax resolution cases. Use our contact form to request a consultation with an Atlanta tax resolution attorney.