When Does a Person Become a U.S. Tax Resident?

Introduction

A U.S. tax resident is a person who is required to pay taxes in the U.S. on their worldwide income. The determination of tax residency depends on several factors, such as citizenship, possession of a green card, the number of days spent in the country, and the intention to remain in the U.S. permanently. In this article, we will review the main criteria used to determine tax residency and explore the obligations that tax residents have towards the U.S. Internal Revenue Service (IRS).

1. Main Ways to Determine U.S. Tax Residency

There are three main criteria under which a person can be considered a U.S. tax resident:

1. U.S. Citizenship
2. Green Card Holder (Green Card Test)
3. Substantial Presence Test (SPT)

Let’s examine each of these in more detail.

1.1. U.S. Citizenship

All U.S. citizens are automatically considered tax residents and are required to file a tax return (Form 1040) regardless of their place of residence. This means that even if a U.S. citizen lives abroad, they are still obligated to report their worldwide income to the IRS.

1.2. Green Card Test

Anyone with a valid green card is automatically considered a U.S. tax resident, regardless of the actual time spent in the country.

Special Tax Status of Green Card Holders:

• If a person obtains a green card during the year, they are considered a tax resident from the date of receipt.
• If the green card is revoked or not renewed, the tax status may change (see rules for exiting tax residency).

1.3. Substantial Presence Test (SPT)

If a person is not a U.S. citizen or green card holder, they can still be considered a U.S. tax resident if they have spent a sufficient number of days in the country.

Formula for the Substantial Presence Test:

A person becomes a tax resident if they have been in the U.S.:

• at least 31 days in the current year
• and 183 days in total over the past three years using the following formula:

$Days\; in\; the\; current\; year+31\times (days\; in\; the\; previous\; year)+61\times (days\; two\; years\; ago)\ge 183$

Example of SPT Calculation:

Suppose a person spent the following number of days in the U.S.:

• 2024: 120 days
• 2023: 120 days
• 2022: 120 days

Let’s calculate:

$120+(120\times 1/3)+(120\times 1/6)=120+40+20=180\text{ (less than 183)}$

In this case, the person does not become a tax resident. However, if they had spent at least 130 days in 2024, they would have exceeded the 183-day threshold and become a tax resident.

2. Exceptions and Special Cases

2.1. Exceptions to the SPT (Days of Stay Not Counted)

Certain categories of people can stay in the US without counting those days for the SPT:

✅ Diplomats and Employees of Foreign Governments (holders of A and G visas)
✅ Students and Interns (holders of F, J, M, Q visas — first 5 years do not count)
✅ Transit Passengers (if the person does not leave the airport)
✅ Athletes Participating in Short-Term Competitions

If a person falls under these categories, the days spent in the US do not count towards the SPT, and they do not become tax residents.

3. When Does Tax Residency Begin and End?

3.1. The Start Date of Tax Residency

• Green Card Holders become tax residents from the moment they receive the green card.
• Under the SPT, tax residency begins on the first day of stay in the US in the year the person meets the test conditions.

3.2. The End Date of Tax Residency

• If a person loses their green card, they cease to be a tax resident from the date of cancellation.
• If a person leaves the US and no longer meets the SPT, they lose tax residency from the last day of stay in the US in that year.
• US citizens can only end tax residency by renouncing their citizenship (with the Exit Tax applicable).

4. Tax Consequences for Residents and Non-Residents

4.1. Tax Obligations of US Tax Residents

Tax residents of the US:
✔ Must pay taxes on all worldwide income
✔ Must file an annual tax return (Form 1040)
✔ Must report foreign accounts (FBAR) and assets (FATCA)

4.2. Tax Obligations of US Non-Residents

Non-residents of the US:
✔ Pay taxes only on income from US sources
✔ Must file a tax return (Form 1040NR) only if there is taxable income
✔ Are not required to report foreign assets

5. How to Exit Tax Residency?

To cease being a tax resident of the US, one must:

1. Stop meeting the Substantial Presence Test (SPT).
2. Renounce the Green Card (if applicable).
3. File Form 8854 with the IRS (for citizens renouncing citizenship).
4. Possible Exit Tax (for wealthy individuals).

Conclusion

You can become a tax resident of the US in three ways: through citizenship, a green card, or the Substantial Presence Test. Tax residents are required to pay taxes on all worldwide income, unlike non-residents, who only pay taxes on income sourced in the US. If you are moving to the US or spending a lot of time there, it is important to keep track of your days of stay to avoid unexpected tax obligations.

📌 Need help with taxes in the US?
Our team of professional lawyers will help you understand your tax status, file your tax return, and avoid potential penalties. Contact us for a consultation! 🚀