Tax & Accounting Blog

Foreign Nationals: Resident Alien or Nonresident Alien and Why It Matters: Part 7 – Substantial Presence Test

1099, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management December 3, 2012

Foreign nationals who are not green card holders (also called nonimmigrants) who are substantially present in the U.S. over a period of years are also resident aliens. Nonimmigrants are substantially present if their countable U.S. days (including partial days) over three calendar years equal or exceed 183 days based on a formula. The 183-day formula considers all of the countable U.S. days in the current calendar year, plus one-third of their countable U.S. days in the prior year, plus one-sixth of their countable U.S. days in the second preceding year.

Nonimmigrants whose countable U.S. days under the formula equal or exceed 183 are residents unless an exception applies. Nonimmigrants are nonresidents if they:

  • Have fewer than 31 countable U.S. days in the calendar year in question, regardless of the mathematical results of the above-mentioned formula;
  • Can support a claim of a closer connection to a foreign country than to the U.S. on IRS Form 8840, Closer Connection Exception Statement; or
  • Can support a claim of nonresidency status under a residency tiebreaker rule of an applicable income tax treaty.

Nonimmigrants whose U.S. presence satisfies the formula are resident aliens retroactively to their first countable U.S. day in the calendar year. Under an anti-lapse rule, a resident alien remains a resident alien unless they have at least one full calendar year in nonresidency status, either because they are out of the U.S. or all of their U.S. days do not count because of a F, J, M or Q immigration status.

Nonimmigrants may fail to satisfy the 183-day formula because some or all of their U.S. days do not count for purposes of determining their U.S. residency status. For example, the following days do not count:

  • Days spent in the U.S. for a medical condition that arose while the foreign national was in the U.S. (Form 8843 required),
  • Days commuting from a residence in Canada or Mexico to work (but not to study) in the U.S.,
  • A day (i.e., less than 24 hours) passing through the U.S. from one foreign location to another foreign location (provided no business meeting is carried on during the stop), and
  • Days of a professional athlete engaged in a charitable event in the U.S. (Form 8843 required).

Nonimmigrants in certain categories, called Exempt Individuals, are also exempt from counting U.S. days for purposes of the 183-day residency formula for certain periods. By not counting U.S. days, foreign nationals remain nonresidents for longer periods of time regardless of their actual days of physical presence in the U.S.