Foreign National Residency Status
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Why Foreign National Residency Status Is Important
The first thing you must know when filing your tax return is whether you are a resident or nonresident for U.S. tax purposes. If you find that you are both a resident and nonresident in the same year, you are a dual-status alien for whom special rules apply. The designation of resident for tax purposes is completely separate from your immigration status. You might qualify as a resident for tax purposes while remaining a non-immigrant alien for immigration purposes.
If you are a nonresident, you must file a special tax form (Form 1040NR), pay tax only on U.S. source income, are subject to special rates, and could qualify for treaty exemptions. Conversely, if you are a resident for U.S. tax purposes, you are generally under the same rules and file the same forms as a U.S. citizen. That means you report your worldwide income rather than just U.S. source income.
Determining Your Residency Status
To determine your residency status, go to Learn Your U.S. Residency Status and answer the questions. Then, come back here for further explanation. The tests for determining whether you are a resident or nonresident alien for U.S. tax purposes are also explained on the first few pages of IRS Publication 519. Following is a condensed version of that explanation.
The Green Card Test for Foreign Nationals
You are a lawful permanent resident of the United States if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (CIS) has issued you an alien registration card, also known as a "green card".
If you have not met the substantial presence test, you are a U.S. resident for tax purposes beginning on the first day you are present in the United States as a lawful permanent resident. As a resident taxpayer, you must report, for U.S. tax purposes, your worldwide income.
If you are classified as a resident for the entire calendar year, you are generally eligible to claim all deductions and credits available to U.S. citizens and should file Form 1040 (U.S. Individual Income Tax Return). If you are married you can file a joint return with your spouse. As a resident taxpayer, you still might be eligible to claim certain treaty benefits under the U.S. tax treaty with your home country. See Tax Treaties below.
The Substantial Presence Test for Foreign Nationals
To meet the substantial presence test, you must be physically present in the United States during a period (in which you are not an A, F, G, J, M, or Q visa holder) of at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the previous two years, counting:
- All of the days you were present in the current year,
- 1/3 of the days you were present in the first preceding year, and
- 1/6 of the days you were present in the second preceding year
Closer Connection Exception
Even if you meet the substantial presence test, if you are present in the United States for less than 183 days during the calendar year and can establish a closer connection to your home country, you are treated as not meeting the substantial presence test (see IRC Section 7701(b)(3)(B)). However, if you have applied for a green card, this exception won't work (see IRC Section 7701(b)(3)(C)). To claim the closer connection exception, you should include Form 8840 (Closer Connection Exception Statement for Aliens) with Form 1040NR.
Exempt Individuals
An exempt individual is someone whose days in the United States are not counted toward the substantial presence test, NOT someone exempt from tax. If you are an exempt individual, you are a nonresident alien until you either no longer meet the definition of exempt individual, change your visa status, or receive permanent residency status. You are generally in this category if you are:
- An individual temporarily present in the United States as a foreign government-related individual (A or G visa holder)
- A teacher or trainee temporarily present in the United States under a J or Q visa, who substantially complies with the requirements of the visa
- A student temporarily present in the United States under an F, J, M, or Q visa, who substantially complies with the requirements of the visa
- A professional athlete temporarily in the United States to compete in a charitable sports event
Teacher or trainee
If you are a teacher or trainee temporarily in the United States on J or Q status, you will not be exempt from the substantial presence test if you were an exempt individual for fewer than two calendar years out of the last six calendar years. Any day spent in the U.S. during a calendar year counts as a full calendar year.
For example, let's say you entered the U.S. on December 28, 2022, as a trainee on a J visa, and stayed in the States continuously through 2023. Your days in this country are exempt from the substantial presence test for 2022 and 2023, but they all count in 2024. That means you were a nonresident alien in 2022 and 2023. But, if you are in the U.S. for at least 183 days in 2024, you will pass the substantial presence test in 2024. If you remain in the U.S. as a J visa holder, you will be exempt (and classified as a nonresident) in 2029. This is because you were an exempt individual for fewer than two of the prior six calendar years.
Exception: If all of your compensation during the six years is from a foreign employer, the two-year exemption period is extended to four years.
Student
If you are a student temporarily in the United States on an F, J, M, or Q visa, and you have been present in the United States for no more than five calendar years, you are an exempt individual.
For example, let's say you entered the U. S. on June 4, 2019, as an F-1 student visa holder, and have remained here until 2024. You are a nonresident alien for 2019, 2020, 2021, 2022 and 2023. If you are in the U.S. for at least 183 days in 2024, you will pass the substantial presence test in 2024.
Members of the family
If you are an exempt individual, members of your immediate family who are with you in the United States on visas derived from your visa (J-2, F-2, etc.) are also exempt individuals.
If you are employed, make sure your employer withholds taxes from your wages based on your nonresident alien status. That usually means taxes should be withheld allowing for no standard deduction. If the employer does not adequately withhold, you will end up owing the balance when your tax return is filed.
Dual-Status Aliens
A dual-status alien is a foreign national who is both a nonresident alien and a resident alien in the same year. That means your tax return becomes more complicated. Here are the most common circumstances of dual status:
- You enter the U.S. and receive permanent residency status (receive a Green Card) during the year of arrival
- You enter the U.S. and pass the substantial presence test in the year of arrival
- You enter the U.S. and do not pass the substantial presence test, but qualify for and make the First Year Choice election (see below)
- You hold a J, F, M, or Q visa for the first part of the year and receive permanent residency status during the year
- You hold a J, F, M, or Q visa during part of the year, but later change to an H visa or other status eligible to use the substantial presence test, and pass the test
- You leave the United States permanently during a year in which you qualify as a tax resident, but only if certain conditions apply. (See Last Year of Residency in Chapter One of Publication 519.)
For more information, Publication 519 explains how to figure the tax in Chapter Six.
Foreign National Residency Status Examples
Example I.
Mary, from France, arrived in the U.S. as an H1b visa holder on April 15, 2023. Mary remained in the U.S., working for a U.S. employer, for the entire remaining calendar year. Mary was not present in the U.S. in 2021 or 2022. Mary passed the substantial presence test in 2023, since she was present in the U.S. for 260 days in 2023. Mary's residency starting date is April 15, the date of her arrival. She is therefore a dual status resident for 2023 and must file a dual status return. Mary should report only U.S. source income (if any) for the portion of the year prior to April 15, and her worldwide income for the portion of the year after April 14.
Example II.
Assume that Mary in Example I arrived September 15, rather than April 15, 2023. Also assume that Mary was present in the U.S. in 2021 for 120 days and in 2022 for 150 days. Mary does not pass the substantial presence test in 2023, because her total days computed for 2023 are 177 [(120 x 1/6) for 2021 + (150 x 1/3) for 2022 + 107 for 2023]. Mary should therefore file a nonresident tax return.
Example III.
Assume the same facts as in Example II, except Mary spent 180 days in the U.S. in 2022 rather than 150 days. Mary passes the substantial presence test in 2023, because her total days computed for the test are 187 [(120 x 1/6) for 2021 + (180 x 1/3) for 2022 + 107]. Mary must file a dual status tax return, unless she maintains a closer connection to France and qualifies under the closer connection exception provided for in IRC Section 7701(b)(3)(C). In that case she is deemed to be a nonresident and should file a nonresident return showing the closer connection exception on Form 8840.
Year of Departure
You might be a dual-status alien if you permanently left the U.S. during the year. If you left the U.S. to re-establish your residence in your home country after you met the substantial presence test, your residency termination date is generally December 31 of the year you leave. In that case, you are considered a U.S. resident for the entire calendar year. However, you can claim to be a dual-status alien for the year you leave if you meet the following conditions:
- You are not a U.S. resident during any part of the following year, and
- You establish that, after you left the U.S., your tax home was in a foreign country and you had a closer connection to that country than the U.S.
If you meet these conditions, you have the option to determine your residency termination date as the last day in the calendar year that you were physically present in the United States, which means that you will be a dual-status alien for that year.
When filing as a dual-status alien, different rules apply for the part of the year you were a tax resident of the United States and the part of the year you were a nonresident. A dual-status taxpayer cannot use the standard deduction and, if married, cannot file a joint return.
You must file Form 1040NR or Form 1040NR-EZ and write "Dual-Status Return" across the top. Include Form 1040 with your return to show the income and deductions for the part of the year you were a resident. For more detailed instructions, see Chapter Six of IRS Publication 519 (U.S. Tax Guide for Aliens).
Sailing Permit
Before leaving the United States, foreign nationals are generally required to obtain a certificate of compliance, also known as a sailing permit or departure permit, by filing Form 1040-C (U.S. Departing Alien Income Tax Return) with a local IRS office. Visiting students and teachers are not required to get a sailing permit as long as their employment income is authorized by the U.S. Citizenship and Immigration Services (CIS). Several other categories of visa holders are also exempt from the requirement to obtain a sailing permit. See Chapter Eleven of IRS Publication 519 for a complete list.
The First-Year Choice
If you arrive in the U.S. too late during the year to pass the substantial presence test, or if you were an exempt individual during the first part of the year, then changed visas later in the year, you are classified as a nonresident alien for the entire calendar year. However, there is a special election in IRC Sec. 7701(b)(4) to be treated as a resident alien from your date of arrival if you satisfy the following tests:
- You are not otherwise a resident alien for the year
- You were not a resident alien at any time in the immediately preceding year
- You are a resident alien under the substantial presence test for the immediately following year
- You are present in the United States during the election year for a period of 31 consecutive days
- Your days of U.S. presence are 75% or more of the total days between the beginning of the earliest 31 consecutive day period and December 31
If you make this election, you will be a dual-status alien and can potentially claim the Child Tax Credit for any resident dependents, other than your spouse (After 2017, personal and dependency exemptions are no longer allowed). Furthermore, the regulations include an extremely liberal rule that permits an alien who makes this election to also make the election on behalf of dependent children who themselves satisfy the test [Reg. Sec. 301.7701(b)-4(c)(3)(v)]. You must, however, have ITINs for your children to claim them.
Additionally, to make the election you must pass the substantial presence test in the year following the election year, which means you will need to file an automatic extension for your current year return so you can file after you pass the test for the following year.
Combining the First Year Choice with the Joint Return Election
When combined with the First Year Choice election, a further election is available, with the option to file a joint resident return with your spouse, and both will be treated as U.S. residents for the entire year (see The Tax Return below). If you or your spouse are a resident for tax purposes at the end of the year, and the other spouse is a nonresident, you can elect to treat both you and your spouse as residents for the entire year and file a joint resident return.
This rule applies even if the spouse, who is a resident at the end of the year, is a dual-status alien (a nonresident at the beginning of the year). However, if you and your spouse make this election on a joint return, you are both required to report your worldwide income for the entire year. See The Tax Return below for more information.
Under this election, you can claim the standard deduction and other tax benefits available to U.S. citizens and residents, but you are subject to tax on your worldwide income for the entire calendar year. In order to eliminate double taxation, the foreign tax credit and possibly the foreign earned income exclusion are available to reduce or eliminate double taxation.
Example IV.
Simon arrived in the U.S. for the first time on September 1, 2023 with his wife and daughter from his home country, Australia. Simon and his family are L visa holders. Simon is a nonresident alien for U.S. tax purposes in 2023.
On a nonresident return, Simon gets no benefits for family members. However, Simon and his family can choose to make the First Year Choice election to be treated as residents from the date of arrival. This would make Simon a dual status alien for 2023. (Beginning in 2018, deductions are no longer allowed for personal and dependency exemptions.)
Additionally, if Simon and his wife choose to make a joint resident return election under IRC Sec. 6013(h), they could file a joint resident return for 2023 and claim the standard deduction. However, on the resident return, Simon would be required to report worldwide income for his (and his wife's) entire calendar year. For income received prior to their arrival, the foreign tax credit is available to offset double taxation.