Omar Bennett
The US tax system imposes income tax on US persons, which includes US citizens, lawful permanent residents (green card holders), and tax residents. Tax residents are determined by the substantial presence test, which evaluates physical presence in the US over a three-year period. US persons are taxed on all forms of income, including foreign income and financial accounts, and must comply with US tax laws and reporting obligations. Nonresident aliens, on the other hand, are taxed only on US-sourced income and income connected to a trade or business conducted within the US. Understanding the definition of a US person for tax purposes is crucial for tax compliance and planning, especially for individuals with connections to the US.
| Characteristics | Values |
|---|---|
| U.S. Citizen | Born in the U.S., naturalized, or born abroad to U.S. parents |
| U.S. Lawful Permanent Resident | Green Card Holder |
| Tax Residents | Determined by the substantial presence test, which evaluates physical presence in the U.S. over a three-year period |
| Nonresident Aliens | Only taxed on U.S.-sourced income and income connected to a trade or business within the U.S. |
| Resident Alien | A foreign person who is not a U.S. citizen but meets specific residency criteria |
| Corporations | Created or organized under U.S. laws |
| Partnerships | Organized under U.S. laws |
| Trusts | Formed under U.S. laws and meeting a combination of "U.S. court" and "U.S. control" tests |
| Estates | Based on a "facts and circumstances" test |
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What You'll Learn
US citizens
For US federal income tax purposes, a "US person" includes US citizens, lawful permanent residents (green card holders), and tax residents. US citizens include individuals born in the US and those born abroad to at least one US parent. Green card holders are individuals who have been granted the permanent right to reside in the US, and they are considered US persons for tax purposes regardless of whether they are living in the US or abroad. Tax residents are determined by the substantial presence test, which evaluates physical presence in the US over a three-year period.
The substantial presence test, also known as the day count test, looks at the number of days an individual has spent in the US over the current calendar year and the two preceding years. An individual must be physically present in the US for at least 121 days in each of the three years to be considered a US resident for tax purposes. However, certain categories of individuals, such as students, teachers, and foreign government-related individuals, are exempt from this test and may qualify for tax exemptions or reduced rates under tax treaties.
It is important to note that an individual can be both a non-resident and a resident for US tax purposes during the same tax year, typically in the year they arrive or depart from the US. In such cases, a dual-status income tax return must be filed. While both US citizens and US persons must adhere to tax and reporting obligations, including reporting foreign financial accounts and global income, not all US persons are citizens. For example, a lawful permanent resident living abroad may be classified as a US person for tax purposes but not as a US citizen.
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Lawful permanent residents (green card holders)
Lawful permanent residents, or green card holders, are considered US persons for tax purposes. This is true regardless of whether they are living in the US or abroad.
Green card holders are individuals who have been granted the permanent right to reside in the US, as long as they comply with any restrictions imposed on that grant. Their tax responsibilities as green card holders do not change if they are absent from the US for any period of time. They are required to comply with US tax laws, which involve reporting global income and foreign financial accounts.
Green card holders must continue to file tax returns until there has been a final determination that their green card has been revoked or abandoned. This means that even if the US Citizenship and Immigration Service (USCIS) no longer recognizes the validity of a green card—for example, due to prolonged absence from the US or if the card is more than ten years old—the holder must continue to file returns until there is a final determination that is not subject to appeal.
It is possible to be both a non-resident and a resident for US tax purposes during the same tax year. This usually occurs in the year that an individual arrives in or departs from the US, and they must file a dual-status income tax return.
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Tax residents
The test calculates the number of days an individual has been present in the US in the current year and the two preceding years. For example, to determine residency status for 2021, you would count all the days spent in the US in 2021, plus one-third of the days spent in 2020, plus one-sixth of the days spent in 2019. If the total is more than 183 days, the individual is considered a US resident for tax purposes for that year.
It is important to note that certain categories of individuals, such as students, teachers, and foreign government-related individuals, are exempt from counting their days of physical presence in the US. These individuals may need to file Form 8843 to claim their exempt status.
Additionally, an individual's "tax home" is typically their principal place of business or, if they have no regular place of business, their primary place of residence. The IRS considers an individual's closer connections to another country when determining their tax residency status. This includes factors such as the location of business activities, the jurisdiction of their driver's license, and the country of residence designated on official forms and documents.
It is possible to be both a non-resident and a resident of the US for tax purposes in the same tax year, usually the year an individual arrives in or departs from the country. In such cases, individuals need to file a dual-status income tax return.
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Nonresident aliens
A nonresident alien is any individual who is not a US citizen or national. To be considered a resident alien, one must pass the "green card test" or the "substantial presence test". Nonresident aliens are further categorized into two groups: those who are engaged in a trade or business in the United States and those who are not.
It is important to note that some nonresident aliens are exempt from US tax. These include foreign government-related individuals, nonresident alien spouses treated as resident aliens, and certain students, teachers, and trainees on specific visas. Additionally, an individual can be both a nonresident and a resident for US tax purposes in the same tax year, usually the year they arrive in or depart from the United States, and they would need to file a dual-status income tax return.
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Resident aliens
A resident alien for US tax purposes is a foreign national who meets either the “green card” or “substantial presence” test. The "substantial presence" test considers the number of days spent in the US over a three-year period, including the current calendar year and the two preceding years. An individual must be physically present in the US for at least 183 days during this period to meet the criteria.
However, certain individuals, including students, teachers, diplomats, and employees of certain international organizations, are exempt from counting their days of physical presence and may qualify for an exception to the time limits. For instance, F and J student visa holders are considered resident aliens after five calendar years in the US, while J researchers and professors are considered resident aliens after two years.
If an individual meets the "substantial presence" test but was present in the US for fewer than 183 days in the current calendar year, maintains a tax home in a foreign country, and has a closer connection to that country, they may still be treated as a non-resident alien by filing a Form 8840.
It is important to note that an individual can be both a non-resident and a resident alien for US tax purposes in the same year, typically the year they arrive in or depart from the country. In such cases, they must file a dual-status income tax return. Resident aliens must follow the same tax laws as US citizens, reporting their worldwide income from all sources and filing a Form 1040 or Form 1040-SR.
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Frequently asked questions
A US person for tax purposes includes US citizens, lawful permanent residents (green card holders), and tax residents. Tax residents are determined by the substantial presence test, which evaluates physical presence in the US over a three-year period.
The substantial presence test, also known as the day count test, evaluates the number of days an individual has spent in the US over a three-year period, specifically the calendar year in question and the preceding two years. For example, if an individual is physically present in the US for 121 days in each of 2019, 2020, and 2021, their total number of weighted days would be 181.5 (121 + 40⅓ + 20⅙). Since this is less than 183 days, the individual would not be considered a US resident in 2021.
While all US citizens are considered US persons for tax purposes, not all US persons are citizens. For example, a lawful permanent resident living abroad or a foreign national meeting the substantial presence test would be classified as a US person for tax purposes but not as a US citizen.
