How Do You Know if You are Nonresident or Resident for Tax Purposes?
The type of tax return filed by noncitizens is determined by a variety of factors:
- Number of days you were present in the United States over the most recent three year period. This is called the substantial presence test. A formula is used to determine whether your residency status for income tax purposes is that of nonresident, dual status (part-year resident) or a full-year resident.
- Whether you left the country in a prior year and then returned during the current tax year.
- Your visa type and perhaps the number of years you have been in the United States, usually F and J visa types.
- Whether you have waived, either intentionally or unintentionally, tax treaty benefits available for your visa type. This usually applies to students with an F-1 visa.
- Whether you were married at any time during the tax year and remained married on December 31 of the applicable tax year. This applies even if your spouse is still in your home country and has never been to the United States.
- Whether you have left the United States and are filing your final U.S. tax return or if you plan to return in the following year.
- Your country of citizenship or resident status. Sometimes you may be a citizen of one country, but come to the U.S. from a different country where you have been living for a period of time. The tax treaty of the country of your most recent residency may apply instead of the tax treaty of your country of
- There are more factors to be considered depending upon your particular situation. U.S. taxes for noncitizens can be quite complicated. You may have choices that could allow you to take advantage of tax benefits in the U.S., but affect your tax return filing in the country where you previously lived and worked.
Be Cautious About Some Tax Preparation Company Advertisements
There are some tax services advertising that they can get you the largest refund by taking advantage of all the special laws for H-1 and L-1 workers for itemized deductions. Be very careful if a tax preparer advises you to file a tax return claiming these deductions. Ask the preparer to explain the laws for work-related deductions, especially those for housing, transportation and meals. Ask the preparer which tax form he is using to file the return and for an explanation as to why you qualify to use that tax form under the substantial presence test. Sadly, there are some tax preparers who don’t understand the tax laws for noncitizens or who will take advantage of them to make a quick dollar.
This past May 2015 , a young man asked me to explain a letter he received from the IRS. Another tax service had prepared his return. One of his friends suggested he come in to show me the letter. Instead of sending him the refund of all his tax withholdings as promised to him by the return preparer, the IRS was instructing him to send them proof of the itemized deductions on his tax return for…housing, transportation and meals. His refund would not be issued until they had reviewed the proof. He showed me his tax return and, sure enough, the return was on the incorrect tax form and had claimed itemized deductions that were clearly not allowed under the law. Instead of getting a legally allowed modest refund, the young man’s welcome to the United States tax system was a pre-refund audit.
Substantial Presence Test
The substantial presence test determines
- the forms you use when filing your return
- the type and sources of income you must report to the IRS
- whether you can claim tax benefits for a spouse or dependent on your return
- whether you qualify for special elections to claim tax benefits
The test is a mathematical formula applied to the number of days you were physically present in the United States. Here it is, generally:
All of the days in the current tax year, even if you were in the country on a visitor visa + 1/3 of the days in the immediately preceding year + 1/6 of the days in the year before the immediately preceding year.
If the total is 183 days or more, but less than the entire current tax year, you will generally default to being taxed as a dual status taxpayer, what I call part-year resident. That’s provided you were in the U.S. for the last 31 days of the year.
If the total is less than 183 days, your tax status will default to nonresident.
There are special elections that could be considered if you are married on December 31 of the current tax year. For example, if you were married at any time during 2015, and you were still married on December 31, 2015, your marital status for tax purposes is married. You could even get married on December 31 and your tax filing status would still be married for the entire 2015 tax year.
Tax Laws for Nonresidents, Dual Status and Full Year Residents
Just as there are specific forms for each tax filing status (nonresident, dual status or resident) there are specific laws and restrictions that apply for each status. Noncitizens often don’t understand this and inadvertently file their tax returns using the wrong form and the incorrect set of laws.
Correcting Inaccurate Returns
Taxpayers who have filed incorrect tax returns should correct them as soon as they learn that the returns are inaccurate. Failure to do so could result in the IRS assessing penalties and interest in addition to more taxes. The penalties can be quite high if you are audited and the understatement of tax on your return exceeds certain thresholds.
Judy Coker, EA, CAA has had over 13 years of education, training and experience preparing and correcting tax returns. She is also a Certified Acceptance Agent who can help you apply for an Individual Taxpayer Identification Number (ITIN) from the IRS. You can make an appointment online using the online scheduler. Your questions about costs are answered, in general, in our Cost of Services page.