Substantial Presence Test


The Substantial Presence Test is a criterion used by the Internal Revenue Service in the United States to determine whether an individual who is not a citizen or lawful permanent resident in the recent past qualifies as a "resident for tax purposes" or a "nonresident for tax purposes"; it is a form of physical presence test. The SPT should be used in conjunction with the Green Card Test. An individual who satisfies either one or both of these tests is treated as a resident for tax purposes.

Summary of the test

Formula used by the IRS

The SPT features a number of exemptions. Ignoring the exemptions, the criterion is as follows. Note that the criterion is used to determine residency for tax purposes for people who are not citizens and fail the Green Card Test.
In particular, any individual who was in the United States in a non-exempt status for more than 6 months during the tax year qualifies the SPT and must be treated as a resident for tax purposes.

Definition of United States for physical presence

"Physical presence in the United States" refers to presence in one or more of the following areas:
Any day that an individual was present physically in any United States for any part of the day counts as a day of physical presence, with the following exceptions:
Individual meeting the Substantial Presence Test at the time of tax filing are treated as a resident for tax purposes for the part of the calendar year starting from the first day of physical presence in the United States including the part of the year before accruing a substantial presence in the United States.
That can lead to minor inconsistencies and complications in the tax return. While the individual was getting paid by an employer prior to accruing a substantial presence, the employer may have been operating under the assumption that the individual would be a nonresident for tax purposes and using the tax deduction laws and reporting requirements associated with employing nonresidents. At the time of tax filing, any retrospective inconsistency between the status that the employer believed the individual had at that time and the status as it appears to be by the end of the year must be reconciled.
However, an individual may choose to exempt the first 10 days if the individual is able to establish a closer connection to a foreign country and the individual's tax home was the foreign country.

Significance

Tax forms to file

Residents for tax purposes are generally required to file Form 1040 or one of its variants. Non-residents for tax purposes are generally required to file Form 1040NR. For those who are nonresidents for tax purposes, the relevant information about when the person was present in the United States, and the calculations based on that to show that the person fails the SPT, are done in Schedule OI, which is the fifth and last page of Form 1040NR. Those who would otherwise qualify as residents for tax purposes under the SPT, but are seeking an exemption, may need to file additional forms as discussed in the [|exemptions section].

Tax liability

Nonresidents for tax purposes may not be allowed to take the standard deduction that is available to residents for tax purposes. The tax exemptions permitted for a nonresident depend on the nature of tax agreement between the nonresident's country of tax residence and the United States.
Also, nonresidents who are in certain types of statuses are not required to pay Social Security or Medicare taxes for employment that falls within their status. However, this is not really specific to nonresidents, since residents for tax purposes are also exempt from Social Security and Medicare taxes for income earned where the employer is the educational institution, subject to a number of caveats. However, the distinction becomes relevant to on-campus employment not by the university, as well as to off-campus employment undertaken under Optional Practical Training or Curricular Practical Training: students in such employment need to pay Social Security and Medicare taxes if and only if they have become residents for tax purposes.

Relation between residency for tax purposes and citizenship and immigration status

Residency for tax purposes does not imply permanent residency

It is possible to be a resident for tax purposes in the United States but not a permanent resident of the United States. A non-citizen can be a permanent resident of the United States only by holding a Green Card. On the other hand, people on non-immigrant visas may well be treated as residents for tax purposes.

Resident and nonresident aliens

Some aliens can claim exemptions from the substantial presence test.

Foreign government-related individual

A foreign government-related individual is an individual who is temporarily present in the United States:
The relevant visas that correspond to these exemptions are the A visa and the G visa. These visas include both the visas granted to people who are directly involved in the government-related or diplomatic jobs, and their spouses and minor children.
There is no limit on the number of days that can be excluded from the Substantial Presence Test for a foreign government-related individual.

Special status: F, J, M, Q, medical conditions, or athletes

In calculating days of presence for the substantial presence test, a person can exclude a few calendar years present on a F visa, J visa, M visa, or Q visa. In addition, individuals can exclude days of presence due to medical conditions and if attending charitable sports events. Explicitly, the four types of exclusions possible are:
A person seeking exemption in this manner is required to file Form 8843 along with his or her tax return. In fact, even those who have no income need to file Form 8843 to inform the IRS that they are in student status and are not residents for tax purposes. For those with taxable income, Form 8843 must be filed as part of the tax return by the usual tax filing deadline and for those with no taxable income, the filing deadline is June 15.

Closer connection to a foreign country

There are two "closer connection" exceptions available:

First-year choice

Some aliens may, under some circumstances, elect to file "dual-status" returns, treating part of their tax year as being in nonresident status and part of it in resident status. In order to be able to elect to file as a dual-status alien, an individual must meet both of the following requirements:
If the individual elects to file as a dual status alien, the residency starting date for the tax year is the first day of the earliest 31-day period that is chosen to qualify for the choice.
That option is typically used by people who expect to become residents for tax purposes in the next year.

Options related to spouses and joint filing

People who are filing jointly with their spouses may have the option of electing to file as residents for the whole year despite being otherwise dual-status.

Similar tests in other countries