US citizens (regardless of where they reside) and residents (collectively, US persons) are subject to US income tax on worldwide income.2 On the other hand, individuals who are neither citizens nor residents of the United States (non-resident aliens) are subject to US income tax only on certain types of US-sourced income, income effectively connected with a US trade or business and gains on the sale of US situs real property.3
A non-citizen of the United States is considered a resident of the United States for income tax purposes if the individual:
- is admitted for permanent residence (i.e., holds a green card);
- elects to be treated as such; or
- has a substantial presence in the United States in a given calendar year.4
An individual satisfies the substantial presence test and is deemed a resident if he or she has been present in the United States for at least 31 days in the current year and for at least 183 days during a three-year period that includes the current year, determined based upon a weighted three-year average.5
The use of this weighted average can become a trap for individuals who focus only on the total day count and who believe that they can spend up to 182 days each year in the United States without having a substantial presence that will cause them to be considered a US resident for income tax purposes. Under the weighted average test, a person may spend, on average, up to 120 days in the United States each year without being treated as a US income tax resident under the substantial presence test. An individual who meets the substantial presence test but spends less than 183 days in the United States in a year can still avoid being treated as a US income tax resident if he or she can establish that the individual maintains his or her tax home in another jurisdiction and maintains a 'closer connection' to such foreign tax home by filing a Form 8840 (Closer Connection Exception Statement for Aliens) with the IRS.6 It is also important to consider whether a non-US citizen may be entitled to protection under a tax treaty between the United States and the jurisdiction the individual considers to be his or her home.
Travel restrictions implemented in response to the covid-19 pandemic could impact an individual's residency determination under the substantial presence test. In response to these concerns, the IRS published Revenue Procedure 2020-20, allowing an eligible individual to exclude up to 60 consecutive calendar days of presence in the United States beginning on or after 1 February 2020 and on or before 1 April 2020, if certain criteria are met. Such relief is referred to as the covid-19 medical condition travel exception. An eligible individual is someone who:
- was not a US resident at the close of the 2019 tax year;
- is not a lawful permanent resident at any point in 2020;
- was present in the United States on each day of such 60-day period; and
- did not become a US resident in 2020 due to days of presence in the United States outside of the 60-day period.7
To claim the covid-19 medical condition travel exception, an eligible individual was required to file a Form 1040-NR (US non-resident alien income tax return), and for 2020 had to include Form 8843 (statement for exempt individuals and individuals with a medical condition) as an attachment to Form 1040-NR. An eligible individual not required to file a Form 1040-NR for 2020 does not need to file Form 8843 to claim the covid-19 medical condition travel exception, but should retain records justifying his or her reliance on the exception and be prepared to produce such records and complete a Form 8843 if so requested by the IRS.8
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