You may think you’re just friends with Uncle Sam, but he may have a deeper commitment in mind…
We spend a lot of our time talking with non-U.S. residents who spend significant amounts of their time in the United States. Far too often, we wind up talking with people who incurred some type of U.S. tax or filing obligation without knowing it. Those conversations frequently include statements like, “Well, it’s not like I obtained my citizenship, or pledged allegiance or anything. I just spent the winter in Florida!” In some cases, that can be enough.
Are You a U.S. Tax “Person”?
To figure out whether you are required to file a U.S. tax return, you first need to determine if you are a “person” for U.S. tax purposes. Federal law describes 3 categories of individuals that qualify as “persons” for U.S. taxes:
- U.S. Citizens—You would think that most people who incur a U.S. tax obligation because they are U.S. citizens would know that up front, and for the most part that’s true. However, every now and then, we do encounter people who may have been born in the U.S. and lived out of the country most of their lives, or someone with a parent who has U.S. citizenship. In some cases, these people may have an obligation without even realizing it.
- U.S. Green Card Holders—One of the most frequently asked questions from non-U.S. citizens who hold Green Cards is, “Do I have to file a U.S. tax return?” Basically, unless you relinquish the Green Card, you still need to file a Federal return even if you leave the U.S. You may not owe money, but the government will still be looking for a return from you as long as you hold the card.
- The Substantial Presence Test—Most non-U.S. citizens who unknowingly incur a tax obligation in the States qualify under this category. To meet the test, you must be physically present in the U.S. on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 years immediately prior.
The calculation of the 183 days is weighted toward the most recent days in the measurement period by counting:
- All the days you were present during the current year,
- 1/3 of the days you were present in the first year before the current year, and
- 1/6 of the days you were present in the second year before the current year.
Even if you meet the substantial presence test, it is possible that you may still not qualify as a U.S. tax “person.” Depending on the purpose of your visit and your visa status, you may qualify as an “exempt individual” on some or all of the days you were physically present in the U.S. Also, under certain conditions, you may be eligible for treatment as a nonresident alien if you qualify for an exception given to individuals with a “closer connection to a foreign country” or by reason of a treaty.
If you spend significant time in the United States, or you’re planning to do so in the near future, you should consult a tax professional who is familiar with the filing obligations of non-residents before you go. If you have spent significant time in the U.S. previously and haven’t filed any income tax returns, you should consult a tax professional who is familiar with U.S. rules quickly. People who have a filing obligation in the States but do not file a return or other informational filings that may be required, such as FBARs, can be subject to penalties and interest that grow larger over time.