Substantial Presence Test

The substantial presence test is the day-count rule that treats an alien individual as a resident of the United States for federal income tax purposes for a calendar year. Both prongs have to be met: the individual was present in the United States on at least 31 days during the calendar year, and the sum of the days present in the current year and the 2 preceding calendar years, each multiplied by the applicable multiplier, equals or exceeds 183 days (26 U.S.C. 7701(b)(3)(A)). Meeting it makes the person a resident alien for that year, the same result the green card test and the first-year election reach on different facts, and failing all three leaves the person a nonresident alien (26 U.S.C. 7701(b)(1)(A)). In a first year of residency the individual is treated as a resident only for the portion of the calendar year which begins on the residency starting date, which under this test is the first day during that calendar year on which the individual is present in the United States (26 U.S.C. 7701(b)(2)(A)).

How the Weighted Count Works

The count is weighted rather than a running total. Days in the current year count in full, days in the first year before the current year count as 1/3 of the days present, and days in the second year before the current year count as 1/6 (IRS, Substantial presence test).

Say an individual holds no green card, made no election, is not an exempt individual, has no tax home or closer connection in a foreign country, and was physically present on the days below.

stated inputs, days physically present
  current year                        150
  first preceding year                 90
  second preceding year                60
  raw days across the three years     300

weighted count
  current year, counted in full       150
  first preceding year, 1/3 of 90      30
  second preceding year, 1/6 of 60     10
  weighted total                      190

31-day prong    met, 150 is at least 31
183-day prong   met, 190 is at least 183
result          resident alien for the current year

A different individual on the same day counts, but with a tax home in a foreign country and a closer connection to that country, would not be treated as meeting the test, because presence in the current year is fewer than 183 days (26 U.S.C. 7701(b)(3)(B)). The test is also rerun for each calendar year on that year’s own facts, so a prior year’s conclusion is not carried into the current file (26 U.S.C. 7701(b)(1)(A)).

Which Days Do Not Count

An individual is not treated as present on any day the individual is an exempt individual, or on any day the individual was unable to leave the United States because of a medical condition which arose while the individual was present in the country (26 U.S.C. 7701(b)(3)(D)). Three further day types are also excluded: days an individual regularly commutes to employment or self-employment in the United States from a place of residence in Canada or Mexico, days in transit between 2 points outside the United States on which the individual is physically present for less than 24 hours, and days a regular member of the crew of a foreign vessel engaged in transportation between the United States and a foreign country or a US possession is temporarily present, unless that individual otherwise engages in a trade or business in the United States on such day (26 U.S.C. 7701(b)(7)).

Exempt individual is a term of art, and it does not mean exempt from US tax. It covers a foreign government-related individual, a teacher or trainee, a student, and a professional athlete temporarily in the United States to compete in a qualifying charitable sports event (26 U.S.C. 7701(b)(5)(A)).

Two of those categories expire, on different clocks. A teacher or trainee stops being exempt for the current year if, for any 2 calendar years during the preceding 6 calendar years, that person was an exempt person as a teacher, trainee or student (26 U.S.C. 7701(b)(5)(E)(i)). That count becomes 4 calendar years rather than 2 for an individual all of whose compensation is described in section 872(b)(3), which covers pay from a foreign employer during temporary presence as a nonimmigrant under subparagraph (F), (J), or (Q) of section 101(a)(15) of the Immigration and Nationality Act (26 U.S.C. 872(b)(3)).

A student’s allowance runs longer and is measured differently. After the 5th calendar year for which the individual was an exempt individual as a teacher, trainee or student, the student exemption stops unless the individual establishes both no intent to reside permanently in the United States and compliance with the visa requirement (26 U.S.C. 7701(b)(5)(E)(ii)). The IRS reads that as any part of more than 5 calendar years, so a partial year consumes a whole one (IRS, Exempt individual, who is a student).

The exclusion is claimed, not assumed. Anyone excluding days as an exempt individual or for a medical condition files Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition, with the income tax return, or alone by the return due date where no return is required. Filing it late forfeits the days entirely, absent clear and convincing evidence of reasonable actions to become aware of the requirement and significant steps to comply (IRS, Substantial presence test).

The Closer Connection Exception

Clearing the weighted total does not always settle the answer. An individual is not treated as meeting the test for a current year if present in the United States on fewer than 183 days that year and it is established that, for that year, the individual has a tax home in a foreign country and a closer connection to that country than to the United States (26 U.S.C. 7701(b)(3)(B)). Tax home there carries its section 911(d)(3) meaning, read without the second sentence of that provision. It is closed to anyone who took steps toward a green card during the year, including a pending application for adjustment of status (26 U.S.C. 7701(b)(3)(C)).

Its filing vehicle is Form 8840, Closer Connection Exception Statement for Aliens (IRS, About Form 8840), attached to the federal income tax return or mailed to the service center by the return due date, and filing it late forfeits the exception on the same clear and convincing standard (IRS, Closer connection exception to the substantial presence test).

What It Is Commonly Confused With

The green card test. The other route to the same result on different facts, met by holding lawful permanent resident status at any time during the calendar year rather than by counting days (26 U.S.C. 7701(b)(1)(A)).

The section 911 physical presence test. A different test with a similar name and the opposite direction of travel, met by presence in a foreign country during at least 330 full days in any 12 consecutive months, and it unlocks the foreign earned income exclusion rather than creating US residency (26 U.S.C. 911(d)(1)(B)).

The bona fide residence test. The other section 911 route, decided on the character of a US citizen’s residence abroad rather than on any day count.

Common Questions

Firms absorbing residency determinations and nonresident returns on top of a domestic busy season can put a block of that preparation through a trial task before any of it reaches a client file.