Whether you owe US tax on income earned outside the United States depends entirely on one question. Are you a US tax resident or a non-resident alien? The answer is not always obvious. Both directions of the wrong answer create problems that take time to unwind.
Quick Answer
US tax residency is determined by either the green card test (any time as a lawful permanent resident in the year) or the substantial presence test (a weighted three-year day count totaling 183 or more, with at least 31 days in the current year). Meeting either test makes you a resident alien, taxed on worldwide income.
1. The Two Tests That Determine Residency
The IRS uses two tests to determine whether a non-US citizen is a US tax resident. Meeting either one is enough.
The green card test
If you are a lawful permanent resident at any point during the calendar year, you are generally treated as a US tax resident for that year, subject to start and end date rules in the year your status begins or ends. Days of physical presence do not matter. The green card alone is sufficient.
Residency under this test ends only when your status is officially revoked or formally abandoned through Form I-407. Letting a green card expire without formal abandonment does not end your US tax residency. The IRS and USCIS operate on different tracks. You can lose your immigration status while still being treated as a tax resident.
The substantial presence test
Without a green card, the IRS counts days in the United States over a three-year rolling window. You are a US tax resident for the current year if both are true:
- At least 31 days present in the current year
- A total of 183 days or more under the weighted formula
Not every day counts. Days as a diplomat, certain government employees, teachers and trainees on J or Q visas, students on F, J, M, or Q visas, and professional athletes competing in charitable events are generally excluded. Days you were unable to leave due to a medical condition that developed during a US stay are also excluded.
2. How to Calculate the 183 Days
The substantial presence threshold is not a count of days in the current year alone. It is a weighted formula across three years.
- Step 1: Count every qualifying day in the current year. That number counts in full.
- Step 2: Count qualifying days from the prior year and multiply by one-third.
- Step 3: Count qualifying days from two years ago and multiply by one-sixth.
- Step 4: Add the three figures. If the total is 183 or more and the current year has at least 31 qualifying days, the test is met.
Worked example: 120 days in the current year, 90 days last year, 60 days two years ago. The calculation is 120 + 30 + 10 = 160. Below 183, so the test is not met for the current year.
The weighted formula is why someone who has been splitting time across countries for several years can trigger US residency without ever spending more than four months in the US in a single year. The prior years follow you.
3. The Remote Worker Trap
Many remote workers assume that because their employer is not a US company, their days in the United States do not count toward residency. That is not how the IRS sees it. The substantial presence test looks at physical presence, not the location of your employer or the source of your paycheck.
If you spend four months a year in the US while working remotely for a company based abroad, those days count. Add the weighted prior-year days, and you may cross 183 without realizing it. The pattern shows up most often in year three of someone splitting time between countries, when the prior-year weights have done most of the counting.
The closer connection exception under Form 8840 is often the primary planning tool in this situation. Whether it applies depends on the facts. The exception is not available if you have applied for adjustment of status or taken steps toward permanent residency at any point during the year.
If you have been splitting time between countries and are not sure whether you crossed the residency threshold, a residency review confirms your position before filing.
4. What Each Status Actually Means
The status you fall into changes what the IRS taxes and what you have to file.
Resident alien
You are taxed the same way a US citizen is taxed. Worldwide income, from every country and every source, is subject to US federal income tax. Your salary from a foreign employer, your rental income from property abroad, your dividends from a foreign brokerage account: all of it goes on your US return.
You file Form 1040. Foreign tax credits and the foreign earned income exclusion may reduce double taxation, but the obligation to report worldwide income is the starting point. Additional reporting includes FBAR (foreign accounts above $10,000 aggregate) and Form 8938 (specified foreign financial assets above thresholds).
If you have an ownership stake in a foreign corporation, residency may also create a Form 5471 obligation. Our post on Form 5471 filing requirements covers who has to file and which category applies.
Non-resident alien
You are taxed only on US-source income. Income earned entirely outside the United States with no US connection is generally outside the reach of US federal income tax.
US-source income for a non-resident falls into two categories: ECI (active US business income, taxed on net at graduated rates) and FDAP (passive US-source income, taxed at 30% gross unless reduced by treaty).
Non-residents file Form 1040-NR. Filing the wrong form is not a clerical issue. The forms produce different results.
Our post on ECI vs FDAP covers the income classification framework that determines how each category is taxed.
5. The Closer Connection Exception
If you meet the substantial presence test but spent fewer than 183 days in the US during the current year, you may be able to claim a closer connection to a foreign country and avoid US tax residency for that year.
To qualify, you maintained a tax home in a foreign country during the year and had a closer connection to that country than to the United States. The IRS looks at where your permanent home is, where your family lives, where your personal belongings are, where you hold licenses and bank accounts, and where you conduct business. Form 8840 is filed to claim the position. Filing on time is required.
The exception is not available if you have applied for adjustment of status or taken steps toward lawful permanent residency at any point during the year.
6. Tax Treaties and Tiebreakers
If you are a tax resident of both the United States and a country with which the US has an income tax treaty, the treaty's tiebreaker rules may determine where you are treated as a resident for tax purposes.
Tiebreakers generally look at where you have a permanent home, where your personal and economic relations are closer, where you have a habitual abode, and finally your nationality. These are applied in sequence.
A successful tiebreaker claim does not eliminate your US filing obligation. It limits what income the US can tax. You are still required to file a US return, disclose the treaty position, and report whatever income remains taxable in the United States.
7. Dual-Status Years
The year you arrive in the US and become a resident is not a full resident year. Neither is the year you leave. These are dual-status years and they have their own filing rules.
In a dual-status year, you are a non-resident alien for the part of the year before you became a resident, and a resident alien for the part after. Income is reported based on which status applied when it was earned.
Dual-status filers face restrictions that full-year residents do not. The standard deduction is generally not available. Joint filing requires an election under IRC Section 6013(g) by your spouse, which brings their worldwide income into the US return for the full year.
Most tax software does not handle dual-status years correctly by default. The wrong primary form, the wrong deductions, or worldwide income wrongly included in the non-resident portion are common mistakes. If you are in a dual-status year, professional preparation is the realistic path.
This post is for general informational purposes only and does not constitute professional tax, legal, or accounting advice for your specific situation. Reading this post does not create a CPA-client relationship. Tax laws are complex and subject to change. If you would like advice tailored to your situation, consult a qualified tax professional, including through the services offered on this site.