Contact UsHow long can I stay in the U.S. and how much income can I earn in the U.S. before I have to pay U.S. taxes and file U.S. tax returns? How do I avoid double-taxation of the same income in two countries if I am a resident or citizen of a country outside the U.S.?
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Tax Professional Answers
John Walker JD, LLM
If you are a U.S. citizen or a Green Card holder, you will be liable to U.S. income taxation on your world- wide income, no matter where earned or where you are living. The United States is one of the only countries that levies income taxes based on citizenship. Even so, if you are neither a U.S. citizen or a Green Card holder, then you may be liable for U.S. taxation based upon the Substantial Presence test. If you are physically present in the U.S. for at least thirty-one days in a tax year and a total of at least 183 days in a tax year in the U.S., then you will be subject to U.S. income taxation on your world-wide income under the same laws and tax rates as a U.S. citizen. If you do not meet the Green Card or Substantial Presence test, then you may still be required to file an IRS form 1040NR.
The number of days for the Substantial Presence test is determined as follows. All of the days in the current tax year spent in the U.S., plus 1/3 (0.333) of the days spent in the U.S. the previous year, plus 1/6 (0.167) of the days spent in the U.S. the year two years prior to the current tax year are summed. If they equal at least 183, and you were physically present in the U.S. for at least thirty-one days during that tax year, then you meet the Substantial Presence test. For example, if the tax year is 2010, then the number of days determining tax residency would be equal to the number of days spent in the U.S. in 2010, plus 1/3 of the days spend in the U.S. in 2009, plus 1/6 of the days spent in the U.S. in 2008. (There are some exemptions for what constitutes “physically present” in the U.S. for the Substantial Presence test. See instructions to IRS Form 1040NR (2011)).
The amount of money earned in the U.S. affects your tax rates, but does not determine whether you are liable to U.S. tax laws. If you are not a U.S. person, or do not meet the Green Card test or the Substantial Presence test, then you are classified as a non-resident alien (NRA). As an NRA, if you were involved in a U.S. trade or business, you must file IRS Form 1040NR, even if you earned no money in the U.S. from your trade or business, had any U.S. source income, or even if your income is exempt from U.S. taxation. Note that additional tax forms may be required. Whether you are involved in a U.S. trade or business is beyond the scope of this comment and requires advice of competent counsel.
Income paid to you as an NRA will be subject to a 30% withholding tax, payable to the IRS by the U.S. person who pays you. This rate can be reduced under a double tax treaty.
Double taxation is avoided through double tax treaties. The U.S. must have an “in force” tax treaty with your country of domicile, and you must qualify for the tax treaty benefits. Most U.S. tax treaties have limitations on benefits (LOB) provisions, so it is best to seek competent counsel familiar with tax treaties to determine whether you can qualify for double taxation relief.
CIRCULAR 230 NOTICE--NOT A RELIANCE OPINION; NOT A MARKETED OPINION. THIS COMMENT WAS NOT INTENDED OR WRITTEN BYWALKER LAW FIRM, LLC, TO BE USED, AND CANNOT BE USED, BY ANYONE FOR THE PURPOSE OF (i) AVOIDING U.S. TAX PENALTIES, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED OR STATED HEREIN. THIS COMMENT IS NOT TREATED AS A MARKETED OPINION BECAUSE "(A) THE ADVICE WAS NOT INTENDED OR WRITTEN BY WALKER LAW FIRM, LLC TO BE USED, AND IT CANNOT BE USED BY ANY TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER; (B) THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTION(S) OR MATTER(S) ADDRESSED BY ANY WRITTEN ADVICE; AND (C) THE TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER'S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR." 31 C.F.R. SECTION 10.35(b)(4)(ii); 31 C.F.R. SECTIONS 10.35(b)(5)(i) and (b)(5)(ii)(A), (B) AND (C).
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623 weeks ago
The number of days for the Substantial Presence test is determined as follows. All of the days in the current tax year spent in the U.S., plus 1/3 (0.333) of the days spent in the U.S. the previous year, plus 1/6 (0.167) of the days spent in the U.S. the year two years prior to the current tax year are summed. If they equal at least 183, and you were physically present in the U.S. for at least thirty-one days during that tax year, then you meet the Substantial Presence test. For example, if the tax year is 2010, then the number of days determining tax residency would be equal to the number of days spent in the U.S. in 2010, plus 1/3 of the days spend in the U.S. in 2009, plus 1/6 of the days spent in the U.S. in 2008. (There are some exemptions for what constitutes “physically present” in the U.S. for the Substantial Presence test. See instructions to IRS Form 1040NR (2011)).
The amount of money earned in the U.S. affects your tax rates, but does not determine whether you are liable to U.S. tax laws. If you are not a U.S. person, or do not meet the Green Card test or the Substantial Presence test, then you are classified as a non-resident alien (NRA). As an NRA, if you were involved in a U.S. trade or business, you must file IRS Form 1040NR, even if you earned no money in the U.S. from your trade or business, had any U.S. source income, or even if your income is exempt from U.S. taxation. Note that additional tax forms may be required. Whether you are involved in a U.S. trade or business is beyond the scope of this comment and requires advice of competent counsel.
Income paid to you as an NRA will be subject to a 30% withholding tax, payable to the IRS by the U.S. person who pays you. This rate can be reduced under a double tax treaty.
Double taxation is avoided through double tax treaties. The U.S. must have an “in force” tax treaty with your country of domicile, and you must qualify for the tax treaty benefits. Most U.S. tax treaties have limitations on benefits (LOB) provisions, so it is best to seek competent counsel familiar with tax treaties to determine whether you can qualify for double taxation relief.
CIRCULAR 230 NOTICE--NOT A RELIANCE OPINION; NOT A MARKETED OPINION. THIS COMMENT WAS NOT INTENDED OR WRITTEN BYWALKER LAW FIRM, LLC, TO BE USED, AND CANNOT BE USED, BY ANYONE FOR THE PURPOSE OF (i) AVOIDING U.S. TAX PENALTIES, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED OR STATED HEREIN. THIS COMMENT IS NOT TREATED AS A MARKETED OPINION BECAUSE "(A) THE ADVICE WAS NOT INTENDED OR WRITTEN BY WALKER LAW FIRM, LLC TO BE USED, AND IT CANNOT BE USED BY ANY TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER; (B) THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTION(S) OR MATTER(S) ADDRESSED BY ANY WRITTEN ADVICE; AND (C) THE TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER'S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR." 31 C.F.R. SECTION 10.35(b)(4)(ii); 31 C.F.R. SECTIONS 10.35(b)(5)(i) and (b)(5)(ii)(A), (B) AND (C).
Chuck Heyde, CPA, CGMA
Re: Robert D'Ambrosi's comment above - the 183 day rule relates to whether or not the taxpayer is a Full Year resident - not taxable income.
Re: John Walker's comments above - this assumes the taxpayer is a US Citizen.
In response to the question asked above, it is NOT a matter of how long as it is a question of how much income you can earn before you have a filing requirement. In the US once a taxpayer earns income in excess of their standard deduction (which would be zero for a non-resident like you) and their personal exemption ($3,800 for 2012) they would have a filing requirement in the US. So to answer part 1 of your question - once you earn more than $3,800 you have a filing requirement in the US.
In terms of part 2 - to avoid double taxation you first look at how many days spent in the US to determine your filing status (full year, part year / dual status, or non-resident). These filing statuses determine what income is taxable. Then you look to avoid double taxation via the use of tax credits, and finally if these two items don't help, you look to the income tax treaties to help avoid double taxation. Some tax treaties will allow non-US residents to claim the foreign exclusion (http://gemms.us/tools/foreign-earned-income-exclusion).
I hope this answers your questions.
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597 weeks ago
Re: John Walker's comments above - this assumes the taxpayer is a US Citizen.
In response to the question asked above, it is NOT a matter of how long as it is a question of how much income you can earn before you have a filing requirement. In the US once a taxpayer earns income in excess of their standard deduction (which would be zero for a non-resident like you) and their personal exemption ($3,800 for 2012) they would have a filing requirement in the US. So to answer part 1 of your question - once you earn more than $3,800 you have a filing requirement in the US.
In terms of part 2 - to avoid double taxation you first look at how many days spent in the US to determine your filing status (full year, part year / dual status, or non-resident). These filing statuses determine what income is taxable. Then you look to avoid double taxation via the use of tax credits, and finally if these two items don't help, you look to the income tax treaties to help avoid double taxation. Some tax treaties will allow non-US residents to claim the foreign exclusion (http://gemms.us/tools/foreign-earned-income-exclusion).
I hope this answers your questions.