SOURCE: US Tax Professionals

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November 02, 2017 17:22 ET

US Tax Accountant Explains When the US Will Tax a Resident Alien on Worldwide Income

US Tax accountant says the green card test or substantial presence test will determine whether the US taxes a resident alien

VANCOUVER, BC--(Marketwired - November 02, 2017) - The US taxes a resident alien on worldwide income in the same manner as it taxes US citizens. According to Mark Schiffer of US Tax Professionals, the green card test or the substantial presence test will determine how an individual is taxed. For more, go to: http://www.us-taxprofessionals.com/wordpress/

An individual will meet the green card test if they are a lawful permanent resident of the US at any time during the calendar year (i.e., are issued a green card). They will meet the substantial presence test if they are physically present in the US for 31 days in the current year and 183 days during a 3-year period that includes the current year and the two preceding years. This is broken down in the following way: (a) counting all the days they were present in current year, (b) ⅓ of the days they were present in first preceding year, and (c) ⅙ of the days they were present in second preceding year.

Consider the following example: a Canadian national who was physically present in the US for 120 days in the current year, 135 days in the first preceding year, and 150 days in the second preceding year. They have been present US for more than 31 days in the current year and for more than 183 days over the three-year period (120 days in the current year + 45 days in the first preceding year (⅓ of 135) + 25 days in the second preceding year (⅙ of 150) = 190). Therefore, they are considered substantially present in the US for the current year and must file a US tax return.

Individuals will generally be treated as present in the US on any day they are physically present in the US at any time during the day. However, there are certain exceptions. For example, any days an individual was unable to leave the US because of a medical condition that developed while in the US. Claiming this will require filing a Form 8843. Teachers, trainees, students, certain athletes, and foreign government employees are exempt individuals and are not treated as being present in the US for purposes of the substantial presence test for a limited period of time.

In these cases, even if the substantial presence test is satisfied, an individual will not be treated as a resident alien (and won't have to file a US tax return) for any year in which there was a closer connection to, or more significant contacts with, a foreign country.

Three requirements must be satisfied to qualify for this "closer connection" exception: (1) an individual must be present in the US during the current year for fewer than 183 days; (2) they must have a tax home in a foreign country during the current year; and (3) during the current year, they must have a closer connection to the foreign country where their tax home is located than to the US.

It's possible to establish a closer connection to a foreign country by showing that the home, family, belongings, social and political organizations, driver's license, and other forms and documents are all located in the foreign country. To claim this exception, an individual must file a Form 8840 or equivalent statement claiming the exemption and providing information necessary.

Reconsider the previous example, except that during the current year, when the individual is physically present in the US for 120 days, their tax home is in Canada. The applicant also establishes that, for the current year, he or she has a closer connection to Canada (including a home shared with a spouse and children) than to the US. Since their presence in the US during the current year fewer than 183 days, they may claim the closer connection exemption for the year (Form 8840).

Bear in mind that even if individuals are treated as a non-residents for the year, they may still be subject to US income tax on (1) US source income and (2) foreign source income effectively connected with the conduct of a US trade or business. More will be posted about this in the future, so remember to check back often.

An experienced tax accountant can maximize advantageous deductions and credits while minimizing the amount owed to the government. To learn more about US Tax Professionals contact (604) 281-3318 or mark.schiffer@us-taxprofessionals.com.

About the Company

US Tax Professionals provide tax services for dual American and Canadian citizens in Vancouver. Founded in 2013, they specialize in taxation for US citizens and expats, taxation and accounting for business, cross border taxation for US and Canadian citizens, as well as accounting and taxation of alternative investments, including private equity funds and hedge funds.

For more information, visit http://www.us-taxprofessionals.com/ or call (604) 281-3318.

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