Federal Income Tax Requirements for Foreigners

Without a doubt Miami has become an international metropolis. Anyone reading this article who lives in Miami will likely know someone who is trying to figure out what their responsibilities are for income tax filing at the end of this year. It’s critical to know that violating your income tax reporting responsibilities by someone who has been given residency may be regarded as “abandoning their resident status” by U.S. Citizen and Immigration Service. This indirectly says make sure you get good professional advice.

The application of U.S. tax law is not easy. An initial consultation with any tax professional will ask a whole variety of questions. Some of these questions will be:

(1)  What type of Visa do you have?

(2)  What is your purpose in the U.S.?

(3)  Where do you live?

(4)  How many days have you been in the U.S. in the past three years?

(5)  How do you make a living and support yourself?

(6)  What is your marital status?

(7)  Do you have a social security number or ITIN?

(8)  What is your tax home?

(9)  What country issued your Passport?

It’s very important that you be able to answer each question precisely and have documentation to support your answers. The trouble is, more often than not a foreigner’s Visa, or initial reason for coming to the U.S. and perhaps staying longer than expected becomes not only part of their journey, but now part of a tax advisor’s journey to find the right answers to tax compliance.

Are you a Resident or Non Resident?

The first question we need to address is what category of foreigner are you? Are you a “Resident” or a “Non- Resident” Please keep in mind this may not have anything to do with your Visa or intention.

Generally, “Resident” Aliens are treated as U.S. taxpayers and file form 1040.  If you have income from abroad, you are generally required to report “World Wide Income”. Good news is you get credit for taxes already paid in another country. If you are a “Non – Resident” you may need to file form 1040NR and you are generally taxed on U.S. Source Income. Even if you are deemed a “Resident Alien” there is an exception to being treated as a U.S. taxpayer if you can meet the conditions under the “Closer Connection Exception”. This generally means your true tax home is somewhere else. This is important for those foreigners who have a vacation home in the U.S., stay on average more than 183 days (discussed later), but really are on an extended vacation. (Many people in Miami these days buying nice condos who may not need to file)

Your “Residency Status” is determine by two tests. Either the (1) Green Card Test or (2) The Substantial Presence Test.

The Green Card Test is fairly simple. If you have been authorized and given the privilege to reside in the U.S., as an immigrant, by the U.S. Citizenship and Immigration Service (USCIS) then you generally meet this test. Your are in fact a resident.

The Substantial Presence Test, really is the catch all. This test states; if you have been in the United States at least 183 days in the past three years then, you are regarded as a “Resident”, if not you are a “Non-Resident” The issue lies in the calculation of the 183 days. Generally, its; All the days of the current year, plus 1/3 the days of the immediate prior year, plus 1/6 the days of the second preceding year. Get all those entry and exit Visa stamps, look through airline ticket purchases, recall your wonderful times traveling and start counting!

The important thing to note is that it does not matter if you applied for residency, have a green card or not. If you forgot to leave and stayed 183 days or more, you just vacationed your way into a new tax home.

All the tax issues, concerns and variables can be rather complicated. It’s possible “Tax Treaty” Provisions may apply for your country. Gathering your information first is key. Then call a qualified tax advisor and stay away from the tax return mills. Each person’s situation is different so every factor needs to be taken into account.