Generally, all U.S. citizens and resident aliens are legally obliged to file 1040 and be taxed on their worldwide incomes. When we say resident aliens, they constitute taxpayers, who are Greencard holders or who meet Substantial Presence Test.
Here we will discuss what Substantial Presence Test is and how taxpayers can avoid being subject to filing 1040 and pay taxes on their worldwide incomes IF this test is met.
SUBSTANTIAL PRESENCE TEST (SPT)
Internal Revenue Service has laid down the formula to determine whether you meet the test or not, using your days of presence in the United States. To meet the test, both conditions below need to be satisfied.
- Be present in the United States for at least 31 days in current year and
- Be present in the United States for 183 days or more in total during current year and 2 preceding years. It is calculated as –
- Current year days in the United States X 1 …………… days
- First preceding year days in the United States X 1/3 …………… days
- Second preceding year days in the United States X 1/6 …………… days
- Days you commute to work in the U.S. from a residence in Canada or Mexico, if you regularly commute from Canada or Mexico.
- Days you are in the U.S. for less than 24 hours, when you are in transit between two places outside the United States.
- Days you are in the U.S. as a crew member of a foreign vessel.
- Days you are unable to leave the U.S. because of a medical condition that develops while you are in the United States.
- Days you are an exempt individual.
- Presence in U.S. for 183 or more days in current calendar year itself.
- Possess Greencard.
- Applied for or have taken affirmative steps to apply for, a Greencard or have application pending to change your status to Greencard holder.