U.S. Tax Issues For Visitors And Work Permit Holders

This article will address concerns about the taxation of non-U.S. citizens who want to visit the U.S. but do not want to trigger liability for U.S. income taxes. While this cannot serve as legal U.S. tax advice, it serves simply as information you can use until you have a chance to confirm your particular situation with your own U.S. tax advisor. To be clear, this advice alone is insufficient to be relied on without further seeking the expertise of a U.S. tax attorney or qualified U.S. tax accountant for your particular situation. That said, here is a simple outline of the situation faced by non citizens coming to the U.S. on visits.

The I.R.S. and the 31 day rule

The starting point in this discussion is the 31 day rule.

The 31 day rule deals with the matter of you being taxable in the United States in any taxation year. If you are not present in the USA for at least 31 days in any taxation year, you will not be taxable. To put it in the opposite, in any year, if you are present for more than 31 days you could be taxable, but only according to the following additional rules dealing with when exactly you establish a “substantial presence” in the U.S. 

Remember: no 31 days in the U.S. in any year = no U.S. tax that year. 

More than 31 days = still no tax, UNLESS:

1) you establish a substantial presence in the U.S. and ALSO UNLESS

2) you have paid no tax anywhere else in the world. See below for more details.

Do not confuse 31 days = no tax with: 

183 days = U.S. substantial presence and U.S. tax.

The IRS and the 183-Day Rule 

In the U.S., the Internal Revenue Service (IRS) uses 183 days as a threshold in the “substantial presence test,” which determines whether people who are neither U.S. citizens nor permanent residents should still be considered U.S. tax residents for taxation purposes.  

The IRS uses a formula to reach 183 days to determine whether someone meets the substantial presence test. To meet the test, and thus be subject to U.S. income taxes, the person in question must:

• Have been physically present at least 31 days during the current year   (ie. no 31 days = no tax) and;
• Have been present 183 days during the last three-year period (that includes the current year and the two years immediately preceding it- see below).

To be considered substantially present in the USA, and therefore taxable, the days in the USA are counted as follows:

• All of the days present during the current year (ie > 31 days).
• One-third of the days present during the previous year.
• One-sixth of the days present two years previously.

What days count for physical presence?

The IRS generally considers someone to have been physically present in the U.S. on a given day if they spent any part of a day there with the following exceptions.

Days that do not count as days of presence include:

• Days that you commute to work in the U.S. from a residence in Canada or Mexico if you do so regularly.
• Days you are in the U.S. for less than 24 hours while in transit between two other countries.
• 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 there.
• Days in which you qualify as exempt, which include foreign-government-related persons under an A or G visa, teachers and trainees under a J or Q visas; a student under an F, J, M, or Q visa; and a professional athlete competing for charity.

U.S. Tax Treaties and Double Taxation

The U.S. has tax treaties with other countries to determine jurisdiction for income tax purposes and to avoid double taxation of their citizens. These agreements contain provisions for the resolution of conflicting claims of residence.

Residents of these partner nations are taxed at a lower rate and may be exempt from U.S. taxes for certain types of income earned in the U.S. Residents and citizens of the U.S. are also taxed at a reduced rate and may be exempt from foreign taxes for certain income earned in other countries. Canada, for example, has such a treaty with the U.S. that leads to lower taxes. In that case, the above rules about U.S. presence still apply, but some exceptions dealing with closer connections to Canada or so-called “tie breaker” situations may be claimed, provided certain forms are filed to make such claims in a timely manner.

Some countries are seen as being tax havens. For example, the Cayman Islands. Generally, a tax haven is a country or a place with low or no corporate taxes that allow foreign investors to set up businesses there. Tax havens typically do not enter into tax treaties and are therefore places where you are shielded from U.S. taxes.

Hopefully this summary will help you better understand your potential liability to U.S. taxation as a non-U.S. citizen. Always check with your own tax advisor to be sure of your specific case.