Tax Residency in the United States
1. Criteria for Determining Tax Residency
According to the Internal Revenue Code (IRC) Section 7701(a)(38), an individual is considered a resident of the United States for tax purposes if they meet either the green card test or the substantial presence test.
Green Card Test: An individual is a resident if they are a lawful permanent resident (LPR) of the United States.
Substantial Presence Test: An individual is a resident if they are physically present in the United States for at least 31 days during the current calendar year and 183 days during the three-year period that includes the current year and the two preceding years.
2. Impact of International Tax Treaties
The United States has entered into tax treaties with over 60 countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, under the US-Canada tax treaty, an individual is considered a resident of the United States if they have a "substantial connection" to the United States. This includes factors such as their permanent home, family ties, and economic interests.
The treaty also provides a tie-breaker rule for individuals who are considered residents of both the United States and Canada under each country's domestic law. In such cases, the individual is considered a resident of the country where they have their "closer connection."
Conclusion
The criteria for determining tax residency in the United States are complex and can be affected by international tax treaties. It is important to consult with a tax professional to determine your residency status and the potential tax implications of any cross-border activities.
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