It is fairly well known that United States Citizens and Green Card holders are subject to taxation in the United States on their worldwide income (with few exceptions). However, it is generally less well known that substantial presence in the U.S. can also lead to taxation in the U.S.
The formula used to determine whether presence in the U.S. leads to taxation is as follows:
Add all of the days in the present year to 1/3 of the days of the prior year and 1/6 of the days from two years ago.
As a rule of thumb, substantial presence is reached if one spends 122 days in the U.S. for any three consecutive year period (122 + 122/3 + 122/6 = 183 days).
To prevent taxation under the above formula, one may be able to certify a closer connection to the home country to the Internal Revenue Service thereby requesting that one not be subject to taxation in the United States.
This certification is not possible for anyone who exceeds 182 days in the current year or if one has taken affirmative steps to becoming a legal permanent resident (i.e. by participating in the “green card lottery”).
In such cases, relief may still be possible under an income tax treaty, although such relief may be limited as information returns and foreign bank account reports must still be filed.
As the new year approaches it is important to take steps to properly plan trips to avoid unintended consequences.
Disclaimer: This article is for general information only and is not intended as legal advice.