Tax residency determination for visa holders

The IRS uses two primary tests to determine whether a foreign national is a U.S. tax resident: the green card test and the substantial presence test. Under the green card test, you are a resident if you hold a green card at any time during the year. Under the substantial presence test, you are a resident if you were physically present in the U.S. for at least 31 days during the current year and at least 183 days during the three-year weighted period.

Certain visa types exclude you from the substantial presence test as an exempt individual. F-1 and J-1 students are exempt for up to 5 calendar years. J-1 non-student scholars and teachers are exempt for 2 calendar years. During exempt years, your days in the U.S. do not count toward the substantial presence test. Once your exempt period expires, all days count normally. Importantly, H-1B, L-1, O-1, and E-type visa holders are NOT exempt individuals and all their days count.

During your F-1 years (up to 5 calendar years), your days did not count toward the substantial presence test. Once you switched to H-1B, all days began counting. Now on an L-1, your days continue to count. To determine your current status, count all non-exempt days in the current year and apply the three-year weighted formula, excluding any days during your exempt F-1 period. If you have been on H-1B and L-1 for a combined period that satisfies the 183-day test, you are likely a tax resident.

In the year you transition from nonresident to resident status (or vice versa), you may have a dual-status tax year. For the portion of the year you were a nonresident, you are taxed only on U.S.-sourced income. For the portion you were a resident, you are taxed on worldwide income. You file Form 1040 for the resident portion and attach a statement for the nonresident portion, or file Form 1040-NR with a statement for the resident portion, depending on your status at year-end.

If you become a tax resident under the substantial presence test during the year but were not a resident for the entire year, you may be able to make a first-year election to be treated as a resident for the full year. This can be beneficial if you want to file a joint return with a U.S. spouse or claim certain deductions and credits available only to residents. Conversely, you might prefer dual-status treatment to limit U.S. taxation of foreign income.

Once you determine your residency status, file the appropriate return. Tax residents file Form 1040 and report worldwide income. Nonresident aliens file Form 1040-NR and report only U.S.-sourced and effectively connected income. If you are uncertain, the IRS Interactive Tax Assistant tool can help determine your status based on your specific situation. Working with a tax professional familiar with international taxation is highly recommended.