Are you a resident or a nonresident for the IRS?

For the IRS, tax residency is not the same as immigration status. A person without a green card can be a tax resident, and that changes which form is filed and which income must be reported.

Two ways to be a tax resident

The first is holding a green card at any time during the year. The second is meeting the substantial presence test: being in the United States at least 31 days during the year and totaling 183 days or more when counting all days of the current year, one third of the prior year's days and one sixth of the days of the year before that.

Who does not count days

Some people are exempt from counting days, such as F or J visa students for a period of time, certain teachers and researchers, and diplomats. In addition, someone who meets the test but spent fewer than 183 days in the year and keeps a closer connection to another country can claim it on Form 8840.

What changes

A tax resident files Form 1040 and reports worldwide income, and must also report foreign accounts and companies. A nonresident files Form 1040-NR and reports only U.S.-source income, subject to any treaty. The year someone arrives or leaves can be a dual-status year, part resident and part nonresident.

Why planning matters

Someone about to become a tax resident can make decisions before that date that reduce taxes in later years, such as when to sell assets or reorganize foreign companies. After arrival, many of those options no longer exist.