When Foreign Individuals Should File a US Tax Return

As you’re likely aware, the 2020 tax season was… interesting. The tax professionals at AZ tackled many unique returns this year and found a trend: there’s some confusion as to when foreign individuals may need to file a US return. The following are a few common instances when a foreign individual may need to file a US return:

If You Do Business or Are Physically in the US

You must file a return if you are engaged or considered to be engaged in a trade or business in the United States during the year. You may also be required to file a return if you meet the substantial presence test and you have US source income.  To meet this test, you must be physically present in the United States on at least:

  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
    • All the days you were present in the current year, and
    • 1/3 of the days you were present in the first year before the current year, and
    • 1/6 of the days you were present in the second year before the current year.

How to Know if You Are Exempt

There are always exceptions to most rules and these rules can be very complex depending on an individual’s particular situation.  Here are some of the exceptions to the substantial presence test.  Do not count the following days of presence in the United States:

  • Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or Mexico.
  • Days you are in the United States for less than 24 hours when you are in transit between two places outside the United States.
  • Days you are in the United States as a crew member of a foreign vessel.
  • Days you are unable to leave the United States because of a medical condition that arose while you were in the United States.
  • Days you are an exempt individual.

An exempt individual may be anyone in the following categories:

  • An individual temporarily present in the United States as a foreign government-related individual under an A or G visa.
  • A teacher or trainee temporarily present in the United States with a J or Q visa who substantially complies with the requirements of the visa.
  • A student temporarily present in the United States with an F, J, M, or Q visa who substantially complies with the requirements of the visa; or
  • A professional athlete temporarily present to compete in a charitable sports event.

As always, it’s a good idea to consult with a tax professional regarding these matters and your personal situation. The Anderson ZurMuehlen International Tax team is pleased to be a resource to you!

This article was written by Jane Schultz, CPA and Senior Manager in our Bozeman office.

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