What Is the Substantial Presence Test?

The Substantial Presence Test or SPT determines your tax residency. If you’re a foreign national, then you will be taxed by the U.S. government, or IRS, as a resident alien. To determine this, the SPT is conducted. While understanding the concept can be a bit overwhelming, it’s not complicated. In this guide, we’ll explain what the SPT is and what you need to know about the test as a non-resident.

What Is the Substantial Presence Test?

The Substantial Presence Test is a test devised and conducted by the IRS to determine whether or not non-resident aliens should be treated as taxpayers in the United States. Well, to be precise, it counts the number of days you were physically present in the U.S. to determine your residency for tax purposes.

This test is split into two parts. The first is the 31-day test, and the second is the 183-day test. The first test checks whether or not you were physically present in the U.S. for at least 31 days for a particular calendar year. The second test checks whether or not you were physically present in the U.S. for 183 days for a period of three years, including the current year for which the test is being conducted. To qualify for U.S. tax residency, you need to satisfy at least one of the two-test criteria.

For the first year, all the days you were present in the U.S. are taken into consideration. But for the second year, only one-third of the days are considered. For the third year, only one-sixth of the total days are counted.

Just like U.S. citizens, resident aliens are not taxed upfront but at the end of the year. But non-resident aliens are taxed up front. If you do not meet the 183-day test, then you’ll be treated as a non-resident and will have to pay taxes accordingly.

Substantial Presence Test Example

To understand the concept of the Substantial Presence Test better, let’s consider a real-life example. Suppose you physically stayed in the U.S. for 120 days within three years, say, 2012, 2013, and 2014.

For the first year, 2012, the complete 120 days will be counted as you being physically present in the U.S. For the second year, 2013, it’ll be one-third of the 120 or 40. So 40 days will be counted as you being physically present in the U.S. Similarly, for the third year 2014, it’ll be one-sixth or 20 days. So add 20 days to the second 183-days test.

Summing the three years up, you score 180, which is less than the 183 days required. So you won’t be considered a U.S. resident for tax purposes for the year 2014.

Substantial Presence Test Calculator 2024

If you’re struggling to calculate whether your time in the U.S. passes the Substantial Presence Test, you can use an automated calculator. One such calculator can be found here.

Days of Presence in the U.S. (Physical)

When you’re counting the days for the Substantial Presence Test, you need to follow the guidelines as described by the IRS. You are treated as physically present in America for the entire period you were physically located inside designated places, irrespective of the time of day. The areas which are designated for the substantial presence test are:

• All 50 U.S. states and the District of Columbia
• U.S. territorial waters
• All the seabed and subsoil which are considered submarine areas over which the U.S. has complete rights under international law

The areas not taken into account when counting residency for tax purposes are U.S. territories (areas like Virgin Islands, Guam, Puerto Rico), influenced areas (both previous and present), possessions (areas like Wake Islands, Johnston Island), and airspaces.

So only those days will be counted for which you can show your location to be in the aforementioned designated areas. When counting days, exclude the days for which:

• You were commuting from Mexico or Canada to the U.S. for work if you regularly do so.
• You made a stop in the U.S. for less than 24 hours when you were traveling between two places outside of the U.S. but transferring via the U.S.
• You were serving as a crew member or a similar position in a foreign vessel and made a stop in the U.S. for a certain period of time.
• You were present in the U.S. but for treating medical conditions that developed while you were in the country, and thus were unable to leave the country at will.
• You were an exempted individual as per IRS guidelines.

Who Is Exempt From the Substantial Presence Test?

Even if you are legally and physically present in any of the areas deemed eligible for the Substantial Presence Test, the days you were present may not contribute to the test results. The IRS has laid out exemptions for the test:

• J or Q visa holders like teachers or trainees temporarily present in the U.S. who comply with the requirements of the visa.
• Students temporarily present in the U.S. with an F, J, M, or Q visa complying with the visa requirements.
• International athletes who are temporarily present in the U.S. to take part in a charitable event.

Then there are closer connection exceptions. These apply in scenarios where you have passed the substantial presence test but are still treated as a non-resident alien. The scenarios are:

• If you are present for less than 183 days for the current year.
• You have a closer connection to a foreign country. Click here to learn about this topic
• You are a student, and you have a closer connection to a foreign country. Click here to learn more.

Mainly students fail the closer connection test since they are generally present for more than 183 days in the U.S. but have their tax home in the U.S. too. If you fall into this category, then you’re required to attach Form 8840 along with your application to claim the exception.

Substantial Presence Test and Green Cards

Any alien in the U.S. has two ways to become a resident alien. One is already discussed above, that is, passing the substantial presence test. And the second is through passing a green card test. Once you pass the green card test, you’ll be considered a U.S. resident and become eligible for tax purposes. The card (also known as the alien registration card) will be given to you along with Form I-94, stamped passports indicating approval, and an annotation on the visa.

However, a distinction is made between the green card test and the Substantial Presence Test. In the former case, a lawful permanent resident is deemed a resident eligible for taxation. While in the latter case, the test is used to count the number of days for which the resident is eligible for tax purposes.

Conclusion

The Substantial Presence Test is really important for non-residents since it decides their tax status in the U.S. and their relationship with the IRS. Therefore, it is advised to get things sorted out sooner rather than later to avoid confusion or penalties.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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