Substantial Presence Test: when you file 1040 or 1040-NR

Whether you send the IRS Form 1040 or Form 1040-NR is not a matter of taste, and it has nothing to do with your passport. The form follows from your status under US tax law: resident alien or nonresident alien. That status is decided by two statutory tests, several exceptions and, finally, the tax treaty between the US and your home country. This page walks through the analysis in the order the IRS requires. What goes into the return itself, which deadlines apply and how we prepare it for you is covered on our page US tax returns for individuals, Form 1040 and 1040-NR.

1Why the form follows from your status

A resident alien is taxed like an American citizen: on worldwide income, on Form 1040. A nonresident alien reports only US-source income and income connected with a US trade or business, on Form 1040-NR. For Europeans with income, accounts and property back home, that is a big difference. As a resident, your salary from Oslo, the rent from your flat in Stockholm and the interest from your bank in Amsterdam all belong on the US return. As a nonresident, they stay out.

What counts is the calendar year, and the form you file depends on your status at the end of that year. If you move in or out during the year, you are often both: a nonresident for part of it and a resident for the rest. That dual-status year has its own rules, covered in our guide The year you arrive and the year you leave. Here we look at the question that comes first: how do you become a resident at all?

2The green card test

The first test is simple. If at any point in the calendar year you are a lawful permanent resident of the US, you are a resident. Usually that is shown by your Permanent Resident Card, the green card. How many days you actually spend in the US doesn't matter.

And that is exactly the trap for anyone who has moved back to Europe with a green card. For tax purposes, resident status does not end when you move, and it does not end when the card expires. It ends only when it is revoked or when you formally give it up, for example with Form I-407 filed with US immigration authorities or at a US consulate. Until then, the IRS expects a Form 1040 reporting your worldwide income every single year. If you claim treaty benefits in this situation to be treated as a nonresident, be aware that for long-term green card holders this step can trigger the US expatriation tax rules.

3The Substantial Presence Test, day by day

Without a green card, the Substantial Presence Test under 26 U.S.C. § 7701(b)(3) decides. You meet it when both of these conditions apply:

• You were in the US on at least 31 days in the current calendar year.
• Your days in the current year, plus one third of your days in the previous year, plus one sixth of your days in the year before that, add up to at least 183.

A day in the US is any calendar day on which you are physically in the country at any time. So the day you arrive and the day you leave both count. The US means the 50 states, the District of Columbia and US territorial waters, but not the US territories or airspace.

Because of the weighting, regular visitors can become residents without ever spending half a year in the country at a stretch. The IRS's own example: three years of 120 days each come to 180 days, just under the threshold. At 122 days a year, the threshold is reached on paper. If you travel about the same amount every year, keep an eye on all three years, not just the current one. The flip side: if you stay under 31 days in the current year, you are not a resident for that year, no matter how much time you spent in the US in earlier years.

The best way to count your days is from your entry and exit stamps or your travel bookings, separately for each of the three years. A careful record is also your proof if the IRS asks later.

4Days that don't count, and Form 8843

The law leaves certain days out of the count. For travelers from Europe, these are the ones that matter:

• Transit. Days on which you are in the US for less than 24 hours while changing between two places outside the US. If you attend a business meeting along the way, even at the airport, you are not in transit.
• Illness. Days on which you intended to leave but couldn't because of a medical condition that arose while you were in the US. A condition that existed before you arrived and that you knew about does not count.
• Exempt individuals. Days on which you belong to one of the groups whose presence doesn't count: people with diplomatic or similar status, teachers and trainees, and students on a study or exchange visa who comply with its terms, as well as professional athletes on the competition days of a charitable sports event. For teachers and students, time limits apply across several years.
• Commuters and crew. Regular commuters from Canada or Mexico and crew members of foreign vessels.

If you exclude days because of illness, or as a teacher, trainee, student or professional athlete, you must file Form 8843. It is attached to Form 1040-NR; if you don't have to file a return, you send it on its own to the Internal Revenue Service Center in Austin, Texas, by the Form 1040-NR deadline. If you don't file Form 8843 on time, you cannot exclude days as a professional athlete or because of illness, unless you show with clear evidence that you made a genuine effort to meet the requirements.

5A closer connection to your home country: Form 8840

Even if you meet the test, you can remain a nonresident under the closer connection exception. It has three conditions, and all three must be met:

• You were in the US on fewer than 183 days in the current year.
• Your tax home was in another country for the whole year. That is your main place of business, meaning where you regularly work as an employee or self-employed, regardless of where your family lives.
• You had a closer connection to that country than to the US.

The IRS judges the closer connection by the facts of your life: where your permanent home is that is always available to you, where your family lives, where your personal belongings are, where you belong to clubs, associations or religious communities, where you do business, where you hold your driver's license and vote, and which country you give as your residence on forms and bank documents. Whether you rent or own your home makes no difference.

The exception is ruled out if during the year you took steps yourself to obtain a green card, or had an application for adjustment of status pending. You claim the closer connection with Form 8840, attached to Form 1040-NR or sent on its own to the IRS in Austin, again by the Form 1040-NR deadline. Without a timely Form 8840 you cannot use the exception, unless you can show you made a genuine effort to meet your obligations.

6The treaty as the final word: Form 8833

If you spent 183 days or more in the US in a year, you cannot use the closer connection exception. That leaves the tax treaty. If you are a resident under US law and also resident under the law of your home country, US tax treaties typically settle it in this order: permanent home, center of vital interests, habitual abode, nationality and, as a last resort, agreement between the tax authorities.

If the treaty assigns residence to your home country, the IRS calculates your tax as for a nonresident. You file Form 1040-NR and attach Form 8833, which discloses your treaty-based position. For purposes other than calculating the tax, however, you remain a resident, so the IRS can require other filings. If you fail to make the disclosure on Form 8833, you risk a penalty of $1,000 per failure under 26 U.S.C. § 6712. How treaties work otherwise, for example on dividends, interest and wages, is explained in our guide Disclosing a treaty position and treaty benefits.

7Form 1040 and Form 1040-NR compared

Once your status is settled, so is the form. The two returns look similar but follow different rules. Nonresidents get no standard deduction, have only three filing statuses and cannot file jointly with a spouse. If you are married, as a nonresident you use the married filing separately rates, even if your spouse has no US income. A joint return is possible only if one spouse is a US citizen or resident and you both elect to be treated as residents for the whole year; in that case, though, you both report your worldwide income.

Form 1040-NR always comes with Schedule OI. This is where you list your citizenships, the country where you were tax resident for the year, whether you have ever applied for a green card, and the visa or status you held in the US on the last day of the year. If you entered on ESTA, you enter the Visa Waiver Program and your country. You also give your entry and exit dates for the year and the number of days you spent in the US in the current year and the two years before, which the IRS says you count from the stamps in your passport or other records. This is where the list you kept for the Substantial Presence Test really pays off. Passive US income taxed at 30 percent or the treaty rate goes on Schedule NEC. Deductions connected with US business income go on Schedule A of Form 1040-NR. Form 1040-NR can be filed electronically. Without a Social Security Number you need an ITIN, which you apply for with Form W-7 together with your return; more on this in our guide Form W-7 and the documents for your ITIN. Filing deadlines and extensions are covered in our guide US tax return deadlines.

If you would rather not prepare the return yourself, we take care of it for you, whether it is a 1040 or a 1040-NR: your US tax return.

In short

• Whether you file Form 1040 or 1040-NR depends on your status: resident alien with a green card or under the Substantial Presence Test, otherwise nonresident alien.
• The test requires at least 31 days in the current year and 183 weighted days, counting every day of this year, one third of the days in the previous year and one sixth of the days in the year before that.
• Days in brief transit, days you couldn't leave the US because of a medical condition and days as an exempt individual don't count; for medical conditions and exempt individuals, the IRS requires Form 8843.
• If you spent fewer than 183 days in the US during the year and can show a closer connection to your home country, you stay a nonresident by filing Form 8840; even beyond that, a tax treaty can still make you a nonresident with Form 8833.

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