Are you a US tax resident? Green card, H-1B and the 183-day test

The United States taxes citizens and residents on income from everywhere in the world. Non-residents are taxed only on US-source income. Which of the two you are decides the form (1040 or 1040-NR), the deductions you get, and whether your Indian bank interest and rent are on the return at all.

Your tax status is separate from your immigration status and separate from being an "NRI" for India. You can be an NRI for Indian purposes and a full US tax resident at the same time, and for most people in the US that is the normal position.

The three routes to being a US tax resident

• Citizen. Including naturalised citizens, wherever you live.
• Green card test. You are a resident from the first day you are physically in the US as a lawful permanent resident, and you stay one until the status is formally surrendered, revoked or judicially ended. An expired card, or years spent abroad, does not end it.
• Substantial presence test. At least 31 days in the current year, and at least 183 weighted days: every day this year, plus one-third of last year's days, plus one-sixth of the year before's.

For example, 120 days in each of three years gives 120 + 40 + 20 = 180. That is below 183, so the test is not met. At 125 days a year it is met.

Days that do not count

Students on F-1 or J-1 visas are "exempt individuals" for their first five calendar years, and some J-1 teachers and trainees for two of six. Their days are not counted. They still file Form 8843 every year, even with no income, to claim the exemption. H-1B holders have no such exemption, so their days count from the first one.

The arrival and departure years

In the year you arrive or leave, you are often a resident for only part of the year. That is a dual-status year. You file a 1040 with a dual-status statement, there is no standard deduction, and the return is normally filed on paper. A first-year choice election can sometimes treat you as a resident from an earlier date in the arrival year. It needs to be modelled, not guessed.

Closer connection and the treaty tie-breaker

If you pass the substantial presence test but were in the US fewer than 183 days this year and your tax home and closer connection are in another country, Form 8840 can keep you a non-resident. It is not available if you have applied for a green card.

The India-US treaty also has a tie-breaker article for people resident in both countries. Green card holders who use it to file as non-residents can create problems with immigration, so do not file that way without immigration advice.

What to do

1. Keep a day-count calendar from your passport stamps and I-94 history. It is the evidence for every position above.
2. Run the count on 1 January each year, not at filing time.
3. If your status changes mid-year (new visa, green card, long trip to India), work out the residency start date before you prepare anything else.
4. Once you are a resident, FBAR and Form 8938 apply to your Indian accounts from that year onward.