Substantial Presence Test

The Substantial Presence Test (SPT) is a criterion used by the Internal Revenue Service (IRS) in the United States to determine whether an individual who is not a citizen or lawful permanent resident in the recent past qualifies as a "resident for tax purposes" or a "nonresident for tax purposes"; it is a form of physical presence test. The SPT should be used in conjunction with the Green Card Test (the criterion that the individual possessed a valid Green Card at any time of the year). An individual who satisfies either one or both of these tests is treated as a resident for tax purposes.

The SPT features a number of exemptions. Ignoring the exemptions, the criterion is as follows. Note that the criterion is used to determine residency for tax purposes for people who are not citizens and fail the Green Card Test.

In particular, any individual who was in the United States in a non-exempt status for more than 6 months during the tax year qualifies the SPT and (unless exempted based on one of the exemptions) must be treated as a resident for tax purposes.

"Physical presence in the United States" refers to presence in one or more of the following areas:

Any day that an individual was present physically in any United States for any part of the day counts as a day of physical presence, with the following exceptions:

If an individual meets the Substantial Presence Test, then, at the time of tax filing, he/she is treated as a resident for tax purposes for the part of the calendar year starting from the first day of physical presence in the United States, including the part of the year before he/she accrued a substantial presence in the United States.

This can lead to minor inconsistencies and complications in the tax return. While the individual was getting paid by his/her employer prior to accruing a substantial presence, the employer may have been operating under the assumption that the individual would be a nonresident for tax purposes, and using the tax deduction laws and reporting requirements associated with employing nonresidents. At the time of tax filing, any retrospective inconsistency between the status that the employer believed the individual had at that time and the status as it appears to be by the end of the year must be reconciled.

However, an individual may choose to exempt the first 10 days (note that this is less than the 31-day period needed for the substantial presence test) if the individual is able to establish a closer connection to a foreign country and that the individual's tax home was the foreign country.

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