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.
Summary of the test
Formula used by the IRS
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.
The individual must have been physically present in the United States for at least 31 days in the year for which the tax return is being filed; and The total of (number of days present in the tax year) + (1/3)(number of days in the year before the tax year) + (1/6)(number of days in the year two years before the tax year) must be at least 183.
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 for the SPT and (unless exempted based on one of the exemptions) must be treated as a resident for tax purposes.
Definition of United States for physical presence
"Physical presence in the United States" refers to presence in one or more of the following areas:
All 50 states and Washington D.C. The territorial waters of the United States (about 12 nautical miles out from the border between land and sea). The seabed and subsoil of those submarine areas that are adjacent to U.S. territorial waters and over which the United States has exclusive rights under international law to explore and exploit natural resources (about 200 nautical miles out from the border between land and sea).
Days of physical presence
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:
Days commuting to work in the United States from a residence in Canada or Mexico for those who regularly commute from Canada or Mexico. The IRS define" regularly" as more than 75% of the workdays in the working period. Days in the United States for the entire day cannot be exempted on this basis. Days in the United States for less than 24 hours when one is in transit between two places outside the United States. Days in the United States as a crew member of a foreign vessel. Days one is unable to leave the United States because of a medical condition that arose in the United States (see the medical condition exemption below). Days one is an exempt individual (see the special status exemption section below).
Applicability to whole tax year
Individual meeting the Substantial Presence Test at the time of tax filing are 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 accruing a substantial presence in the United States.
That can lead to minor inconsistencies and complications in the tax return. While the individual was getting paid by an 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 (that 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 the individual's tax home was the foreign country.