The IRS requires all US persons to file taxes…
But how might one define a US person for tax purposes? It might seem like a pretty straightforward question, but the answer can be surprisingly complex.
Read on to learn what a US person is, what their tax obligations are, and more.
Are you a US Person for Tax Purposes?
For tax purposes, an individual is a US person if they belong to one of the following categories:
- – US citizen
- – US resident
US Person vs. US Citizen vs. US Resident
People sometimes get confused when it comes to the differences between a US person vs. a US citizen or US resident. But a US person is a broader category, encompassing anyone who is legally obligated to pay US taxes. While US citizens and US residents are two specific types of US persons.
US citizens are granted citizenship in one of two ways:
Anyone born in the US or a US-owned territory (besides American Samoa) is a citizen, as are children born to a US citizen — in most cases — provided that a parent properly reports it.
US residents who have lived in the country lawfully for a certain amount of time — usually at least five years — are eligible for naturalization, the process for foreign-born US residents to become citizens.
There are also two ways in which US residency is determined:
Green Card Test
If you are a lawful permanent resident of the US at any point in the calendar year — in other words, a green card holder — then you are a US resident and, therefore, a US person.
Note that this applies even if your green card has expired or if you haven’t lived in the US for many years.
Read more: A Brief Guide To Green Cards
Substantial Presence Test
To meet the criteria of the substantial presence test, you must have been in the US for both:
- – 31 days throughout the current year, and
- – 183 days throughout the last three years
The math on the second bullet point can get a bit tricky, though, as you can only count ⅓ of the days you were present in the previous year and ⅙ of the days you were present in the year before that. Additionally, certain days may not count toward the substantial presence test, such as if you were in the US under a temporary student visa.
What income do I have to report as a US person?
All US persons must report their worldwide income to the federal government. Which includes wages, interest, dividends, income from property, royalties, and most other types of income, regardless of whether or not it was earned in the US. You will likely have to report your income to the government of the state you reside (or resided) in as well.
Beyond your income, you may also have to file:
- – Foreign Bank Account Report (FBAR): Any US person with a combined total of $10,000 or more in foreign bank accounts at any point in the year must file an FBAR on FinCEN Form 114
- – Foreign financial assets: Any US person with foreign financial assets totaling $50,000 or more (though the thresholds are higher for those who live abroad) must report them on Form 8938
The only way you would no longer be obligated to pay taxes is if you formally renounce your citizenship , and abandon your green card. If you’re considered a US resident through the Substantial Presence Test alone, spend fewer than the required number of days in the US.
All of these processes, however, have significant legal and financial implications that can greatly complicate any effort to return to, reside in, or work in the US. Don’t just do them on a whim to get out of your tax obligations. Always consult with an immigration attorney and tax professional first.
Stay on top of your tax obligations
If you’re a US person, filing your taxes in a timely and accurate manner is essential. You’ll also want to make sure you’re taking full advantage of any ways you might be able to reduce your tax liability. Such as tax treaties, the Foreign Tax Credit, and the Foreign Earned Income Exclusion.
The best way to make sure you’re staying tax-compliant and not paying any more than you need to? Working with a certified tax professional like the ones at Bright!Tax. Our team specializes in the unique tax challenges of US persons abroad, so you can trust us to get (and keep) you up to speed while minimizing your tax liability.
Reach out today for more information!