By: Christopher Galakoutis, Reynolds & Rowella
In a typical year, millions of people from around the world visit the US. Many come as students and tourists, while others travel to the US to attend meetings, conferences and for other short-term business trips.
For the most part short stays in the US do not trigger US tax residency or a US income tax return filing requirement. There are cases however where individuals – known as ‘foreign nationals’ to use tax terminology – do plan for and spend longer periods of time in the US, triggering US tax filing requirements either as tax residents (Form 1040) or nonresidents (Form 1040NR).
The year 2020 and the Covid-19 pandemic has been far from typical. Visitors may have been forced to remain in the US due to travel restrictions and/or other pandemic related lock downs. Consequently, those caught up in these unplanned, extended US stays may unknowingly have triggered US tax filing thresholds. As a result, they would be required to file a tax return and report certain financial information to the IRS.
Per US tax rules, a foreign national who is physically present in the US during the calendar year for 183 days or more is generally treated as a tax resident. In addition, a foreign national who is not physically present for 183 days or more in the calendar year, but who had been present in the US in the prior two years, may nonetheless be treated as tax resident for the current year; known as the substantial presence test (SPT), this rule provides for a weighted, lookback period day count with tax residency triggered based on that formula.
There are certain narrow exceptions regarding days that may be excluded from the SPT (Canada/Mexico commuters, in-transit stays of less than 24 hours, exempt individuals, medical condition that arose while in the US), i.e., days which would not be counted in determining if US tax residency has been triggered. One in particular – the medical condition exception – has been expanded to cover cases surrounding the pandemic.
The ‘Covid-19 Medical Condition Travel Exception’ found in IRS Revenue Procedure 2020-20 released earlier this year, provides rules related to this exception for foreign nationals, including that a single period of up to 60 calendar days of US presence, starting on or after February 1, 2020 and on or before April 1, 2020 (with the specific start date to be chosen by each individual) may be excluded for purposes of applying the SPT. This is welcome relief from the IRS and would see the exception apply to any individual who intended to leave the US during that period but was unable to due to Covid-19 travel disruptions.
Individuals who may have triggered US tax residency for calendar year 2020 due to Covid-19 travel disruptions may wish to explore whether they qualify for the Covid-19 medical condition exception. Specific guidance has been established by the IRS on claiming this exception. Please contact Reynolds & Rowella for more information.
This article has provided a general discussion of US tax rules related to US presence. Readers should discuss any US Visa matters and/or US immigration law questions with legal counsel.
About Reynolds + Rowella
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.
Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.
