U.S. Visa Status Tax Filing & Offshore Reporting (2020 Summary)
U.S. Visa Status & Tax Filing:The U.S Visa Status, Tax Filing & Offshore Reporting IRS rules are complex. When a U.S. visa holder meets the substantial presence test, they become subject to tax on their worldwide income (unless exempted). In addition, they also become subject to offshore reporting requirements for overseas accounts, assets, and investments. This includes FBAR Reporting & FATCA Reporting. The failure to properly report their offshore accounts and income may results in fines and penalties. And, with the Internal Revenue Service taking an aggressive position on matters involving foreign accounts and income reporting — compliance is crucial. In recent years, the IRS has developed various FBAR Amnesty programs which can be used to reduce, avoid or abate penalties. These programs are collectively referred to as Offshore Voluntary Disclosure.
U.S. Visa Status (Tax Filing & Offshore Reporting)
The U.S. Visa Status and Tax Filing & Offshore Reporting rules are complex. This is because one of the most important aspects of U.S. tax law is understanding whether you are subject to US tax on your worldwide income, or just your U.S. “source” income only.
The tax rules for visa holders is very complex. While some visa holders may enjoy U.S. person exemption (first five-years on an F-1 visa), most other common visas, such as B1/B2, H-1B, L-1, and EB-5 do not. Therefore, when these other visa holders meet the substantial presence test, they become subject to U.S. tax on their worldwide income — and must report their worldwide assets as well.
Visa Holder with U.S. Residence
A U.S. visa holder is considered a “temporary” resident of the United States. There many different types of visas depending on the purpose of the stay in the United States. Generally, because a visa is temporary, an individual is only required to report their US sourced income — not their worldwide income.
This can all change though once a person meets the Substantial Presence Test.
What is the Substantial Presence Test?
The Substantial Presence Test is a test that is utilized for a visa holder or other person who is neither a U.S. Citizen nor Legal Permanent Resident, but has resided in the United States for a significantly long period of time – enough to make them subject to U.S. Tax just as if they were a U.S. Citizen or Legal Permanent Resident. This is usually common when a person resides in the United States on an H1B, L1, or E2 visa.
Not all visa holders are subject to this tax. Most commonly, a student in the United States is not subject to tax liability for the first five (5) years they reside in the United States.
How does the Substantial Presence Test work?
Summary of Substantial Presence Test
As a non-US citizen and non-US green card holder, you are generally only required to pay tax on your “US Effectively Connected Income” (money you earn while working in the United States). However, if you qualify for the Substantial Presence Test, then the IRS will tax you on your WORLDWIDE income.
IRS Substantial Presence Test generally means that you were present in the United States for at least 30 days in the current year and a minimum total of 183 days over 3 years, using the following equation:
- 1 day = 1 day in the current year
- 1 day = 1/3 day in the prior year
- 1 day = 1/6 day two years prior
Example A: If you were here 100 days in 2016, 30 days in 2015, and 120 days in 2014, the calculation is as follows:
- 2016 = 100 days
- 2015 = 30 days/3= 10 days
- 2014 = 120 days/6 = 20 days
- Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).
Example B: If you were here 180 days in 2016, 180 days in 2015, and 180 days in 2014, the calculation is as follows:
- 2016 = 180 days
- 2015 = 180 days/3= 60 days
- 2014 = 180 days/6 = 30 days
- Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.
Green Card Holder – Tax & FBAR Compliance
A Green Card holder is considered a “Permanent Resident.” As a permanent resident, an individual is subject to U.S. tax similar to a U.S. citizen. Thus, a Permanent Resident is required to pay U.S. tax on their worldwide income.
It does not matter if the individual resides in the United States or outside of the United States (although the Foreign Earned Income Exclusion may apply for individuals residing outside of the United States). It also does not matter if the income was sourced from the United States or in a foreign country (even if that type of income is not taxed in the foreign country — such as passive income in most Asian countries).
Therefore, if you are a Green Card Holder (or former long-term Green Card Holder who did not properly relinquish their green card) you are required to make sure that you are in tax compliance with US tax law. This would generally mean filing a form 1040 tax return each year — unless you do not meet the threshold requirements for having to file a return.
Moreover, you also have to report your worldwide interests in items such as:
- Receipt of foreign gifts
- Ownership of foreign corporate interests
- Ownership of foreign partnership interests
- Interest in a foreign mutual fund
- Interest income earned in a foreign country
- Dividend earned in a foreign country
- Capital gains earned in a foreign country
- Inheritance received in a foreign country (possibly depending on the source of the inheritance)
Out of Compliance?
If you are out of compliance and seeking to get back into compliance-or in the compliance for the first time – one of the best and safest methods is through IRS offshore voluntary disclosure.
Golding & Golding (Board-Certified Tax Law Specialist)
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced IRS 3520 Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.