What is the 183-day rule?
The 183-day rule is one of many criteria that include the Internal Revenue Code (IRC) 937 criteria for determining whether a person can be considered a bona fide resident of the United States for tax purposes. This “substantial presence test” rule applies to US citizens who travel frequently abroad as well as US residents.
Explanation of the 183 day rule
The deciding factor in determining whether the 183-day rule has been met is the number of days the person was present in the United States during a consecutive three-year period. Although 183 days is the minimum, a taxpayer must have been physically present in the United States or its territorial waters for 31 days during the current year. The IRS places restrictions on what can be included in the total number of days. For example, a period of less than 24 hours a person spends in the United States during their transit between foreign sites does not count as a “day of presence”. In applying the rule, the IRS includes exemptions for active duty military personnel.
The 183-day rule also applies to American territories. In the Internal Revenue Code 937, the IRS also established five rules for the “presence test” to determine who qualifies as a resident of a US territory for tax purposes. Under these rules, the person must have been present in the territory for at least 183 days during the taxation year; they must also have been present for at least 549 days in total during the current taxation period as well as during the two preceding taxation years; and have been be present in the United States for at least 60 days during each of these three taxation years. In addition, the person cannot have been present in the United States for more than 90 days during the tax year.
Substantial presence test and income taxes
The United States has tax treaties with other countries to determine jurisdiction for income tax purposes and to avoid double taxation for its citizens. These agreements contain provisions for the settlement of conflicting residence applications. The section of the Internal Revenue Code that contains the definition of “substantial presence test” and the relevant multiplier is 26 IRC 7701 (b) (3) (A) (ii). Non-American citizens can be resident or non-resident foreigners for tax purposes. The determining factor in determining whether a person is a “resident alien” or a “non-resident alien” is whether that person has complied with the 183-day rule.