What Is the 183-Day Rule?
The 183-day rule is used by most countries to determine if someone should be considered a resident for tax purposes. In the U.S., the Internal Revenue Service uses 183 days as a threshold in the "substantial presence test," which determines whether people who are neither U.S. citizens nor permanent residents should still be considered residents for taxation.
- The 183-day rule refers to criteria used by many countries to determine if they should tax someone as a resident.
- The 183rd day marks a majority of the year.
- The U.S. Internal Revenue Service uses a more complicated formula, including a portion of days from the previous two years as well as the current year.
Understanding the 183-Day Rule
The 183rd day of the year marks a majority of the days in a year, and for this reason countries around the world use the 183-day threshold to broadly determine whether to tax someone as a resident. These include Canada, Australia, and the United Kingdom, for example. Generally, this means that if you spent 183 days or more in the country during a given year you are considered a tax resident for that year.
The IRS and the 183-Day Rule
However, the IRS uses a more complicated formula to reach 183 days and determine whether someone passes the substantial presence test. To pass the test, and thus be subject to U.S. taxes, the person in question must:
- Have been physically present at least 31 days during the current year and;
- Present 183 days during the three-year period that includes the current year and the two years immediately preceding it. Those days are counted as:
- All of the days they were present during the current year
- One-third of the days they were present during the previous year
- One-sixth of the days present two years previously
Other IRS Terms and Conditions
The IRS generally considers someone to have been present in the U.S. on a given day if they spent any part of a day there. But there are some exceptions.
Days that do not count as days of presence include:
- Days that you commute to work in the U.S. from a residence in Canada or Mexico, if you do so regularly
- Days you are in the U.S. for less than 24 hours while in transit between two other countries
- Days you are in the U.S. as a crew member of a foreign vessel
- Days you are unable to leave the U.S. because of a medical condition that develops while you are there
U.S. Citizens and Resident Aliens
Strictly speaking, the 183-day rule does not apply to U.S. citizens and permanent residents. U.S. citizens are required to file tax returns regardless of their country of residence or the source of their income. However, they may exclude at least part of their overseas earned income (up to $105,900 in 2019) from taxation provided they meet a physical presence test in the foreign country and paid taxes there. To meet the physical presence test, the person needs to be present in the country for 330 days in 12 months.
U.S. Tax Treaties and Double Taxation
The U.S. has tax treaties with other countries to determine jurisdiction for income tax purposes and to avoid double taxation of their citizens. These agreements contain provisions for the resolution of conflicting claims of residence.