What Is the 183-Day Rule?
The 183-day rule is one of several criteria that comprise the Internal Revenue Code (IRC) 937 tests to establish whether an individual can be considered a bona fide resident of the United States for tax purposes. This "substantial presence test" rule applies to both U.S. citizens who travel abroad frequently as well as to U.S. residents.
183-Day Rule Explained
The deciding factor in determining whether the 183-day rule has been met is the number of days on which the person was present in the United States in a three-year consecutive period. While 183 days is the minimum, a taxpayer must have been physically present in the U.S. or its territorial waters for 31 days during the current year. The IRS imposes restrictions on what can be included in the total number of days. For instance, a less than 24 hour time period a person spends in the U.S. while in transit between foreign locations 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 U.S. Territories. In Internal Revenue Code 937, the IRS has also laid out five rules for the “presence test” to determine who qualifies as a resident of a U.S. territory for tax purposes. Under these rules, the individual must have been present in the territory for a minimum of 183 days during the taxable year; they must also have been present in for an aggregate minimum of 549 days during the current tax as well as the two immediately preceding tax years; and have been present in the U.S. territory for at least 60 days during each of those three taxable years. Additionally, the person can not have been present in the United States for more than 90 days during the taxable 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 of their citizens. These agreements contain provisions for the resolution of conflicting claims of residence. The Internal Revenue Code section that contains the definition of the "substantial presence test" and the relevant multiplier is 26 IRC 7701(b)(3)(A)(ii). Non-U.S. citizens may be either resident or nonresident aliens for tax purposes. The determining factor in whether an individual is a “resident alien” or a “nonresident alien” is whether that person met the 183-day rule.