What Is the 183-Day Rule?
The 183-day rule refers to a threshold used by most countries to determine whether an individual should be considered a resident for tax purposes. This number is popular in the tax context because it signifies that someone has spent more than half the calendar year in a particular jurisdiction.
In the U.S., the IRS utilizes a formula to establish whether individuals who are neither U.S. citizens nor permanent residents should be considered residents for taxation purposes. Known as the “substantial presence test,” one of its key criteria is whether an individual has been physically present in the U.S. for 183 days based on a specific calculation considering the current tax year and the two prior years.
Key Takeaways
- The 183-day rule is a universal criterion used by many countries to determine tax residency.
- Generally, individuals are considered residents if they are physically present in a country for at least 183 days in a calendar year.
- The U.S. IRS employs a more complicated formula, which takes into account presence over the current year and fractions of time from the two preceding years.
- U.S. tax treaties affect what taxes individuals owe and to whom, as well as which exemptions may apply.
- In 2023, U.S. citizens and residents may exclude up to $120,000 of foreign-earned income if they meet the physical presence test and paid taxes in a foreign country.
Understanding the 183-Day Rule
Many countries globally, including Canada, Australia, and the United Kingdom, use the 183-day threshold to broadly determine tax residency. Typically, it means that if you spend 183 days or more in a country during a given year, you are deemed a tax resident for that year.
Each nation applying the 183-day rule uses its own criteria. For instance, some countries count the calendar year for the accounting period, while others may use a fiscal year. Similarly, some countries include the day of arrival in their count, while others do not.
Certain countries have even lower thresholds. For example, Switzerland considers you a tax resident if you spend more than 90 days there.
The IRS and the 183-Day Rule
The IRS employs a detailed formula to determine if someone passes its substantial presence test, and accordingly, is subject to U.S. taxes:
- An individual must be physically present for at least 31 days during the current year.
- They must have been present for 183 days during a three-year period that includes the current year and the two years immediately preceding it.
The 183-day presence threshold is computed using the following fractions:
- All of the days an individual was present during the current year
- One-third of the days they were present during the previous year
- One-sixth of the days they were present in the year preceding that
Other IRS Terms and Conditions
The IRS generally considers someone present in the U.S. for any part of a given day. However, certain exceptions apply:
- Days commuting to work in the U.S. from a residence in Canada or Mexico.
- Days in the U.S. for less than 24 hours while in transit between two other countries.
- Days in the U.S. as a crew member of a foreign vessel.
- Days unable to leave the U.S. due to a medical condition that develops while there.
- Exempt days, applicable to foreign government personnel under an A or G visa, and various students, teachers, and trainees under J, Q, F, M, or Q visas.
U.S. Citizens and Resident Aliens
The 183-day rule strictly does not apply to U.S. citizens and permanent residents, who must file tax returns regardless of residency or source of income.
Such individuals may exclude part of their foreign-earned income—up to $120,000 in 2023—if they satisfy the physical presence test in a foreign country and paid taxes there. This requires being present in the foreign country for 330 complete days in 12 consecutive months. However, residents in another country in violation of U.S. law are not eligible to have their income qualify as foreign-earned.
U.S. Tax Treaties and Double Taxation
The U.S. has tax treaties with other nations to determine jurisdiction for income tax purposes and to prevent double taxation. These treaties often have provisions for resolving conflicting claims of residence.
How Many Days Can You Be in the U.S. Without Paying Taxes?
The IRS will consider you a U.S. resident if you were present in the U.S. for at least 31 days in the current year and 183 days during a three-year period (counting all current year days, one-third of the previous year, and one-sixth of the second year).
How Long Do You Have to Live in a State Before You’re Considered a Resident?
Many states use the 183-day rule for state tax purposes, and interpretations of a “day” can differ. In New York, all time spent in the state counts as a day, except for travel to destinations outside of New York.
Special agreements between some states might allow paying taxes only in one’s state of domicile, despite working in another. Checking specific state laws and agreements is crucial.
How Do I Calculate the 183-Day Rule?
In countries with the 183-day rule, being present for 183 or more days typically qualifies you as a tax resident. In the U.S., the unique substantial presence test counts physical presence in the current year, one-third of the previous year, and one-sixth of the second preceding year.
The Bottom Line
The 183-day rule is a common tool used by various countries to define tax residency. In most countries, individuals present for 183 days or more are deemed tax residents. In contrast, the U.S.’s “substantial presence test” takes a more intricate approach by factoring in time spent in three years. Local and federal tax regulations, as well as international treaties, should be consulted to understand total tax obligations thoroughly.
Related Terms: tax residency, IRS substantial presence test, international tax treaties, double taxation.
References
- IRS. “Substantial Presence Test”.
- Globalization Guide. “The Ultimate Guide to Tax Residencies & The 183-Day Rule”.
- IRS. “Foreign Earned Income Exclusion”.
- Internal Revenue Service. “Exceptions to the Bona Fide Residence and the Physical Presence Tests”.
- Monaeo. “The 183-Day Rule: 5 Things to Know When Establishing State Residency and Fighting Audits”.
