US Tax Residency for Foreign Nationals: Green Card vs Substantial Presence Test
You do not need to be a US citizen to become US tax resident.
For foreign nationals, US tax residency can arise through two main routes:
the green card test
the substantial presence test
That matters because becoming US tax resident can affect much more than US salary.
It can affect:
worldwide income
foreign bank accounts
foreign investments
foreign pensions
UK pensions
ISAs and GIAs
offshore bonds
foreign trusts
foreign companies
property
capital gains
gifts
estate planning
retirement accounts
business interests
investment reporting
future exit planning
This may apply if you are:
moving to the United States
applying for a green card
already holding a green card
working in the United States on assignment
spending significant time in the US
moving from the UK to the US
moving from Europe, the UAE or Asia to the US
a globally mobile executive
a business owner with US travel
a spouse in a US-connected family
a foreign national with US property
a former US resident with US assets
unsure whether you are resident or nonresident for US tax purposes
The question is not only:
Will I pay tax in the United States?
The better question is:
When does US tax residence start, what assets are brought into scope, and what should be reviewed before that happens?
How do foreign nationals become US tax resident?
Foreign nationals can become US tax resident under US rules even if they are not US citizens.
The two main tests are:
- the green card test
- the substantial presence test
The IRS says a non-US citizen will generally be treated as a US resident alien for tax purposes if they meet either the green card test or the substantial presence test.
The green card test generally applies where someone is a lawful permanent resident of the United States.
The substantial presence test is based on days physically present in the United States, using a formula that looks at the current year and the two preceding years.
This matters because US tax residence can bring worldwide income and foreign assets into the US tax and reporting system.
A review should usually consider:
- green card status
- visa type
- US arrival date
- US day count
- current-year presence
- prior-year presence
- closer connection exceptions
- treaty residence position
- dual-status year
- foreign pensions
- foreign investment accounts
- foreign mutual funds
- foreign trusts
- foreign companies
- US state tax residence
- estate planning
- future departure plans
The planning point is simple.
US tax residence should be reviewed before the move, before green card status is finalised, and before foreign assets become harder to restructure.
What US tax residency issue do you need to review?
Moving to the US
Review pensions, investments, trusts, property, tax residence and estate planning before becoming US tax resident.
Moving from the UK
Review UK pensions, ISAs, GIAs, property, trusts and investments before moving from the UK to the United States.
Giving up a green card
Review green card relinquishment, long-term resident status, exit tax, Form 8854 and US assets before leaving the US system.
State tax residence
Review whether a US state may treat you as resident, domiciled, part-year resident or taxable on source income.
US tax residence can start before someone thinks of themselves as fully “settled” in the United States.
Who this page is for
Foreign nationals, green card holders, non-US citizens, executives, business owners, globally mobile families and people moving to or spending time in the United States.
Main tests
The two core federal tests are the green card test and the substantial presence test.
Main planning risks
Worldwide income exposure, foreign asset reporting, PFICs, foreign trusts, foreign companies, pension treatment, state tax, estate planning and future exit tax issues.
Common trigger points
Green card approval, US job relocation, repeated US travel, executive assignment, marriage, business expansion, property purchase or pre-immigration planning.
Planning outcome
A clearer view of when US tax residence may start, what assets should be reviewed before that date and how to coordinate US, foreign and future residence planning.
Green card test vs substantial presence test: what is the difference?
US tax residency for foreign nationals is not always intuitive.
A person can be physically outside the United States for much of the year and still have US tax residence because of green card status.
Another person can have no green card but become US tax resident because of their US day count.
Both tests need to be understood.
1. The green card test
The green card test generally applies if you are a lawful permanent resident of the United States.
This can matter even if:
- you spend time outside the US
- you have not formally moved all assets to the US
- your family remains outside the US
- you still have foreign pensions
- you still have foreign companies
- you still have foreign trusts
- you still have foreign property
- you intend to leave the US later
Green card status can also become important later if you consider relinquishing the green card.
Long-term green card holders may need to review expatriation tax rules before giving up US residence.
2. The substantial presence test
The substantial presence test is based on days physically present in the United States.
The formula generally counts:
- all days present in the current year
- one-third of days present in the previous year
- one-sixth of days present in the second previous year
The test also has minimum current-year presence requirements and technical exceptions.
This is why day-count planning matters for executives, business owners, consultants, retirees and internationally mobile families.
A few extra trips can change the tax position.
3. Resident alien versus nonresident alien
For US tax purposes, foreign nationals may be:
- resident aliens
- nonresident aliens
- dual-status aliens in a transition year
The classification can affect:
- worldwide income reporting
- US-source income
- deductions and credits
- filing status
- foreign asset reporting
- tax treaty claims
- retirement account treatment
- investment reporting
- estate planning
- withholding
A person can be non-US for immigration purposes in ordinary language but still be resident for US tax purposes.
The tax classification matters.
4. Why pre-residence planning matters
Before becoming US tax resident, review assets that may become problematic under US rules.
This may include:
- non-US mutual funds
- ETFs outside the United States
- UK ISAs
- GIAs
- offshore bonds
- investment-linked insurance
- foreign pensions
- UK pensions
- foreign trusts
- foreign companies
- property with large unrealised gains
- business interests
- deferred compensation
- equity awards
- crypto assets
- family gifts
- inheritance planning
Once US tax residence starts, restructuring can become more complicated and tax-sensitive.
5. Treaty and closer connection issues
Some people may need to review whether treaty residence, closer connection exceptions or other reliefs are relevant.
These are technical tax questions and should be handled by a qualified US tax adviser.
From a financial planning perspective, the key is to identify:
- likely residence start date
- residence status in the transition year
- foreign assets at risk
- pensions and investment accounts needing review
- state tax exposure
- estate planning consequences
- future exit issues
6. State tax should not be ignored
US federal tax residence is only one layer.
State tax may also apply depending on where you live, work or establish domicile.
Review:
- destination state
- income tax
- capital gains tax
- state estate tax
- domicile
- day count
- property
- business interests
- payroll
- remote work
- future moves
A move to California, New York, Florida or Texas may create very different planning outcomes.
7. Estate planning can change on US residence
Becoming US tax resident can affect how your estate plan should be reviewed.
Consider:
- US estate tax exposure
- non-US spouse planning
- US-situs assets
- foreign property
- trusts
- beneficiary designations
- retirement accounts
- life insurance
- inheritance tax in other countries
- liquidity
- wills and powers of attorney
The US tax residency decision may affect not only income tax, but also family succession planning.
Documents to gather before a US tax residency planning review
Immigration records
Gather visa details, green card approval, green card issue date, immigration correspondence, entry records and any advice received.
US day-count records
Collect travel calendars, passport stamps, flight records, I-94 travel history and records of days physically present in the United States.
Tax returns
Gather foreign tax returns, US tax returns if previously filed, state tax returns and any adviser correspondence on residence status.
Foreign pension records
Collect UK pension, SIPP, defined benefit, defined contribution, workplace pension, foreign pension and retirement savings statements.
Investment account statements
Gather ISA, GIA, brokerage, platform, offshore bond, investment-linked insurance, mutual fund, ETF and portfolio statements.
Trust and company documents
Collect trust deeds, company accounts, shareholder registers, partnership agreements, business valuations and ownership records.
Property records
Gather property ownership records, mortgage statements, rental income records, property valuations, sale plans and capital gains history.
Employment and equity records
Collect employment contracts, assignment letters, payroll details, RSU grants, stock option awards, deferred compensation and bonus information.
Estate planning documents
Review wills, trusts, powers of attorney, beneficiary forms, letters of wishes, guardianship documents and life insurance nominations.
Future residence plan
Clarify whether you expect to remain in the US, return home, move again, seek a green card, relinquish a green card later or retire elsewhere.
These related pages cover the wider pre-immigration, relocation, green card, state tax and foreign national planning issues around US tax residence.
Pre-immigration planning
Review pensions, investments, trusts, property, tax residence and estate planning before becoming US tax resident.
UK to US move
Review UK pensions, ISAs, GIAs, property, trusts and investments before moving from the UK to the United States.
Foreign nationals in the US
Review financial planning for foreign nationals living, working, investing or building wealth in the United States.
Green card relinquishment
Review green card relinquishment, long-term resident status, exit tax, Form 8854 and US assets before leaving the US system.
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US tax residency for foreign nationals FAQs
Important information
This page is for general information only and does not constitute personalised financial, tax, legal, immigration, residence, domicile, pension, retirement, investment, estate planning, US tax, state tax, local tax or currency advice.
US tax residency, the green card test, substantial presence test, resident alien status, nonresident alien status, dual-status alien treatment, closer connection exceptions, treaty residence, state tax, foreign pensions, foreign investments, foreign trusts, foreign companies, property, estate planning, withholding, reporting, local tax and future residence depend on personal circumstances and may change.
US tax advice should be taken from a suitably qualified US tax adviser or CPA.
US immigration advice should be taken from a qualified immigration lawyer where relevant.
State tax, local tax, legal, pension, investment and estate planning advice should also be taken where relevant.
Financial planning should be coordinated with tax, legal, immigration, investment, retirement and estate planning advice where appropriate.
Do not move, sell, transfer, contribute, withdraw, restructure or reinvest assets before reviewing whether US tax residence, state tax residence or foreign reporting rules may apply.
Investing involves risk. Investment, pension and retirement account values can fall as well as rise, and you may get back less than you invest.
Currency movements can affect investments, pensions, retirement accounts, property, tax liabilities, income and future spending.
