Are You a US Person for Tax Purposes?

All US persons are subject to US tax law regardless of where they live in the world. But what is a “US person?” The answer to that question is more complicated than you might think. You may even be a US person for tax purposes without knowing it. This could open you up to unexpected hefty fines.

To help you avoid accidentally running afoul of the IRS, here’s how to know if you’re a US person for tax purposes.

IRS Definition of a US Person for Tax Purposes

There are two main categories for US persons: US citizens and US residents. Let’s take a closer look at both.

1. US Citizens

All US citizens are considered US persons. You can become a US citizen by birth or through naturalization. To become a US citizen by birth, you only need one of the following to be true:

  • You were born within the borders of the US
  • At least one of your parents was a US citizen when you were born

If you weren’t born a US citizen, you can earn citizenship by following the naturalization process.

2. US Residents

Anyone who qualifies as a resident of the US is also considered a US person for tax purposes. To become a resident, you must meet the standards of at least one of two tests.

The first is the green card test. This simply means that you have obtained a “green card” granting you the right to live in the US as a lawful permanent resident.

The other is the substantial presence test. This test requires that both of the following be true:

  • You spent more than 30 days in the US during the current year
  • You spent a total of at least 183 days in the US over the current year and the two previous years

Note: not all days spent in the US will count equally toward those numbers. The math can get complicated. Consult a qualified tax professional to learn more.

If you meet the qualifications of either the green card test or the substantial presence test, you will be considered a US resident—and thus a US person for tax purposes. If you don’t, you will be considered a nonresident. (Or, if you were previously a resident, you may be classified as a dual-status alien.)

Tax Implications as a US Person

Virtually all US persons are required to file a US tax return every year. This is true regardless of:

  • Where you live
  • Where you work
  • Whether you will owe taxes after filing

As a US person, you must report your worldwide income, not just income that came from a US source. You may also have to file additional tax forms, such as:

  • FATCA: If you own non-US financial assets valued above certain thresholds, you must file a Foreign Account Tax Compliance Act (FATCA) report.
  • FBAR: If you have at least $10,000 deposited in one or more non-US bank accounts, you’ll need to report it by filing FinCEN Form 114, also known as the Foreign Bank Account Report (FBAR).

How to Renounce Your Status as a US Person

If you are currently a US person for tax purposes, you can choose to undo that status. The steps required will depend on why you are considered a US person.

  • If you are a US citizen, you will have to renounce your citizenship to undo your status as a US person for tax purposes. This is a complex process, and you may need to pay an exit tax.
  • If you are a US resident with a green card, you will need to file Form I-407 to relinquish your status as a lawful permanent resident. Depending on how long you’ve had your green card, you may need to pay an exit tax.
  • If you are a US resident due to the substantial presence test, then you can undo your status as a US person simply by reducing how many days you spend in the US in future years.

Before making the decision to renounce your citizenship or relinquish your resident status, you should always speak with a tax professional. US tax law is nothing if not complicated, and making a mistake could cost you.

Get Help from a Team of Expat Tax Pros

If you are a US person for tax purposes, we can help you understand your US tax obligations. In fact, we can even help you prepare and file your expat taxes on your behalf.

At Greenback Expat Tax Services, we help Americans living abroad manage their US taxes. Just contact us, and we’ll be happy to help you in any way we can.

Get started with your expat tax return.