The term “U.S. person” is a key part of the U.S. tax system. It helps decide who should report and pay U.S. tax on all their income, no matter where it is earned. U.S. persons may also have to meet extra international reporting rules, like Foreign Bank Account Reporting (FBAR).
A U.S. person can be either an individual or an entity. First, let’s look at which individuals qualify as U.S. persons for tax purposes.
Individuals Who Qualify as U.S. Persons for U.S. Tax Purposes
Here are the main types of individuals who qualify as U.S. persons:
U.S. Citizens
U.S. citizens are people born in the United States, some individuals born abroad to U.S. citizen parents (if they meet certain rules), and those who become citizens through naturalization.
It’s important to remember that U.S. citizens should pay tax on their worldwide income, no matter where they live. Even if you have lived outside the U.S. for many years, you usually still have to file U.S. taxes unless you officially give up your citizenship.
Lawful Permanent Residents (Green Card Holders)
People who have permanent residency, often called Green Card holders, are also considered U.S. persons for tax purposes.
This status usually lasts until it is officially ended, not just when the card expires. So, even if someone lives outside the U.S. for years, they may still be seen as a U.S. person or tax resident.
Residents Under the Substantial Presence Test
Even if you are not a citizen or Green Card holder, you might still be a U.S. tax resident if you meet the substantial presence test.
This is determined through a three-year formula, which is as follows:
- At least 31 days in the U.S. during the current year, and
- A total of 183 days, calculated as:
- All days in the current year
- 1/3 of days in the prior year
- 1/6 of the days in the year before that
There are exceptions to the substantial presence test. For example, days spent in the U.S. on certain student or teacher visas may not count. For more details, see the following article.
Next, let’s understand which entities qualify as U.S. Persons.
Entities That Qualify as U.S. Persons for U.S. Tax Purposes
The term U.S. person also includes some U.S.-based legal entities. Here are a few examples:
Domestic U.S. Corporations and Partnerships
Any corporation or partnership created under U.S. federal or state law is considered a U.S. person, no matter where it does business or earns income.
Estates
An estate is usually a U.S. person unless it meets the rules for a foreign estate. This depends on factors like where it is managed and its ties to the United States.
Trusts
Classifying trusts is more complex. A trust is a U.S. person (a “domestic trust”) if it meets both of these requirements:
- Court Test: A U.S. court has primary supervision over administration, and
- Control Test: U.S. persons control all substantial decisions
If a trust does not meet both tests, it may be considered foreign, even if it has strong ties to the U.S.
Final Thoughts
The idea of a “U.S. person” might seem simple, but in reality, it depends on many details. Changes in residency, visa status, or how an entity is set up can affect tax obligations. Tax treaties can also change residency status and who qualifies as a U.S. person.
Because of these complexities, it’s a good idea to get professional advice to make sure you follow the rules and avoid expensive errors.
For detailed guidance on understanding if you qualify as a “U.S Person”, please get in touch with the tax attorneys at Arora Law P.C. at (201) 620-1482.
Disclaimer: The information provided in this article is for general informational purposes only and does not include legal advice. This article does not comprise an attorney-client relationship between the reader and Arora Law P.C. or its attorneys. If you have specific questions regarding your individual situation, please consult with a licensed attorney.
The information in this article is current as of the publication date. U.S. Tax laws and regulations change frequently, and readers should confirm whether any updates have occurred since.