We’ve talked about the need for Canadians (or any non-US citizen who regularly spends between 4 to 6 months in the US) to fill out the Closer Connection Form (the IRS Form 8840) before. Well, it’s a good time of year (Spring) to review this rule again.
Who Needs to Fill Out the Closer Connection Form?
Any non US citizen individual who has a “substantial presence” in the US must fill out the Form 8840 (every year they have a substantial presence). Is there a mathematical formula designed to determine whether you have substantial presence” in the US (and then need to fill out the Form 8840)? Yes. And I’m going to spell out the formula in a moment. BUT IF YOU ARE IN THE UNITED STATES EVERY YEAR BETWEEN 4 AND 6 MONTHS, FORGET THE FORMULA AND JUST FILL OUT THE 8840…THE FORMULA IS JUST DESIGNED TO DETERMINE WHETHER YOU SHOULD HAVE A SUBSTANTIAL US PRESENCE AND NEED TO FILL OUT THE 8840 TO BEGIN WITH. IF YOU ARE IN THE US EVERY YEAR, YEAR IN YEAR OUT,BETWEEN 4 AND 6 MONTHS, DON’T WORRY ABOUT THE FORMULA AND JUST FILL IT OUT EVERY YEAR!!!
Here is the Formula Designed to Determine Whether You Have a Substantial Presence in the US and You Then Must Fill out the Form 8840 (but again, if you’re in the US between 4 to 6 months every calendar year, just fill out the Form 8840 and do not go crazy about the exact days and the mathematical test).
An individual has a substantial presence in the US if the individual is present in the US at least 31 days during the current year and at least 183 days for the three-year period ending on the last day of the current year using a weighted average approach (the weighted average approach works as follows: the number of days spent in the US in the current year are given full weight; the number of days spent in the US in the last year are multiplied by 1/3; and the number of days spent in the US two years ago are multiplied by 1/6….add up the total for the three years and if it equals or exceeds 183 days, the nonresident alien has a substantial presence in the US. For example, an individual who spent exactly 124 days in the US this year and the previous two years would have a total of 187 days under the substantial presence test:
Last Year (2012): 124 x 1= 124 2 Years Ago (2011): 124 x 1/3= 42 3 Yrs Ago (2013): 124 x 1/6= 21 Total= 187 days. Substantial presence test of 183 days exceeded…
What does this mean?
The non-US citizen (probably Canadian) needs to fill out the IRS Form 8840, that’s all!
We’ll walk through the IRS Form 8840 in our next post.
One final note before we close this post-
We count days for this purpose in the calendar year: January 1 to December 31 of each year is the period when we determine how many days the Canadian (or any non-US citizen) was in the US. And, keep in mind, it should never be more than 182 days in any calendar year (for the purposes of being deemed a US tax resident). We are assuming even those Canadians in the US a lot ever year are not here more than 182 days in any calendar year (for tax reasons…remember the immigration rule is no more than 180 days in any 365 day period, which is not necessarily the calendar year).