As discussed in our section on Who Needs To File, one of the circumstances in which an individual can be considered a "US person", is when they meet the "Substantial Presence Test".

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The Substantial Presence Test determines how long you can stay in the USA before you are considered to be a US person, which in turn makes you a US tax resident and thus subject to tax on your worldwide income.

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Firstly, it should be made clear that the Substantial Presence Test does not apply

to US citizens and green card holders, as you are already considered to be a US person.

How long can I spend in the USA before I meet the Substantial Presence Test?

The test is measured by how long you spend in the USA, and is counted over a period of 3 years, inclusive of the current year. Once you've spent greater than 183 days in the USA over a three year period, you have met the test. Specifically, it counds:

1. All of the days in the current year

2. 1/3 of the days last year

3. 1/6 of the days the year before

Once the combined total of the above exceeds 183 days, you are then treated as a US tax resident and are required to file a US tax return to report your worldwide income.

We know the above can seem a little complicated, so here's an example of someone who does meet the substantial presence test. Alice travelled to the US for three consecutive years:

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- 2020 - Alice did not travel to the USA at all

- 2021 - Alice spent 144 days in the USA

- 2022 - Alice spent 123 days in the USA

- 2023 - Alice spent 131 days in the USA

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We must now count her total days using the method above. For 2021, one sixth of 144 is 24, for 2022 one third of 123 is 41, giving us a total of 65. When we add this to the 131 days Alice spent during 2023, her total USA days is 196, meaning Alice is over the 183 day threshold to meeting the substantial presence test.

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Alice will now be treated as a US person and subject to tax on her worldwide income (with the NZ-US double taxation treaty taken into account).

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Contact us today to learn more.