Were you in the US visiting or on short-term business travel when COVID-19 struck? And has your stay been extended as a result?
Like many countries, the US has rules about how much time a nonresident can spend in the country before triggering US tax residency. The US’s test of residency, the “Substantial Presence Test,” considers the number of days you have spent in the US over a 3-year period to determine whether you should be a US tax resident, taxable in the US on your worldwide income and subject to “informational disclosures” on your assets outside the US. (Of course, US citizens and green card holders are always considered tax residents, regardless of how many days they spend in the US each year.)
If you are a nonresident who is temporarily stranded in the US due to COVID-19, US taxes are the last thing you want to worry about! Fortunately, the US Internal Revenue Service (IRS) recently issued Revenue Procedure 2020-20 to grant tax relief to US nonresidents in this situation.
These new rules allow US nonresidents temporarily stranded in the United States due to COVID-19 to claim a “medical travel exception” for the Substantial Presence Test.
The requirements to meet this exception are as follows:
1. You must be an “eligible individual,” which means:
- You were not a US tax resident at the end of calendar year 2019,
- You will not become a US green card holder at any point in 2020 (if you are seeking to become a lawful permanent resident of the US, then there is no presumption to leave the US),
- You are present in the US during the “applicable period,” defined as beginning anytime between February 1, 2020, and April 1, 2020 (and lasting up to 60 consecutive days from any date within that window), and
- You would not be a US tax resident under the Substantial Presence Test based on your US days of presence outside of the “applicable period.”
2. If you are in the US on work, you should provide your employer or withholding agent with IRS Form 8233 to indicate the tax withholding exception.
3. If you are required to file a nonresident tax return (IRS Form 1040NR) for calendar year 2020, then you must also file Form 8843. (Not sure if you need to file a US nonresident tax return? Here are the rules.) Section 5.02 of Revenue Procedure 2020-20 provides the exact details required to complete Form 8843 due to the COVID-19 Medical Condition Travel Exception. Be sure to keep records in support of your claim for 3 years in case of a future audit or examination by the IRS.
Note that if you are not required to file a US nonresident tax return for calendar year 2020, then there is no further requirement to file IRS Form 8843. And if you do need to file a nonresident return, Revenue Procedure 2020-20 does not preclude you from alternatively using the Closer Connection Exception or Treaty Tie-Breaker Rules.
Under the IRS tax relief for nonresidents temporarily stranded in the US due to COVID-19, there are precise rules that allow you to be eligible for and qualify for the proposed relief. If your departure from the US has been delayed by the COVID-19 emergency, you should take proactive steps to monitor and plan your situation to take advantage of these procedures, if applicable. Furthermore, the IRS has indicated that future updates and extensions of time may be available. We recommend that you monitor for these changes and incorporate them into your 2020 tax plan.
The Wolf Group has been providing international income tax planning services since 1983 and can assist nonresidents in determining their tax residency status, US tax return filing requirements, and applicability of these COVID-19-related provisions.