Many countries use the 183-day rule as a method of determining if people should be considered residents for tax purposes. The Internal Revenue Service (IRS) in the US uses 183 days as the threshold in its substantial presence test which tells them if non-US citizens and non-permanent residents should be taxed as residents.
The reason these countries — including the US, Canada, Australia, and the UK — use 183 days as the threshold for this test is that it’s the majority of days in a year. If you’re in one of the participating countries for at least 183 days in a year, they consider you a tax resident for that particular year. However, each country using the rule enforces it in a slightly different way. Some use the fiscal year; others use the calendar year, or start the clock on the day the person in question arrives in the country.
Typically, US permanent residents and citizens are exempt from the 183-day rule as they’re required to file tax returns regardless of where they live or what their income source is. For 2021, permanent residents and citizens are able to exclude up to $108,700 of income earned from a foreign source providing they pass the physical presence test and paid taxes in that foreign country.
How the US Enforces the 183-Day Rule
For the US, the IRS uses a fairly complicated formula to determine if a person has passed the substantial presence test and therefore must pay US taxes. For this to happen, a person needs to have been present for:
- A minimum of 31 days in the current year, and
- 183 days over the three-year period including the current year and the two years right before it.
However, these days must be specifically counted from all days present in the current year, a third of the days present in the previous year, and a sixth of the days present two years ago. In most cases, the IRS will consider you as present in the US if you spent any amount of time in a day there, with the following exceptions:
- Regularly commuting to work in the US from a Mexican or Canadian residence
- Transiting between two other countries while in the US for less than 24 hours
- Performing duties as a crew member of a foreign vessel
- Being unable to leave the country due to a medical condition that developed while there
- Being qualified as exempt under various visas or as an athlete competing for charity