Many G-4 visa holders are confused over their U.S. tax residency status. They have heard from others that simply holding a G-4 visa entitles the holder to be a nonresident. It does not! The U.S. income tax code and regulations don’t even mention “G-4 visas.” Then why are most G-4’s considered nonresidents and more importantly, why does it matter? I hope to answer these questions in this article.
Resident vs. Nonresident Taxation and Why it Matters
A foreign national (who is a non-U.S. citizen) may be taxed under the U.S. income tax system as either a resident or a nonresident.
A nonresident is only taxable in the United States on his U.S. source income; this includes wages for work performed in the United States (other than wages earned by a G-4 visa holder from an international organization). Also taxable is U.S. source investment income such as dividends received from U.S. corporations.
U.S. tax residents on the other hand are subject to U.S. tax on their worldwide income. Worldwide income includes earnings from all sources, including income upon which another country levies a tax.
G-4 Visa Holders and the “Substantial Presence Test”
The general rule under the U.S. tax code is that a foreign national who is present in the United States for 183 days or more in a calendar year becomes a U.S. income tax resident under the so-called “substantial presence test” (“SPT”). Also, if the person is present in the United States on at least 31 days of the current calendar year, he or she may be classified as a U.S. tax resident if his/her days of U.S. presence exceed 182 days using the following formula:
- Actual days in the United States in the current year, plus
- 1/3 of the days in the U.S. in the immediately preceding year, plus
- 1/6 of the days in the U.S. in the second preceding year.
In applying SPT, an individual must include any day on which he spent any time at all within the United States.
Exception to the General Rule – “Exempt Individuals”
An important exception under the Substantial Presence Test of residency provides that any day that an individual is present in the United States as an “exempt individual” is not counted as a day of U.S. presence. An “exempt individual” includes a foreign national who is present in the United States by reason of “his or her full-time employment with an international organization.” Also included are the immediate family of an exempt individual (spouse and unmarried children under 21 years of age).
Therefore, as long as a G-4 visa holder is employed and working on a full-time basis for an international organization, his/her days are not counted as U.S. days and the individual will be treated as a nonresident for income tax purposes.
What is Full-Time Employment?
The regulations clarify the definition “full-time employment” and provide that an individual will be considered a “full-time employee” of an international organization if that individual’s employment with the organization is “consistent with an employment schedule of a person with a standard full-time work schedule with the organization.”
Green Card Test
Besides the Substantial Presence Test of residency, the other way a foreign national may become a U.S. tax resident is through the “green card test.” This test is satisfied if a person has obtained lawful permanent resident status under U.S. immigration laws. A person who is approved for a “green card” is considered to be a tax resident from the first day of physical presence in the United States under that status.
Of course the above rules are only the general rules of tax residency as applied to G-4 visa holders; there are many exceptions and exceptions to those exceptions. Therefore, if you are concerned about your tax residency status we encourage you to seek guidance from a qualified tax advisor.
This articles in this newsletter is not intended as legal or tax advice, and cannot be relied upon for any purpose without the services of a qualified tax professional.