What is a U.S. tax residency certificate?
A U.S. tax residency certificate, also known as a certificate of compliance or certificate of residency, is a document that provides proof of an individual’s U.S. tax residency status. This certificate allows non-U.S. residents to claim tax treaty benefits on income earned in the U.S.
To claim a tax treaty benefit and reduced withholding tax rate, the IRS requires non-U.S. residents to provide a valid U.S. tax residency certificate to the U.S. payer of income. This certificate serves as proof that the non-U.S. resident meets the residency or substantial presence requirements to be considered a U.S. tax resident.
Why would you need a U.S. tax residency certificate?
There are several reasons a non-U.S. resident may need to obtain a U.S. tax residency certificate:
- To claim exemption from or reduced rate of U.S. withholding tax on U.S. source income. Withholding tax rates on U.S. source income like dividends, interest, rents, royalties, etc. can range from 30% for non-residents to 0% for U.S. residents. A tax residency certificate allows you to benefit from lower withholding rates under a tax treaty.
- To exclude days spent in the U.S. when calculating substantial presence test. The substantial presence test determines if you meet the physical presence requirements to be considered a U.S. tax resident. With a tax residency certificate, you can exclude days spent in the U.S. for medical treatment, vacations, etc. when calculating this test.
- To claim tax benefits reserved only for U.S. residents. Certain tax deductions, exemptions and credits are only available to U.S. tax residents, not non-residents. A tax residency certificate can help qualify you for these tax savings.
- To avoid double taxation on global income. As a U.S. resident, you are taxed by the U.S. on your worldwide income. With a residency certificate, your home country will exempt your U.S. source income to prevent double taxation.
- To open a U.S. bank account or apply for a mortgage/loan as a U.S. person.
So in summary, a U.S. tax residency certification provides proof of your status as a U.S. tax resident in order to claim tax treaty benefits and establish eligibility for tax deductions, credits and incentives reserved for U.S. residents.
What are the requirements to get U.S. tax residency status?
To qualify as a U.S. tax resident and obtain a tax residency certificate, you must meet one of two residency tests:
1. Green card test
If you are a lawful permanent resident of the U.S. (green card holder), you automatically pass the green card test and are considered a U.S. tax resident. You can apply for a tax residency certificate at any time during the year you obtain your green card, regardless of how many days you are present in the U.S.
As a green card holder, you are considered a U.S. tax resident until your immigration status is officially revoked or deemed abandoned by the U.S. Citizenship and Immigration Services (USCIS).
2. Substantial presence test
The substantial presence test depends on the number of days you spend physically present in the U.S. over a 3-year period:
- Each day present in the current tax year counts as 1 full day
- Each day present in the 1st preceding tax year counts as 1/3 day
- Each day present in the 2nd preceding tax year counts as 1/6 day
You meet the substantial presence test if your total weighted days in the U.S. equals or exceeds 183 days over the 3-year period.
Exceptions:
- If you spend less than 31 days in the current tax year, it does not count.
- Days in the U.S. for medical treatment do not count.
- Days in the U.S. as a teacher, student or professional athlete under a visa do not count.
So in summary, you must be a green card holder at any point in the tax year OR meet the substantial presence test to be considered a U.S. tax resident.
How do I obtain a U.S. tax residency certificate?
Follow these steps to obtain your U.S. tax residency certification:
1. Determine your U.S. tax residency status
First, figure out if you meet one of the two residency tests to qualify as a U.S. tax resident:
– Are you a green card holder? If yes, you automatically qualify.
– If not, calculate your substantial presence based on the weighted days formula over the past 3 years.
Use this table to help determine your status:
Year | Days Present in U.S. | Calculation |
---|---|---|
Current Year | 130 days | 130 days |
1st Preceding Year | 220 days | 220/3 = 73 days |
2nd Preceding Year | 90 days | 90/6 = 15 days |
Total | 130 + 73 + 15 = 218 days |
Since the total weighted days exceeds 183, this person meets the substantial presence test.
2. Review eligibility requirements
Once you confirm you meet one of the residency tests, review additional requirements that may apply:
– You did not apply for a closer connection exception
– You do not have a medical condition that compels you to leave U.S.
– You were not physically present in your home country for 183+ days
Meeting any of these makes you ineligible for a tax residency certificate.
3. File your income tax returns
File your U.S. federal tax returns (Form 1040NR or 1040) reporting your worldwide income for the tax years covered by your residency status.
Your returns help establish and document your status as a resident for tax purposes.
4. Complete application forms
The required application forms depend on your country of residence:
For Canadian residents:
– Form 8833: Treaty-Based Return Position Disclosure
For Mexican residents:
– Form 8833
– Form 8802: Application for United States Residency Certification
For residents of India, China, and South Korea:
– Form 8802
– Form 6166: Certification of U.S. Tax Residency
For all other treaty countries:
– Form 6166 only
Submit copies of your green card or completed Form 8840 (substantial presence test) along with the required application forms.
5. Obtain certification from IRS
Mail the completed application forms and supporting documents to the IRS address provided in the instructions. The IRS will review your submission and issue Form 6166 if your U.S. residency is verified.
This certification form can be submitted to foreign tax authorities or U.S. withholding agents to prove your status and claim tax treaty benefits.
You must renew Form 6166 annually as long as you remain a U.S. tax resident under the residency tests.
Conclusion
Obtaining a U.S. tax residency certificate involves meeting one of the two residency tests, filing U.S. tax returns to report your worldwide income, completing the applicable IRS forms, and requesting certification from the IRS. This official certification provides documentation of your status as a U.S. tax resident and eligibility for tax benefits under a treaty agreement.
Non-U.S. residents planning to spend a significant amount of time in the United States should consider whether they qualify for U.S. tax residency and if claiming residency status would be beneficial in reducing their tax obligations. Determining residency status in advance allows sufficient time to obtain the required tax residency certification from the IRS before treaty benefits can be claimed.
I hope this overview gives you a better understanding of what a U.S. tax residency certificate is, why it is needed, the requirements to obtain certification, and how to apply with the IRS. Let me know if you have any other questions!