March 10, 2026
Unlocking the Tax Maze: What Every Immigrant Needs to Know About Tax Filing in the U.S.
Article Highlights:
- Immigration Status:
o Immigrant
o Nonimmigrant
o Undocumented Alien - Tax Status
- Green Card Test
- Substantial Presence Test
- First-Year Choice
- What Constitutes a Day
- Closer Connection Exception to the Substantial Presence Test
Understanding the tax obligations and potential benefits applicable to immigrants in the United States, both legal and undocumented, is a complex but critical aspect of financial planning and compliance. With millions of immigrants contributing to the U.S. economy, it's essential to unravel the intricacies of their tax status, which often hinges on specific factors such as residency status, work authorization, and individual income levels. This article aims to illuminate how tax laws affect immigrants differently, highlighting key distinctions between resident and nonresident aliens and the impact of the Substantial Presence Test.
By exploring the diverse tax scenarios faced by these communities, we hope to provide a comprehensive resource that aids immigrants in navigating the intricate landscape of taxation, ensuring that legal obligations are met while maximizing available tax benefits.
Immigration Status: The immigration laws of the United States refer to aliens as immigrants, nonimmigrants, and undocumented (illegal) aliens. A foreign person in the U.S. will have one of the following statuses for immigration purposes.
- Immigrant - An immigrant has been granted the right by the U.S. Citizenship & Immigration Services (USCIS) to reside permanently within the U.S. and to work without restriction. They may also be referred to as an LPR or Lawful Permanent Resident. They will have a “green card” (form I-551) or for those awaiting issuance of the green card, their foreign passport will bear an I-551 stamp. Immigrants are treated as residents for withholding and tax purposes.
- Nonimmigrant - A nonimmigrant may reside temporarily within the U.S. according to the terms corresponding to the visa with which they entered the United States.
- Undocumented Alien - An undocumented alien is generally someone who has entered the U.S. without any documentation, or an alien who entered the U.S. legally but has fallen “out of status” such as by over-extending their stay. An undocumented alien will be treated as a nonresident for tax purposes unless they pass the “Substantial Presence Test” (see definition below). If they pass the Substantial Presence Test, then they are treated as a resident for tax purposes.
Tax Status: The tax laws of the United States do not refer to individuals in the same three categories as the immigration laws and refer only to the following two controlling principles:
- RESIDENT ALIENS are taxed in the same manner as U.S. citizens on their worldwide income, and
- NONRESIDENT ALIENS are taxed according to special rules contained in certain parts of the Internal Revenue Code (IRC).
A major distinguishing feature of this special tax regime concerns the source of income: a nonresident alien (with certain narrowly defined exceptions) is subject to federal income tax only on income which is derived from sources within the United States and/or income that is effectively connected with a U.S. trade or business.
Although the tax residency rules are based on the immigration laws concerning immigrants and nonimmigrants, the rules define residency for tax purposes in a way that is very different from the immigration laws. Under the residency rules of the tax code, any alien who is not a Resident Alien is a Nonresident Alien.
A Nonresident Alien will become a Resident Alien in one of three ways:
- Green Card Test - By being admitted to the United States as, or changing status to, a Lawful Permanent Resident under the immigration laws (the Green Card test),
- Substantial Presence Test - By passing the Substantial Presence Test (which is a numerical formula which measures days of presence in the United States); or
- First-Year Choice - By making what is called the "First-Year Choice" (a numerical formula under which an alien may pass the Substantial Presence Test one year earlier than under the normal rules). Refer to the discussion of "First-Year Choice" in Chapter 1 of IRS Publication 519.
Under these rules, even an undocumented (illegal) alien under the immigration laws who passes the Substantial Presence Test will be treated for tax purposes as a resident alien.
Green Card Test: Individuals are considered residents, for tax purposes, if they are a Lawful Permanent Resident of the United States at any time during the calendar year. This is known as the "green card" test. They generally have this status if the U.S. Citizenship and Immigration Service (USCIS) has issued them Form I-551, also known as a "green card,” or their foreign passport bears an I-551 stamp while awaiting issuance of the actual green card. That status continues unless voluntarily renounced and abandoned or terminated by the USCIS or a U.S. federal court. Their residency starting date is the first day on which they are present in the United States as a Lawful Permanent Resident, or they choose to be taxed as a resident alien for the entire calendar year.
Substantial Presence Test: An individual will be considered a U.S. resident for tax purposes if they meet the Substantial Presence Test for the calendar year. To meet this test, they must be physically present in the United States on at least:
- 31 days during the current year, AND
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
o All the days present in the current year, and
o 1/3 of the days present in the first year before the current year, and
o 1/6 of the days present in the second year before the current year.
Example - Substantial Presence Test - A foreign individual, Maria, has been visiting the U.S. during the current and past two calendar years. For the current year (2026) Maria spent 112 days in the U.S, 119 days in 2025 and 136 days in 2024. She meets the first half of the test by being in the U.S. for at least 31 days in 2026. However, she does not meet the 183-day test (see below) and therefore must be treated as a non-resident for withholding and taxation purposes.
| Year | Days | Multiplier | Test Days |
| 2026 | 112 x | 1.0 | 112.00 |
| 2025 | 119 x | 0.333 | 39.63 |
| 2024 | 136 x | 0.167 | 22.71 |
| Total | - | - | 174.34 |
First-Year Choice: The "first-year choice" is an IRS election that allows an alien who arrives in the U.S. late in a calendar year to be treated as a U.S. resident for tax purposes for a portion of that year, rather than a nonresident alien for the entire year. This results in a dual-status tax year (nonresident for part of the year, resident for the rest) and allows the individual to be taxed as a U.S. resident from their date of arrival.
Married taxpayers where both spouses are residents by year-end may choose to be treated as residents for the entire year for joint filing under a separate election (IRC Section 6013(g) or (h)).
What Constitutes a Day: Generally, any portion of a day is considered a full day for purposes of this test. However, there are exceptions to this rule. Do not count the following as days of presence in the United States for the Substantial Presence Test.
- Days the individual commutes to work in the United States from a residence in Canada or Mexico, if he or she regularly commutes from Canada or Mexico.
- Days in the United States for less than 24 hours, when in transit between two places outside the United States.
- Days in the United States as a crew member of a foreign vessel.
- Days the individual is unable to leave the United States because of a medical condition that develops while he or she is in the United States.
- Days the person is an exempt individual, as explained next.
- An individual temporarily present in the United States as a foreign government-related individual.
- A teacher or trainee temporarily present in the United States under a "J” or "Q” visa, who substantially complies with the requirements of the visa.
- A student temporarily present in the United States under an "F”, "J", "M", or "Q” visa, who substantially complies with the requirements of the visa.
- A professional athlete temporarily in the United States to compete in a charitable sports event.
If days of presence in the United States are excluded because the individual falls into a special category, a fully completed, Statement for Exempt Individuals and Individuals with a Medical Condition, must be filed.
Closer Connection Exception to the Substantial Presence Test: Even if the Substantial Presence Test is met, the individual can avoid being treated as a U.S. resident if the person is:- Present in the U.S. on fewer than 183 days during the year, and
- Establishes that for the year, he has a tax home in a foreign country to which he has a closer connection than to the U.S.
To claim the closer connection exception, the taxpayer must include a closer connection statement, which must be attached to the taxpayer’s 1040NR for the year. If the individual is not required to file for the tax year, the statement must be filed separately.
First Year of Residency - If an individual is a U.S. resident for the calendar year, but not a U.S. resident at any time during the preceding calendar year, he or she is a U.S. resident only for the part of the calendar year that begins on the residency starting date and is a nonresident alien for the part of the year before that date. In this situation, both Forms 1040 and 1040NR need to be completed and are submitted to the IRS together.
Making these determinations can be convoluted; contact this office for assistance.
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