Trying to figure out my tax residency

Question

I'm a Finnish citizen and have spent the last 6 years in the US. I finished a Ph.D. in May last year and I was on a J-1 visa until February last year. At that point I switched over to a G-4 visa due to my wife's work. Since graduation I've worked in the US as a G-4 dependent on an EAD, so I owe US taxes for that.

Now my problem is that the IRS has the so called "substantial presence test". Last year and in the years before that, I always satisfied the substantial presence test, so I was considered a resident for tax purposes. The problem with the G-4 visa is that days spent in the US in that status are not counted for the test.

I traveled quite a bit in 2014/2013 visiting a few research institutes abroad for extended periods of time, so that when I do the substantial presence test for last year, I don't go over the limit, i.e. the test doesn't consider me a tax resident. The problem is that I'm not resident anywhere now it seems. Finland doesn't even require me to file taxes anymore, because I've been abroad long enough.

Is there a requirement to be a tax resident somewhere? Should it be the US in my case? How do I communicate such a thing to the IRS in my tax return if that is the case?

Answer 1

If you don't meet the Substantial Presence Test (which you wouldn't meet even if you spent the whole year in the US, because as you've said, you're on G-4 which makes you an exempt individual) or the Green Card Test then you are not a resident alien for US tax purposes, regardless of whether you are considered a tax resident in any other country's tax law.

Answer 2

If you are not a "US person" for tax purposes you can tell the IRS that by filing a 1040NR (non-resident) tax return. If you decide to do this you should also replace all the W-9 forms you've filled in (providing your SSN to the employer/bank for tax reporting) with W-8BEN forms so that tax withholding is done properly. It is the 1040NR that will ask you to confirm that you are not a "US person". These forms will also ask about a tax treaty you claim to benefit from, but if you aren't filing taxes elsewhere you won't be able to claim a benefit.

You are alternatively free to not do this, to leave the W-9's in place and continue to file a regular 1040 tax return. The 1040 doesn't ask you to confirm that you are a "US person" so it is always appropriate to file this way.

The 1040NR changes how your US income is taxed and may not be to your benefit. Figuring out which of these alternatives is better for you gets you deep into skilled tax accountant territory (I'm not sure you can get H&R Block to do a 1040NR return for you). While the 1040NR exempts you from paying tax on non-US income, and perhaps certain US investment income (i.e. long term capital gains) as well, it will generally subject ordinary US income to withholding tax which is a flat rate 30% on all such income. If you have significant non-US income or you are a hedge fund manager and most of your income is carried interest filing as a non-resident may be lucrative; if the bulk of your income is from US employment, however, there's a pretty good chance continuing to file a normal 1040 will save you money.