Leaving the U.S. Mid-Year: When Does U.S. Tax Residency End?

When leaving the U.S. mid-year, don't assume that the date of your flight is automatically when your tax residency ends. Instead, your U.S. tax residency end date depends on how you became a U.S. tax resident, such as under the Substantial Presence Test or the green card test. For a person who is a U.S. resident under the Substantial Presence Test, December 31 is generally the default termination date. However, you may qualify for an earlier termination date if you meet the applicable IRS requirements relating to your foreign tax home and closer connection to a foreign country.

This rule also varies for green card holders. Simply leaving the U.S. and working and living in India while holding a green card will not automatically end your U.S. tax residency. Keep reading to learn when your U.S. tax residency ends and how the rule varies for green card holders.

Does U.S. Tax Residency End When You Leave the U.S.?

Not necessarily. If you become a U.S. tax resident under the Substantial Presence Test, your residency ending date is generally December 31 of the year in which you leave the U.S. However, your residency ending date may be your last day of physical presence in the U.S. if you meet the applicable IRS conditions.

To qualify for an earlier termination date, you generally need to establish that:

• Your last day of physical presence in the U.S. is the relevant termination date.
• Your tax home is in a foreign country for the remainder of the year.
• You maintain a closer connection to that foreign country than to the U.S.
• You are not a U.S. resident during the calendar year following the year of your last day of presence in the U.S., where this requirement applies.

You must also file the required statement with the IRS to establish the earlier residency termination date. The statement must be signed and dated and include a declaration made under penalties of perjury.

If you don't meet these conditions, the general December 31 termination date may apply.

Moreover, if you are a green card holder, simply leaving the country and satisfying the closer-connection conditions will not automatically end your U.S. tax residency. The green card rules are different and are discussed below.

Further, let's understand what "tax home" and "closer connection" to your home country mean.

What Does Tax Home and Closer Connection Mean for An NRI Returning to India from the USA?

As mentioned above, to qualify for the earlier termination date under the Substantial Presence Test, you generally need to establish that you maintain a tax home in a foreign country and have a closer connection to that country for the applicable period. But here the question is: what do tax home and maintaining a closer connection mean? Let's understand that.

Tax Home

A tax home is generally the general area of your main place of business, employment, or work, rather than your family home or birthplace.

As mentioned above, to qualify for the early termination date, you need to maintain a tax home in a foreign country for the remainder of the year. This means your facts should support that your tax home has moved to a foreign country, such as India, after leaving the U.S.

Confused? Let's look at an example with Satya.

Example:

After leaving the U.S., Satya got employed by an Indian office. So, this supports his Indian tax home. However, if he visits India sometimes while mainly working from a U.S. base, that will not by itself establish that his tax home is in India for the required period.

Closer Connection

To prove a closer connection to the country, the IRS looks at several facts and circumstances, which can include:

• Location of your permanent home and personal belongings
• Place where your spouse and children live
• Where you work or operate a business
• Professional and social relationships
• Driving license and vehicle registration
• Where your children attend school
• Location of your main banking activity
• Address used on government and financial documents
• Whether you maintain a home available for personal use in America

The IRS considers the overall facts and circumstances rather than relying on one factor alone.

Don't assume that showing your U.S. bank account, retirement plan, or investment portfolio will automatically prevent a closer connection to India. Similarly, having an Indian home or employment does not automatically establish a closer connection to India. The IRS considers the overall facts and circumstances.

Additionally, you won't automatically get an early termination date. Rather, you'll need to establish the applicable conditions and file the required statement with the IRS.

But what information does the statement include? Next, let's look at the details included in the early termination statement.

The Early Termination Statement

To establish an earlier residency termination date, you must file a signed and dated statement with the IRS. The statement must include a declaration made under penalties of perjury confirming that the provided facts are true.

Here are the details included in the statement, as applicable:

• Name, address, and U.S. taxpayer identification number, if any
• Passport number and issuing country
• Tax year for which the statement applies
• Last day of physical presence in the U.S.
• U.S. visa type and number, where applicable
• Information related to green card abandonment or rescission, if relevant
• Facts to establish your foreign tax home and closer connection to that foreign country
• Supporting documents establishing the relevant facts

If no U.S. income tax return is required, the statement should be sent to the IRS by the applicable return due date, following the IRS instructions.

You cannot generally claim the earlier termination date without filing the required statement. However, the IRS provides a limited exception where the taxpayer can establish by clear and convincing evidence that they took reasonable steps to become aware of the filing requirement and significant steps to comply with it.

Before preparing the statement, you should review the current IRS rules on residency starting and ending dates because the exact requirements depend on how your U.S. tax residency was established.

To understand how this early termination date works, let's look at Sanjay's example.

For green card holders, this may vary, as simply leaving the U.S. does not end their residency. Let's learn more about this.

What if I Leave the U.S. Mid-Year With a Green Card?

Your permanent resident status or federal tax residency doesn't end just because you leave the U.S. If you hold a green card, you will generally be treated as a U.S. tax resident until:

• You voluntarily abandon your lawful permanent resident status, such as by surrendering the green card to USCIS.
• USCIS administratively revokes your immigrant status.
• A U.S. federal court judicially revokes your immigrant status.
• You become treated as a resident of a foreign country under an applicable tax treaty, do not waive the treaty benefit, and satisfy the required IRS reporting rules.

So, you will generally be treated as a U.S. resident for tax purposes while you hold lawful permanent resident status. An expired physical green card does not, by itself, mean that your underlying lawful permanent resident status has ended.

If you want to give up the card voluntarily, you can generally use Form I-407 to record abandonment of lawful permanent resident status with USCIS.

However, a treaty-based residency position is different from formally abandoning your green card for immigration purposes. A treaty position may affect your U.S. tax residency while your immigration status continues, subject to the applicable treaty and IRS reporting requirements.

In short, don't claim an earlier termination date only because you left the U.S. and started living and working in India. If you are a green card holder, you need to separately consider the green card test, possible treaty residency, and the applicable reporting requirements.

The Bottom Line

When you leave the U.S. mid-year, your tax residency ending date will not necessarily be the date you leave the country. If you are a U.S. resident under the Substantial Presence Test, the general termination date is December 31 of the calendar year in which you leave the U.S. Additionally, you may qualify for an earlier termination date if you meet the applicable IRS conditions, including maintaining a foreign tax home and a closer connection to that foreign country for the required period, and filing the required statement.

Further, if you hold a green card, your U.S. tax residency will generally continue until your lawful permanent resident status ends through abandonment, administrative revocation, or judicial revocation. A qualifying treaty position can also affect your U.S. tax residency if the applicable requirements and reporting rules are satisfied.

Moreover, leaving mid-year can create a dual-status tax year, where you are treated as a resident for part of the year and a nonresident for another part. In such situations, you may need to file a dual-status tax return and follow the applicable IRS filing rules.

If you are unsure of which IRS form you need to file during the tax year, connect with an expert at Savetaxs. Our team can help you determine your residential status for the calendar year, choose the correct form, and ensure compliance with tax laws. Connect with us right away, as we are actively working 24/7 across all time zones.