183 Day Rule Details

When your tax residency is being determined, the number of days in a year that you've spent out of your home state or country is an essential consideration. 183 days or six months acts as half of most of a year, and this is the ruler by which jurisdiction will regard you as a tax resident.

Many other factors can be used to make you eligible for taxation but living and working in a place for 183 days is the definite cut-off point. This is also the threshold by which the Internal Revenue Service uses in the SPT or Substantial Presence Test for non-US citizens or non-permanent residents.

The 183 rule applies mainly in global mobility instances where expatriates rely on tax treaties to avoid liability at home as well as abroad. Individual states within the US may consider non-residents under this rule if they spend 183 days, or they or their spouses own an abode or permanent, all-year residence in that state.

Example of the 183 Day Rule

You are subject to the laws of the country or state that you've crossed over to work if it's not where you live. In retrospect, your home jurisdiction will be looking to tax all your income, irrespective of where you are located, working, or receiving your payment, and so will the host location.

That’s where tax treaties come in, whose basic rule is that taxation occurs in the jurisdiction where you work as opposed to your home country or state. Depending on the domestic tax laws in that location, and if you’ve spent at least 50 working days there, they have a right to 25% of your income.

To simplify things and keep double taxation at bay, the 183-day rule is put in effect, meaning that if all conditions are met, you'll be liable to full taxation in your home jurisdiction. As soon as you've set foot in a foreign state or country, be aware that you are in their tax jurisdiction and subject to local tax laws. You are present in the US if you’ve spent any part of a day or consecutive 24 hours there according to the IRS. Exceptions occur as the days that won’t count towards your presence can include the following:

  • The regular days you are commuting to work from another jurisdiction, such as México or Canada, to the US
  • The less-than-24-hour days that you are in the US but are in transit between two foreign countries
  • The days you call at a port in the US as the crew of a foreign vessel
  • The days you couldn’t leave the US due to illness or conditions that developed while there

Significance of the 183 Day Rule

The 183-day rule isn't an actual rule but more of an exception to the rule where tax should be paid in the location that you are working in. Bilateral income tax treaties that are meant to eliminate instanced of double taxation contain Dependent Personal Services or DPS articles that limit presence in foreign jurisdictions to 183 days.

Depending on the nature of a treaty, 183 days can be counted in a rolling 12 months, fiscal or calendar year. If you work in a different location and are paid in your host state or country, restrictions will apply as the 183-day rule isn't universally applicable.

To pass the Substantial Presence Test for US tax subjection, the IRS determines that you must have been physically present in your location for at least 31 days during that year. The rule is used for a period amounting to three years, meaning that you were physically present for two preceding years and then 183 days of the current year.

Here's how these days are calculated:

  • All those days you were physically present in that current year
  • A third of the days you were present during the year before that
  • A sixth of the days you were present for the two previous years

Your tax residence means the country where you are obligated to pay personal income tax bylaw, and for most people, this is their home country. Tax residence doesn't change as long as where you live or have a domicile is the same as where you work, and the substantial presence test only applies to non-citizens or persons who aren’t lawful permanent citizens.

The 183 Day Rule vs. the 330 Day Rule

Another term closely related and often confused with the 183-day rule is the 330-day rule. The IRS uses this in its physical presence test to determine your qualification for home tax exception. Your residence in another jurisdiction, the nature or purpose of your stay in the host country, and your intentions for returning home aren't a consideration for US citizens and resident aliens.

It's only when you meet the conditions for the home tax test that your intentions for the purpose of your stay abroad become relevant. This rule is explained in publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad under chapter 4.

To meet these conditions, you must have been physically present for at least 330 full days in a foreign jurisdiction during the 12 months of the year in question.

If your presence there doesn't add up to a full 330 days, your income won't qualify as foreign earned, regardless of what your reasons for absence were. The 183-day rule doesn't apply to US citizens or permanent residents as they are required to file returns with no consideration of where their source of income is based. As of 2019, if you work abroad and meet the conditions of the physical presence test, up to $105.90 of your overseas income can be excluded from income tax.