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HP 12C Substantial Presence Test: When the Payee Becomes a Resident Alien

HP 12C Substantial Presence Test: When the Payee Becomes a Resident Alien

Introduction

When a U.S. company or entity pays a foreign entity or a person who is not a U.S. Citizen and it is U.S. source income, IRS law dictates that the payer must determine whether the payee is a resident alien or a non-resident alien. 

One test that is applied to foreign nationals is the substantial presence test.  The substantial presence test is in two parts:

1.  If the payee is physically present in the United States for less than 31 days in a calendar year, that person is a nonresident alien.

2.  If the payee is physically present 31 days or more, a mathematical formula is used:

* Count all the days the foreign national is in the U.S. this current year.

* Count 1/3 of the days present in the U.S. last year.

* Count 1/6 of the days present in the U.S. two years ago

If the sum is 183 or greater, then the payee is a resident alien.  Otherwise the payee is a nonresident alien.

Tax laws for payments to U.S. resident aliens versus nonresident aliens differ; the specifics are beyond the scope of the blog.

The following program determines the residency date of an international payee depending on when the payee first came to the United States with several assumptions:

1.  We are assuming that none of the exemption rules apply (such as an F-1 student does not count any days towards the substantial presence test for up to five calendar years). 

2.  The program also assumes the payee does not leave the United States when the payee enters the country.  If the payee leaves the U.S. for a time period, this program will not give accurate results.

Please Note:  This program is NOT tax advice.  Should you have any tax questions, please consult a professional tax prepare.  Also, this date is for federal tax purposes only, and has no effect on the payee’s immigration status.

The program is assumed to be in U.S. date M.DY format (MM.DDYYYY). 

HP 12C Program:  Tax Residency Date for Foreign Payees

01 36 ENTER
02 36 ENTER
03 44, 0 STO 0
04 1 1
05 26 EEX
06 2 2
07 20 *
08 43, 24 FRAC
09 44, 1 STO 1
10 1 1
11 2 2
12 3 3
13 1 1
14 40 +
15 1 1
16 26 EEX
17 2 2
18 10 ÷
19 43, 26 ΔDYS
20 1 1
21 8 8
22 3 3
23 43, 34 x ≤ y
24 43, 33, 45 GTO 45
25 34 x < > y
26 3 3
27 10 ÷
28 43, 25 INTG
29 30
30 45, 1 RCL 1
31 1 1
32 26 EEX
33 4 4
34 16 CHS
35 40 +
36 1 1
37 0 0
38 1 1
39 40 +
40 1 1
41 26 EEX
42 2 2
43 10 ÷
44 43, 33, 46 GTO 46
45 45, 0 RCL 0
46 34 x < > y
47 43, 16 DATE
48 43, 33, 00 GTO 00

Example 1: 
Substantial Presence Test starts at January 1, 2018 (1.012018)
Result:  7.032018 (July 3, 2018)

Example 2:
Substantial Presence Test starts at August 17, 2017 (8.172017)
Result:  5.192018 (May 19, 2018)

Source:

“Substantial Presence Test”  Internal Revenue Service  https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

Eddie

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