For eligible individuals, some or all of a continuous period of COVID-19 ‘enforced’ presence in the US will be ignored in determining who is a US tax resident in 2020.
The relief announced by the US Internal Revenue Service (IRS) allows eligible individuals to claim relief for days on which they were present in the US, but unable to depart due to COVID-19 restrictions. Such a period of enforced presence in the US is referred to as a COVID-19 Emergency Period.
Choosing the start and end dates of a particular person’s COVID-19 Emergency Period is a matter for the individual making a claim for relief.
- The period selected must be a single continuous period of ‘enforced’ presence in the US.
- Relief is restricted to a maximum of 60 days.
- Consequently, the length of an individual’s COVID-19 Emergency Period is the lower of:
- 60 days, or
- the actual number of days in the single continuous period of enforced presence.
- Only presence in the US in the period 1 February 2020 to 30 May 2020 (inclusive dates) is eligible.
- The starting date of any COVID-19 Emergency Period must be between 1 February 2020 and 1 April 2020 (inclusive dates).
How does the relief work?
US tax law describes individuals who are not US citizens as aliens. Other than in the case of a ‘green card’ holder, whether someone is a resident alien (RA) or a non-resident alien (NRA) is determined by applying the substantial presence test.
The relief announced by the IRS is as follows. Days on which an eligible individual is present in the US during that person’s COVID-19 Emergency Period are not counted when applying the substantial presence test for US residence in the 2020 tax year.
Who is an eligible individual?
You are not an eligible individual, if any of the following apply:
- You had the status of a RA at the close of the 2019 US tax year.
- You are a US ‘green card’ holder at any time in 2020.
- In 2020, despite the potential to ignore up to 60 days of presence in a COVID-19 Emergency Period, you nevertheless have sufficient US days of presence during the remainder of 2020 to become a RA under the substantial presence test.
What is ‘enforced’ presence in the US due to COVID-19?
There is no requirement to produce or retain evidence of ‘enforced’ presence in the US. The relief being offered by the IRS is based on presumptions.
For all days of presence in the US during an individual’s COVID-19 Emergency Period, that person is presumed to have intended to leave the US but was unable to leave.
However, this presumption does not exist in the case of anyone who has either applied for a US ‘green card’ or “otherwise taken steps” to acquire that status as a lawful permanent resident of the US.
- This is a very helpful relief to anyone who regularly spends a reasonable amount of time in the US but is careful to keep their days of presence there below the threshold which would trigger RA status under the substantial presence test. The ability to ignore up to 60 days of ‘enforced’ presence will put most people in this category back in the position which they had always planned to be in.
- In contrast, no relief is afforded to an individual who had RA status for all of 2019 but had been planning to move out of the US in the first quarter of 2020. g. someone returning permanently to the UK in late March or the first few days of April but planning not to set foot back in the UK until the 2020/21 UK tax year had commenced. In the absence of COVID-19 restrictions, a well-timed exit date from the US might have avoided RA status for any part of 2020. However, COVID-19 ‘enforced’ presence will almost certainly upset the planned arithmetic. Because of RA status for all of 2019, such a person cannot qualify as an eligible individual. For such a person, no days ‘enforced’ presence in the US during 2020 can be disregarded when applying the substantial presence test.
- It is important to note that the length of an individual’s COVID-19 Emergency Period is restricted to a single period of up to 60 consecutive days of presence in the US. If, prior to complete lockdown, you spent a couple of days outside the US (g. a weekend in either Canada or Mexico), then your COVID-19 Emergency Period cannot include days of US presence both before and after that trip. If you have 60 days of ‘enforced’ presence in total consisting of two separate 30-day periods of continuous presence; then your COVID-19 Emergency Period is limited to 30 days.
- A parallel relief has been granted in relation to bi-lateral tax treaties to which the US is a party.
- Under the employment income provisions in these treaties, a resident of the other country who has workdays in the US may be eligible for treaty relief from the US tax that would otherwise be due on employment income attributable to US workdays.
- One of the eligibility conditions for such relief is that the individual is present in the US on less than 183 days during the tax year.
- Anyone claiming such treaty benefits will qualify for the automatic presumption of ‘enforced’ presence in the US described above. Consequently, days of US presence during that person’s COVID-19 Emergency Period will be ignored in determining whether US days of presence during the tax year amounted to less than 183.
What if travel restrictions continue beyond May 30, 2020?
- The COVID-19 crisis is not evolving in accordance with any pre-determined timetable. Consequently, there is the possibility of non-US nationals continuing to suffer from ‘enforced’ presence in the US beyond the period covered by the present relief.
- Such ‘enforced’ presence could have different causes.
- The US could still be in a general state of lockdown, thus preventing departure.
- Departure from the US might be possible to some locations, but not to the particular country and/or city that the ‘visitor’ to the US wishes to return.
- Despite a general relaxation around international travel, access to an individual’s own home country may remain closed to international arrivals.
- Hopefully, the IRS will consider such issues as and when it becomes necessary. If the US were to remain in lockdown post-30 May 2020, it may be possible for the IRS to give further relief using the same underlying principle. The legislation places no limits on how many days of presence can be excluded under the medical exemption, and it should be clear that COVID-19 restrictions continued to prevent departure from the US.
If you would like more information, please contact Adam Smith.