Who is taxed: citizenship, residency and filing status

Before computing anyone's income, you need to know whether, and on what, the United States can tax them, and which filing status they use. The United States is one of very few countries that tax their citizens on worldwide income wherever they live. It also taxes resident aliens on worldwide income and nonresident aliens only on income connected with the United States. This lesson explains citizenship-based taxation, the two tests that make a foreign national a resident for tax purposes, how nonresidents are taxed, how US citizens abroad are relieved from double tax, and how filing status and dependents are determined. Filing status matters because it sets the brackets, the standard deduction and eligibility for many credits.

The basic rule: citizens and residents on world income

Section 1 of the Internal Revenue Code imposes tax on the taxable income of every individual, and the regulations make clear that citizens and residents are taxed on income from all sources worldwide. A US citizen living permanently in Canada, Japan or France must file a US return every year and report worldwide income, even if every dollar was earned abroad. Double taxation is relieved through the foreign tax credit in section 901, the foreign earned income exclusion in section 911 and tax treaties. Citizens who renounce their citizenship may face an exit tax under section 877A if they meet net worth or tax liability thresholds.

Nonresident aliens are taxed in two ways. Income effectively connected with a US trade or business, including wages for work performed in the United States, is taxed at the normal graduated rates on Form 1040-NR, with limited deductions. Fixed, determinable, annual or periodical income from US sources, such as dividends, rents and royalties, is subject to a flat 30 percent tax, usually withheld by the payer; treaties often reduce the rate, for example to 15 percent on portfolio dividends paid to residents of Canada. Portfolio interest and bank deposit interest paid to nonresident aliens are generally exempt, and most capital gains of nonresident aliens are not taxed unless they relate to US real property, which the Foreign Investment in Real Property Tax Act of 1980 brings into the tax net.

Citizens, green card holders and the substantial presence test

Every US citizen, including a person born in the United States who has never lived there, is taxed on worldwide income. A foreign national, called an alien in the Code, is a resident alien for income tax purposes under section 7701(b) if either of two objective tests is met. The first is the green card test: a person who is a lawful permanent resident at any time during the year is a resident, until the status is formally revoked or abandoned. The second is the substantial presence test, which counts days of physical presence.

Under the substantial presence test, a person is a resident alien for a calendar year if they are physically present in the United States for at least 31 days in that year and for at least 183 days over the three-year period consisting of the current year, the first preceding year and the second preceding year, counting all days in the current year, one third of the days in the first preceding year and one sixth of the days in the second preceding year. Days do not count for exempt individuals, such as foreign government officials, teachers and trainees on J or Q visas for limited periods, and students on F, J, M or Q visas for up to five calendar years. Days spent in transit, days a person cannot leave because of a medical condition that arose in the United States, and days of regular commuters from Canada or Mexico also do not count.

Exceptions, elections and dual-status years

A person who meets the substantial presence test may still be treated as a nonresident in two situations. Under the closer connection exception, a person present for fewer than 183 days in the current year who has a tax home in a foreign country and a closer connection to that country than to the United States can file Form 8840 to be treated as a nonresident. Under a tax treaty, a person who is a resident of both countries under their domestic laws can use the treaty's tie-breaker rules to be treated as a resident of the other country only; the position is disclosed on Form 8833. A person who arrives late in a year and will meet the test in the following year may make a first-year choice to be treated as a resident from arrival.

The program below applies the substantial presence test to three invented visitors. Observe that a person can be a resident alien in a year when they spent only 100 days in the United States, because days from prior years count.

# Substantial presence test, United States, 2026 (illustrative)
# days present in the US in 2026, 2025 and 2024 (invented)
people = {
    "Arjun (contract engineer)":       (140, 150, 120),
    "Mei (frequent business visitor)":(100, 180, 180),
    "Ola (seasonal guide)":            (30, 270, 300),
}
for name, (d0, d1, d2) in people.items():
    weighted = d0 + d1 / 3 + d2 / 6
    meets = d0 >= 31 and weighted >= 183
    print(f"{name:<32} 2026:{d0:>4}  weighted:{weighted:>6.1f}  "
          f"resident alien: {'yes' if meets else 'no'}")
print()
print("A person who meets the test may still be a nonresident under the")
print("closer-connection exception (fewer than 183 days in the current year,")
print("tax home abroad, Form 8840) or a tax treaty tie-breaker (Form 8833).")

Arjun (contract engineer)        2026: 140  weighted: 210.0  resident alien: yes
Mei (frequent business visitor)  2026: 100  weighted: 190.0  resident alien: yes
Ola (seasonal guide)             2026:  30  weighted: 170.0  resident alien: no

A person who meets the test may still be a nonresident under the
closer-connection exception (fewer than 183 days in the current year,
tax home abroad, Form 8840) or a tax treaty tie-breaker (Form 8833).

Arjun's 140 days in 2026, plus a third of 150 and a sixth of 120, total 210 weighted days, so he is a resident alien for 2026 and taxed on worldwide income for the year. Mei spent only 100 days in the United States in 2026, but her heavy presence in the two prior years brings her to 190 weighted days; she may be able to use the closer connection exception, because she was present fewer than 183 days in 2026, if her tax home and ties are abroad. Ola fails the 31-day threshold for 2026 even though he was present for most of the two previous years, so he is a nonresident alien for 2026 regardless of the weighted total. A person who is a resident for only part of a year, for example because they arrived in September, is a dual-status alien, taxed as a nonresident before the residency starting date and as a resident after it.

US citizens and residents abroad

Citizens and resident aliens living abroad remain taxable on worldwide income, but three reliefs prevent most double taxation. The foreign earned income exclusion in section 911 lets a qualifying individual exclude foreign earned income up to $132,900 for 2026, plus a housing exclusion, if their tax home is abroad and they meet either the bona fide residence test or the physical presence test of 330 full days abroad in 12 consecutive months. The foreign tax credit in section 901 credits foreign income taxes against US tax on the same income, subject to a limitation. Tax treaties allocate taxing rights, although most US treaties contain a saving clause that preserves US taxation of its own citizens. Separate reporting rules carry heavy penalties: a citizen with foreign financial accounts exceeding $10,000 in total at any time in the year must file an FBAR (FinCEN Form 114), and Form 8938 is required for specified foreign financial assets above higher thresholds.

Filing status

Filing status is determined on the last day of the tax year. There are five statuses. Married filing jointly combines both spouses' income and deductions on one return, with joint and several liability for the tax. Married filing separately is available to married people but usually costs more, because many credits are reduced or unavailable and some brackets are narrower. Head of household is available to an unmarried person, or one considered unmarried, who pays more than half the cost of keeping up a home that is the main home of a qualifying person for more than half the year; it carries wider brackets and a larger standard deduction than single. Qualifying surviving spouse lets a widow or widower with a dependent child use joint rates for the two years after the year of death. Single applies to everyone else.

The Brandts file jointly, which is almost always the better choice for a married couple with unequal incomes. Married couples can face a marriage penalty, when their joint tax exceeds the combined tax they would pay as two single people, or a marriage bonus, when it is lower. Since 2018 the joint brackets have been exactly double the single brackets for every rate up to 35 percent, so penalties mainly arise in the 37 percent bracket and from credits with phase-outs that are not doubled for joint filers.

Dependents and who must file

A dependent can be a qualifying child or a qualifying relative. A qualifying child must be the taxpayer's child, stepchild, foster child, sibling or a descendant of one of them; be under 19 at year end, or under 24 and a full-time student, or permanently disabled; live with the taxpayer for more than half the year; not provide more than half of their own support; and not file a joint return except to claim a refund. A qualifying relative must have gross income below an indexed limit, receive more than half of their support from the taxpayer, and either live with the taxpayer all year or be a relative listed in the Code. Since 2018 the personal exemption for each dependent has been zero, a change the 2025 act made permanent, but dependents still determine head of household status, the child tax credit, the credit for other dependents and the earned income tax credit.

An individual must generally file if gross income equals or exceeds the standard deduction for their filing status, with adjustments for age and dependents, or if net earnings from self-employment are $400 or more, or if they owe special taxes or received advance credit payments. Many people below the threshold should still file to claim refundable credits such as the earned income tax credit and the refundable portion of the child tax credit, and to recover income tax withheld. The return for a person who died in the year is filed by the personal representative, by the normal due date.