Good news for international travelers impacted by the COVID-19 outbreak…the IRS has released tax relief. Many individuals have been dealing with canceled flights, border closings, or shelter-in-place orders due to the crisis. The IRS has provided relief to individuals whose tax residence might be affected by cross-border travel disruptions arising from the COVID-19 crisis, here are the details.

Who’s considered a tax resident in the U.S.?

For purposes of income tax, an individual is considered a resident (and therefore taxed on worldwide income) if they are a citizen, lawful permanent resident (green-card holder), or if they meet the Substantial Presence Test (SPT). In general, if the individual is in the US for at least 31 days during the taxable year, the SPT will total 100% of the days spent in the US during the tax year, 1/3^rd of such days in the first preceding year, and 1/6^th of such days in the second preceding year. If this number meets or exceeds 183, the individual will be considered resident for at least part of the year.

Are there exceptions?

There are certain instances in which days spent in the US are excluded from this calculation, such as for ‘F’ or ‘J’ visa holders who are present in the US for educational purposes only. Though actually in the US, they will exclude their days from the calculation and still be considered non-resident for the period. Another situation in which an individual can exclude their days of actual presence from this SPT is in the case of a medical condition (Note: not pre-existing) that prevents the taxpayer from leaving the country, even though they intended to do so.

Treaty Benefits

Other taxpayers claim certain treaty benefits that rely on close calculations of time spent inside the US. Under the right conditions, employment or other depended personal service income can be considered exempt from US taxation.

Coronavirus tax relief

With the release of Revenue Procedure 2020-20, the IRS is providing relief, via the Medical Condition Exception, to individuals who may run afoul of the SPT calculation due to the inability to leave the US during the pandemic. It is not necessary to have contracted the virus itself, or any other ailment; the simple fact that flights have been canceled, orders to shelter-in-place have been instituted, and borders have been closed is sufficient. The pandemic will not be viewed as a pre-existing condition. The relief will allow for up to 60 calendar days to be excluded from the SPT. This 60-day period must start on or after February 1, 2020 but on or before April 1, 2020 and will be 60 consecutive calendar days.

Qualification requirements

To qualify for the 60-day relief, the individual; cannot have been considered a resident of the US at the close of 2019; cannot have applied-for, or already possess, a green-card; must actually be present in the US during the 60-day period; and must not meet the SPT when discounting the relief period. In order to properly document the application of the relief measures, the individual must complete Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition. If the individual is otherwise required to file a tax return (Form 1040-NR for a non-resident), this form should be included in the filing. If the individual does not otherwise have a filing requirement, this form and all other documentary evidence of their actual presence in the US during this time should be kept in their records for potential supplication to the IRS upon request. When completing the form, Part V will include the description “COVID-19 MEDICAL CONDITION TRAVEL EXCEPTION” and document the beginning and ending dates of the relief period requested.

Individuals who claim treaty benefits, relief can be requested by filing a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the withholding agent or employer. Note that a new Form 8233 should not be necessary if one is already on file. However, should a new one be filed, the description and period referenced above would be written in Line 14 of Form 8233.

If you have questions on your individual situation, we are always here to help. Contact us, and visit our Coronavirus Resource Center.