What Does Residential Status Mean? Find Answers for Expats
So you’ve made the leap, or you’re planning to. Life as an expat in the United States promises adventure, new beginnings, and the chance to thrive in one of the world’s most dynamic countries. But before you settle in, there’s one critical concept you need to understand: residential status.
Why does it matter? Because your residential status shapes everything from how you’re taxed to what kind of insurance you qualify for. Whether you're a permanent resident, on a work visa, or just spending part of the year in the US, knowing what residential status means can save you from unexpected bills, complex paperwork, or even legal trouble.
When it comes to taxes in the US, being a “resident” doesn’t always mean you’re a citizen or green card holder. In fact, you could be considered a tax resident without even knowing it, just by being physically present in the country for a certain amount of time.
Suppose you’re an expat in the US. In that case, it’s easy to assume that your immigration status automatically defines how you’re treated for tax purposes. But here’s the truth: residential status for taxation and immigration is different.
While your visa type determines your legal right to stay or work in the US, the IRS uses different criteria to decide if you’re a tax resident.
You could live legally in the US without being considered a lawful permanent resident, but still be considered a resident for tax reasons. And that small technicality can have big tax implications, especially when reporting your income earned in the US and abroad.
You don’t need to hold citizenship to be treated as a tax resident. In most cases, the IRS looks at your presence and status during the tax year, not your nationality. That means you might still be expected to pay tax on your total income if you’ve resided in the US for a significant period, even without being a citizen or permanent resident.
The key thing to understand is that tax residency status can apply to anyone who meets certain conditions. So even if you're not officially settled or don’t reside permanently, your time spent in the country could land you squarely in the category of a US tax resident.
One of the most misunderstood factors that can make someone a tax resident is their physical presence in the US. The IRS uses specific formulas to determine whether your residency status should shift based on how many days you've spent in the country over the past three years.
It’s possible to be in the US for work, study, or even extended visits and unknowingly trigger residency for tax purposes. This could mean you’re now subject to US income tax on your worldwide income, including foreign income from your business, investments, or employment in another country.
The IRS uses specific rules, not immigration status, to decide if you’re a tax resident. Whether you’re new to the US or have lived here on and off, it’s important to understand how the government officially views your residency status.
Congratulations if you’ve been granted a green card—you’re now a lawful permanent resident of the United States. But along with the right to reside permanently comes a new responsibility: you're considered a tax resident from the moment your green card becomes active, even if you don’t live in the US full-time.
In fact, under the Income Tax Act, your permanent resident status means you're taxed on your global income unless you formally renounce it. And yes, this includes foreign bank account reporting requirements and filing obligations, even if you earned that income outside the US.
If you don’t have a green card, the IRS has another method for deciding your tax residency status, the Substantial Presence Test. It’s based on how many days you’re present in the US over a rolling three-year period. You qualify as a tax resident if:
You’ve been in the US for at least 31 days during the current tax year, and
Using a weighted formula, you’ve spent 183 days in the US over the current and previous years.
Even a short stay each year can tip the scales. So, if you’re a crew member, contractor, or professional who regularly visits the US, even for a few weeks, it's worth calculating your days carefully.
Sometimes, you don’t fit neatly into the resident or non-resident box. In these situations, you might be considered a dual-status taxpayer. This usually happens in the same tax year when you:
Enter the US mid-year and gain permanent residence, or
Leave the US after having been a tax resident.
As a dual-status filer, you’ll likely need to file two tax returns, one as a non-resident and another as a resident, each covering part of the year. These situations often arise with expats adjusting to new roles, changing visa categories, or preparing for long-term permanent residence.
Once considered a tax resident, the US doesn’t just look at the money you earn here. It wants to know about your entire worldwide income, even if it was earned in another country and never touched a US bank account.
One of the biggest surprises for many expats is learning that becoming a tax resident of the US means being taxed not just on income earned in the States, but on your worldwide income. That includes foreign income from overseas jobs, rental properties, investments, or business interests.
Under the US income tax act, once you meet the criteria for tax residency status, you must report all your earnings from anywhere in the world during the same tax year. Whether you're an Indian citizen with income from back home or a professional with assets across multiple countries, you’re now subject to US taxation on your total income.
This is why "what does residential status mean" is a crucial question for your specific situation, because even if you don’t plan to stay in the United States indefinitely, your tax obligations might say otherwise.
If you hold a foreign or any financial accounts outside the US that exceed a combined total of $10,000 at any point in the financial year, you must file a Foreign Bank Account Report (FBAR). This is in addition to your regular income tax filings.
In most cases, expats who qualify as permanent residents, tax residents, or even dual-status individuals must comply with this rule. The penalties for failing to file can be severe, even if the omission was accidental.
So, while many expats focus on where they earn their income, it’s equally important to consider where your money is held, especially if you maintain a permanent home or accounts in another country.
Many expats mistakenly believe that moving out of the US or spending time abroad exempts them from US taxes. But as long as you meet the IRS's conditions for tax residency, you're still required to pay tax, even on income earned in other countries.
This means that permanent residents continue to have tax obligations to the US, even if they don’t live there full-time. For example, if you reside permanently in Europe or Asia but maintain permanent residence in the US, your residency status may still trigger US taxation.
In short, your citizenship or physical presence isn’t the only factor. Your legal and residential status matters most.
Your residency status determines which tax form you need to file. And if you’ve switched from non-resident to resident mid-year, or vice versa, you might need to file more than one.
If classified as a tax resident, you must file Form 1040, just like any other US citizen or permanent resident. This form includes your full worldwide income, deductions, credits, and any interest or employment income received during the tax year.
Filing this form may give you access to a wider range of tax benefits, including the standard deduction and certain credits, depending on your status.
If you're classified as a nonresident, you must file Form 1040-NR instead. This version only requires you to report your income from US sources, such as work done on a work visa, rental business income from property in the US, or interest on US bank accounts.
However, as a non-resident, you typically don’t qualify for many benefits available to full residents, such as the standard deduction or certain tax credits. This often results in a higher tax burden.
Expats moving to or leaving the US during the year may be in a dual-status situation. This means you were a tax resident and a non-resident for the rest of the year. In this case, you’ll likely need to file both Form 1040 and Form 1040-NR, each covering the applicable period.
Let’s say you moved to the US in July after working abroad. You’d file Form 1040-NR for January through June, and Form 1040 for July through December. This also means your total income must be split accordingly, and only some tax benefits may apply.
Because of the complexity, many expats in this position work with a tax advisor to ensure accuracy and avoid costly errors.
Just because you're paying US taxes doesn’t mean your home country won’t still come calling. In some cases, you might be taxed in both countries, depending on your residency status, your permanent home, and where your family members live.
If you’re from a country that taxes based on citizenship or global income, like the United States, there’s a chance you could be taxed by both your home country and the US. This is especially common for expats who maintain financial ties abroad, such as property, business, or interest-bearing accounts.
This situation often arises for those still holding citizenship in their country of origin, even if they’ve gained permanent resident status in the US. In most cases, it’s essential to understand both sets of rules to avoid being blindsided by overlapping tax bills.
The good news? The US has tax treaties with many countries, which can help reduce or eliminate double taxation. These agreements often allow you to offset the taxes you’ve already paid abroad against your US income tax liability, or vice versa.
To take advantage of a treaty, you may need to file Form 8833 and provide proof of taxes paid to the other country. Check the specific provisions for your country of residence, as the terms differ widely.
Where your permanent home is located, and where your family members live, can influence your residency status in the eyes of the IRS and your home country’s tax authority. For example, if you work in the US but your spouse and children live abroad, your home country may still consider you a resident for tax purposes.
This is especially true for expats who spend significant time in both countries or maintain active financial ties, such as paying a mortgage or running a business overseas. The presence of a permanent residence, even if not occupied full-time, is enough to complicate your status.
Becoming a tax resident can sound like a hassle, but it’s not all bad news. It may open the door to tax credits, simpler filing, and access to services and insurance designed for people more permanently settled in the US.
While being a tax resident means your worldwide income is taxable, it also gives you access to valuable tax benefits. Depending on your employment, profession, and income level, you may qualify for the standard deduction, child tax credits, and education-related deductions.
These benefits can significantly reduce what you owe in income tax, especially compared to the limited deductions available to nonresidents.
Believe it or not, having tax resident status can sometimes make filing easier. As a resident, you’ll file a single return covering all your income in one place. You won’t have to split the tax year or juggle between forms unless your situation involves dual status.
Simplifying your filings means less room for error and a lower chance of audits or processing delays, especially if you’re in the US for the full financial year.
Another important perk? Certain types of insurance, health benefits, and government assistance are only available to those with resident status or permanent residence. For example, some private insurance providers only accept applications from individuals with clear, verified US residency.
Living as an expat in the US brings new experiences and new responsibilities. One of the most important steps is to determine your residential status early and review it regularly. Your residential status impacts how much income tax you owe, and it also affects your access to tax benefits, healthcare, insurance plans, and other essential services.
Don’t wait until the end of the tax year to figure it out. Stay informed, track your physical presence, and understand how visa changes from the previous year might affect you. When you plan, you avoid costly surprises and position yourself to thrive indefinitely as an expat in the United States.
If you're looking for trusted support tailored to global citizens, from health coverage to relocation resources, explore WellAway. Whether navigating your first move or settling into long-term expat life, you’ll find tools and insights designed specifically for people like you.