The substantial presence test is the test used to determine if a nonresident alien (non-US citizen and non-Green Card holder) should be taxed and considered as a US resident. The test includes a medical condition travel exception that generally provides relief when an individual is prohibited to travel out from the US due to medical conditions.
This exception has been extended to include eligible individuals who, but for emergency travel disruptions related to the novel coronavirus (COVID-19) pandemic, wouldn’t have been in the United States long enough during 2020 to be considered resident aliens under SPT or to be ineligible for treaty benefits on services income. An eligible individual will, therefore, be presumed to have intended to leave the United States on any day during his or her COVID-19 Emergency Period, unless he or she has applied or otherwise taken steps to become a lawful permanent resident (green card holder) of the United States.
Who is eligible?
An individual is considered eligible if he or she:
- Wasn’t a US tax resident in the 2019 tax year,
- Isn’t a lawful permanent resident at any point in 2020,
- Is present in the United States on each of the days of the individual’s COVID-19 “Emergency Period,” and
- Doesn’t become a US resident in 2020 because of days of presence in the United States outside of the individual’s COVID-19 Emergency Period.
The Emergency Period is a single period of up to 60 consecutive days starting between 1 February 2020 to 1 April 2020 during which the individual was physically present in the US on each day.
Consequences of exception
An individual who intended to leave the US during his or her COVID-19 Emergency Period but was unable to do so may exclude the individual’s Emergency Period days when applying the SPT. In addition, when considering if the individual qualifies for treaty benefits any days of presence during the Emergency Period during which someone couldn’t leave the US because of COVID-19 won’t be considered as US days of presence. Considering this, an individual who qualifies for the exception and earns income from employment or other dependent personal services during his or her Emergency Period in the US will still be able to exclude income from US taxation for tax treaty purposes.
How to apply?
In order to claim the medical condition travel exception, the individual needs to timely file a 2020 Form 1040-NR “U.S. Nonresident Alien Income Tax Return,” and attach Form 8843.
Individuals who are eligible but aren’t required to file a 2020 Form 1040-NR do not need to file Form 8843 but should keep relevant records supporting that they were eligible for the medical exception in the case of a request from the IRS.
In addition, any individual who qualified for the regular medical condition travel exception during anytime in 2020 may make the claim instead of or in addition to the COVID-19 medical condition travel exception. This applies to any period during 2020 for which he or she satisfies the requirements. Anyone claiming the medical condition exception for any period outside of his or her COVID-19 Emergency Period should file Form 8843 consistent with the applicable regulations and form instructions.
Finally, the procedure provides specific instructions for claiming an exemption from tax withholding on income from dependent personal services under a U.S. income tax treaty.
If you believe the medical condition travel exception may apply to you or someone you know, please contact Moore Doeren Mayhew. Thank you.
