What is the definition of 183-Day Rule in Finance

This is one of the numerous criteria established by the Internal Revenue Code to count the number of days a person has been present on the shore of the US and use this to determine tax eligibility. The test cut across US residents and those always on transit between US states and other states.

The explanation of tax residents differs from country to country. When a person is declared as a tax resident in a country, it means that the country has the power to tax all the person's worldwide income. However, for nonresident, the country where the employer is working has limited power to tax the personal income while working within the shores of its country. This type of situation can result in double-taxation. It is in avoiding this that the 183-Day comes in.

The 183-Day Rule is used to calculate income taxation right in the case of cross-border employment and for everyone across the territory of the US. For a company operating across two or three borders, the major criteria for calculation are the period that counts as a day, the other factors that are used to benefit from the 183-Day exemption and so on.  

How To Count The 183-Day Rule.

Companies usually make the mistake of applying the rule to standard calendar years alone. However,  the rule entails the 12 months rolling period. It means days recorded are not just limited to working days alone but also include non-working days including annual leave and weekends.

It is also important to note the period of presence also includes departure days and arrival days. While some countries count arrival day and exclude departure days, others count departure days and exclude arrival days.

There are five rules set up by the Internal Revenue Code 937 to determine those that are qualified for tax purposes. Under the rule, to qualify as a taxpayer, an individual must have been present in the US territory for 183 days within the taxable years. For the current tax and the two preceding tax, a taxpayer must have a minimum of 549 days presence test. For each taxable year, to qualify for paying tax, the person must have stayed for 60 days.

The 183 days are counted based on the number of days a person has stayed in the United States for three consecutive years. To count the days, 183 days is the minimum number of days that qualify for income tax. However, the person must have been present for 31days in the current years.

There are also restrictions established by the IRS on how each day of presence is counted. For instance,  if the number of hours spent on the shore of the US while on Transit is not up to 24hours, such day is not counted. The IRS also includes an exemption for active-duty military personnel.

This rule also applies to the citizen within the US territories.