What Is the Physical Presence Test?

US expats can often exclude their foreign-earned income from US taxation using the Foreign Earned Income Exclusion (FEIE). However, to be eligible for the FEIE, you must pass one of two tests: the bona fide residence test or the physical presence test (also known as the substantial presence test). In this post, we’re going to look at the second option. 

Looking to understand the physical presence test? Greenback Expat Tax Services is here to guide you. We’ve helped over 18,000 expats with their tax situations, ensuring they take full advantage of the Foreign Earned Income Exclusion. Our team specializes in expat tax matters and includes professionals who have lived abroad themselves, giving us unique insights into the challenges you face.
What is the physical presence test? How does this test impact your income tax return? This tax guide will tell you what you need to know, along with some physical presence test examples.

What Is the Physical Presence Test? 

The physical presence test is a qualifying examination that can be used to determine whether US persons are eligible for the Foreign Earned Income Exclusion (the limit is set at $126,500 for the 2024 tax year). To pass this test, all of the following qualifications must be true according to US law: 

• You are a US citizen or resident alien (green card holder). 
• You have a tax home in a foreign country. 
• You are physically present in one or more foreign countries for at least 330 full days out of any 12-month period. (This 365-day rule does not have to align with a calendar year, and the 330 days do not have to be in consecutive months or days.) 
• You have earned foreign income. (Foreign earned income includes a salary, wages, bonus, or self-employment income received from a non-US source. Unearned income such as interest, dividends, pension distributions, or capital gains are not eligible.) 

Note that the 330-day requirement refers to full 24-hour days beginning and ending at midnight. If you are present inside the US for any part of a 24-hour day, it will not count toward the number of days needed to qualify.  

Unlike the bona fide residence test, the physical presence test does not require taxpayers to be bona fide residents of any single foreign country. Even if you have never been in a single foreign country long enough to qualify as a bona fide resident, you can still qualify under the physical presence test as long as you spend enough time overseas. This is especially important for digital nomads, who rarely qualify for bona fide residency. 
Additionally, the physical presence test is not impacted by whether you intend to return to the US. Even if you plan to move back, you can still pass the test.

A key difference between the bona fide residence test and the physical presence test is that you must be physically present in a foreign country for at least 330 days in a full tax year to qualify for the bona fide residence test. However, if you want to qualify for the physical presence test, you must be physically present in a foreign country for at least 330 days out of a 365-day period.

Form 8843: Who Needs To File it? 

Form 8843 is a tax form that must be filed by certain nonresident aliens, including students, teachers, and professional athletes, who are temporarily present in the United States. 

The form is used to claim a treaty exemption or explain the individual’s circumstances and days of presence in the US for purposes of determining tax residency status. The IRS provides detailed instructions on how to fill out and submit the form. 

Physical Presence Test Examples

Understanding the physical presence test can be complex, so examining real-life scenarios can provide clarity. In this section, we will explore various examples that illustrate how the test is applied. 

These examples will demonstrate different situations, helping you grasp the requirements and nuances of meeting the physical presence test criteria for tax purposes. Whether you’re a frequent traveler, an expatriate, or someone with multiple residences, these scenarios will shed light on how to navigate and satisfy the test’s conditions.

Example #1

In 2022, John accepted a three-year work contract from a company based in Germany. John moved to Germany on November 1, 2022. On July 1, 2023, he flew back to the US for several business meetings. He returned to Germany on August 1 and remained there for the rest of the year. 

The total time John spent in the US during the 365-day period from November 1, 2022, to November 1, 2023, is 31 days (July 1 to August 1). This means that he spent 334 days outside of the US during that same period (365 – 31 = 334) and thus meets the 330-day qualification for the physical presence test. 

Example #2

Josephine moved to Japan for a job on October 30, 2022. On May 1, 2023, she resigned from her position and returned to the US for the remainder of the year. In total, she spent 183 days outside of the US in the 365-day period from October 30, 2022, to October 30, 2023. Because this is less than 330 days, Josephine does not pass the physical presence test and is not eligible to exclude her foreign-earned income from US taxation.

Example #3

Patrick moved to Portugal on February 10, 2023, to work as a digital nomad. Since then, he has traveled throughout Europe, staying in each country for an average of two months before moving on. He plans to continue this lifestyle indefinitely. Patrick will pass the test if he remains outside of the US for the entire 365-day period from February 10, 2023, until February 10, 2024.

Example #4

Alicia lives in Minnesota but works for a Canadian company based in Ontario. Every workday, she crosses the border into Canada for her job. At the end of the day, she returns to her home in Minnesota. Throughout the week, she is never in Canada for a full 24 hours. Because Alicia’s partial days working in Canada do not count toward the 330-day minimum, she will not pass the physical presence test.

Minimum Time Requirement Waiver for the Physical Presence Test

The Minimum Time Requirement Waiver is an exception to the physical presence test. Suppose an expat cannot meet the physical presence test requirements due to extenuating circumstances, such as war, civil unrest, or medical conditions. In that case, they may qualify for the Minimum Time Requirement Waiver. 

To be eligible for the waiver, an expat must be able to demonstrate that they would have met the 330-day requirement if not for the extenuating circumstances. The waiver can provide relief for expats who have to leave a foreign country early due to unforeseen events or those who cannot return to the foreign country due to travel restrictions or medical issues. 

It’s important to note that even if an expat qualifies for the waiver, they still need to meet the other physical presence test requirements. Additionally, the waiver only applies to the FEIE and does not affect the Foreign Tax Credit.

Still Have Questions About the Physical Presence Test? We Are Here To Help!

After reading this post, you should have a clearer understanding of the FEIE and physical presence test, how they relate, and whether you meet the eligibility criteria. Being aware of your eligibility status can significantly impact your US tax filing. 

Contact us at Greenback Expat Tax Services, and one of our customer champions will gladly help. If you need advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.