Determining the tax status of DACA recipients is crucial for both individuals and tax authorities, as it influences how taxes are filed and paid. The classification as resident or non-resident alien significantly impacts a person’s tax obligations in the United States.
Resident Alien Criteria
To determine if DACA recipients qualify as resident aliens for tax purposes, U.S. tax law specifies two tests: the Green Card Test and the Substantial Presence Test. The Green Card Test is straightforward—individuals with lawful permanent resident status are considered resident aliens. Since DACA recipients do not hold this status, they must rely on the Substantial Presence Test.
The Substantial Presence Test evaluates physical presence in the U.S. over a three-year period. It requires at least 31 days in the current year and a total of 183 days over the past three years, calculated using a weighted formula: all days from the current year, one-third from the previous year, and one-sixth from two years prior.1Internal Revenue Service. Substantial Presence Test For DACA recipients, who often spend extended periods in the U.S., this test is a common way to achieve resident alien classification for tax purposes.
Substantial Presence Factors
Certain factors can influence the application of the Substantial Presence Test. Days in the U.S. may be excluded under specific circumstances, such as when an individual cannot leave due to a medical condition or when present as a teacher or trainee on a J or Q visa, or as a student on an F, J, M, or Q visa (generally documented on Form 8843).2Internal Revenue Service. Publication 519, U.S. Tax Guide for Aliens — Chapter 7 These exceptions can significantly alter the calculation, potentially changing the residency determination for DACA recipients.
The IRS also considers whether a person has a closer connection to another country. A closer connection may allow individuals to avoid resident alien classification even if they meet the substantial presence criteria, when they are present in the U.S. fewer than 183 days in the current year and meet the other requirements.3Internal Revenue Service. Closer Connection Exception to the Substantial Presence Test Understanding these nuances is essential for DACA recipients navigating their tax obligations.
Filing Considerations
Understanding residency status is vital for DACA recipients, as resident aliens are subject to the same tax rules as U.S. citizens. This includes reporting worldwide income.4Internal Revenue Service. U.S. Citizens and Resident Aliens Abroad and potentially qualifying for tax credits like the Earned Income Tax Credit (EITC) if they meet all eligibility requirements, including having a valid Social Security number issued by the return’s due date and being a U.S. citizen or resident alien for the entire tax year.5Internal Revenue Service. Who Qualifies for the Earned Income Tax Credit (EITC) Proper documentation of income and deductions is crucial to ensure accurate filings and optimize tax outcomes.
Keeping up with IRS guidelines and tax code changes is equally important. Adjustments to standard deduction amounts and tax brackets can impact tax liabilities and filing strategies. Using professional tax software or consulting with a certified tax professional can help DACA recipients comply with regulations and maximize potential refunds.