The tax home test is a rule used by the Internal Revenue Service (IRS) to determine an individual’s tax home for the purpose of determining their state of residency. The tax home test is based on the location of the individual’s principal place of employment.
To meet the tax home test, the individual must have a principal place of employment. This could be a physical location, such as an office or factory, or it could be a mobile location, such as a truck or boat. If the individual does not have a principal place of employment, they may still meet the tax home test if they have a temporary employment assignment.
Once the individual has determined their principal place of employment, they must then determine the location of their tax home. The location of the tax home is the location of the principal place of employment, unless the individual has a closer connection to another location.
To determine if the individual has a closer connection to another location, the IRS considers a number of factors, including:
- The individual’s place of residence
- The individual’s family ties
- The individual’s social ties
- The individual’s business ties
- The individual’s recreational ties
If the individual has a closer connection to another location than to their principal place of employment, then that location is their tax home.
The tax home test is just one of the factors that the IRS uses to determine residency. Other factors include the individual’s domicile, the location of their permanent home, and the location of their family and friends. If you are unsure whether you meet the tax home test, you should consult with a tax advisor.
Here are some additional things to keep in mind about the tax home test:
- The tax home test is applied on a calendar year basis. This means that the location of your principal place of employment and your closest connection are determined on a yearly basis.
- The tax home test is not the only factor that the IRS uses to determine residency. Other factors include the individual’s domicile, the location of their permanent home, and the location of their family and friends.
- If you are unsure whether you meet the tax home test, you should consult with a tax advisor.
If you are considering relocating to Puerto Rico, Act 60 can be a great way to lower your taxes. Talk to us, we are accountants and tax advisors to see if you qualify and help you with the application process.
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Disclaimer: The information provided on this website is for informational purposes only and is not legal or tax advice. You should consult with a qualified attorney or tax advisor to discuss your specific situation.