The Earned Income Condition: Passing the Presence Test With Limited US Earnings

What Is the Earned Income Condition in the Presence Test?

Most people reach for the 183 day count first. It's the default path, and for a lot of residents it is the right one. But 26 CFR section 1.937-1 lists several independent conditions, and you only need to satisfy one. One of the lesser known paths turns on income rather than days.

Here is the regulation's own wording: you had earned income in the United States, if any, not exceeding in the aggregate the amount specified in section 861(a)(3)(B), and you were present in Puerto Rico for more days than you were present in the United States during the taxable year. Two parts, both required, same tax year.

This matters most for someone whose US-source work income that year was genuinely small, maybe a short consulting engagement, or a handful of shifts picked up during a mainland trip, and who spent more time in Puerto Rico than in the United States without clearing 183 days. If that describes your year, this condition may already be doing work for you without you knowing its name. It sits alongside the 183 day rule as one of several independent ways to qualify, not a replacement for it.

Where Does the $3,000 Limit Come From?

The regulation itself does not state a dollar figure. It cross-references 26 U.S. Code section 861(a)(3)(B), and that's where the actual number lives: $3,000 in the aggregate. The cross-reference is deliberate, not an oversight, which is why summaries that quote a number without citing 861(a)(3)(B) directly are worth double checking.

Section 861(a)(3) as a whole addresses compensation for labor or personal services performed in the United States, and it lays out three conditions together: the individual is present in the United States for no more than 90 days during the year, the compensation does not exceed $3,000 in the aggregate, and the compensation is tied to a foreign employer or a foreign office of a US person. The presence test in 1.937-1 borrows only the middle piece, the $3,000 figure, and pairs it with the day comparison instead of the other two conditions.

That $3,000 ceiling is flat. It isn't indexed for inflation the way some other IRS thresholds are, and it hasn't moved with cost of living adjustments. Treat it as a fixed number, not a figure to estimate or round.

What Counts as Earned Income Under This Condition?

The regulation defines earned income here by cross-reference to section 1.911-3(b), the same definition used for the foreign earned income exclusion. In practice that means wages, salaries, and professional fees: pay for personal services you actually performed.

What doesn't count is anything that isn't compensation for work. Investment income, rental income, dividends, interest, and capital gains from US sources do not count toward the $3,000 figure, regardless of amount. Publication 570 restates the same distinction in plain language: this condition is about pay for personal services, not income from assets you own.

A quick way to sort a given dollar: work income tallies toward the $3,000. Income from something you own, a brokerage account, a rental property, a business you don't actively run day to day, generally sits outside this condition entirely.

Take a working example. A designer moves to Puerto Rico mid year and keeps one mainland retainer client through the transition, billing $2,400 in fees before the arrangement ends. That $2,400 is compensation for personal services, so it counts against the $3,000 figure and leaves $600 of room. If that same designer also collected a small dividend from a mainland brokerage account, the dividend wouldn't add to the $2,400 at all, because it isn't earned income under section 1.911-3(b).

How Do You Compare Puerto Rico Days to US Days?

The income limit is only half the condition. The other half is a straight comparison: more days present in Puerto Rico than present in the United States, for that same taxable year. Not a percentage, not a fixed minimum like 183. Just one count against the other.

The mechanics of what counts as a day, including partial travel days and the split day rule, work the same way here as they do everywhere else in the presence test. What counts as a day in Puerto Rico covers that arithmetic in full, and it's worth reading alongside this condition rather than assuming the day count works differently here.

Go back to the designer from the earlier example. Say that year included 140 days in Puerto Rico, 95 days on the mainland handling the retainer work plus a few personal trips, and the rest of the year spread across other travel. Puerto Rico still outnumbers the United States, 140 to 95, so the day half of the condition holds even though the designer is nowhere near 183 days in Puerto Rico. Paired with the $2,400 in earned income, both halves of the condition are satisfied for that year.

The mistake to avoid: treating the $3,000 income figure as the whole test. It isn't. A year where US earned income stayed under $3,000 but Puerto Rico days didn't outnumber US days fails this condition, even though the income half looks clean. Both parts have to hold at once, for the same tax year, before the condition is satisfied.

How Does This Condition Compare to the Other Presence Test Paths?

The presence test offers more than one route, and this condition is the narrowest of them. The 183 day rule is the simplest to track for most residents: hit 183 days in Puerto Rico and the rest of the test is settled. The 549 day alternative spreads that requirement across three years, with a 60 day floor in each one, which helps someone recovering from a lighter travel year. The 90 day option flips the count around, capping US presence instead of setting a Puerto Rico minimum, though it carries its own day comparison requirement. The no significant connection path looks past day counts entirely and asks whether your ties to the United States have meaningfully loosened.

The earned income condition fits a narrower profile than any of those: minimal US-source work income for the year, combined with a day count that favors Puerto Rico without necessarily reaching 183. It's not the path most people will use. But for someone in that specific position, mostly Puerto Rico presence with a small amount of mainland work income, it can be the cleanest way to document a passing year.

Frequently Asked Questions

How much US earned income can I have and still pass this condition?

No more than $3,000 in the aggregate for the taxable year. That figure comes from section 861(a)(3)(B), which 26 CFR 1.937-1 cross-references rather than restates. It is a flat ceiling, not an amount that adjusts each year.

Does the earned income condition replace the 183 day count?

No. It is one of several independent alternative conditions in the presence test. You only need to satisfy one, and for most people the 183 day rule is simpler to track. This condition mainly helps someone whose US-source work income is small and who spent more days in Puerto Rico than in the United States that year, even if they fell short of 183 days.

What counts as earned income for this condition?

Pay for personal services: wages, salaries, and professional fees, as defined by cross-reference to section 1.911-3(b). Investment income, rental income, dividends, and other passive income do not count toward the $3,000 figure.

Do I need more days in Puerto Rico than in the US, or is the income limit enough by itself?

Both, at the same time. The condition requires US earned income at or under $3,000 for the year and more presence days in Puerto Rico than in the United States for that same year. Meeting only one part does not satisfy the condition.

A narrow condition still deserves a careful record. The day comparison here works exactly like it does under the 183 day rule, so the same discipline about logging where you actually were still applies. An automatic day ledger is what One83 keeps for you, so that comparison is never a guess at filing time. For the mechanics behind the day count itself, what counts as a day in Puerto Rico and the 183 day rule are the two guides to read next.

One83 is a tracking tool, not tax advice. Consult a licensed tax professional about your situation.