The first thing you must know in order to file your tax return is whether you are a resident or nonresident for U.S. tax purposes. If you find that you are both a resident and nonresident in the same year, you are a dual status alien for which special rules apply. The designation of resident for tax purposes is completely separate from your immigration status. You might qualify as a resident for tax purposes while remaining a nonimmigrant alien for immigration purposes.
A nonresident files a special tax form (Form 1040NR), pays tax only on U.S. source income, is subject to special rates, and might qualify for treaty exemptions. Conversely, if you are a resident for U.S. tax purposes, you are generally under the same rules and file the same forms as a U.S. citizen. That means you report your worldwide income rather than just U.S. source income.
The rules you will find on these pages do not apply if you are a resident of the U.S. for tax purposes. A great deal of help is available elsewhere, however. Free taxpayer assistance workshops for residents are much more available than for nonresidents, and it is easier to find a competent preparer.
To determine your residency status, see Your Tax Residency and progress through the questions. Then come back here for further explanation. The two tests for determining whether you are a resident or nonresident alien are explained on the first few pages of publication 519. Following is a condensed version of that explanation.
You are a lawful permanent resident of the United States if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (CIS) has issued you an alien registration card, also known as a "green card" (although it is not actually green).
You are a U.S. resident for tax purposes beginning on the first day you are present in the U.S. as a lawful permanent resident. As a resident taxpayer you must report, for U.S. tax purposes, your worldwide income. You are also eligible to claim all deductions and credits available to U.S. citizens. You can file Form 1040, 1040A or 1040-EZ, whichever is applicable to your situation, and if you are married you can file a joint return with your spouse. See the instructions for the forms. As a resident taxpayer, you still might be eligible to claim certain treaty benefits under the U.S. tax treaty with your home country. See Tax Ttreaties.
If you receive permanent residency status during the year, you are automatically a resident for U.S. tax purposes from that point forward. However, you might not be considered a resident for U.S. tax purposes for the portion of the year you did not have permanent residency status. That means you might be a dual status alien. See the discussion below about dual status aliens.
To meet the substantial presence test, you must be physically present in the U.S. during a period you do not hold an A, F, G, J, M or Q visa on at least:
An exempt individual is someone whose days in the United States are not counted toward the substantial presence test, not someone who is exempt from tax. If you are an exempt individual, you are a nonresident alien until you are no longer an exempt individual, or until you receive permanent residency status. You are generally in this category if you are:
Teacher or trainee
If you are a teacher or trainee temporarily in the United States on a J or Q visa, and you have been present in the United States during NO more than two calendar years out of the last six calendar years, you are an exempt individual. Any day spent in the U.S. during a calendar year counts as a full calendar year. For example, let's say you entered the U.S. on December 28, 2009 as a trainee on a J visa, and stayed in the U.S. continuously through 2011. Your days in this country are exempt from the substantial presence test for 2009 and 2010, but they all count in 2011 and later years you are present in the U.S. That means you were a nonresident alien in 2009 and 2010. But if you were in the U.S. for at least 183 days in 2011, you are considered a resident for U.S. tax purposes in 2011. You will remain so until you leave the country.
Exception: If all of your compensation during the six year period is from a foreign employer, the two year exemption period is extended to four years.
If you are a student temporarily in the United States on an F, J, M or Q visa, and you have been present in the United States during no more than five calendar years, you are an exempt individual. For example, let's say you entered the U. S. on June 4, 2006 as an F-1 student visa holder, and have remained here until 2011. You are a nonresident alien for 2006, 2007, 2008, 2009 and 2010. If you are in the U.S. for at least 183 days in 2011, you will be a resident for tax purposes in 2011.
Members of the family
Note that on page 5 of Publication 519 it tells you that if you are an exempt individual, members of your immediate family who are with you in the United States on visas derived from your visa (J-2, F-2, etc.) are also exempt individuals. If you are employed, make sure your employer withholds taxes from your wages based on your nonresident alien status. That usually means taxes should be withheld allowing for no standard deduction. If the employer does not adequately withhold, you will end up owing the balance when your tax return is filed.
A dual-status alien is both a nonresident alien and a resident alien in the same year. That means your tax return becomes more complicated. Publication 519 explains how to figure the tax beginning on page 25. Here are the most common circumstances of dual status:
Year of Departure
You might be a dual-status alien if you permanently left the U.S. during the year. If you left the U.S. to re-establish your residence in your home country after you met the substantial presence test, your residency termination date is generally December 31 of the year you leave. You are therefore considered a U.S. resident for the entire calendar year. However, you can claim to be a dual-status alien for the year you leave if you meet the following conditions:
If you meet these conditions, you have the option to determine your residency termination date as the last day in the calendar year that you were physically present in the United States, which means that you will be a dual-status alien for that year.
When filing as a dual-status alien, different rules apply for the part of the year you were a tax resident of the United States and the part of the year you were a nonresident. A dual-status taxpayer cannot use the standard deduction and, if married, cannot file a joint return. You must file Form 1040NR or Form 1040NR-EZ and write "Dual-Status Return" across the top. Include Form 1040 with your return to show the income and deductions for the part of the year you were a resident. Write "Dual-Status Statement" across the top. For detailed instructions see Chapter 6 of IRS Publication 519, U.S. Tax Guide for Aliens.
Before leaving the United States, aliens are generally required to obtain a certificate of compliance, also known as a sailing permit or departure permit, by filing Form 1040-C with a local IRS office. Visiting students and teachers are not required to get a sailing permit, however, as long as their employment income is authorized by the Immigration and Naturalization Service (INS).
The First Year Choice
If you arrive in the U.S. too late during the year to pass the substantial presence test, or if you were an exempt individual during the first part of the year, then changed visas later in the year, you are classified as a nonresident alien for the entire calendar year unless you make a special election. This generally means that you cannot claim your spouse or children as exemptions. However, there is a special election [IRC Sec. 7701(b)(4)] to be treated as a resident alien from your date of arrival if you satisfy the following tests:
If you make this election, you will be a dual-status alien and you can claim an exemption for your spouse, which is a deduction of $3,700 in 2011. Furthermore, the regulations include an extremely liberal rule that permits an alien who makes this election to make the election as well on behalf of dependent children who themselves satisfy the test [Reg. Sec. 301.7701(b)-4(c)(3)(v)]. You must, however, have ITINs for your spouse and children to claim them. Also, to make the election you must pass the substantial presence test in the year following the election year, which means you will need to file an automatic extension for your 2011 return so you can file after you pass the test.
Combining the First Year Choice with a Joint Return Election
A further election is available, when combined with the First Year Choice election, to file a joint resident return with your spouse and be treated as a U.S. resident for the entire year (see The Tax Return). Under this election, you can claim the standard deduction and other tax benefits available to U.S. citizens and residents, but you are subject to tax on your worldwide income for the entire calendar year. In order to eliminate double taxation, the foreign tax credit and possibly the foreign earned income exclusion are available to reduce or eliminate double taxation.
Simon arrived in the U.S. for the first time on September 1, 2011 with his wife and daughter from his home country, Australia. Simon and his family are L visa holders. Simon is a nonresident alien for U.S. tax purposes in 2011. On a nonresident return, Simon can claim only his personal exemption, and cannot claim exemptions for his wife or daughter. However, Simon and his family can choose to make the First Year Choice election to be treated as residents from the date of arrival. This would make Simon a dual status alien, and Simon could claim a spousal and dependency exemption for his wife and daughter. Additionally, if Simon and his wife choose to make a joint resident return election under IRC Sec. 6013(h), they could file a joint resident return and claim the standard deduction. However, on either a dual status or resident return, Simon would be required to report worldwide income for his (and his wife's) period of residency.
If you or your spouse is a resident for tax purposes at the end of the year, and the other spouse is a nonresident, you can elect to treat both you and your spouse as residents for the entire year. This rule applies even if the spouse who is a resident at the end of the year is a dual-status alien (a nonresident at the beginning of the year). However, if you and your spouse make this election, you are both required to report your worldwide income for the entire year. See The Tax Return for more information.
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