Why Residency Status Is Important
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, 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 under the same rules and file the same forms
as a U.S. citizen. That means you pay tax on 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. Software programs such
as TurboTax are inexpensive, and make it easy for someone with
little tax experience to fill out the forms.
Determining Your Residency Status
If you have not already obtained a copy of IRS Publication 519,
U.S. Tax Guide for Aliens, you should do so. You can either print
out a copy from the IRS Web site at Forms and Publications, or
call 1-800-TAX-FORM (1-800-829-3676) and ask them to mail it to
you. On the first few pages of Publication 519 it explains the
two tests for determining whether you are a resident or nonresident
alien: The green card test and the substantial presence test.
Following is a condensed version of that explanation.
The Green Card Test
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 Immigration and Naturalization
Service (INS) has issued you an alien registration card, also
known as a "green card" (although it is not really 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 1040EZ, 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 treaty benefits under the U.S.
tax treaty with your home country. See
Tax Treaties.
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.
The Substantial Presence Test and Definition of Exempt Individual
To meet the substantial presence test, you must be physically
present in the U.S. during a period you do not hold an F, J, M
or Q visa on at least:
31 days during the current year, and 183 days during the 3-year
period that includes the current year and the previous two years,
counting:
• all of the days you were present in the current year,
and
• 1/3 of the days you were present in the first preceding
year, and
• 1/6 of the days you were present in the second preceding
year.
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 under the following conditions.
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. For example, let's say you
entered the U.S. on December 28, 1997 as a trainee on a J visa,
and have remained here until now. Your days in this country are
exempt from the substantial presence test for 1997 and 1998, but
they all count in 1999 and later years. That means you were a
nonresident alien in 1997 and 1998. But if you were in the U.S.
for at least 183 days in 1999, you are considered a resident for
U.S. tax purposes in 1999. 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.
Student
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, 1997 as
a student on an F visa, and have remained here until 2002. You
are a nonresident alien for 1997, 1998, 1999, 2000 and 2001. If
you are in the U.S. for at least 183 days in 2002, you will be
a resident for tax purposes in 2002.
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 they are
employed, make sure their employer withholds taxes from their
wages based on their nonresident alien status. That usually means
taxes should be withheld allowing for no standard deduction. If
the employer does not adequately withhold, your family member
will end up owing the balance when their tax return is filed.
Dual-Status Aliens
Note on page 7 of Publication 519 under Dual-Status Aliens that
you could be 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:
• When you enter the country and receive permanent residency
status (receive a Green Card) during the year of arrival
• When you hold a J, F, M, or Q visa the first part of the
year and receive permanent residency status during the year
• When you hold a J, F, M or Q visa during part of the year,
but later change to an H visa or other status eligible to use
the substantial presence test, and pass the test
• When you leave the United States permanently during a
year in which you qualify as a tax resident, but only if certain
conditions apply. (See Last Year of Residency on page 8 of Publication
519.)
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:
1. You are not a U.S. resident during any part of the following
year, and
2. You establish that, after you left the U.S., your tax home
was a foreign country and you had a closer connection to that
country.
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).
Nonresident Spouse Treated as a Resident
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). See Publication 519 under Nonresident
Spouse Treated as a Resident beginning on page 9.
