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Resident vs Non resident Alien Pros and Cons

shikhiss13 — Sat, 31 May 2025 17:10:16 GMT

Hi,

I am planning to move to US (with my family of 4, wife not working) in July on L1 and can modify my flight date to get below options:

1. Arrive early july, meet SPT, be resident - pay tax on worldwide income but get benefit of deductions

2. Arrive August, be non resident - Pay negligible tax in India for this year, pay tax on US income only without deductions. But I earn lower salary as I remain longer on India payroll

Can you suggest some pros and cons of both approaches?

1. Can non residents claim any tax deductions at all? eg. 401k, IRA,Health Savings Account, Insurance expenses, movement expenses etc

2. I see a standard deduction for married filing jointly. What the benefit of dependents (kids)? I hear this cant be applied for Non residents either

3. Any non-tax implications of Residence vs Non residence? (eg. i read somewhere Non-residence dont get Stimulus but residence do)

4. Whats the US-India Treaty rate of tax on Salary?

5. Resident Alien pays tax on entire Calendar year worldwide income? Eg. For salary earned until April, I have paid tax in India already. Will that also be considered for US taxation slabs

6. I also see a first year choice option - can I avail that if I come in August? In this case I guess I can postpone this decision for later

7. Do Non residents pay FICA or State taxes or just federal?

Re: Resident vs Non resident Alien Pros and Cons

pk — Sun, 01 Jun 2025 20:28:00 GMT

@shikhiss13 I will try answer your questions one by one ( as articulated / ordered in your post -- some may be duplicated ) -- in Italics.

1. Can non residents claim any tax deductions at all? eg. 401k, IRA,Health Savings Account, Insurance expenses, movement expenses etc.

Here it is "yes" and "no" depending on the exact deduction/credit you are talking about. Many credits are limited by having SSN and sometime the amount of credit is limited for ITIN.

2. I see a standard deduction for married filing jointly. What the benefit of dependents (kids)? I hear this cant be applied for Non residents either

Non-Residents generally must use itemized deductions ilo standard. You also file your return on form 1040-NR ( not supported by TurboTax --- use a tax professional or SprinTax type of services ).

3. Any non-tax implications of Residence vs Non residence? (eg. i read somewhere Non-residence dont get Stimulus but residence do)

There are no stimulus packages available now. But if one comes into play, the rules of eligibility will be per that law/stimulus package.

4. Whats the US-India Treaty rate of tax on Salary?

US-India tax treaty covers many items but if you are working in the USA then for US purposes , there is ONLY US person ( citizen/GreenCard/Resident for Tax Purposes ) being taxed on world income and Non-Resident Alien, being taxed ONLY on US sourced income. Depending on the exact facts and circumstances, treaty benefits can be asserted by NRA but generally not by a US person. Of course there are ands/ifs and buts to this.

5. Resident Alien pays tax on entire Calendar year worldwide income? Eg. For salary earned until April, I have paid tax in India already. Will that also be considered for US taxation slabs.

That first sentence is not correct. A US person pays tax on world income for the calendar year-- yes. However, in a situation where an NRA passes the SPT / GreenCard test during the year, the start of the residency is the first day the person was "present" in the USA legally. Thus , if you entered the US on Jul1st of 2025, you will pass SPT and be a tax resident for the year 2025 but your start of residency is Jul1st. of 2025 and therefore your world income from Jul. 1st till Dec. 31st is taxable income to USA; you must use itemized deduction for the year ( because you did not meet the full calendar year presence); your prior world income i.e. before entering the USA, is not taxable income to USA, whether taxed by another country or not.

6. I also see a first year choice option - can I avail that if I come in August? In this case I guess I can postpone this decision for later.

First year choice is not going to do much for you. assuming that you entered the country in the middle of the calendar year --- you still will have to use itemized deduction.

7. Do Non residents pay FICA or State taxes or just federal?

All wage earners ( US person or NRA ) are subject FICA taxes ( there are exceptions for trainees and students etc. ).

May I suggest that you discuss the tax situation with your employer tax consultant or a Tax professional familiar with international taxation ( assuming you will have lingering tax situation with your home country). If one had choice of start date in the USA , I would enter the USA on 12/30/XXXX , because that will allow me have my residency start the first of the year and thus full standard deduction.

You are welcome to PM me with more detailed questions if you wish.

Namaste ji

Re: Resident vs Non resident Alien Pros and Cons

shikhiss13 — Wed, 04 Jun 2025 19:13:14 GMT

Thanks for the reply. I have read a lot baed on ur feedback. I guess my questions should have been:

1. How is a non resident taxation different from dual status alien considering both can not claim standard deductions, both are taxed as per slabs?

2. I am shifting to georgia, which apparently doesnt honor FTC. Effectively being a resident will bring in my significan already taxed significant India income into state tax net which can not be written off. Is this understanding correct?

3. Basis my reading it looks like being a full year tax resident is a better option. To opt for this status, i need to complete 183 days this year. Am i right?