If I just became permanent residence of US in Sep 2022, should I report all income earned before (and as nonresident alien?) or should I ignore all income earned before?

[sche454178]

Also after becoming LPR we immediately left US and lived in home country for 2 months, my employment continued during that time. Now we are in US but still working for this company remotely. Should I count this two months outside US as US resident alien ?  

[tagteam]

@pk

[pk · Accepted solution]

@sche454178 ,

(a) To be treated as a resident ( for tax purposes ) one must pass  /meet  one of three  conditions  ---  1. the Green Card  test,  OR 2.  Substantial Presence Test OR  an approved request to be treated as a resident .

In each case  you are treated as a resident for whole year however, the start of the year  varies according to  facts and  circumstances.

In your case  ( and really need more data as to when you entered the USA, how long you stayed  during the current  tax year et. ), if I were to assume that  you applied for Green Card from abroad, and  once approved , cam to the USA using the Green Card in August 20th ( say )  and within a week  left for your home country ( which country ? )  stayed/ worked there for two months , then re-entered the USA in Dec ( say ), then your  year starts from the first full day that you were present in the USA for any purposes.    Thus all your earnings   from  Aug 20th ( in this example ) is part of world  earnings  and is taxed by the USA.  However, because the  two months  that you were away and worked  sitting in your home land, that earnings  is classed as  foreign earned income and may be eligible for exclusion ( depending again on exact facts and circumstances).

Also note that if you are still working for this foreign entity while in the USA ( work performed  here in the US), it is no longer foreign earning --- ( however there may be treaty considerations here -- generally not ).

So please more info  and I will circle back

p

[sche454178]

Thanks a lot, @pk  !

You got it exactly right, although the second time we arrived middle of November, home country is Israel and I'm still working for Israeli company.

But however I'd like to clarify, so you are saying we should not report any income earned before 1st entry to US (we entered middle of September first time)? 

I've read on IRS that we have first year choice to be considered resident alien for the whole year (so I thought it is from Jan 1, 2022 till Dec 31, 2022). In this case we could use a standard deduction of 25K for family and apply it to all income from 2022. However if we want dual status we will be counting income before arriving to US as nonresident alien (then I guess it will not be taxable in US but still we need to report - not sure here, need your help!) and income after that as resident alien will be taxable. I am not sure what are the pros and cons of first year choice and how to save on tax here.

Little more details on income:

Income from Jan,1- Sep, 15 (date of becoming residents of US): 20000$ from wages + 10000$ child/maternity/rental support from government

Income after Sep, 15 till end of year 2022 - 8000$ from wages

[pk · Accepted solution]

@sche454178 ,  thank you for the additional info.  As I understand the situation ( and based on which  I offer my response), is as follows:

1. You and spouse are both citizens of Israel;

2. One or both of you worked in Israel for a local entity for a total wages of US$ 28,000   ( 20,000 from Jan 1st through Sept. 15th.  and  8000 from Sept. xx through 12/31/2022)

3. You each passed the GreenCard test  and therefore became a resident  on 9/15/202 or thereabouts. And you thereafter went back to Israel  and came back to US on 11/15/2022 or thereabouts.  After coming back you continued to work  for the Israel entity remotely from 11/15  through the end of the end of the year.

Now the question is how to file, what incomes to declare for Us purposes  and whether  you can use the  standard deduction in filing , thus reducing tax liability  for US tax purposes.--- yes ?

There is also the question about whether  you can utilize the first year choice -- yes ?

Taking the last item first --- first year choice is generally targeted   towards and used  by taxpayers  whom meet the following conditions  --- (a) have been in the USA for at least 31 days ;  (b)  have been present in the USA  at least 75% of the days  between arrival and  12/31st of the year ; (c) were not a tax resident during the prior year i.e. previous to tax year at issue  and (d) will meet the substantial presence test the following year.  They also must file the return post meeting the SPT.  

Since you meet the  Green Card test  ( one of the tests  refrd. above for tax residency  ) and therefore a Resident ,  you are NOT eligible to apply for the First Year Choice.

Since you passed the Green Card test  , you are a resident for the year, and as mentioned earlier your reporting year starts from the first full day after admission as a resident. Prior to that only your US  sourced income could be taxed by the USA, since  you were a Non-Resident Alien.

I think because you went back to Israel and earned monies there  for the period  Sep15 through Nov 15th  ( approx ) could be classed as foreign source income, part of your world income and any taxes paid to Israel on this income ( specifically ) would be eligible  for foreign tax credit.

Since you are filing form 1040 there is NO restriction that you have to allocate the standard  deduction ( it is not possible in case law or regs ) nor a requirement to use itemized deduction.  Thus you should be able to use the full standard deduction as default. 

Given the figures  and filing as Married Filing Joint, you would not have to pay any income taxes.  

However,  there is the requirement of FICA or SECA  ( Social Security  & Medicare  for a total of 15.3% of the gross income) reported on Schedule-SE.  Since there is no totalization agreement between US and Israel,  and because for the period  Nov.15 through Dec31st, you were residing in the USA and earning as an independent contractor to the Israel entity, you will have to carve this out is local income ( work being done in the USA ), report this  amount on schedule-C , deduct any direct and allowable expenses related to this stream of income .  The net amount (over $400)   will also be reported on  Schedule-SE for computation of  SElf-Employment Taxes  (SECA).

Thus your total wages is broken into three parts --- Jan1st through Sept 15th -- not reportable to US; Sept xx through Nov 15th  -- foreign source income, reportable  and possibly  eligible for foreign tax credit;  Nov 15th/ 16th through 12/31 -- reportable as self-employment income and subject to SECA.

The extra benefits that you got ( US10,000 ) from Govt of Israel, generally not income because it is a general benefit and should be reportable or taxable in the US.  I don't know  much about this aspect of Israel but I know that UK has a similar program of monies for all mothers and is a general benefit -- not taxable for US purposes.  Some US states may include this in household  resources computation for some credits.

Please also see US-Israel tax treaty  article  16, para 2 and article 17 paras 1,2,&3 just for familiarity

TurboTax is quite capable to do all this for  you, however a consultation with a professional  is possibly advisable.  It is quite doable (IMHO) , especially with the help of the people on this forum.

Have I missed anything ?   Is there more I can do for you ?

pk

[sche454178]

@pk  Thanks a lot for the details! 

I want to show you what I found regarding first year choice. 

You are right , that we pass green card test and residents since Jan 15. However in the same section you quoted I found this:

https://www.irs.gov/pub/irs-pdf/p519.pdf

page 7:

Dual-Status Aliens
You can be both a nonresident alien and a resi- dent alien during the same tax year. This usu- ally occurs in the year you arrive in, or depart from, the United States. Aliens who have dual status should see chapter 6 for information on filing a return for a dual-status tax year.
First Year of Residency
If you are a U.S. resident for the calendar year, but you were not a U.S. resident at any time during the preceding calendar year, you are a U.S. resident only for the part of the calendar year that begins on the residency starting date. You are a nonresident alien for the part of the year before that date.

page 8:

If you are a dual-status alien, you can choose to be treated as a U.S. resident for the entire year if all of the following apply.

• You were a nonresident alien at the begin- ning of the year.

• You are a resident alien or U.S. citizen at the end of the year.

• You are married to a U.S. citizen or resi- dent alien at the end of the year.

• Your spouse joins you in making the choice.

So if I follow this logic we can make the choice to be treated as resident aliens for the whole 2022, but this is very confusing I must admit it.

[pk · Accepted solution]

@sche454178 , instead of my  defending  my position, perhaps I should ask what are you trying to achieve ---

(a) if you are just trying get the standard deduction -- you have already got it

(b) if you are trying to exclude the foreign income -- perhaps. But you effectively have that

(c) if you trying to paying taxes to Israel  --- cannot help you there

(d) If you are trying to meet all the requirements of the tax laws -- you indeed are

I think at this stage , it is perhaps best you seek professional tax help.  Many of us  ( including the undersigned ) either are  or were  tax professionals in the past.

However, absent quotes from statutes, or case law I hold my position --- of course  that is neither here  nor there . At the then end of the day , with or without professional help, it is your return  and in the eys of the IRS, you are alone  responsible for filing a true and correct return

Sorry I cannot  help you more on this  -- I have reached  the end of my knowledge band

Good Luck

pk

[sche454178]

Thanks @pk , talking with you helped me clarify a lot of things , but perhaps you are right and I will seek a paid (or free if available for low-income families) consultant to fill this out for me!