2021 Dual-status resident - first year-choice for whole 2021. Unsure about eligibility and potential benefits.

[RiqueC]

My wife and I are living in the U.S. from the end of June 2021 in a J1/J2 visa. Due to past presence in the U.S. in 2018/2019, we met the substancial presence test in Dec 2021, therefore being dual-residents for CY2021.

I heard of the first year choice, however it is not completely clear for me if we are eligibe for it. We met the criteria published in IRS pub 519.

If you do not meet either the green card test or the substantial presence test for 2020 or 2021 and you did not choose to be treated as a resident for part of 2020, but you meet the substantial presence test for 2021, you can choose to be treated as a U.S. resident for part of 2021. To make this choice, you must:

1. Be present in the United States for at least 31 days in a row in 2021, and

2. Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2021. For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States.

Altought I interpret I should be eligible, all the examples I saw mentioned a residency status change in the following year (say 2022), which would allow the first choice for 2021. Therefore, I would like to clarification on whether we are eligible for the first year choice for 2021 tax return.

If we do make the first year choice, would we be considered residents for the whole year or just from June-Dec 2021?

In my interpretation of pub 519, we met the criteria below for being residents for the whole year, but I would appreciate an expert opinion.

Choosing Resident Alien Status

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 beginning 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 resident alien at the end of the year.

• Your spouse joins you in making the choice.

Lastly, the most important part of my incomed started when I arrived in the U.S. from a US source, therefore I believe it would be more advantageous to have this income taxed as resident.

But I would appreciate feedback on how filling as a whole-year resident compare to filling a as dual-resident (either as non-resident from Jan-Nov or Jan-May)?

Thanks!

[MaryK4 · Accepted solution]

Based on your description, you met the substantial presence requirement in December 2021.

Because 2021 is the first year you qualify, you have the option to treat all of 2021 as U.S. resident or dual status.  2022 will be your first full year as U.S, residents.  

A dual - status election for the first year works better if you had more income outside the U.S. because U.S. residents are taxed on their worldwide income.  In your case, you had more U.S. income even when in nonresident status so a first year election to be treated as a resident is more simple (because you do not have to file a resident and nonresident return.

The most important factor to consider is how much non-U.S. income you had in 2021 and if it was taxes in a foreign country.

[RiqueC]

Thanks @MaryK4,

I'm still unsure about what forms to fill.

I was planning on filling the 1040 jointly with my wife.

Should I also indicate the "dual-status" on 1040 and fill a 1040-NR if I choose to be treated as a resident for the whole year?

This seems a little contradictory for me, as "dual-status" fillers cannot fill jointly, right?

Could you please clarify?

Thanks again!

Henrique

[LoganathanB]

No, file as a resident 1040 tax return jointly with your wife if you choose to be treated as a resident for the whole year.

You need not file a dual-status return as you are a resident by presence test

Residency

[SusanY1]

When you meet the green card test, you do not need to attach any special statement or make the first-year choice when filing your Form 1040.  You will be treated as a resident for the full year, and you will need to report all of your worldwide income, though you may be eligible to exclude the income earned abroad or take credit for taxes paid to the country where the income was earned and taxed.  

@QandA1 

[DaveF1006]

It depends on several things.

1. To meet the green card test, you would need to be in the US for 183 days during a three-year lookback period. If you arrived in US in September 2022 for the first time, you do not qualify for the green card test because you haven't been in the US for 183 days in 2022 or in any preceding years before.
2. You can either file the 1st year election or file as a dual-status resident for the year if you do not qualify under the substantial presence test.
3. Keep in mind, the green card test and residency test are the same as it uses the Substantial Presence Test to determine residency status.

If you choose to be a resident alien for the full year, you may be able to receive the EIC. If you or your spouse were a nonresident alien for any part of the tax year, you can only claim the EITC if your filing status is married filing jointly and you or your spouse is a:

• U.S. Citizen with a valid Social Security number or
• Resident alien who was in the U.S. at least 6 months of the year you're filing for and has a valid Social Security number.

[DaveF1006]

You mention the green card test, which is a test that is used to determine residency. You can qualify to be a resident alien under the terms of the green card test without actually having a green card. In fact the IRS says "You are a resident, for U.S. federal tax purposes, if you are a lawful permanent resident of the United States at any time during the calendar year. This is known as the "green card" test." 

This is what I based my answer on because a resident can qualify to be a resident under the terms of the Green Card Test without being issued a Green Card. He or she may apply for the Green Card, if they choose to, once they have passed the Green Card test.

Green Card Test 

@QandA1 

[DaveF1006]

No. You do not need to make the first year choice if you have an actual green card because you may file as a US citizen for the entire year. If you don't have the actual Green Card, you may choose to be a resident for the entire year by making the 1st year election.