Dual status alien: software recommendation and taxable income questions

[Qiang Jin]

I"m working for a US company and was moving from its branch in another country to US in middle of July 2019, holding a L1 vsia. I learned that I could choose to file tax return in non resident alien (NRA) or dual status alien (by doing a first year choice). My questions are:

1. I learned that turbo tax doesn't support non resident. Does it support dual status alien? Is there any recommended software that support filing tax return for both NRA and dual status alien? I'd like to compare which tax status will save more using a software.

2. I had some income that was earned while I was working in the foreign country, but was received after I moved to US. Here is a list of these income:

• My salary in first half of July, received in end of July
• Cash converted from unused vacations, received in end of August.
• My annual bonus award for last fiscal year (07/01/2018 ~ 06/30/2019)  , received in end of Sept
• My stock of the US company, which is annual award that was earned and vested before I moved to US, then held in a US broker account. I sold them after I moved to US.

Now the question are:

1. Shall I treat these income as foreign income or US income, after I move to US?
2. Are these income subject to US tax, if I
   1. choose to be NRA in 2019
   2. choose to be dual status alien in 2019
3. Shall I pay for capital gain tax for the stock income after I sold them in US, if I choose to be NRA or dual status alien?

[SusanY1]

TurboTax partially supports dual-status alien by allowing you to create the portion that applies to your residency period or residency election. As you already mentioned, TurboTax does not support form 1040NR.  However, you can prepare your 1040 form using TurboTax, and you can start the return for free to allow you to compare the results of making your first-year election to be treated as a resident for the full year with filing as a dual-status alien.   

For form 1040NR, we recommend SprintTax.com.  To the best of my knowledge, SprintTax only prepares the 1040NR portion of the tax return that would be necessary to file as a dual-status alien if that is what you determine is the best course of action. 

All of your salary and bonus income would be foreign income.   The stock sale would be US income since the actual sale took place after you moved to the US. 

Your foreign income is only subject to US tax if you elect to be treated as resident alien for the full year. 

If you are a resident alien at the end of the tax year, you will need to do the following:

• Prepare form 1040 for your period of residency - TurboTax can do this for you. 
• Prepare form 1040NR or 1040NR-EZ for your period of non-residency. 
• Print Form 1040 to be filed by mail.
• Attach form 1040NR to your form 1040 and write "Dual-Status Return" on the top of page one of Form 1040.
• Mail your tax return to the IRS.

If you are eligible to make your first-year election to be taxed as a resident alien for the entire year, you would file only Form 1040, and all of your worldwide income for the year would be subject to US tax.  However, you may be able to take the foreign tax credit for the taxes that you paid to the other country.  Be sure to input the information to calculate this credit when you are checking to see which filing status is the best for you for 2019.

For more information on the taxation for aliens click on this link: IRS Publication 519.

[Qiang Jin]

Thanks for your answer!  To clarify, I think I am only eligible to be RA for second half of the year, not full year, by doing the first year election. Also I was NRA by end of the year. So far seems like the only important thing that remains unclear to me is capital gain tax for my stock sales. Please help clarify:

1. You said it's US income, even it was vested and granted to me while I was working in another country. Could you please point me to the official IRS document for it? I'd like to understand why it's treated differently. Personaly I think it's not fair as most of time I held the stock in another country, and most of capital gain I get is from outside US.

2. Re "Your foreign income is only subject to US tax if you elect to be treated as resident alien for the full year". What if I choose to be RA only for second half of the year, by election to be dual status alien? That is these income was paid for the period when I was NRA, but was received when I was RA.

[KarenJ2]

If you were a Nonresident of the US on an L-1 visa at the end of the tax year,  you do  not need to pay capital gains tax on stock sales sold in the US or the income received in the US from your home country.

You are a US tax resident if you are a green card holder or if you pass the Substantial Presence Test.  

You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:

• All the days you were present in the current year, and
• 1/3 of the days you were present in the first year before the current year, and
• 1/6 of the days you were present in the second year before the current year.

If you had less than 183 days in the US, using the above calculation, then you should file as a full year nonresident.

If you are not a US nonresident, you will need to file a dual status return and report all income received in the residency portion of the year.  You can claim a foreign tax credit in the residency period to help offset any double taxation.

[YvetteT]

Thank you for the information! This is really helpful. I am in a similar situation.

I have been a permanent resident for 4 years.
For all of the past years, my tax home have been in the foreign country. All of the past years, I qualified for FEIE (330 day abroad, 2 years have not entered the states). The only US source income is a few dollars interest in my US bank account. This year I decided to officially renounce my green card. The year of abandonment, I will likely be partially time RA and by the end of the year NRA. According to IRS I have to file under dual status”. My question is 

The website say that I must file 1040NR as return and attached 1040 as “statement”. If I file 1040 through TurboTax, do I need to write “statement” on the file, or is there a statement file for 1040? I also have several other forms accompanying my previous returns, such as 2555 should I also attach as statement? 

[davidward14]

Thank you for the information!

I'm in a similar situation and just move to the US and will claim my job income on for 1040 for the time I was a resident, but I'm unclear about where to file 1040 NR. If I complete 1040 NR, won't I generate a tax owing amount? To be clear I worked for a foreign employer before moving to the US and working for the US employer. My understanding is that I don't have to pay US taxes on that income.

[shas1]

You mention that the steps you outline refer to being resident alien at the end of the tax year. I have the opposite situation, I was RA on L1 for the first 5 months of 2021, then left the U.S. and became tax resident in Europe. Are the steps any different in that case?

[DianeW777]

TurboTax does handle the tax return for the US residency period since you will file Form 1040.  Although TurboTax does not handle the Form 1040-NR, we do have information to file that through Sprintax.

• TurboTax/Sprintax Site

You are a dual-status alien when you have been both a U.S. resident alien and a nonresident alien in the same tax year. Dual status does not refer to your citizenship, only to your resident status for tax purposes in the United States. In determining your U.S. income tax liability for a dual-status tax year, different rules apply for the part of the year you are a resident of the United States and the part of the year you are a nonresident. The most common dual-status tax years are the years of arrival and departure.

• See IRS Publication 519

Write “Dual-Status Return” across the top of the return. Attach a statement to your return to show the income for the part of the year you are a nonresident. You can use Form 1040-NR as the statement, but be sure to write “Dual-Status Statement” across the top.​​​

[Ethan2022]

Hello,

I moved to the US on May 1st, 2022, and have worked for a company in MA since that. My spouse and my children were living outside of the US in 2022, and they hadn't been to the US before. Before I went to MA, I worked for a foreign company in the early 4 months of 2022. When I was using Turbotax, it recommended I use the Married Filling Jointly status. 

1) Since my spouse didn't live in MA, she had no health insurance. When I was doing my MA state return, Turbotax showed that there was a penalty for not meeting MCC. What can I do to avoid this penalty? Need I change the filling status to the Head of Household?

2) As for my situation, need I to try Dual Status Reporting? When I tried to report 1040-NR in Sprintax, it prevented me to do that. 

3) How do I report the wage income outside of the US in 2022?

Many thanks.

[AbrahamT]

So it depends, you cannot file mfj when incorporating a dual status return. Mfj would only be allowed if your spouse would be a resident alien which is not the case by you. Depending on the time you were a non resident alien which is from the beginning of the year till May and from May till the end of the year, your foreign income would be taxed differently. See HERE . See also Pub 519 for determining your status as both a resident/nonresident alien  HERE  Pg. 3. The wage income is reported where you would normally report your wages on a regular US earned income. Finally, you may be entitled to foreign earned income exclusion if you meet the following tests. See HERE and  HERE  for what qualifications you need to meet the bonafide residence test.

As far as the Sprintax issue, you must call them yourself as Turbotax does not support 1040NR . Visit this site HERE for more information.