First year of residency - file as dual-status?

[leo_oel]

I have read the other posts but I am still very confused what to file. I was a DV winner and arrived in the US on Nov 19, 2021 and reside there until today. My wife arrived on Nov 28, 2021 and then was back to Hong Kong on Dec 14, 2021. I have already quitted my job in HK before admission to the US but my wife still has her job in HK. We have never been to the US before. Therefore, should both of us file as dual status? Also, are we not eligible for the first year choice?

I think we need to file the following:

1. 1040 for the part as resident alien and attached 1040-NR for the part as non-resident alien.

2. My wife has to file the foreign income 2555 for the period since the first admission the US.

3. Form 8938 (Statement of Specified Foreign Financial Assets) and FBAR (Report of Foreign Bank and Financial Accounts) for our bank accounts in Hong Kong.

Please correct me if I misunderstood.

Thanks so much!

[Anonymous_]

I will page @pk

[pk]

@leo_oel , I don't know what you mean by DV ( lottery ? )  Did you mean GreenCard?

Assuming that you did mean Green Card ( Permanent Resident ), then 

(a) if you pass the Green Card test at any point in the year ( 2021 in your case ) you are considered resident for the year.  The year starts on the first full day that you spend in the USA  for that year.  Thus  you are Resident Alien for the  year 2021 starting from Nov. 20th 2021 and your spouse  ( whom entered on  Nov. 28th. ) on Nov. 29th., 2021.   So you are not dual status , you file as a resident for Tax year ( Calendar year ) 2021. You world income from the date on which you became a resident is taxable by the USA.

(b) Because your spouse went back to HK and continues working there ( correct ? ),  you can file joint  and  her wages / earnings can be excluded as foreign earnings  once one meets the physical presence test  ( 330 days abroad in any consecutive 12 month test period ). For 2021 this would mean excluding foreign income from  Nov 29th. through Dec. 31st. 2021.

(c) Because you are resident, you are also under FBAR and FATCA regs -- thus your foreign financial accounts  ( foreign bank accounts  that you own/control/ signature  over US$10,000)  and  Specified financial Assets  ( form 8938 on  non-liquid assets -- stocks , bonds  etc. held by local brokers/financial institutions etc. , the threshold depends on filing status  and your tax home -- note your spouse may be having a foreign tax home).

TurboTax will walk you through all of these items  ( not the FBAR though  -- that you file form 114 at FinCen.gov / BSA-efile).

Is there more I can do for you ?

[leo_oel]

@pk Thanks so much for your response.

Yes. I mean the green card thru the lottery.

(1) So we just need to file the worldwide income obtained since the date that we become resident? In other words, only my wife need to file the foreign income?

(2) Yes. She went back to HK to continue her working there.

(3) So we have to file FBAR online at FinCen.gov website. But the form 8938 can be filed thru TurboTax. Is it correct?

    I am still a bit confused with the concept of "tax home". So in the case of my wife, her tax home would be "Hong Kong". But what should be the date established (i.e. the line #9 in form 2555)? Is it the start date of the 12-month test period for the physical presence test?

[pk]

@leo_oel  thank you for updating

1. The world income you report  for 2021 and if you file jointly ( usually the most tax benign ), you include  both  of your incomes no matter where earned. The special case here is that your spouse earns the monies abroad and as such depending on circumstances, may be eligible to exclude this from US taxes  because she can claim foreign tax home and because she is paying taxes to HK

2. -- see above

3.  Yes you are both subject to FBAR and FATCA regs. and as mentioned above.  TurboTax will help you file the FATCA form ( simple questions and answers ) where as for the FBAR, you will have to log in to  

https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

and look for form 114.  You file as filing for yourselves -- two forms one for each owner of foreign accounts  --  just follow the links and  it will  walk you through the form.  

4. To be able to exclude foreign earned income from US taxes  ( avoid double taxation ), you need to have a foreign tax home.  You could be having a tax home in the  USA and your spouse could be living in HK and have a foreign tax home  and still file jointly  ( it is unusual  but nothing prevents it .  The other way would be for you to file as married filing separate  and because you had no income in 2021 as a resident, there is no need to file. She can then file as a Married Filing Separate,  with a tax home abroad  and exclude  the allowable amount of foreign income and hopefully pay no taxes to the USA on the foreign income.

Does that explain more ?  Do you need more help ?

pk

[leo_oel]

@pk thanks so much for the explanation. 

1. Would you mind further explaining that? So do you mean that we have to file all our income earned throughout the entire year of 2021? So the date of starting residency has no relationship with the income amount to be filed? Then, why does only my spouse need the exclusion? The income I earned previously in HK should also need the exclusion. 

4. I got that we need to have the foreign tax home to claim the exclusion but I am still confused with the term "date established" which is required in the tax home description. Should I fill in "Jan 1, 2021" or just leave it blank?

[pk]

@leo_oel ,  

1. Let us use an example  --- my earlier explanation was a little bit messy and may be an example  will make me do a better job of explaining:

(a) You arrived on 11/19/2021 and became a Resident 11/20/2021. You did not work for the rest of the year -- 11/20/2021 through 12/31/2021 . So your world income ( i.e. the income subject to US tax, from the day you became a resident) for the year 2021  is zero for US tax purposes.  You started working in the USA  from Jan 2022--- but this is reported in the tax year 2022.

(b) your wife arrived on 11/28/2021 and became a resident on 11/29/2021. She left the USA on 12/14/2021, landed in HK  on 12/16/2021 10 am. Thus her first full day in HK as a US resident is on 12/17/2021.  She continued her job and got paid US$5400 for the period  12/17 through 12/31/2021 .  Thus if she wants to exclude the 2021 foreign earnings from US taxes , 

                                              (i) she uses a 12 month test period of 11/29/2021 through 11/28/2022 -- 365 days, implying she  has to stay abroad till at least that time period to be able to exclude the  earnings  that fall during  11/29/2021 through 12/31/2021 from US taxes. She will meet the 330 days abroad. 

                                              (ii) in such a case it would be easier for her to file Married Filing Separate  and you do not have to file for 2021  OR  you can file joint  even though you have no incomes for 2021 to report.  Everything starts from the day you became a resident. She actually can claim that her foreign  tax home started on the day she became a resident -- she was here on vacation and went back to her tax home , but her earnings for the period she was in the USA is NOT foreign earnings.  Or you can use the first full day after she arrives in HK as the start of foreign tax home.

                                            ( iii) for 2021 it does not exclude much  ( US$ 5400 ) because you came into the country close to the end of the year. But the following year 2022, she should be able to exclude most of the year's income assuming that she stays abroad  till the date shown above.

                                            (iv) Quite a lot depends on your longer term plans.  Because the general assumption is that as a resident you intend to live and work here in the USA.  If you stay abroad, you still have to touch US soil once a year or have a permit from the Immigration to stay away fro three years ( think that is till the most  at a time ).

Does this work a little better or have I missed something.  I will circle back

pk

[leo_oel]

@pk Thanks so much for the explanation. I really appreciate that. The example you given has made me much more clear about what to file now.

But let me ask a question about the foreign income exclusion.

In your point(b)(i), about the requirement for qualifying HK as the foreign tax home for excluding the foreign income in 2021, does it mean she has to stay in HK for at least 330 days in the 12 month period (11/29/2021 - 11/28/2022)? But it involves a future time at this moment. So if my wife eventually stays in HK for less than 330 days in this period, will the exclusion become invalid? 

[pk · Accepted solution]

@leo_oel 

about whether for purposes of being able to exclude the foreign earnings  from US taxes , she would need to be abroad  for 330 days  in a  test period of continuous 365 days ---  that establishes the  tax home.   If she comes back to the USA early, then the whole effort is lost .  Then  the only option available to reduce the bite of double taxation is to use the  foreign taxes paid as  a credit against the US taxes  to be levied ( usually not 100% because it is based on a ratio of the filer's  foreign income to world income-- so US income reduces the ratio and therefore the credit available for the year ) or as a deduction if one itemizes ( but then there is a  SALT - Sate and local Taxes  limit).   I have known of a lot of people , when I was an expat, that will  finish their foreign assignment  and stay an extra few days in Canada or somewhere abroad just to satisfy the 330 days abroad clause to meet the  Physical presence test.

We are talking about future , only because while the foreign tax credit for 2021 may not be much , if indeed  she plans to stay for the whole of 2022, then you could possibly exclude  most if not all of her foreign income from US taxes -- and yes it is future.  As I said , how you proceed depends on your longer term plans -- where you work , where you each stay etc. etc.

Hope that clears the up things 

pk

[leo_oel]

@pk Thanks for taking the time to help me. I am clear how to proceed now.