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Income reporting for Ukrainian with U4U program and CZ tax residency

Hello. I have a question about taxes for those who are on the u4u program.

 

I arrived on May 15, 2023, and I have a question:

Am I a tax resident for 2023 and do I need to submit a declaration?

The issue is further complicated by the fact that I have a private business (Software contractor) in the Czech Republic and have been paying taxes to the Czech Republic all this time. (all 2023 year)

I would not like to pay taxes 2 times in CZ and USA, please tell me how to do it?

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pk
Level 15
Level 15

Income reporting for Ukrainian with U4U program and CZ tax residency

@serhii-ua , welcome to the USA  and I am very happy that  this country could extend this helping hand to you and your family.

As I understand the  program U4U, it allows 

(a) to enter the country for two years

(b) implied work permit and availability of all other social  support programs

(c)  For IRS purposes, you count your days present in the country towards "Substantial Presence  Test  ( SPT  --  183  days   counting all days present in the current year -- 2023, +  1/3rd the days present in the  first previous year --2022 + 1/6th days present in the 2nd previous year --2021 ).  Thus if I assume that you had NONE days in 2021 and 2022, then  you would have reached / passed the SPT  sometime  around the middle of October 2023.

(d) Once you pass the SPT you are treated as a  resident for Tax purposes and taxed on your world income.  Prior to that you are taxed ONLY on US sourced / connected income.

(e) Generally  most newcomers  are dual status for the first year  i.e. Non-Resident  till  passing SPT and thereafter as a Resident for Tax purposes.  

 This produces two issues --  you file a form 1040-NR   ( not supported by TurboTax ) for the period you are a Non-Resident  and  you file a form 1040 ( supported by TurboTax ) for the rest of the year.   The second issue is that  because  you are not a resident for the full calendar year , you cannot use  standard deduction -- use itemized deduction.

As far as  foreign income  --- till SPT,  that income stream is not taxable to the USA.  Post SPT,  since you are taxed on world income, you get doubly taxed on that foreign income.  However, to ameliorate the effects, you can either use foreign tax credit or foreign tax deduction .  Both of these are limited  but it does help in reducing the burden.

 

Is there more I can do for you  and / or do you need more  on this subject.

View solution in original post

4 Replies

Income reporting for Ukrainian with U4U program and CZ tax residency

@pk?

pk
Level 15
Level 15

Income reporting for Ukrainian with U4U program and CZ tax residency

@serhii-ua , welcome to the USA  and I am very happy that  this country could extend this helping hand to you and your family.

As I understand the  program U4U, it allows 

(a) to enter the country for two years

(b) implied work permit and availability of all other social  support programs

(c)  For IRS purposes, you count your days present in the country towards "Substantial Presence  Test  ( SPT  --  183  days   counting all days present in the current year -- 2023, +  1/3rd the days present in the  first previous year --2022 + 1/6th days present in the 2nd previous year --2021 ).  Thus if I assume that you had NONE days in 2021 and 2022, then  you would have reached / passed the SPT  sometime  around the middle of October 2023.

(d) Once you pass the SPT you are treated as a  resident for Tax purposes and taxed on your world income.  Prior to that you are taxed ONLY on US sourced / connected income.

(e) Generally  most newcomers  are dual status for the first year  i.e. Non-Resident  till  passing SPT and thereafter as a Resident for Tax purposes.  

 This produces two issues --  you file a form 1040-NR   ( not supported by TurboTax ) for the period you are a Non-Resident  and  you file a form 1040 ( supported by TurboTax ) for the rest of the year.   The second issue is that  because  you are not a resident for the full calendar year , you cannot use  standard deduction -- use itemized deduction.

As far as  foreign income  --- till SPT,  that income stream is not taxable to the USA.  Post SPT,  since you are taxed on world income, you get doubly taxed on that foreign income.  However, to ameliorate the effects, you can either use foreign tax credit or foreign tax deduction .  Both of these are limited  but it does help in reducing the burden.

 

Is there more I can do for you  and / or do you need more  on this subject.

Income reporting for Ukrainian with U4U program and CZ tax residency

Is taxes must be paid in the USA from the date I become a SPT - October 2023 - December 2023, or from the date I arrived (may 2023)  until the end of December 2023?

pk
Level 15
Level 15

Income reporting for Ukrainian with U4U program and CZ tax residency

@serhii-ua , sorry for the confusion

 

(A)  from the date you arrived in the USA till  SPT --- you pay income tax on ALL US sourced / connected income and report this on form 1040-NR

(B) After passing  the SPT and till the last day of the  year  you pay taxes  on ALL income from anywhere in the world.  You report this  on  form 1040.

 

Thus for the year 2023 , you have two forms to file  ( you mark the forms   " DUAL STATUS ALIEN )

  1.  form 1040-NR covering income only  from US sources  for the  first period  ( i.e. from the first full day post entering the USA

 2.  form 1040  covering WORLD income   for the  second period  ( From the day you pass SPT till the end of the year . )

 

Does this make sense ?

 

pk

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