My husband and I are UK citizens who lived and worked in California from January 2017 to October 2020. We easily meet the substantial presence test. Reading the guidance I can see that the residency termination date is December 31, 2020, unless we qualify for an earlier residency termination date.
This is where I am a little unclear. When we left the United States in October it was to return to the UK to live permanently, so we therefore qualify for the earlier residency termination date. What I am unsure about, is whether we have to use the earlier termination date because we qualify for it? The language and examples in Pub 519 don't seem decisive on this.
The vast majority of our income for 2020 was earned while living in the United States and we therefore would have very little taxable income for the 2 months of the year that we were non-resident. Using the earlier residency termination date would mean we would have to file as dual-status, requiring 4 separate tax returns, a lot more work and would likely result in a much higher tax bill. I would rather ignore any tax treaties, use the December 31 date and be taxed on our worldwide income for the whole year, if it is indeed acceptable to do so. Is this possible?
Final question... Do all departing residents have to file a statement to establish their residency termination date, or is it just those that who qualify for the earlier termination date?
Thank you in advance for your help- tax season is stressful at the best of times, but this year especially is making my head hurt!
You don't have to file a statement to establish your residence termination and you don't have to use it in your case. You can file your Federal tax return as a resident and California state tax return as a part-time resident and specify your residency termination date there, it is acceptable. In that case, you'll need to pay Federal income taxes on your worldwide income for the whole year, and California income taxes on the income you made while were living in California.