Moving to India in January 2020 - Tax Implications

[karthikbr_tax]

Hi,

I'm moving to India permanently in the 2nd week of January 2020. I would like to know the tax implications for yr 2020.

a) I'm neither a US citizen nor GC holder. I'm on H1B visa

b) For the year 2020, I won't be in US long enough to pass the presence test (less than 31 days in US for yr 2020).

c) However, I will be on US payroll until end of Jan or Feb. After that I will be on India payroll.

d) I will be leaving my investments in US as-is for most part of it which is going to earn dividend and interest over the course of the entire year in 2020.

I understand that I will be required to file my returns for 2020 (in 2021). But I have the below questions -

a) Does the presence test require one to be present physically within US territory or does it consider being on payroll as well for presence test?

b) Do I need to get a "Sailing or Departure Permit" from IRS before I leave?

c) Will I be required to pay taxes on Indian income in my US tax returns for 2020? (double taxation)

d) Will I be required to file FBAR along with my returns for the yr 2020. I will be having more than $10000 in my accounts from my income in India. If I'm considered a non-resident, I wont be required to file FBAR is my understanding. So, the answer to this question is dependent on the answer to (a).

[pk]

@karthikbr_tax , answers to your questions are as follows:

(a)once you have acquired "Resident for tax purposes ", i.e. passed the substantial presence test, it remains in effect  till you do something to change that such as visa expiration, leaving the country for good with no intention/plan to return;

(b)When you leave the USA, you should get a sailing permit -- this tells the IRS that taxes on your earned income has been withheld  and the immigration people that you are turning in your visa; -- if you do not do this then you remain a "resident for tax purposes" till the system catches up and therefore your world income is within US tax ambit -- you do NOT want that;

(c)  tax on Indian income once you have returned to India  --- see answer to (b) above

(d) As long as you are presumed to be a "Resident for Tax purposes", you are under the purview of FBAR and FATCA -- therefore it is important to terminate  your "Resident for Tax purposes " status as soon as the situation allows.

Question about being on payroll after departure --- treat this as earned while still in the USA for  work performed  before departure -- just delayed payment --- note that once you are  not a resident for tax purposes, the tax rate changes to a flat 30% and must be withheld by the employer -- no Social security and Medicare.

 Question on investment income ( dividends, interest etc. ) --- these come under the tax treaty between India and USA -- and depending on the amount may or may not matter.  Perhaps we need to talk about this in late 2020.

Is there more I can do for you ?

Namaste ( Gaaru?)

[karthikbr_tax]

Thanks for the reply!

I forgot to add one more piece of info. My wife is working in India since the beginning of 2019 while I was here in US. She did not work in US ever and for the yr 2019 she is not a US resident. But she was a resident in 2018. Now, I think it is fair to assume that I have show her 2019 income in my tax returns (to be filed in the next few months)? However, since India's financial year is April-March, we will not know her income details completely until mid or late April. Even if we did estimate a few things, we have to estimate it for Jan 2019 to Dec 2019 to match with US cycle. Not sure how to deal with this. Any ideas? I hope this is a common occurrence and there are CPAs who are well versed with US and India taxation laws.

[pk · Accepted solution]

@karthikbr_tax ,  assuming that your spouse left the USA at the end of 2018, was not present in the  USA  during 2019, terminated her dependent visa when she left the USA shores, her income in India  will ONLY come into play if, and only if, you file married filing joint ( MFJ).  Filing as MFJ, doubles your standard deduction ( by approx. $12,000 ) but now her income during the calendar year 2019 comes under US tax purview and may put you in a higher tax bracket.  Also to note is that India will tax her income ( i.e. the same income would be taxed by both USA and India ) and the imposed  actual income tax ( not the withheld amount) would then be eligible for foreign tax credit.  The foreign tax credit is recognized in full i.e. dollar for dollar but the amount that you actually can take credit ( allowable foreign tax credit ) is based on a ratio of foreign  income  and world income -- thus  if your income is $100,000, your wife's income for the  calendar year is $50,000 ( allocated and  converted to US$ ), Indian tax on the wife's income is $10,000, then  while US will recognize total foreign tax credit as $10,000 but ONLY 33%   ( foreign income $50,000 divided by $150,000 world income  ) or $3300 will be allowed as credit against your total tax liability --- the un-allowed portion of the  foreign tax credit can be carried backward and forward but only against foreign earned income in those years.  So in your case it would be lost.

Filing as Married Filing Separate ( MFS ), you would avpoid all these complications.

Should you choose to income your wife's income then (a) you should consider filing for an extension so that Indian  taxes on your wife's income can be finalized;  (b) allocate her 2019/2020 income for the  calendar period of Jan through Dec 2019;  (c) allocate the Indian actual tax liability  to the income  for the 12 months in 2019.

If you need more help on this , you are welcome to put so in comments.

I would like to assure you that while all the SuperUsers are volunteers ( and TurboTax / Intuit employees), most are  current or retired tax professionals -- tax attorneys, EAs, AFSP, state registered , CPAs etc. ), others, while not being tax professionals  are extremely well versed  in the intricacies of TurboTax; And all the answers are generally moderated  by TurboTax tax experts/moderators.  In general our answers are correct.  Good luck  

[karthikbr_tax]

Appreciate your quick responses. Thanks! That is all I had.