Is tax filing as dual status alien optional or mandatory?

[sabya33]

I will move out of USA on Sept. 10th, 2022, and then join a job in another country in Sept. 2022. Now, I since, I have been staying in U.S from January 1st to Sept. 10th, I pass the substantial presence test, and therefore I am resident alien for tax purpose. However, based on the information in Publication 519, U.S. Tax Guide for Aliens, it seems that I can qualify for a residency termination (U.S Tax) on Sept. 10th, 2022.

My understanding is I can choose any of the two options while filing tax for 2022:

1. I can file as a resident (1040) reporting my worldwide income for 2022.
2. Otherwise, I can also submit a statement terminating "resident alien" status early and file a dual-status return.

Please let me know if I am obliged to terminate "resident alien" status. If I am not obliged to do this, I will not provide a statement terminating "resident alien" status and only file 1040 (I prefer option 1 over option 2 for various reasons).

From Chapter 1, page 9, Publication 519, U.S. Tax Guide for Aliens

" You may qualify for a residency termination date that is earlier than December 31. This date is: The last day in 2021 that you are physically present in the United States, if you met the substantial presence test; You can use this date only if, for the remainder of 2021, your tax home was in a foreign country and you had a closer connection to that foreign country.

You must file a statement with the IRS to establish your residency termination date. .......... If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries. "

[tagteam]

I am going to page @pk for this question.

[pk]

@sabya33 , having read through your post , I have the following questions:

(a) When did you enter the USA and with  Visa type?

(b) What type of income  did you have for 2022?

(c) Which country are you from ( citizenship )  and is this the country where you are moving to ?

(d) Did you file a return for  tax year 2021 ( or earlier) and which form did you use ?

I ask these questions  because as you saw in pub 519, the requirement for "sailing permit" or forms 2063 or 1040C  are significantly influenced  by  these.  So please answer my questions.

Generally for most wage earners  (i.e. with federal and State withholding in effect)  with records of filing previous returns the risk of not being able to collect is minimal and hence sailing permit is not mandatory and/or enforced.  Aliens  Resident do it for purposes of establishing end-date of "resident" tax  ( world income ).  Therefore I am assuming you want to keep your resident status to be able to take advantage of standard deduction  and  credits available ONLY to residents ( citizen or otherwise).  You also need to consider  that  absent your being able to establish resident status again, your foreign income for 2022 would be taxed by both USA and the foreign country ( if that country  has income tax ) and tax credit claw back may not be 100%.

We can discuss these in more detail once you answer my questions, please 

pk

@tagteam 

[sabya33]

@pk   Thank you very much for your reply. Please see below for the answers:

a. I entered USA in mid-2018, on J-1 visa (Research Scholar). I was a non-resident alien for 2018 and 2019 (filed 1040NR-EZ), and then resident alien for 2020 and 2021.

b. I had salaried income, (W2) as well as capital gains from investing in US stock market. 

c. I am citizen of India and moving back there. 

d. I have been using 1040 form for the tax years 2020 and 2021. 

Please let me know if you need any more information and do I need to file as dual status alien? I want to take advantages of different credits and standard deduction that are applicable to resident alien. I understand I need to investigate more on tax obligation in  India and tax-treaty, if any. 

[pk · Accepted solution]

@sabya33 , if your visa is valid at least till the end of the year, then there is no reason for you to recognize that you have terminated your resident  status --- IRS will never complain if they can continue to tax your world income, even if you are absent for a quarter from the country.   Even if the visa expires by end of September ( say), there is no requirement  for the IRS to get involved , force you to terminate  your  tax residency---- so I would say you can always file a form 1040 for the whole year, recognize your world income for the full year, get all the deductions and credits  ( including foreign tax credit for taxes paid to India in 2023 April ).   You may want to compute  the relative advantage by doing a dummy tax run for tax year 2022, allowing for taxes paid/to be paid  to India.

If you need more discussion on this , you may have to provide approx figures  to be more specific -- this is public board and everything viewable -- PM is safer

Namaste ji

pk

[sabya33]

Thank you very much for the help. 🙂 Namaste @pk