Should I make the first year choice? benefits vs drawbacks? Are dual status aliens eligible for standard deduction?

[gocool]

Hello community members, I recently moved to US on H1B visa along with my spouse & kids (H4 visa) on same date 09-Oct-2021 and will be staying here for some years. I have to file my first time returns. I have few queries.
1. I believe I am considered as a non-resident alien as I have not passed by SPT. In this case, I believe I have to file 1040NR and cannot do "married filing jointly". Is this correct?

2. Lets say I'm opting for First year choice and doing a "married filing jointly", can i get standard deductions?

3. If 2 is no, then what is the use of opting "First year choice" as it doesn't give any benefit when compared to 1 (filing as a non-resident alien filing single).

[MaryK4]

For 2021, you will have to file a 1040NR because you have not yet met the green card or the substantial presence test yet.  (The H1B visa is a dual-intent visa, which means that those who hold it are eligible for permanent residency by applying for a green card, but you do not have the LPR status yet.)

See Determining an Individual’s Tax Residency Status.

[gocool]

@MaryK4 thank you for the quick reply. I'm referring to the IRS page - https://www.irs.gov/individuals/international-taxpayers/alien-tax-status-first-year-choice 

So, Im thinking whether I can go for first year choice so that I can be considered as a resident. 
All I'm looking is whether I can claim standard deduction of 25100 if I file along with my spouse as "married filing jointly". Please let me know, thank you!

[RobertB4444]

@gocool  You can.  You have a whole bunch of deductions if you use first year choice.  You can't do it until after September, though.  You have to make it through 75% of the year in order to file and get the tax treatment.  

[gocool]

Thank you @RobertB4444 . If that is the case, can I apply extension application and then file it after I pass my SPT? One another confusion is, the publication 519, https://www.irs.gov/pub/irs-pdf/p519.pdf , page 32, it says I cant claim standard deduction and it also says I cannot file married jointly in page 33 when I am a dual-status alien. Its very confusing!

[RobertB4444]

You must file the extension before April 18th in order for it to be valid.

You will be a resident alien for the portion of the year that you will receive a deduction for.  

[gocool]

Thank you once again @RobertB4444 . So in that case, will I be considered as a resident alien for 2021 and not dual-status alien? Is this correct?

[RobertB4444]

With regards to the income earned after October 9th you are.

[gocool]

Thank you @RobertB4444 for the suggestions. Spintax didn't give me this option and all it shows is just a non-resident filing. It would be great if such software's are capable of analyzing this and suggesting this option so that many can get better returns which will in-turn get more customers to them!

[Carvalho]

Hi gocool,

I'm in a similar situation: I entered US on July 5th as a visitor (B2 Visa), had the company applied for a status change that was approved on Aug 2nd and turned me into H1B Status, then I started on their payroll on Sept 1st.

My wife doesn't have SSN or ITIN number and I was struggling with the same aspect with Sprintax. Then I found out that the software OLT supports 1040-NR with First-Year-Choice and you can even use if for free if coming from the IRS freeFile website: https://apps.irs.gov/app/freeFile/results/

Since the beginning I also configured my withholdings as MFJ and got frustrated when noticing how 1040-NR doesn't have that. Did you end up using the First-Year-Choice and filed a 1040? 

Base on another comment made here about the 75% aspect I think I misunderstood how First-Year-Choice works because I thought you would have to be in US 75% of the time of whatever timespan you started your life in US, so I'm still confusing. Any hints?

Thank you.

Carvalho

[DaveF1006]

 H1B visa holders are not a U.S. resident aliens for Year 1, if he or she is present in the United States for at least 122 days during the succeeding calendar year, then he/she will qualify as a resident alien under the substantial presence test. 

According to the IRS Tax code, you cannot make this election to file jointly if you are both non-resident aliens in the first year.

@Carvalho

[Carvalho]

Thanks for the answer @DaveF1006 .

Isn't the First-Year-Choice the only proper exception to that rule?

This was my understanding of the IRS document: if in 2022, instead of submitting my first taxes as Nonresident right away, I submit an extension for the deadline and meanwhile I stay enough days in US to pass the Substantial Presence Test for 2022, I can then elect to make use of the First-Year-Choice which would treat me as a resident and I would be able to file 2021 taxes using form 1040 (with standard deduction) instead of 1040NR. Would you be kind enough to tell me where is the mistake on the above understanding?

I moved to US in 2021 and stayed 152 days towards the end of the year, so I stayed more than 75% of this period until Dec 31st 2021. I didn't pass the Substantial Presence Test for 2021 but I will soon pass it for 2022 and that's one of the reasons why I was planning to file for an extension and then submit my taxes using 1040 form by making use of the First-Year-Choice, similar to what @gocool did.

Best Regards.

Carvalho

[DaveF1006]

Yes according to the link you provided, If you do not meet either the green card test or the substantial presence test for the current year (for example, 2021) or the prior year (2020), and you did not choose to be treated as a U.S. resident for part of the prior year (2020), but you meet the substantial presence test in the following year (2022), you can choose to be treated as a U.S. resident for part of the current year (2021) and be taxed as a dual-status alien for the current year (2021). To make this first-year choice, you must:

1. Be present in the United States for at least 31 days in a row in the current year (2021), and
2. Be present in the United States for at least 75% of the number of days following the 31-day period, beginning with the first day of the 31-day period and ending with the last day of the current year (2021). (For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States.)

If you choose to make this election you must file your 1040 return in the following manner.  Note, you will need to print and mail the return to include this statement.

You must attach a statement to Form 1040 to make the first-year choice. The statement must contain your name and address and specify the following:

• That you are making the first-year choice for the current year (2021).
• That you were not a U.S. resident in the prior year (2020).
• That you qualified as a U.S. resident under the substantial presence test in the following year (2022). This is why you should file an extension to your return.
• The number of days of presence in the U.S. during the current year (2021).
• The date or dates of your 31-day period of presence and the period of continuous presence in the U.S. during the current year (2021).
• The date or dates of absence from the U.S. during the current year (2021), if any, that you are treating as days of presence under the first-year choice – see (2), above.

@Carvalho 

[Andy87]

Hi,

I am in same boat. Could you pls help confirm what did you end up doing so that I can follow the same ?

Thanks in advance !

@Carvalho @gocool 

[Carvalho]

Hello Andy, I ended up taking my taxes to a professional accountant and they applied for an extension and used standard form 1040.