Moved from US to Canada on H1B. File as Dual status alien?

[karthikmax]

Hi Guys,

I am married and was on a H1B visa. My wife did not work in the US. We moved to Canada in Feb 2018. As of Feb 18th 2018, I would be a resident alien according to substantial presence test. So I became a non-resident alien from being a resident alien. Can I file my 2018 tax as a dual status alien? If so, would I have to submit Form 1040 for the first two months and Form 1040NR for the rest of the year? I also read that I won't be able to use standard deductions if I file as dual status alien. Does this apply only to the part where I am non-resident or both?

Also, should I have contacted IRS to get Form 1040-C as a departing alien? However, I still have my bank accounts and 401k open in the US.

[KarenJ]

What date did you first arrive in the US on an H1B visa?

[karthikmax]

Thank you for your reply! I was on F1 from Aug 2012 until Sep 30th 2016. My H1B became active from Oct 1, 2016.

[KarenJ · Accepted solution]

Yes, you can file a dual status return (part  year resident and part year nonresident). You also could file a full year resident return and claim your worldwide income and use foreign tax credit to help offset double taxation on your Canadian income.

If you file a dual status return, you will need to file married filing separately and cannot take the standard deduction for either the 1040 resident return or the 1040NR.

In order to prepare a dual status return in TurboTax, you will need to print a copy of the nonresident return (Form 1040NR from the IRS website) for your tax on US income after February.There will most likely be no US source income to enter for that time.  So your income on this form will probably be zero unless you received US income after moving out of the US.. Write on the top of the 1st page of the 1040NR, Dual Return. You will need to write in your name and address and input zero as your US source income (if that is the case).  Enter that you are married filing separately.

https://www.irs.gov/pub/irs-pdf/f1040nr.pdf

Then for the resident part of the return you prepare in TurboTax, you are not allowed to use the standard deduction, only itemized deductions if you are filing a dual status return.  Also, you can either file single (if you are single) or married filing separately.

You must suppress the standard deduction.  Instructions for this are below.

When your resident part of the return is finished in TurboTax, print the return and write on top of the return, Dual Statement. 

Put the 1040NR on top of 1040 resident return and staple and mail to the IRS.  You must sign the 1040NR before mailing.  You do not need to sign the 1040 statement.

You will need to staple your 1040NR and 1040 together and mail to the following address:

If you  are not enclosing a payment then use this address...

Department of the Treasury

Internal Revenue Service

Austin, TX  73301-0215

USA

If you are enclosing a payment then use this address...

Internal Revenue Service

P. O. Box 1303

Charlotte, NC 28201-1303

USA

Please see more help on dual status returns see page 7 of Pub 519.

Publication 519

You must choose itemized deductions.  Please follow the below instructions to switch to itemized deductions.

TurboTax Online instructions for changing to itemized deductions.

First, sign in and make sure your return is open. You should see 2018 TAXES in your left-hand menu as pictured below (if not, tap or click the upper-left corner to expand the menu or select Take me to my return).

Once your return is open:

1. From the left-hand menu, select Federal (on mobile devices, you might need to scroll down)

1. Now select Deductions & Credits near the top of your screen.
2. When you get to Now it's time for the fun part... Your tax breaks, scroll all the way to the bottom and select Wrap up tax breaks (if you don't see this button, select Skip to see all tax breaks, then scroll down again).
3. Continue through the interview until you see The Standard [or Itemized] Deduction is Right for You, pictured below.
4. On that screen, check the box Change my deduction to see the dollar amount for each deduction.
5. Select Continue if you want to save any changes. If you're switching to the itemized deduction, you may be prompted to upgrade.

There is a residency termination statement that you should attach to your dual status return.  See page 9 of Publication 519 above.

Statement required to establish your residency termination date. You must file a statement with the IRS to establish your residency termination date. You must sign and date this statement and include a declaration that it is made under penalties of perjury.

The statement must contain the following information (as applicable). • Your name, address, U.S. taxpayer identification number (if any), and U.S. visa number (if any). • Your passport number and the name of the country that issued your passport. • The tax year for which the statement applies • The last day that you were present in the United States during the year. • Sufficient facts to establish that you have maintained your tax home in, and that you have a closer connection to, a foreign country following your last day of presence in the United States during the year or following the abandonment or rescission of your status as a lawful permanent resident during the year. • The date that your status as a lawful permanent resident was abandoned or rescinded. • Sufficient facts (including copies of relevant documents) to establish that your status as a lawful permanent resident has been abandoned or rescinded. • If you can exclude days as discussed earlier under De minimis presence, include the dates of the days you are excluding and sufficient facts to establish that you have maintained your tax home in, and that you have a closer connection to, a foreign country during the period you are excluding. Attach the required statement to your income tax return

You do not need to attach documents to establish that you are no longer a resident.  For the sufficient facts you only

need to list that the location of your family is Canada, your personal belongings are in Canada etc.

Establishing a closer connection. You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States. In determining whether you have maintained more significant contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the following.

1. The country of residence you designate on forms and documents.

2. The types of official forms and documents you file, such as Form W-9, Form W-8BEN, or Form W-8ECI.

3. The location of: a. Your permanent home, b. Your family, c. Your personal belongings, such as cars, furniture, clothing, and jewelry, d. Your current social, political, cultural, professional, or religious affiliations, e. Your business activities (other than those that constitute your tax home), f. The jurisdiction in which you hold a driver's license, g. The jurisdiction in which you vote, and h. Charitable organizations to which you contribute. It does not matter whether your permanent home is a house, an apartment, or a furnished room. It also does not matter whether you rent or own it. It is important, however, that your home be available at all times, continuously, and not solely for short stays.

[karthikmax]

Thank you for your reply! I have one follow-up question though.

My wife and I both work in Canada. Should we fill separate Form 2555? Also, would it be better if we used Form-2555 EZ? We have continually lived in Canada from Feb 19th, 2019 until today with the exception of 3-4 days in the US for traveling (not for work).

[KarenJ]

If you choose to file a married filing jointly full year resident US tax return with TurboTax, you cannot use the foreign earned income exclusion.  That is only for US citizens and green card holders.  However as you have to include your 2018 Canadian income on your US tax return, you can utilize the foreign tax credit to help offset double taxation.  You will need to first enter your income in the foreign earned income section of TurboTax (even though you cannot take the exclusion). After entering your foreign income you will need to check that you know you do not  qualify for the exclusion.  Then you can go to the foreign tax credit section of TurboTax.
To report the foreign tax paid on your foreign wages for foreign tax credit:
1. Enter foreign tax credit in the search box at the top of the page and click the Jump to link
2. Click 'Yes" you paid foreign taxes
3. Click through the screens regarding foreign interest and dividends
4. Click yes that you have reported all your foreign income already in TurboTax
5. Click that you want to take a credit
6. Answer question about the Simplified Limitation Election
7. Choose income type for wages - it will be General category income
8. Add Canada as the county
9. Enter description -Canadian wages
10. Enter Income amount that you previously reported under foreign earned income exclusion section
11. Enter your taxes you paid on your foreign wages in the box "Other income"
12. Continue through ALL the foreign tax credit screens until Done.

[KarenJ]

You cannot use the Form 2555.  It is only for US citizens and green card holders.  However you need to enter your foreign wages in this section and then you will come to a screen where you need to check that you know you do not qualify for the foreign earned income exclusion.  Then go to the foreign tax credit section of TurboTax:
To report the foreign tax paid on your foreign wages for foreign tax credit:
1. Enter foreign tax credit in the search box at the top of the page and click the Jump to link
2. Click 'Yes" you paid foreign taxes
3. Click through the screens regarding foreign interest and dividends
4. Click yes that you have reported all your foreign income already in TurboTax
5. Click that you want to take a credit
6. Answer question about the Simplified Limitation Election
7. Choose income type for wages - it will be General category income
8. Add Canada as the county
9. Enter description -Canadian wages
10. Enter Income amount that you previously reported in the foreign earned income exclusion section
11. Enter your taxes you paid on your UK wages in the box "Other income"
12. Continue through ALL the foreign tax credit screens until done.