Determine Residency for Tax Purposes
The United States citizens are classify/determine in two (2) categories
(a) U.S Resident
(b) U.S Non-Resident.
RESIDENT:
(i). Why is Residency Important?
To determine your tax residency status is important, as it will decide how much tax you must pay while in the US. The most common mistake non-residents are making is filing their taxes as a resident. If a non-resident files as a resident, they can claim benefits and receive refunds that they’re not entitled to but Incorrect filing breaks the terms and conditions of a non-resident visa, this can lead to fines and penalties and you may also jeopardise your future visa or green card applications.
Since a resident alien is taxed on their worldwide income, just the same way as a US citizen, resident aliens are expected to report all types of income and the amounts earned inside and outside the US.Non-resident aliens must pay federal tax on income earned in the US and/or income connected with US trade or business; you are also legally required to file a tax return on account for each year they earned income in the US.Even if you did not earn income during your time in the US as a non-resident, you must still file form 8843 before the tax deadline.
Types of residency:
There are three (3) types of U.S. Resident for tax purpose; they are namely
(i). Resident who meet the requirement for green card test or substantial presence test,
(ii) Non-Resident are those who did not pass the green card test, substantial presence test neither are they U.S citizen or national,
(iii) Dual Resident status are aliens who are treated as non-resident for the part of the year and resident for the remainder of the year. It usually arises in the first or last years of residency.
How to determine U.S. Residency?
To be a resident alien for tax purposes, you must work out your residency status for tax purposes by meeting either the substantial presence test or the green card test for the calendar year. Let us consider the following factors as determinant for U.S status
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The Green Card Test: If you have been given the privilege of residing permanently in the US as an immigrant, you will be considered a lawful resident of the US, this status is granted by the United States Citizenship and Immigration Services. The green card is known as Form I-551.
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The Substantial Presence Test: You will be considered a 'resident for tax purposes' if you meet the Substantial Presence Test for the previous calendar year. To meet this test, you must be physically present in the United States for at least 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately after
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7701B First-Year Choice: If you do not meet either the green card test or the substantial presence test for the current year (2020), but you meet the substantial presence test in the following year (2021), you can choose to be treated as a U.S. resident for part of the current year (2020) and be taxed as a dual-status alien for the current year (2020).
Amendment XIV, Section 1, Clause 1 of the U.S. Constitution directs that all persons born in the United States are U.S. citizens; this is regardless of the tax or immigration status of a person’s parents.
U.S. citizens residing abroad may qualify for foreign earned income inclusion, housing exclusion or deduction and foreign tax credit
U.S. citizens may also be entitled to limited benefits under a U.S. income tax treaty.The United States has tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempted from U.S. taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Under these same treaties, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within foreign countries. Most income tax treaties contain what is known as a "saving clause" which prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.
Where to File
U.S. citizens residing abroad should mail their Form 1040, if not enclosing a check or money order, to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA
If enclosing a check or money order, Form 1040 should be mailed to:
Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303
USA
We Expedo Tax are one of the IRS official Certified Acceptance Agent who has with 100% assured acceptance. IRS-authorized Certifying Acceptance Agent: These services are available both inside and outside the U.S. In most cases you must make an appointment. Bring original documents to prove your eligibility
(iii). GREEN CARD HOLDER:
the J-1 visa status permits a qualified non-immigrant alien (also known as a “green card holder”), to temporarily reside in the United States to teach, study, observe, conduct research, consult, demonstrate special skills or receive on-the-job training for periods ranging from a few weeks to several years at colleges and universities, hospitals, research institutions, as well as the private sector.
Although the tax residency rules are based on the immigration laws concerning immigrant and non-immigrant aliens, the tax rules define residency for tax purposes in a way that is very different from U.S. immigration law. For tax purposes, there are two types of aliens: resident and non-resident aliens. Resident aliens are taxed in the same manner as U.S. citizens on their worldwide income, and non-resident aliens (with certain narrowly defined exceptions) are taxed only on income which is derived from sources within the United States and/or income that is effectively connected with a U.S. trade or business
(iv) SUBSTAINTIAL PRESENCE TEST:
The Substantial Presence Test is a mechanical test based on counting a non-immigrant alien’s days of physical presence in the United States under a 3-year “look-back” formula. For the purposes of this 183-day test, any part of a day that a non-immigrant alien is physically present in the United States is counted as a day of presence. There are exceptions to this rule where certain days of physical presence in the United States do not count, including days a non-immigrant is an “exempt individual.”
An H-1B alien who otherwise meets the Substantial Presence Test can nevertheless be treated as a non-resident for U.S. income tax purposes by satisfying the “closer connection” exception to the Substantial Presence Test
The following are two common scenarios that illustrate the determination of an H1-B alien’s U.S. tax residency status:
- The H1-B alien arrives in the United States on or before July 2 of Year 1 and remains in the United States through December 31 of Year 1. The H1-B alien will have been present in the United States for at least 183 days, thus meeting the Substantial Presence Test for Year 1. The H1-B alien’s residency starting date will be the date of his or her first arrival into the United States during Year 1.
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The H1-B alien arrives in the United States on July 3 of Year 1 and remains in the United States through December 31 of Year 1. The H-1B alien was not present in the United States in either of the two immediately preceding calendar years. The H1-B alien will not have been present in the United States for at least 183 days during the 3-year period that includes Year 1 and the two preceding calendar years. The H-1B alien would have only been present in the United States for 182 days, thus failing to meet the Substantial Presence Test for Year 1. Although the H1-B alien is not a U.S. resident alien for Year 1, if he or she is present in the United States for at least 122 days during the succeeding calendar year (Year 2), the individual will qualify as a U.S. resident alien under the Substantial Presence Test in Year 2 and each succeeding calendar year that he or she is present in the United States for 122 days or more. The H1-B alien’s U.S. residency starting date in Year 2 will be the date of his or her first physical presence in the United States during Year 2.
(1.) 7701B (First-Year Choice):
this status is achievable when you do not meet either the green card test or the substantial presence test for the current year (for example, 2020) or the previous year (2019), and you did not choose to be treated as a U.S. resident for part of the prior year (2019), but you meet the substantial presence test in the following year (2021), you can choose to be treated as a U.S. resident for part of the current year (2020) and be taxed as a dual-status alien for the current year (2020). To make this first-year choice, you must:
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Be present in the United States for at least 31 days in a row in the current year (2020), and
- 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 (2020). (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 make the first-year choice, your residency starting date for the current year (2020) is the first day of the earliest 31-day period (described in (1) above) that you use to qualify for the choice. You are then treated as a U.S. resident for the rest of the year.
Residency Examples
Example . J is a citizen of a foreign country who came to the U.S. for the first time on November 1, 2020 and was here 31 consecutive days (from November 1 through December 1, 2020). J returned to the foreign country December 1 and came back to the United States December 17, 2020. J stayed in the United States for the rest of the year. During the following year (2021), J was a resident of the United States under the substantial presence test. J can make the first-year choice for 2020 because J was in the United States in 2020 for a period of 31 days in a row (November 1 through December 1) and for at least 75% of the days following (and including) the first day of that 31-day period (46 total days of presence in the United States divided by 61 days in the period from November 1 through December 31 equals 75.4%). If J makes the first-year choice, J’s residency starting date will be November 1, 2020.
When and Where to File: Attach Form 8833 to your tax return (Form 1040-NR, Form 1120-F, etc.). If you would not otherwise be required to file a tax return, you must file one at the IRS Service Centre where you would normally file a return to make the treatybased return position disclosure under section 6114
We Expedo Tax are one of the IRS official Certified Acceptance Agent who has with 100% assured acceptance. IRS-authorized Certifying Acceptance Agent: These services are available both inside and outside the U.S. In most cases you must make an appointment. Bring original documents to prove your eligibility
6013G – Election under IRC
The purpose of this unit is to determine whether a non-resident alien individual married to a U.S. citizen or resident alien properly made the election to be treated as a resident of the United States under IRC § 6013(g). This election applies to the first year in which the election is properly made and to all subsequent tax years until it is terminated or suspended. The election under IRC § 6013(g) affords (a non-resident alien married to a U.S. citizen or resident alien)you the ability to be treated as a U.S. resident for purposes of Chapter 1 and Chapter 24 and sections 6012,
6013, 6072 and 6091 of the Code for the entire taxable year. By making this election, the non-resident alien and his spouse may file a joint U.S. income tax return. Chapter 1 of the Code covers most, but not all, income taxes. Chapter 24 governs income tax withholding at source. IRC Sections 6012, 6013, 6072, and 6091 address income tax return filing requirements. If an election is made under IRC § 6013(g), the worldwide income of both spouses issubjected to U.S. income taxation. Generally, this election precludes individuals from claiming any benefits under an income tax treaty. It is important to note that this is an election that both spouses must make of their own accord, and not an election that the Service can compel them to make. Additionally, absent from this election, the U.S. spouse would have to file as married filing separate (with higher tax rates and more limited deductions) and the alien spouse would have to file as a non-resident alien or may have no U.S. tax return filing requirement at all, but may be subject to withholding on his or her U.S. source income.
ATTENTION:
A non-resident alien is not treated as a resident alien under IRC § 6013(g) for purposes of certain U.S. taxes on income, e.g. self-employment tax and the tax imposed by IRC § 1411. Nevertheless, a non-resident alien can make a separate election to be treated as a resident alien for purposes of IRC § 1411 under the regulations promulgated under that section.
Example Circumstances Under Which Process Applies An examiner receives a case involving an individual who, along with his or her U.S. citizen or resident alien spouse, elected to be treated as a resident alien for U.S. income tax purposes during the year of the initial election and for all subsequent tax years
6013H - Election Under IRC § 6013(H):
The purpose of this unit is to determine whether an individual who is a non-resident alien at the beginning of the taxable year and who is a U.S. resident married to a U.S. citizen or resident at the close of the taxable year, properly made the election to be treated as a resident of the United States for the entire taxable year under IRC § 6013(h). This is a one-time election valid only for the year in which the non-resident alien spouse becomes a U.S. resident under one of the standard tests for U.S. residency. The election under IRC § 6013(h) affords a non-resident alien who is married to a U.S. citizen or resident alien, and who becomes a U.S. resident by the end of
the tax year, the ability to be treated as a U.S. resident for purposes of Chapter 1 and Chapter 24 and sections 6012, 6013, 6072 and 6091 of the Code for the entire taxable year. By making the election, the individual and his spouse may file a joint U.S. income tax return. Chapter 1 of the Code covers most, but not all, income taxes. Chapter 24 governs income tax withholding at source. Sections 6012, 6013, 6072 and 6091 address income tax return filing requirements. If the election is made, then the worldwide income of both spouses is, in general, subject to U.S. income taxation for the entire taxable year. Generally, this election precludes individuals from claiming any benefits under an income tax treaty. It is important to note that this is an election that both spouses must make of their own accord, and not an election that the Service can compel them to make. Additionally, absent this election, the U.S. spouse would have to file as married filing separate (with higher tax rates and more limited deductions) and the alien spouse would have to file as a dual status citizen.
ATTENTION:
A non-resident alien is not treated as a resident alien under IRC § 6013(h) for purposes of certain U.S. taxes on income, e.g. self-employment tax and the tax imposed by IRC § 1411. Nevertheless, a non-resident alien can make a separate election to be treated as a resident alien for purposes of IRC § 1411 under the regulations promulgated under that section. ! Example Circumstances Under Which Process Applies An examiner receives a case involving an individual who became a U.S. resident during the year and elected with his or her U.S. citizen or resident alien spouse to be treated as a U.S. resident alien for U.S. tax purposes for the entire year
B. NON-RESIDENT:
An alien is any individual who is not a U.S. citizen or U.S. national and such person did not passed the green card test or the substantial presence test.A non-resident alien individual is considered to be engaged in a trade or business in the United States during the year.
You must also file an income tax return if you want to: Claim a refund of over withheld or overpaid tax, or claim the benefit of any deductions or credits. For example, if you have no U.S. business activities but have income from real property that you choose to treat as effectively connected income, you must timely file a true and accurate return to take any allowable deductions against that income
If you are an employee and you receive wages subject to income tax withholding, or you have an office or place of business in the United States, you must file your returns by the 15th day of the 4th month after your tax year ends
If you are not an employee or self-employed person who receives wages or non-employee compensation subject to income tax withholding, or if you do not have an office or place of business in the United States, you must file by the 15th day of the 6th month after your tax year ends
F1 Visa:
The F-1 visa is a non-immigrant visa for those wishing to study in the US. It is the most popular visa choice for foreign students in America.An international student will be taxed in the same manner as a non-resident alien for US federal income tax purposes, which means that they will be taxed only on US-source income. Every international student is required to file their tax return if they were in the US during the previous calendar year and earned income. Even if you don’t earn income during your stay in the US, you will still have file tax returns.
F-1 international students, who are considered non-resident aliens for tax purposes, must pay tax in the US on the following types of income:
Wages and compensation
Salaries
Tips
Interest
Dividends
Some scholarships/fellowship grants
Prizes/awards
The amount of tax you will have to pay will largely depend on your personal circumstances.
(ii.) J1 – EXCHANGE VISITOR:
The J-1 visa status permits a qualified non-immigrant aliento temporarily reside in the United States to teach, study, observe, conduct research, consult, demonstrate special skills or receive on-the-job training for periods ranging from a few weeks to several years at colleges and universities, hospitals, research institutions, as well as the private sector.
However, aliens may reside in the United States to work as a teacher, intern or trainee under several different immigration status classifications, including and H-1B status. It is important to distinguish between the J-1 status and the H-1B status because the tax consequences are significantly different.
For more information refer : https://www.irs.gov/individuals/international-taxpayers/resident-aliens
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