The IRS broadly defines individuals as citizens and aliens. Aliens are further categorized as Resident aliens and nonresident aliens. Further, generally in the first year and last year of residency, the Alien becomes a Dual status alien.
It is important to understand what is your tax residency for the tax year as it provides for the type of tax deductions and credits you are eligible for. Generally, a Resident Alien qualifies for multiple tax breaks and deductions in comparison to a Nonresident alien and therefore you should know when you can convert your nonresidency status to being a Resident.
IRS allows you to elect as a tax Resident in the following cases:
First-Year Choice
If you do not meet either the green card test or the substantial presence test for 2018 or 2019 and you did not choose to be treated as a resident for part of 2018, but you meet the substantial presence test for 2020, you can choose to be treated as a U.S. resident for part of 2019.
For example, say you entered the United States first time on November 11, 2019 on an H1 visa and stayed in the United States until December 20, 2020. Since, you did not complete the Substantial Presence Test for 2019, you are a Nonresident Alien for tax year 2019. However, using the First Year Choice, you can elect to be treated as a Dual Status Alien for tax year 2019.
Most taxpayers choosing the first year election make an honest mistake of equalizing Dual Status Alien as a Tax Resident Alien and file a form 1040 (Resident tax return form) for the entire 2019. This is incorrect as the IRS provides you a resident only for the part of the year and since Dual Status Alien also has a lot of restrictions (like not allowed to claim Standard Deduction etc.), typically this election does not really help you in maximizing the tax refund.
However, if you are a dual-status alien and are married, you can choose to be treated as a U.S. resident for the entire year if all of the following apply.
- You were a nonresident alien at the beginning of the year.
- You are a resident alien or U.S. citizen at the end of the year. \
- You are married to a U.S. citizen or resident alien at the end of the year.
- Your spouse joins you in making the choice.
This includes situations in which both you and your spouse were nonresident aliens at the beginning of the tax year and both of you are resident aliens at the end of the tax year
How to make a First Year Choice?
To make this choice, you must:
- Be present in the United States for at least 31 days in a row in 2019, and
- Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2019.
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. When counting the days of presence in (1) and (2) above, do not count the days you were in the United States under any of the exceptions discussed earlier under Days of Presence in the United States.
Note. You do not have to be married to make this choice.
Statement to make the first-year choice for 2019.
You must attach a statement to Form 1040 or 1040-SR to make the first-year choice for 2019. The statement must contain your name and address and specify the following. •
- That you are making the first-year choice for 2019.
- That you were not a resident in 2018.
- That you are a resident under the substantial presence test in 2020.
- The number of days of presence in the United States during 2020.
- The date or dates of your 31-day period of presence and the period of continuous presence in the United States during 2019.
- The date or dates of absence from the United States during 2019 that you are treating as days of presence.
It is important that the elections are made properly otherwise the IRS can nullify your filed return and treat you as a Nonresident Alien or a Dual Status Alien as the case may be. You can contact us for more specific advice.
Nonresident Spouse Treated as a Resident
If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident. This includes situations in which one spouse is a nonresident alien at the beginning of the tax year, but a resident alien at the end of the year, and the other spouse is a nonresident alien at the end of the year.
If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. Neither you nor your spouse can claim under any tax treaty not to be a U.S. resident. You are both taxed on worldwide income. You must file a joint income tax return for the year you make the choice, but you and your spouse can file joint or separate returns in later years.
How To Make the Choice?
Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.
- A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.
- The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)