E-2 Visa and Tax implications

By Alex Oware on 06/24/2015 10:00 PM

QUESTION: I am a German on an E-2 Visa. I have a social security number and have lived here in the US since May. Would I file a 1040 or a 1040NR?

ANSWER: Unless there were trips out of the country, living here since May would meet the 183 day substantial presence test. E-2 visa is not one of those categories with exceptions.

 IRS Pub 901, Page 6 under the US-Germany Tax treaty Article 17 (Business Profits)

“Income that residents of Germany receive for personal services as independent contractors or self-employed individuals are subject to the provisions of Article 7 (Business Profits) of the treaty. Under that provision, business profits are exempt from U.S. income tax unless the individual has a permanent establishment in the United States.

 If they have a permanent establishment in the United States, they are taxed on the profit attributable to the permanent establishment”

 

 According to IRS TC 851, You are considered a resident alien if you met one of the following two tests for the calendar year: 1.) The first test is the "green card test." If at any time during the calendar year you were a lawful permanent resident of the United States according to the immigration laws, and this status has not been rescinded or administratively or judicially determined to have been abandoned, you are considered to have met the green card test. 2.) The second test is the "substantial presence test." To meet the substantial presence test, you must have been physically present in the United States on at least: A. 31 days during the current year, and B. 183 days during the 3 year period that includes the current year and the 2 years immediately before.

To satisfy the 183 days requirement, count: a. All of the days you were present in the current year, and b. One-third of the days you were present in the first year before the current year, and c. One-sixth of the days you were present in the second year before the current year.

You have the option of choosing First Year Choice or file as Dual Status alien, depending upon your non-resident tax situation.

 

DUAL STATUS ALIEN

Resident at end of year.   You must file Form 1040 if you are a dual-status taxpayer who becomes a resident during the year and who is a U.S. resident on the last day of the tax year. Write “Dual-Status Return” across the top of the return. Attach a statement to your return to show the income for the part of the year you are a nonresident. You can use Form 1040NR or Form 1040NR-EZ as the statement, but be sure to mark “Dual-Status Statement” across the top.

 

Nonresident at end of year.   You must file Form 1040NR or Form 1040NR-EZ if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U.S. resident on the last day of the tax year. Write “Dual-Status Return” across the top of the return. Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040 as the statement, but be sure to mark “Dual-Status Statement” across the top.

***Disclaimer: I am a tax accountant and a CPA , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**