First Year Choice, 1040 NR & Dual Status Returns
QUESTION: I came to the US from India 9/23/2019 with H1-B Visa. I will be in US all of 2020 working.
How do I make the first year choice election?
ANSWER: You have the option of using the first year choice or filing form 1040NR for Tax Year 2019.
First Year Choice: The first year choice makes you a resident alien starting from the date you entered the US on H1-B, i.e 9/23/2019.
If you continue to stay in the U.S for a considerable amount of days in 2020, you may pass the substantial presence test for 2020, and if you do, you can make the first year election for Tax Year 2019.
To make this choice, you must:
- Be present in the United States for at least 31 days 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 the current year.
For purposes of this 75% requirement, you may treat up to 5 days of absence from the U.S. as days of presence in the U.S.
Based on the rules and qualifications outlined above, you may elect to be treated as a resident for 2019 because:
- You were in the U.S. for 31 consecutive days in 2019, and
You were in the U.S. at least 75% of the days from 9/23/2019 to 12/31/2019
There are 100 days between 9/23/2019 to 12/31/2019 and you stayed in the U.S for the entire 100 days , this means you have exceeded the 75% threshold.
You must wait until you have met the substantial presence test, which wont happen until May 30 , 2020 (150 days present in the U.S.in 2020 + 33 days (100 days × 1/3 in 2019) = 183 days) before making your election to be treated as a resident for 2019.
**Most non-resident aliens seeking to make the first year election will be able to meet the substantial present test in 2020 since the tax filing deadline for 2019 is currently moved to July 15.
Statement required 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.
The first year choice will make you a Dual-Status alien :
- Resident starting from 9/23/2019 , and
- Non-Resident before 9/23/2019
Unfortunately, filing as a Dual-Status Alien subjects you to the following restrictions:
- Standard Deduction – you can itemize deductions but you are not allowed to take the standard deduction.
- Head of Household – you cannot use the head of household filing status.
- Exemptions – for the part of the year you are a resident you can take exemptions for your spouse and dependents, but limited to your taxable income (figured without deducting personal exemptions).
However, for the part of the year you are a nonresident, there are special rules if you are also a resident of Mexico, Canada, or South Korea.
These special rules also apply if you are a student or business apprentice from India or a U.S. national.
**For the 2018-2025 tax years, you can no longer claim personal exemptions – see TCJA
Joint Return – You cannot file a joint return if you are a nonresident unless you are married to a U.S. citizen or a resident alien and you choose to file jointly (MFJ).
If you are married to a U.S. citizen or a resident alien and you do not choose to file jointly, you must file Married Filing Separately.
Note that the Child and Dependent Care Credit as well as the Adoption Credit cannot be claimed by a married dual-status alien unless you file a joint return with a U.S. citizen or resident alien spouse.
An unmarried dual-status alien must use the tax rates or bracket for single taxpayers
A married dual-status alien must generally use the tax rates applicable to married taxpayers filing separately.
You may use the joint rates if you or your spouse elect to be taxed as full-year residents as discussed above in under the restrictions.
Electing To Be Taxed as Full Year Resident
A nonresident alien who is married to a US a citizen or resident alien of the United States at year end may elect to be treated as a resident for the entire tax year.
Both spouses must make the election, which applies to the year made and all subsequent years until terminated.
A joint return cannot be filed if both the husband or the wife, at any time during the taxable year, are nonresident aliens.
If a full-year residency election is made, a joint return may be filed , and the worldwide income of both spouses for the entire taxable year will be subject to U.S. tax.
Foreign tax credit can be used to offset U.S. taxes imposed on foreign source income.
***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**