US Tax Guide for Dual-Status Aliens

Do you know anything about taxes for dual-status aliens? No, then you have come to the right place at USTAXFiling, where you will find all the necessary updates related to dual-status aliens’ taxes. So, continue to read this article till last to get all the minute details related to dual-status alien’s taxes.

The tax code is completely nuances, and so are the regulations for filing income taxes as dual-status aliens. If you make any errors when filing your income taxes as a dual-status alien, you might end be missing out or end up paying more than necessary on valuable credits and deductions. In this blog, we will discuss in minute detail taxes for dual-status aliens.

Key Takeaways

  • You have to file two income tax returns-one for your time of residency (1040 form with the Internal Revenue Service) and one for your period of non-residency (Form 1040 NR-EZ or 1040NR Form with the IRS)
  •  Dual status alien is nothing but a term used in tax regulations of the United States. The term means who has two different types of alien status, nonresident and resident, within the same calendar year and so whose tax case is a bit more complex than that of other individuals.

What Is a Dual-Status Alien in US?

A dual-status alien is an individual who is determined both a nonresident and resident of the United States within the same financial year. It usually takes place when a citizen of non-US moves from or to the US.

For instance, let us say Suzan is a citizen of Mexico. In June 2022, she got a visa and shifted to the United States, where she stayed for the rest of the year. As she was a nonresident for the first six months and a resident for the second half, she will be considered a dual-status alien for the 2022 financial year.

To know whether you are a dual-status alien and how you may be taxed if you are-let know the difference between nonresidents and residents.

What Is the Difference Between a Nonresident and a Resident of the United States?

An alien resident is a foreign person who is legally well-known as a US resident. To be categorized as a resident alien, you should satisfy the conditions of the SPT (Substantial Presence test) or Green card. In simple words, the SPT necessitates the fulfillment of these two thresholds:

  • You have spent a minimum total of the preceding two years, along with 183 days in the current financial year in the United States.
  • You have spent more than one month in the United States in the financial year.

Also, you must keep in mind that every day spent in the United States might not carry the same calculation weight- it might become tough. On the other side, what defines nonresidents? Also, they are people who are not staying in the nation during a financial year. If you don’t meet the standards of the SPT and don’t have GC or Green Card, you may be categorized as a nonresident for tax reasons.

How Are Residents of the United States Taxed?

Resident aliens of the United States are taxed on their income across the globe. Several forms of income are taxed as the same progress regardless of the resource (e.g., wages, self-employment income, wages, etc.)

Below, you may see the income tax rates of the United States for single residents.

  • 10%- 0-10,275$
  • 12%-$10,276-$41,775
  • 22%-$41,776-$89,075
  • 24%-$89,076-$170,050
  • 32%-$170,051-$215,950
  • 35%-$215,951-$539,990
  • 37%-$539,900 and above

Also, residents who are self-employed should pay a self-employment income tax. The tax covers Medicare and Social Security contributions that result from an employer-employee relationship. 

Residents ensure to file their income taxes using form 1040 IRS:

US person income tax returns. They can be filed using a range of filing statuses based on their personal case, such as:

  • Eligible widow(er) with dependent kid
  • Married filing separately
  • Married filing jointly
  • Single
  • Household head

These income filing statuses will open the door to specific income tax benefits.

How Are Nonresidents of the US Taxed?

Now let us understand how residents’ taxes differ from taxes for non-residents. First, unlike those who are residents, nonresident people are taxed only on their US income source. Several forms of US income sources are taxed at the same progressive rates as resident income. Also, specific forms of passive income are income taxed at a rate of 30 percent. It includes:

  • Rents
  • Dividends
  • Interest
  • Royalties

Nonresidents don’t need to pay the self-employment tax. While filing US income taxes, nonresidents should use one of the two forms:

  • 1040NR IRS Form: Nonresident of US alien income tax return
  • 1040NR-EZ: Income tax return of the US for specific nonresident aliens with no dependents

Nonresidents who don’t have any option of selecting a more favorable income filing status. Several tax credits are also available for residents but are also unavailable for nonresidents.

How Are Dual-Status Aliens Taxed?

As a dual-status alien, you are eligible both as a nonresident and resident in the same financial year. You have to file two income tax returns, one for each status.

  • You may use Form 1040NR-EZ or 1040 NR to report your income source in the US during the part of the year when you are considered a nonresident.
  • You may use 1040 to report your income across the globe for the part of the year you were considered a resident.

One of them is your primary form, while the other is an informational attachment. Your primary form is considered by whether you are a nonresident or resident at the end of the financial year.

  • If you are a nonresident at the end of the financial year, then you should file a form 1040-NR with Form 1040 as an informational attachment.
  • If you are a resident of the United States at the end of the financial year, you have to file the 1040 form along with the 1040-NR form as an informational attachment.

Can Dual-Status Aliens File a Joint Tax Return?

There are situations where a dual-status alien cannot file a joint income tax return in US with their partner. Also there is also an exception to this if all the following implies:

  • You are considered a nonresident of the US at the beginning of the financial year.
  • You are considered a resident at the end of the financial year.
  • You are married to a resident of the United States at the end of the financial year.

If all of this is true, you and your partner may elect to file a joint income tax return as residents- even if both of you are dual-status aliens. The tradeoff is that your income for the complete year may be taxed at resident rates, even for the part of the year when you are a nonresident. Also, you are permitted to claim specific income tax benefits that are unavailable to nonresidents. You may consult an eligible tax consultant to know the best option in your case.

What If You Are Behind on Filing Your US Expat Income Taxes?

Every citizen of the United States has to file an annual US income tax return no matter what country they reside in. Also, several Americans who stay abroad are not aware of this thing.

If you are among the countless expats who don’t know they had to file an income tax return in the United States, do not panic. The Internal Revenue Service offers an amnesty program that may assist expats in coming into compliance without facing any charges. It is called the streamlined filing compliance process.

To use the program, you have to:

  • You should file FBARs or Foreign bank account reports for the last six years.
  • You have to self-certify that your failure to file was not a willful refusal but an accident.
  • You must file the last three delinquent income tax returns and also pay any delinquent income taxes that you owed during that particular year with interest.

It might bring you into compliance with the IRS laws.

The dual-Status income tax filing does not need to be complicated.

This blog has helped you know how income taxes work for dual-status aliens. If you have any doubts, we at USTAXFiling have all the answers, and one of our experts at USTAXFiling will be happy to assist you. Our USTAXFiling team has rich years of experience and is highly skilled to help you. They will advise on any of your tax situations so that you don’t worry at all when it comes to your USTAXFiling. Our dedicated team of experts ensures to keep themselves updated all the time when it comes to US tax filing. So, your wait is over! Hurry up and Schedule a call with us at USTAXFiling, your tax consultant, now!

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