F1 to H1B Dual Status Alien Tax Question [Archive]

AtlantaTaxExpert

Mar 23, 2005, 12:33 PM

This post addresses the last two posts:

Mshah:

You are definitely a dual-status alien.

Yes, you may claim the standard deduction while filing for 2004 a Form 1040NR or Form 1040NR-EZ because you are an Indian citizen in country under a F-1 visa as part of an OPT.

Since you are dual-status, you should be exempt from Social Security and Medicare taxes. Ask your employer to refund those taxes to you. If they can or will not, then you should also file Form 483 to get any Social Security and Medicare taxes back from the IRS.

Next year, you will meet the Substantial Presence Test and be required to file as a resident alien. You will be able to use standard tax forms, but will also be required to pay Social Security and Medicare taxes.

Arunnc:

Assuming you are also an Indian citizen, everything noted above for Mshah applies to you as well.

The only difference is that you must file Form 1040NR with a Schedule C to account for the income reported on the Form 1099-MISC.

Since you live in Atlanta, you may want to discuss the matter in person. Contact me at [email protected] with a phone number and I will give a call.

maath

Mar 23, 2005, 02:47 PM

My situation is similar to mshah. When I fill up the 1040 NR-EZ form, what do I specify my occupation to be? ( Its right where we are required to sign the form)
Also, what do we specify our purpose of visit -- Since it is employment now, should that be the answer?
Please reply.. thanks in advance.

AtlantaTaxExpert

Mar 23, 2005, 02:59 PM

maath:

Since you earned income, what did you do to earn the income? :confused:

Put your title in the block next to the signature. (BTW, the IRS collects this for demographic purposes; they really do not care if it is accurate). :)

As for the purpose of your visit, be careful what you put. If you are on a F-1 visa, your intent should not be "employment" but rather "education" or "training". If the visa is H-1, then employment is okay.

maath

Mar 23, 2005, 03:21 PM

I started working with my current company on a student visa and have changed to H1B since oct 1 2004. Sorry for the incomplete information :o
Now since I am going to use the 1040 NREZ tax form (as suggested by you and others on this forum), I would like to know what my occupation should be on the form. My current occupation would do? Or do I have to say student/education ?
I guess my purpose of visit should be employment since that is my current visa status..
Thanks for the prompt response.. appreciate it!
:)

mavin

Mar 23, 2005, 07:06 PM

I started working from December 2003, with my current company on a student visa(OPT) and have changed to H1B since Feb 14, 2004. For the month of Jan and until Feb 14, I have a 1099-Misc (independent contractor).

I also received a 1099 for December month last year which I filed in the form 1040 nr-ez as HSH and also filed 8843. But I did NOT fill any other forms as schedule C/C-EZ. Do I need a tax correction?

This year's Tax:
Since I'm substancially present on H1(more than six months) I have to file 1040-NR( correct me if I'm wrong). Can I report 1099 on Line 21 of 1040NR and send a copy of 1099-misc to IRS?

I also need to know what are the standard deductions I can qualify for?

The taxes I paid for Social and Medicare taxes on H1, how are they accounted? Coz, I'm getting a huge difference of owing money to IRS.

Here's what I did on 1040 NR,
1.total taxable income from both W-2 and 1099-misc.
2. Just the federal tax withheld from W-2 (box 2)
3. zero deductions
4. Looking from the chart for the total taxable income I ended up with huge difference I owe. What did I do wrong here?

Appreciate any help or comments.

AtlantaTaxExpert

Mar 24, 2005, 07:34 AM

Mavin:

Technically, you reported the Form 1099-MISC income incorrectly on the 1040NR-EZ.

Such income (and corresponding deductions) should be reported on Schedule C and the bottom line income from the Schedule C should be reported on Line 13 of Form 1040NR. For this reason, you technically should file an amended return. However, since you were a nonresident alien, you were not liable for self-employment taxes, so I suspect the IRS will not challenge the tax filing for just one month of income. I recommend that you hold off on making any amendments and wait for an IRS query on your 2003 return. If you get no query, you are home free.

For 2004 taxes, you met the Substantial Presence Test and therefore will be treated as a resident alien. You must file Form 1040 (not Form 1040NR) with a Schedule C (as noted above). The Schedule C allows you to claim some deductions to offset the income from the Form 1099-MISC. This is important because, this year, you are liable for self-employment taxes, which are calculated on Schedule SE. Since SE taxes are 15.3% of every dollar over $400 (over and above any income taxes you may owe), a substantial tax bill may be awaiting you.

Since you are a resident alien, you can claim the standard deduction this year.

adpcit

Mar 24, 2005, 08:37 AM

F1 student for 7 years, now on OPT, should I pay social security & medicare tax? I am from China. My H-1 may be approved for starting this Oct.

mavin

Mar 24, 2005, 10:26 AM

I'm in the USA for the last 4 yrs on F-1 and OPT together starting from Jan 2001 to end of my OPT Feb 2004,So my question is should I have filed a 1040 for my last year(2003) taxes itself, because I was substantially present here as the requirement says. Do I need a tax amend here too?
Appreciate your comments.

AtlantaTaxExpert

Mar 24, 2005, 12:42 PM

Mavin:

Did you not understand my earlier answer?

Since you were on a F-1 visa and under OPT until 2004, you were an “exempt individual” for all of 2003. The Substantial Presence Test did not apply to you for 2003.

You should file Form 1040NR or 1040NR-EZ, plus Form 8843 for 2001, 2002 and 2003. You were exempt from Social Security and Medicare taxes for 2001, 2002 and 2003.

For 2004, the Substantial Presence Test does apply, so you will file Form 1040/1040A/1040EZ. You are also liable for Social Security and Medicare taxes.

Adpcit:

See answer for Mavin. The F-1 visa exempts you from Social Security and Medicare taxes.

That will apply for 2005 as well, since you will be a dual-status alien. If your H-1 visa becomes effective on 2 Jul 2005 or earlier, then you will meet the Substantial Presence Test and can then file Form 1040/1040A/1040EZ. You will also be liable for Social Security and Medicare taxes.

deepatrix

Mar 24, 2005, 05:44 PM

I am in the same situation as most people here. I changed from F1(OPT) to H1B on Feb 18th 2004. I have worked for the same employee since MArch 2003 and I got only a W2. I pass the substantial presence test for 2004. I see most people who change from F1 to H1 are treated as Dual status...

But I also see posts for a person in similar situation beign asked to file only a 1040 or 1040 EZ...

And my guess for people who don't pass the substantial presence test and changed from F1 to H1 is that your situation is the best as you should file as non resident 1040NR this year and 1040 (H1B) next year and will never face this dual status cofusion.

Can someone give a clear answer for my situation?

Atlanta tax expert-- is there a phone number I can reach you at?

Thanks,
Deepa

deepatrix

Mar 24, 2005, 05:47 PM

Oops I think I got the substantial presence test mixed up...

So if you have a H1B before July you are resident else you are dual?

I don't understand...

Deepa

AtlantaTaxExpert

Mar 24, 2005, 08:45 PM

Deepa:

Email me at [email protected]. I will e-mail you my phone number.

rajkum2002

Mar 25, 2005, 07:31 AM

Hello,

I am contributing small percentage of money to my retirement plan. This amount is exempted from taxes on my paychecks. Do I have to mention this in my taxes? For example 100,000 is my income without retirement deductions. I contribute 1,000 for 401k plan. So do I report 88K as my income for tax purpose? 1,000 was exempted from taxes on my pay chekcs.

Thanks for your help!
Raj

AtlantaTaxExpert

Mar 25, 2005, 07:59 AM

Rajkum2002:

That is reflected on your W-2. The box 1 income will be lower than the Box 5 income by the amount of your contribution to the 401K plan.

In Box 12, you should see a code "D" (for 401K contribution) and the amount of your total annual contribution to the 401K.

There is no requirement to report this on Form 1040.

sdawara

Mar 27, 2005, 02:47 PM

I'd like to confirm if I need to file Form 1040. I am a dual-status alien (F1 to H1B) for 2004.

- Santosh

<a href="http://www.irs.gov/publications/p519/ch06.html#d0e6820">p519</a>

Forms To File

The U.S. income tax return you must file as a dual-status alien depends on whether you are a resident alien or a nonresident alien at the end of the tax year.

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.

mk326:

What country are you from? Special rules apply for residents of certain countries.

Unless you are from one of the special-rule countries, you are considered a "dual-status" alien. You would file Form 1040NR or 1040NR-EZ.

As it stands right now, you cannot claim the standard deduction. That may change based on the answer you give top my first question.

AtlantaTaxExpert

Mar 27, 2005, 05:08 PM

Sdawara:

If you are F-1 to H-1 and was F-1 prior to 1 January 2004, you are technically dual-status. However, if you were in the United States during your F-1 status from 1 Jan 2004 until your H-1 status took effect, then all of your income was earned in the United States, so no "statement to your return to show the income for the part of the year you are a nonresident" is required. You can put "Dual-Status Return" on the top of your return, but, In my opinion, it is not really required if you met the Substantial Presence Test in order to be treated as a resident alien. Putting "Dual-Status Return" on the top of your return will cause the IRS to question the use of your standard deduction, if applicable. However, see the BTW below.

The Substantial Presence Test requires 183 days in the United States in 2004. Hence, if your H-1 visa took effect on or before 1 July 2004, and, due to you being in F-1 status for the remainder of the year prior to that date, you, In my opinion, are considered resident alien and should file a normal tax return. You should also file Form 8843 to account for the last few months of your F-1 status.

BTW, as a practical matter of taxes owed, this may all be irrelevant if you live in a high-tax state like California, New York or Massachusetts and your income level is relatively high, because the amount of state and local income taxes withheld will probably exceed the standard deduction of $4,850, and state and local income taxes withheld are a valid itemized deduction.

sdawara

Mar 27, 2005, 06:27 PM

Hi AtlantaTaxExpert,

Thank you for your view on things. You make a valid point. All of my income was connected to work in the U.S. However, I don't pass the 'substantial presence test'. I don't have 183 days as a resident alien.

I will be marking my 1040 - Dual Status Return. My 1040 will be including my Res. And Non-Res income earned in the U.S. I will be declaring the income earned as a Non-Res in my 1040NR-EZ, marked Dual Status Statement.

I can't use the Standard Deduction which sucks.

I can use an Itemized Deduction though, on 1040 as per p519. I plan to deduct tuition paid and local sales-tax + any state taxes paid over 2004. Do people also mail in copies of their receipts with the return to support the Itemized Deduction?

I am very interested in the *personal exemption*. From what I understand, Unmarried people without any dependents (or who aren't dependents) can claim one personal exemption - the last I checked that was $3100. There is no restriction on Dual-Status aliens from requesting that personal exemption.

- Santosh

Sdawara:

If you are F-1 to H-1 and was F-1 prior to 1 January 2004, you are technically dual-status. However, if you were in the United States during your F-1 status from 1 Jan 2004 until your H-1 status took effect, then all of your income was earned in the United States, so no "statement to your return to show the income for the part of the year you are a nonresident" is required. You can put "Dual-Status Return" on the top of your return, but, IMHO, it is not really required if you met the Substantial Presence Test in order to be treated as a resident alien. Putting "Dual-Status Return" on the top of your return will cause the IRS to question the use of your standard deduction, if applicable. However, see the BTW below.

The Substantial Presence Test requires 183 days in the United States in 2004. Hence, if your H-1 visa took effect on or before 1 July 2004, and, due to you being in F-1 status for the remainder of the year prior to that date, you, IMHO, are considered resident alien and should file a normal tax return. You should also file Form 8843 to account for the last few months of your F-1 status.

BTW, as a practical matter of taxes owed, this may all be irrelevent if you live in a high-tax state like California, New York or Massachusetts and your income level is relatively high, because the amount of state and local income taxes withheld will probably exceed the standard deduction of $4,850, and state and local income taxes withheld are a valid itemized deduction.

AtlantaTaxExpert

Mar 28, 2005, 07:24 AM

sdawara

Mar 28, 2005, 09:24 AM

Sdawara:

I have requested an expert opinion from the National Association of Tax Professionals about whether aliens in your situation (F-1 to H-1 visa status) must file a dual-status tax return in the year they convert. When I get an answer, I will post a synopsis on this forum. I recommend that you wait until that posting.

If you do have to file a dual-status tax return and you are single, you cannot claim education credits. That includes writing off your tuition as an itemizied deduction. :(

Both Pub 519 and the 2004 Instructions for Form 1040NR are mute on the deductibility of sales taxes. The fact that these are not identified as being permitted, IMHO, you cannot deduct them if you are in a dual-status tax year. Besides, for normal tax returns, the deduction of sales taxes is permitted only if they exceed the writeoff for state and local income taxes withheld. For the vast majority of people, their withheld state and local taxes are much higher than the sales tax deduction. You stated you are going to claim that state and local income tax deduction, so the sales tax deduction is not an option for you. :(

You can claim your personal exemption for $3,100. :)

I do need to catch up ;). Your right, Dual status aliens cannot claim Tuition and Fees Deduction, I found that out earlier too.

Your earlier statement has left me confused :). I am actually filing a dual status income tax return (1040). I am also filing a dual status 'statement' on 1040NR. This is because I was a resident alien on the last day of 2004. I am simply following the examples given in Which forms to file? - p519 (IRS.gov) (http://www.irs.gov/publications/p519/ch06.html#d0e6820). In the illustration (http://www.irs.gov/publications/p519/ch06.html#d0e6898), Sam claims his itemized deductions using Schedule A on 1040.

Anyhow, I do have something else to add here. Dual status aliens, who are also residents of India, might be able to claim the standard deduction just as they have been doing so when they were students. This is obviously a better alternative to claiming the itemized deduction (schedule A).
* See p519 (IRS.gov) (http://www.irs.gov/publications/p519/ch05.html#d0e5257) Students and business apprentices from India
* I did go over the technical interpretation (IRS.gov) (http://www.irs.gov/pub/irs-trty/inditech.pdf) of Article 21 in the US-India tax treaty. It explicitly points out that if you were a student, and you transition to resident, as long as your still a non-immigrant - you may claim the standard deduction.

- Santosh

naroowal

Mar 28, 2005, 09:31 AM

Hello All,
I seek help for a question that might have been probably answered before. I was on OPT for the whole year of 2004. I earned a small income and I was issued a 1099-MISC. I wish to ask which form should I be filling in? If I interpretted everything right, I should be filling 1040-NR. So please help me in determing my status i.e. a student or should I be filling in 1040 A ?
Thanks,
Naroowal

AtlantaTaxExpert

Mar 28, 2005, 10:14 AM

Naroowal:

It appears that you are a student, so your visa status is probably F-1.

Are you from India? If so, you can file Form 1040NR and claim the standard deduction (due to provisions of the tax treay with India).

Even if you are not from India, Form 1040NR is the correct form. You will claim your own personal exemption of $3,100, plus selected itemized deductions. You will need to file Schedule C/C-EZ to account for the Form 1099-MISC income, and you can claim certain expenses on that Schedule C to offset some your income.

Due to your student status, you are exempt from Social Security and Medicare taxes, so no schedule SE is required.

naroowal

Mar 30, 2005, 01:09 PM

Your answer was perfect for me. Thank you.

Now my state tax remains. I have earned in two states but lived in one state but different counties. I am not sure about how to fill the state taxes. Do I have to pay state taxes for both the states and both the counties.
I am really confused. I would be very grateful if you would help me.
Thanks,
Narayana

AtlantaTaxExpert

Mar 30, 2005, 01:29 PM

Narayana:

I am happy to help, but I do need to know which states and which counties.

Generally, the states tax income earned in the state regardless of where the worker lives. Some counties also have income taxes.

If you want to continue this off this forum, contact me at [email protected].

msrabc

Mar 30, 2005, 05:25 PM

I do need to catch up ;). Your right, Dual status aliens cannot claim Tuition and Fees Deduction, I found that out earlier too.

Your earlier statement has left me confused :). I am actually filing a dual status income tax return (1040). I am also filing a dual status 'statement' on 1040NR. This is because I was a resident alien on the last day of 2004. I am simply following the examples given in Which forms to file? - p519 (IRS.gov) (http://www.irs.gov/publications/p519/ch06.html#d0e6820). In the illustration (http://www.irs.gov/publications/p519/ch06.html#d0e6898), Sam claims his itemized deductions using Schedule A on 1040.

Anyhow, I do have something else to add here. Dual status aliens, who are also residents of India, might be able to claim the standard deduction just as they have been doing so when they were students. This is obviously a better alternative to claiming the itemized deduction (schedule A).
* See p519 (IRS.gov) (http://www.irs.gov/publications/p519/ch05.html#d0e5257) Students and business apprentices from India
* I did go over the technical interpretation (IRS.gov) (http://www.irs.gov/pub/irs-trty/inditech.pdf) of Article 21 in the US-India tax treaty. It explicitly points out that if you were a student, and you transition to resident, as long as your still a non-immigrant - you may claim the standard deduction.

- Santosh

I have couple of question. AtlataTaxExpert said that if filing dual status then you can't claim any type of standard deductions. I qualify for substantial presence test (my h1 started on April 1st).
If I understand it correctly, I can claim deductions for personal exemption and standard deduction based on us-india tax treaty. So total exemptions on my 1040NR-EZ form would be 3200+4850.

Can I also claim personal exemption on 1040 form that I need to file for income on h1 status?

Thanks

AtlantaTaxExpert

Mar 30, 2005, 07:17 PM

sdawara

Mar 30, 2005, 07:41 PM

First, you can only claim one personal exemption for yourself, and one for each dependent, and you claim it on the Form 1040 filed as a resident alien.

Second, you CANNOT claim the standard deduction because you are dual-status. My conversation with NATP confirmed this. However, I also read the technical interpretation Santosh cited, and it can be interpreted that you can claim the standard deduction. However, you cannot do it on Form 1040, only on Form 1040NR (my interpretation).

Interesting, so If I am dual-status resident Indian, and I file 1040NR as a return, I can claim the standard deduction. However, if I file 1040 as p519 requires (or suggests? I don't think that is an option) - I cannot claim the standard deduction. Honestly, I am confused all the more by the duality of the when the deduction is applicable :-S.

I would be very grateful if you could clarify your interpretation further. I don't understand the tax system for dual status aliens very well, at the same time my intention is not to offend. I just want to file first, and then get the best return.

- Santosh

AtlantaTaxExpert

Mar 30, 2005, 08:02 PM

Read my original posting. I made several corrections in bold red.

Synopsis:

- You actually file the Form 1040.

- The Form 1040NR is a "DUAL-STATUS statement" and filed with the Form 1040 as an attachment.

- Your personal exemptions (yours and your dependents) and the itemized deductions you accrue while on H-1 visa status are claimed on the Form 1040 and the Form 1040 Schedule A.

- You can claim the itemized deductions you accrue while on F-1 status on the Form 1040NR Schedule A. If you follow Santosh's interpretation, you can as an alternative claim the standard deduction under the U.S.-Indian treaty.

- All this applies only if you are dual-status, and you can be dual status only if you meet the Substantial Presence Test. To meet that test, you must convert to H-1 visa status on or before 2 July 2004.

- If you do NOT meet the Substantial Presence Test, then you are NOT dual-status and can file Form 1040NR as a nonresident alien for 2004 one last time, notwithstanding your H-1 visa status. In 2005, you will file as a residnet alien using Form 1040/1040A/1040EZ. You will not have to bother with being dual-status at all in 2005 or beyond.

rajkum2002

Mar 30, 2005, 10:32 PM

Hello,

I found this post on the website:
http://pub33.bravenet.com/forum/2786238237/fetch/510478/

Generally, the standard deduction is not allowed on the dual status return. However, under the US/India tax treaty, a student from India is allowed to claim the standard deduction on a nonresident return. As a dual status taxpayer, a student from India can claim the standard deduction on the nonresident portion of the return, limited to income earned during that period. Form 8843 should be filed showing the number of days exempt from the substantial presence test during the period you are an F-1 visa holder.

Sorry, I don't mean to say one is wrong or correct. From the messages I read in this thread the above information seems to be invalid. Can someone please clarify on this.

Thank you,
Raj

AtlantaTaxExpert

Mar 31, 2005, 07:54 AM

Raj:

Excellent. The author is a CPA, apparently with experience in preparing 1040NR returns. The interpretation he offers seems logical, so I will not contest it.

I will also amend my guidance once again.

kliu2lli5

Mar 31, 2005, 10:41 AM

Both of my husband and myself are from China and transferred from F1 to H1B in 2004. The only difference between us is the transferring time: March 8 for my Husband and Oct 1 for myself. Could you please let me know, for each of us
1) tax status: nonresident? Resident? Dual status?
2) forms to file
3) deductions that can be claimed
4) tax treaties(US-China) that can be used
5) should we pay social security/medicare tax?

Thanks a lot!

Lily

sdawara

Mar 31, 2005, 10:46 AM

There are rules that are clearly defined for your case. I would suggest that you read Tax Guide for Aliens (http://www.irs.gov/publications/p519/index.html) carefully to decide your best course of action. In the publication you will find answers to all the questions you posted. Also, AtlantaTaxExpert has been very helpful and dependable, you could also wait for him to reply.

Thanks,
Santosh

AtlantaTaxExpert

Mar 31, 2005, 01:33 PM

Lily:

1) For 2004, your husband is dual status. You are not, nor will you be in 2005.

2) Your husband has to file Form 1040NR/1040NR-EZ for the time he was under F-1 visa status, then file Form 1040 for the time he was under H-1. See the thread originated by me which has both bold red and bold green print in it for details on how to file.

You file as a nonresident alien, filing Form 1040NR/1040NR-EZ. You will not have to worry about filing dual-status next year. Just file for 2005 as a resident alien, jointly with your husband if you so desire.

3) & 4) The F-1 visa status indicates that you are students. Citations from www.thetaxguy.com indicate that you are both eligible to claim a $5,000 standard deduction. You can claim it on your Form 1040NR/1040NR-EZ; your husband claims it on his Form 1040. Be sure to cite the U.S.-China tax treaty on the Standard Deduction line on both forms.

5) You are both liable for Social Security and Medicare taxes for the period you were under H-1B status. If your employer(s) began withholding these taxes from your pay when you came under H-1B visa status, you need do nothing else.

kliu2lli5

Mar 31, 2005, 01:51 PM

Thanks a lot for the answer. It is very clear and helpful!

Lily

implied

Apr 1, 2005, 01:13 PM

Hello,

I came to US as a student in May 2002. Started working in April 2003 as an intern.Continued working during OPT through OCt 2004, when my visa status was changed to H1B. What form do I need to file ? Am I a resident alien for tax purpose ? Is this dual status or not ? And if it is dual status do I need get any taxes back like soc sec...

Also I got married in Dec 2004. Does it make any difference to my filing, we are filing jointly, she's not working.

Thanks...

AtlantaTaxExpert

Apr 1, 2005, 01:34 PM

Implied:

Even though she does not work, her status is critical to my answer.

Is she a U.S. citizen?

If not, what is her visa status as an alien?

implied

Apr 1, 2005, 01:37 PM

Sorry, incomplete info, she's on H4, I am an indian...

AtlantaTaxExpert

Apr 1, 2005, 02:51 PM

Implied:

You do not meet the Substantial Presence Test, so you have the option to file as a nonresident alien. You may wish to do this because, as an Indian citizen, you can claim the Standard Deduction of $4,850 (unless your itemized deductions are higher) under the U.S.-Indian Income Tax Treaty. You will also be able to claim your wife as a dependent and claim total personal exemptions of $6,200.

By remaining a nonresident alien, you remain exempt from Social Security and Medicare taxes while you were under the F-1 visa. The day you converted to the H-1B visa is the day you became liable for the Social Security and Medicare taxes, and your employer should have begun withhold Social Security and Medicare taxes from your pay at that time.

You should be able to file as a resident alien under the First-Year Choice. I do not think it would make you liable for Social Security and Medicare taxes while you are under the F-1 visa. However, you would have to wait until sometime in May 2005 to file, because you have to qualify for the Substantial Presence Test before you file under the First-Year Choice. You would need to file an extension by 15 April 2004, then file once you met the Substantial Presence Test. See page 9 of IRS Pub 519 for details on the First-Year Choice option.

Prepare the return both ways (as a resident alien and a nonresident alien) to determine under which form you pay the least amount of tax. Regardless of your choice, you will file as a resident alien for 2005.

implied

Apr 1, 2005, 03:05 PM

OK, still some more questions

1. your conclusion "Regardless of your choice, you will file as a resident alien for 2005 " why so ?

2. my employer started with holding soc sec and othr taxes right from day I got approved which was som time in May04. So I can claim back my taxes for that period ,right ? How do I do that ?

3. Finally which form do I need to use ?

Thanks for the help. Appreciate it :)

AtlantaTaxExpert

Apr 1, 2005, 03:24 PM

Implied:

1) You are considered a resident alien in 2005 because you will meet the Substantial Presence Test. Once the Substantial Presence Test is met, filing as a resident alien is no longer an option but rather a requirement.

2) Okay, your H-1B status was approved in May 2004. That's not what you said below ("Continued working during OPT through OCt 2004, when my visa status was changed to H1B."). That changes your circumstance. Now you have met the Substantial Presence Test and are therefore considered dual status. You have to file a dual-status tax return.

3) Please read my posted thread (How to File Income Taxes When Converting from F-1 to H-1 Visa Status (AtlantaTaxExp)) which is five threads below, the one with bold red and bold green printing. The details on how to file a dual-status tax return.

implied

Apr 1, 2005, 03:30 PM

All right, maybe I am being confusing. I thought it does not matter when you get the approval. My H1B Visa started from 1st oct 2004 valid for the normal 3yr period. I was on my OPT till Oct 2004. Is this differently treated for taxes... and depends on the date of approval??

From a legal perspective, my H1 came into effect only on 1st Oct and I was on OPT till then.

Also thanks for explaining the other questions, quite clear on those now.

Thanks

stinker_27

Apr 2, 2005, 05:23 PM

Hi AtlantaTaxExpert,

Thanks for all the advice you provide to the board. Here's something I'm a little doubtful about -

"adpcitMar 24, 2005, 07:37 AM
F1 student for 7 years, now on OPT, should I pay social security & medicare tax? I am from China. My H-1 may be approved for "

"AtlantaTaxExpertMar 24, 2005, 11:42 AM
Adpcit:
See answer for Mavin. The F-1 visa exempts you from Social Security and Medicare taxes.
That will apply for 2005 as well, since you will be a dual-status alien. If your H-1 visa becomes effective on 2 Jul 2005 or earlier, then you will meet the Substantial Presence Test and can then file Form 1040/1040A/1040EZ. You will also be liable for Social Security and Medicare taxes."

F-1 visa holders are non-resident alien for 5 calendar years. Starting from the 6th years, f-1 visa holder will be considered as resident alien unless of course, they want to file extra forms to prove their ties to their own country. Therefore, during OPT(after being in US for more than 5 years), one has to pay Social security and medicare, unless there's a tax treatly. And naturally they filed as "resident alien" status regardless the days of being as a h1b.

ananthrb

Apr 4, 2005, 06:37 AM

AtlantaTaxExpert,

Thanks for all your replies. It has been really helpful to read all the posts regarding F1 to H1. I had some questions which are a bit different.

- I am from India and I worked from Jan 2004 to Oct 2004 on F1 for my company
- From Oct 2004 I was on a H1
- So I guess I am not on a dual status
- My company withheld social security and medicare taxes from Jan 2004 - Aug 2004. I understand that I am eligible to get back this withheld amount. What forms will I need to file?
- Also I understand that I need to pay SS and Medicare taxes from Oct 2004 - Dec 2004. But my company stopped holding these from Aug 2004. But in March 2005, I reported this to my company and they withheld these SS and Med taxes from Oct 2004 to March 2005 from my march salary.

Could you please advise me on what forms I would need to file?

Thanks in advance.

AtlantaTaxExpert

Apr 4, 2005, 12:58 PM

Ananthrb:

First and foremost, you need to ask your company for the refund.

Since they just withheld six months' worth of Social Security and Medicare taxes from your paycheck, getting at least a partial refund of the preceding nine months' worth of Social Security and Medicare taxes should not be too difficult.

Once you have exhausted that option, you then file Form 843. Procedures for doing so can be found in IRS Pub 519.

ananthrb

Apr 4, 2005, 01:08 PM

Thanks, I did ask my company and they said they cannot redo my W2 and hence I need to apply for a refund on my own.
- Will I be entitled to all the money withheld for Social Security and Medicare that is displayed on the W2 form or just a percentage of it?

Thanks,
Ananth

AtlantaTaxExpert

Apr 4, 2005, 08:50 PM

Ananth:

You are entitled to the Social Security and Medicare taxes withheld while you were under the F-1 visa, so you will only get a percentage.

studentf1

Apr 4, 2005, 08:53 PM

Hi,

For 2004 full year I was on f1 status. I worked oncampus and for OPT.
Please advise me what form I should fill for taxes. Is 1040NR / 1040NREZ OK?

Can I fill 1040EZ ?

Can I get the lifetime learning credit for my fees for 2004 (MS degree)

AtlantaTaxExpert

Apr 4, 2005, 09:04 PM

Studentf1:

You should file Form 1040NR or 1040NR-EZ.

Unless you are married to a U.S. citizen or a resident alien and choose to be treated as a resident alien yourself (and pay Social Security and Medicare taxes), you cannot claim any education credits.

ananthrb

Apr 5, 2005, 06:22 AM

AtlantaExpert:

Thanks for you reply. Im sorry I guess I was not clear. My W2 states that around 900$ were withheld as Social Security and Medicare taxes while I was a student. Will I be able to get the entire 900$ back or is it just a fraction of it. Would you know how much I should be expecting back.

Thanks in advance!
Ananth

AtlantaTaxExpert

Apr 5, 2005, 10:41 AM

Ananth:

You will get all of the Social Security and Medicare taxes withheld while you were under the F-1 visa.

Pras

Apr 7, 2005, 09:50 AM

HI,

I have some doubts about my tax returns this year. Let me explain :

1. I came on F1 to the US on Aug. 3 2001 and continued to be on that status till May 2004. I graduated in May'2004 from Texas. My OPT started from the June 1st 2004.

2. I was looking for jobs and then joined a consultancy... My H1 through the consultancy got approved and the begin date of my H1 is on 12/06/2004.

I received 2 w-2s, one for the month of January '2004 ( My work in the university) and the one for the month of Dec. 2005 from my company.

My doubt is what are the forms I use for filing the taxes.. How do I got about doing it
I am not sure if I am dual-status.

I did not leave the US in anytine during 2004.

Pras

bbarath

Apr 7, 2005, 10:43 AM

Pras:

I think:

- Since you have not been on H1 >= 183days, you are not a "dual status alien"
so,
- you are the same "non resident" for tax purposes for 2004.
- You file form 1040NR + 8843
- Add up the amounts on your W2s as your total wages.
- you get to take the standard deduction $4850
- you get a personal exemption of $3100

You must be getting back "almost" everything that's withheld.

Thanks
Barath

AtlantaTaxExpert

Apr 7, 2005, 07:06 PM

Barath is absolutely correct. I have nothing to add.

shqshz

Apr 7, 2005, 07:22 PM

Hi~

I have been in F-1 status for more than 5 calendar years and was told that I need to file as a resident alien. But I was only taking the time needed to complete college plus one year OPT and now I'm in a master's program. Since 2004 was my OPT year, I worked as an independent contractor and got a 1099-MISC. Should I file Schedule C-EZ with 1040 or 1040NR(does it worth it to go through the trouble of proving to the IRS of my non-resident status? If so what do I need to do?) Are there any other forms I should file? Also can someone explain the $3100 personal deduction? I am a Chinese citizen, if I file 1040 I suppose I can only take the $4850 standard deduction and not the $5000 treaty deduction right?

Thank you so much for your help in advance. I'm pulling my hair out... :confused:

Pras

Apr 7, 2005, 07:32 PM

Thank you Very Much... relieved to get the message..

Pras

AtlantaTaxExpert

Apr 8, 2005, 05:52 AM

Shqshz:

If you are still a student/in OPT, then you can still file as a non-resident alien. However, you have the option to file as a resident alien.

As a non-resident alien, file Form 1040NR with Schedule C to account for the Form 1099-MISC income. You get to claim BOTH the $3,100 personal exemption and a $5,000 standard deduction under the U.S.-China Tax Treaty. This exemption and deduction are claimed on Form 1040. You do not have to file Schedule SE as you are exempt from self-employment taxes. You must file Form 8843 to certify your F-1 visa status.

If you decide to file as a resident alien, you must file Form 1040NR with Schedule C and Schedule SE. You get to claim the $3,100 personal exemption, but your standard deduction is reduced to $4,850. Further, you are liable for self-employment taxes (tax rate is 15.3% of all income over $400).

Prepare both returns to see which involves the least amount of tax. Remember that once you file as a resident alien, you will require IRS permission to revert back to non-resident status.

shqshz

Apr 8, 2005, 12:30 PM

AtlantaTaxExpert,

Thank you so much so your reply! I'm quite sure that filing as a non-resident alien will involve the least amount of tax. Do I have to provide any other paperwork regarding my non-resident status (or... no tendency to become a resident) besides Form 8843?

Thanks again.

AtlantaTaxExpert

Apr 8, 2005, 12:36 PM

The Form 8843, plus the Form 1040NR, should be the only forms required.

alandonova

Apr 11, 2005, 09:27 PM

Hello,

I would appreciate any help with the following situation:

- I started working under my OPT (F1 visa) in July 2003. On January 31, 2004 I received an H1B approval notice "valid from 6/29/04".

- My H1B visa was issued on 24 June 2004. This is when my employer started withholding SS and Medicare taxes. However, I was not in the US during the periods June 19 - July 4 and December 18 - January 4, 2005. Does that mean that I do NOT meet the Substantial Presence Test (>= 183)?

- If I do NOT meet the test, I am not dual-status, correct? Then I should file Forms 1040NR and 8843, correct? As a citizen of Bulgaria, can I claim the standard deduction or do I need to itemize?

- If I DO meet the test (which I doubt), am I a dual-status? How do I calculate what exemptions and deductions have accrued under each status?

Thank you very much for your help!

Anna

AtlantaTaxExpert

Apr 12, 2005, 08:06 AM

Anna:

You are correct! You do not meet the Substantial Presence Test, so you should file Form 1040NR and Form 8843.

Bulgaria is not on the Table of Tax Treaties in IRS Pub 519. Therefore, you are not eligible to claim a standard deduction, nor is any of your income exempt by treaty. You should pay taxes on any income earned in the United States, and you need to itemize.

alandonova

Apr 12, 2005, 11:35 AM

Thanks very much for your prompt response to my previous question!

I have another question: Since I have to itemize deductions on my 1040NR, can I claim dental expenses (that meet the 7.5% test)? If so, in what line of Schedule A should I include them?

Thanks again!

AtlantaTaxExpert

Apr 12, 2005, 12:03 PM

Line 1 of Schedule A.

vedanata_2004

Apr 13, 2005, 09:08 PM

Hi,
I need help for filing my taxes.
Here is my situation: I'm a single preson with Indian nationality.
1. I was on OPT till Oct 2004 and then was converted to H1B. ( According to posts on this forum, in this case I need to fill 1040 NREZ)
2. My employer did not deduct social security and medicare from oct 2004. They realized it now and are going to deduct it and send me a w-2c form. I've not received this form as of yet. What do I do if I don't receive it by Friday? Do I just use the previous W-2 they send me?
3. Question about 1040 NR-EZ. What is the purpose of my visit to United States
In this form?

AtlantaTaxExpert

Apr 14, 2005, 10:25 AM

Vedanata_2004:

For purposes or getting your income tax refund, the original W-2 would probably do.

However, because you are a nonresident alien on first a F-1 and then a H-1B visa status, you need to submit a W-2 that is accurate. For this reason, you need to file an extension while you wait for the W-2C.

Finish preparing the Form 1040NR-EZ. If you owe money, you need to file Form 4868 and write a check equal to the amount you owe. If you are due a refund, just submit the Form 4868. You can do it be phone or the Internet (www.irs.gov) and authorize the IRS to debit your checking/savings account by giving them your checking routing and account numbers (which are listed at the bottom of each check).

Your purpose for the visit to the U.S. is either training or education. That's the reason you got the OPT. Next year, that will not be the case, but then you will be filing normal tax returns and will not have to address that question.

mardreni

Dec 1, 2005, 11:21 AM

Hello,

I have a question regarding the tax changes once my status has changed to H1b. MY OPT starts from January 3, 2005 and ends on January 2, 2006. My H1-b just started on November 7, 2005. When my status was still under OPT, I was not liable for Social Security and Medicare taxes. Currently, since my status has converted to H1b, am I still not liable for SS & medicare taxes?
After Nov7, 2005, my paycheck is not deducted for SS & medicare taxes. I am confused now and need help in solving this... Will there be any effect on this? Should I tell my company regarding this matter?

bbarath

Dec 1, 2005, 11:28 AM

Yes SS and MC taxes must be deducted from your pay once you are on H1.

But, while filing taxes for 2005, you are a Non Resident for tax purposes, since you've been on H1 for less than 183 days.

Thanks
Barath

AtlantaTaxExpert

Dec 1, 2005, 12:00 PM

Mardreni:

Barath's advice is completely accurate. You need to contact your employer and inform them of their error; do this in writing (preferably an e-mail) and retain a copy.

However, if they fail to correct the error and withhold the taxes, you are under no legal obligation to pay the Social Security and Medicare taxes not withheld on your tax return. The legal obligation to withhold and pay these taxes rest with the employer, NOT the employee.

mardreni

Dec 1, 2005, 07:10 PM

Just want to drop a note to say thank you all for helping me sort out my problem. I have informed my employer and this tax issue has been taken care of.

-Marisca-

oormi

Dec 7, 2005, 11:51 AM

Hi,

I have a similar issue... I was on f1 and transferred to h1b in March 2005 so I have been on h1b for more than 183 days. Which form should I fill in this case and what standard deduction would I be eligible for? I am from india too. Is there a form 2106 which gives h1b holders added deduction if filing as itemised deduction? Please help.

Oormi.

AtlantaTaxExpert

Dec 8, 2005, 06:52 AM

Oormi:

I already answered part of your question under the previous posting.

Regarding the Form 2106, that form will be available to you when you file the normal tax return (Form 1040). However, you must meet several conditions before you can file.

Form 2106 is used to report employee business expenses. However, those expenses must exceed 2% of your Adjusted Gross Income; i.e. whatever your employee business expenses are, 2% of your AGI will be subtracted from them on Schedule A. Further, these adjusted employee business expenses plus the rest of your itemized deductions must exceed your standard deduction to be worthwhile.

oormi

Dec 8, 2005, 09:27 AM

Thanks, your advices are really valuable. Great to have you on the forum.

Oormi.

AtlantaTaxExpert

Dec 9, 2005, 06:22 AM

Glad to help!

paramthegreat

Dec 23, 2005, 11:39 AM

Hi everyone,

I am a single individual from India. I am trying to file taxes for year 2005 (actually just calculating to get an estimate). I have been on F1 from Sep 2001 till May 2005. I was never on OPT due to some mistakes made by my school. Also I did not have any earnings between Jan 2005 and July 13, 2005. I had filled my application for H1 in May 2005 and I got my H1 approved with start date of July 13, 2005 with a consulting firm.
Also, I have never left the US between Sep 2003 and now.

Now based on the posts in this thread and above information, please comment if the conclusions I have made are correct:
1. I do not pass the substantial presence test of being on H1 >= 183 days for 2005. That means I am considered a non-resident alien.
2. I can file the form 1040NR and can take standard deduction (which was $3000 for 2004) for 2005
3. I can take another deduction due to tax treaty with india (again $4850 for 2004) for 2005

I will sincerely appreciate all your help,

Thanks,
Parminder

AtlantaTaxExpert

Dec 23, 2005, 01:16 PM

Parminder:

Your are correct that you can file as a non-resident alien, in which case you, as an Indian citizen, are entitled to claim a personal exemption of about $3,100 and the standard deduction of $5,000.

Further, you have the option to file as a resident alien, which means filing a Form 1040/1040A/1040EZ. I believe you will find the tax to be the same (but do it both ways to be sure).

For 2006 onward, you will have to file as a resident alien.

sampath

Dec 26, 2005, 02:45 PM

I disagree with AtlantaTaxExpert's reply. Although s/he is correct in saying that you may claim a personal exemption of $3,100 for yourself, realize that you have changed your status from resident alien (F1/OPT from Jan 1 - Sep 2005 > 183 days) to non-resident alien (H1 from Sep - Dec 31, 2005 < 183). This status change should make you a dual status alien. According to 1040 NR (pg 5, under dual status alein section), your dual staus should restricts you from claiming the standard deduction of $ 5000.

AtlantaTaxExpert, isn't my disagrrement, a valid one??

AtlantaTaxExpert

Dec 26, 2005, 03:12 PM

SamPath:

Your objections may have been valid if the dates you cited [resident alien (F1/OPT from Jan 1 - Sep 2005 > 183 days) to non-resident alien (H1 from Sep - Dec 31, 2005 < 183)] were accurate and if you had not confused the visa status.

However, the dates Parminder cited were 1 Jan 2005 to 12 July 2005 for F-1 status (which does not count towards the Substantial Presence Test), and 13 July 2005 to 31 Dec 2005 for H-1 status (which is less than 183 days).

Also, a F-1 visa qualifies a foreign citizen for non-resident alien status and a H-1 visa qualifies a foreign citizen for resident alien status. Your statement gave the exact opposite definition.

Filing a dual-status return is an option, but not a requirement, for Parminder. Due to the complexity of filing as a dual-status alien, I never recommend such a filing if it can be avoided. However, it was the "First Year Choice" portion of the Dual-Status Alien section of IRS Pub 517 that allowed me to tell Parminder that he/she could choose to file a normal tax return. My read of her situation indicated that she qualified to file as a resident alien because she will definitely qualify for the Substantial Presence Test in 2006 and she meets the minimum in-country requirement while under the H-1 visa in 2005.

fastclock

Jan 13, 2006, 10:32 AM

Hi,

I have a question on filing...

I am from Indonesia and transferring from F1/OPT to H1B on 4/1/2005. I have a wife and 2 children (wife+1child transfers from F2 to H4 on 4/1/2005 also, 1 other is born here). My wife is not working.

From reading the responses, I meet the substantial presence of 183 days, therefore I have dual-status and may file as a resident alien using 1040 form as a regular filing.

My main question is if I use the 1040 form, can I claim deductions on all my dependents (3)? Or is it prorated starting from 4/1/2005?

Separately, how do I file interests from the bank in 1040 form? Is it just combined with the W2 income?

Thanks.

AtlantaTaxExpert

Jan 13, 2006, 12:16 PM

FastClock:

Your assessment is correct. You should file Form 1040 or 1040A as a resident alien.

You should file jointly with your wife and claim both children as dependents. There is no proration of their exemption status.

If you have not already done so, you should get Individual Tax Identification Number (ITIN) for your wife and oldest child (by filing a W-7) and a Social Security Number (SSN) for your newborn child (by visiting a Social Security Adminsitration office with your child's birth certificate). Your spouse and children need either ITINs or SSNs to be claim on your tax return.

guy22g

Jan 15, 2006, 04:46 PM

Hi Atlanta Tax Expert,

This is a tax query for 2005 with regards to the date status chnged question on 8843 and 1040NR-EZ.

I had been working on my F-1(OPT) and H-1B at different places. My OPT was valid till Dec 2005 and I worked on OPT till Nov 2005. However my H-1B start date was Oct 1st but I actually began working (payroll start date) only on Dec 1, 2005.

I would really appreciate it if you could let me know what my tax status was for Oct, Nov 2005. What date should I put on my 8843 with regards to date status changed since even though my H-1B started on Oct, I didn't work on it nor was on H-1 payroll on it for Oct, Nov. H-1B law allows for the receipient to start working on it up to 60 days after it is approved.

I would really appreciate your response. Thanks.

jdzorba

Jan 16, 2006, 12:41 AM

Hi all,

My visa was changed to H1b from F1 as of Oct. 1, and I have been working since Nov. 04 with F1 CPT/OPT. I am going to make the first-year choice for 2005. I'll need to file 4868 to extend the deadline to 08/2006 because I'll meet the 183 day test condition around 05/2006.

Pub 519 says "you can choose to be treated as a U.S. resident for part of 2004." (about 3 month for my case), but "no proration" in the above post. I checked 1040 form and there's one check box for dual-status alien, which leads to zero standard deduction.

My question is how much difference in tax this will make. That standard deduction is the only difference?
Say, 1040NR tax is $1000 and 1040 is $500. Can I get $500 returned? If not, how much?

Thanks.

AtlantaTaxExpert

Jan 16, 2006, 10:37 AM

Guy22G:

Claim Oct 1st as the H-1B change of status date on Form 8843.

Jdzorba:

The standard deduction is $5,000. At the lowest tax rate of 10%, that means an additional $500 on your refund. So, yes, it makes a big difference whether you can claim the standard deduction or not.

Submit the Form 4968, then submit the Form 1040 with the standard deduction.

jdzorba

Jan 16, 2006, 06:46 PM

AtlantaTaxExpert,

Thanks for your reply.
I thought I can't file a standard deduction because I'm a dual-state alien even if I make the first-year choice by submitting 4868. Because making first-year choice means "resident alien just for the partial year," so the difference is the standard deduction, isn't it?
I was hoping I could do that because I'm MFJ with dependents, but it doesn't look like it. However, filing 1040 instead of 1040NR will help a lot.

Jdzorba

guy22g

Jan 16, 2006, 07:10 PM

Thanks AtlantaTaxExpert, appreciate your response.

AtlantaTaxExpert

Jan 17, 2006, 07:44 AM

Jdzorba:

You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.

If you file as a non-resident alien, you file Form 1040NR by April 15, 2006, in which case you cannot claim the standard deduction. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file as a dual-status alien, you file Form 1040 with Form 1040NR as an attached "statement" to document the income you earned while under the F-1 visa. If you file as a dual-status alien, then you will not be allowed to claim the standard deduction. Also, you would file your return prior to April 15, 2006, so Form 4868 would not be needed. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file under the First Year Choice, then you file as a resident alien, which means you can claim the standard deduction. You would file Form 4868 to apply for an extension to file (submitted with a check if your calculations determined that you would owe taxes) so that you would meet the Substantial Presence Test prior to filing your 2005 tax return. Since you are choosing to count your entire 2005 year as a resident alien, filing Form 4883 is not required for 2005.

In my opinion, the First Year Choice makes the most sense.

fastclock

Jan 17, 2006, 07:44 AM

Thank you for the response.
That's very helpful.

AtlantaTaxExpert

Jan 17, 2006, 08:04 AM

FastClock:

Glad to help!

pranavtest

Jan 17, 2006, 10:05 AM

Hi Atlanta Tax expert.
You post great feedback with relevant answers which prompted me to post my query here.

1)My wife and I are both Indian citizens.
2)My wife was on OPT up to December 05. I have been on H1B since Jan 2001.
3)Wife converted to H1B visa starting December after getting a job in September.
4) No SS/Medicare taxes deducted yet from wife's paycheck since her pay- period is 1.5 months behind current date. So for her current paycheck her payroll date is the December 1st through December 15th.

What profession do we enter if we file as MArried filing jointly(Student? /Software? ) . I assume taxes are different if she enters profession as student.

Please advise which forms are required.

Thanks in advance for your help.

Pranav

AtlantaTaxExpert

Jan 17, 2006, 12:25 PM

Pranav:

Under "Profession", enter whatever you think appropriate. You can even leave it blank. It has no bearing on how your taxes are computed.

You (as a resident alien) must file Form 1040/1040A.

Assuming she was under a F-1 visa, she can still Form 1040NR. However, it is likely that there will be no difference in taxes owed if you file separately or jointly.

Given this fact, In my opinion, it makes sense for you to file jointly, simply because it is easier to file one return jointly than two returns separately.

Filing jointly will not affect your wife's Social Security and Medicare tax status. That is driven exclusively by your wife's visa status.

pranavtest

Jan 17, 2006, 01:55 PM

HI Atlanta Tax Expert.
Thanks for your response. Was not aware that profession does not change tax status (since Students are usually not charged the high Federal and State taxes that my wife's employer did charge.).

Your post greatly helps.

Thanks again.
Pranav

studfromhawaii

Jan 17, 2006, 05:21 PM

I’m a 24 year old single male from India. I came to USA on April 19, 2000 on an F-1 Student Visa and have consecutively since filed the 1040NR. My H-1B Work Visa got approved effective October 1, 2005 and I went to India on August 18, 2005 to get my visa stamped on my passport, which was stamped on September 22, 2005 and I returned to USA on September 29, 2005. August 17, 2005 was my last day at the on campus job. No Social Security or Medicare deductions were withheld from my paycheck for on campus job. But now that I’m on H-1B, Social Security and Medicare deductions are being withheld (effective October 1, 2005). What form(s) do I have to file this time? Also, do I qualify for either the Hope Scholarship or Lifetime Learning tax credits (for pursuing a Post Baccalaureate Certification in spring 2005)? I have a personal student loan in USA, Mutual Funds purchased with funds from a Non-Resident Indian Account in India and stocks purchased in USA with funds from my account at the local Credit Union. Taking all of this into consideration, what would be the best possible way to file my return? Please advise. Thanks.

AtlantaTaxExpert

Jan 17, 2006, 08:47 PM

Pranav:

While students do generally qualify for exemption from Social Security and Medicare taxes in jobs they have while at the university, it does not affect their income tax rates. I thought you were citing the block next to the signature on the tax returns.

Studfromhawaii:

You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.

If you file as a non-resident alien, you file Form 1040NR by April 15, 2006, in which case you cannot claim the standard deduction. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file as a dual-status alien, you file Form 1040 with Form 1040NR as an attached "statement" to document the income you earned while under the F-1 visa. If you file as a dual-status alien, then you normally will not be allowed to claim the standard deduction; however, that prohibition does not apply to you since you are an Indian citizen. Also, you would file your return prior to April 15, 2006, so Form 4868 would not be needed. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file under the First Year Choice, then you file as a resident alien, which means you can claim the standard deduction. You would file Form 4868 to apply for an extension to file (submitted with a check if your calculations determined that you would owe taxes) so that you would meet the Substantial Presence Test prior to filing your 2005 tax return. Since you are choosing to count your entire 2005 year as a resident alien, filing Form 4883 is not required for 2005. Only by filing as a resident alien can you claim either the Hope Scholarship or Lifetime Learning tax credits.

In my opinion, the First Year Choice makes the most sense in order to claim the Hope Scholarship or Lifetime Learning tax credits.

jdzorba

Jan 18, 2006, 12:09 AM

AtlantaTaxExpert
Thank you, it helps a lot.

studfromhawaii

Jan 18, 2006, 11:34 AM

AtlantaTaxExpert:

I appreciate your quick response to my question. The First Year Choice does make the most sense in order to claim the Hope Scholarship or Lifetime Learning tax credits. Under this choice, I would just file Form 4868 to apply for an extension to file (submitted with a check if my calculations determined that I would owe taxes) so that I would meet the Substantial Presence Test prior to filing my 2005 tax return first and then when I meet the Substantial Presence Test, which form(s) would I file next? Just the 1040 form right? How would I then account for my F-1 visa (exempt individual) time? There were no social security or Medicare deductions withheld from my paycheck for my on campus job. These deductions were only withheld for the work that I performed for my current employer on an H-1B visa.

Also, please clarify what entails meeting the Substantial Presence Test? In 2005, I was in the US on an F-1 visa until August 18, 2005. Then I went to India to get my H-1B visa stamped on my passport and returned to the US on September 29, 2005. My H-1B status is valid from October 1, 2005 to September 30, 2005. In my case, when would I meet the Substantial Presence Test? Please advise.

Thank you so much for your time.

Pranav:

While students do generally qualify for exemption from Social Security and Medicare taxes in jobs they have while at the university, it does not affect their income tax rates. I thought you were citing the block next to the signature on the tax returns.

Studfromhawaii:

You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.

If you file as a non-resident alien, you file Form 1040NR by April 15, 2006, in which case you cannot claim the standard deduction. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file as a dual-status alien, you file Form 1040 with Form 1040NR as an attached "statement" to document the income you earned while under the F-1 visa. If you file as a dual-status alien, then you normally will not be allowed to claim the standard deduction; however, that prohibition does not apply to you since you are an Indian citizen. Also, you would file your return prior to April 15, 2006, so Form 4868 would not be needed. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file under the First Year Choice, then you file as a resident alien, which means you can claim the standard deduction. You would file Form 4868 to apply for an extension to file (submitted with a check if your calculations determined that you would owe taxes) so that you would meet the Substantial Presence Test prior to filing your 2005 tax return. Since you are choosing to count your entire 2005 year as a resident alien, filing Form 4883 is not required for 2005. Only by filing as a resident alien can you claim either the Hope Scholarship or Lifetime Learning tax credits.

IMHO, the First Year Choice makes the most sense in order to claim the Hope Scholarship or Lifetime Learning tax credits.

AtlantaTaxExpert

Jan 18, 2006, 12:11 PM

Sudfromhawaii:

Refer to page 9, IRS Pub 519 (which can be downloaded from www.irs.gov as a .pdf document) for details about First Year Choice. Please note that the IRS Pub 519 that is online is for 2004, but the provisions have not changed, so you need to add a year when you read about what to do in which year. i.e. read "2003" as "2004, and "2004" as "2005".

You must effectively be under your H-1B status and physically present in the U.S. for at least 183 days before you can file Form 1040. In your case, that would be sometime around 4 April 2006, which means you probably do not have to file for an extension. You will need to add the statement specified on page 9 of IRS Pub 519, and you would also need to file Form 8863 for whichever education credit you qualify for (see chapter 35 of IRS Pub 17, also downloadable) for details on the Education Credits.

As for accounting for your F-1 status, you claim income earned during the F-1 status on the Form 1040.

You will need to file Form 4883 one last time for 2005.

Your exemption from Social Security and Medicare taxes while on F-1 status still stands. Filing as a resident alien has no effect on that exemption.

studfromhawaii

Jan 18, 2006, 12:38 PM

You ROCK! Thank you so much.

AtlantaTaxExpert

Jan 18, 2006, 01:21 PM

No problem! That's what I here for!

deejay

Jan 18, 2006, 03:39 PM

Hello,

I am a citizen of India, single and was on F-1 until June 26, 2005. My OPT started on April 13, 2005 and I visited in India from May 2 - May 16 2005. Since my F-1 was still valid, I didn't get it extended. I was hired (with OPT) status on June 6, 2005 and my status changed to H1B on October 1, 2005.

I would appreciate if you would answer the following questions:

1) Which forms should I file for my tax returns for 2005?

2) Even though my F-1 expired on June 26, I was told by my student advisor that it would be okay as long as I don't leave the US after that until I got my H1B. That is all fine, but now I don't know how to account for this on the tax forms.

3) What kind of deductions can I claim (standard $3000 + $4500)?

4) My employer didn't deduct SS and medicare taxes while I was still on OPT, but did so after my status changed to H1B. Since my stay under H1B has been < 183 days in 2005, can I claim a refund for the SS and medicare taxes they deducted in 2005? If so, which form do I need to fill?

Please note that I worked at the university (on F-1 status) in Arizona from Jan 2005 until April 2005 and joined work in June 2005 in Oregon. In addition to filing tax returns for both AZ and OR, is there anything else I need to keep in mind while filling the forms?

Please advice. Thanks!

AtlantaTaxExpert

Jan 18, 2006, 08:25 PM

Deejay:

1) Please see my previous answers to StudFromHawaii for the three filing options. They apply to you as well. I recommend you wait and file as a resident alien under the First-Year Choice. You can file in early April after you have been on H-1B status for at least 183 days.

2) Filing as a resident alien relieves you of the requirement to account for your days under F-1 visa status (which is done by filing Form 4883).

3) Regardless of the option you take, because you are an Indian citizen, you will get a $3,200 personal exemption and a $5,000 standard deduction.

4) This last issue is problematic. Before you can claim a refund from the IRS, you have to request your employer refund you the withheld SS and Medicare taxes. If the employer refuses (and he probably will refuse), you must get the refusal in writing. Refer to page 46 of IRS Pub 519 for the details on how to submit a claim for the refund. The Form number is 483. However, the fact that you allowed the F-1 visa to expire, then got a H-1B visa, may cause the IRS to take the position that your intent was to get an employment visa, thus making you liable for SS and Medicare taxes as soon as the F-1 visa expired, if not sooner.

Finally, you should probably get professional tax help to file these forms. I am available if you want; you can contact me at [email protected] for rates and references.

deejay

Jan 19, 2006, 11:57 AM

Thanks! This is very helpful information!

studfromhawaii

Jan 19, 2006, 11:53 PM

Atlanta Tax Expert:

An Indian Citizen I know was in the US on an F-1 visa during the following period:

19th April 2000 – 28th June 2002
26th July 2002 - 19th December 2003
Jan 10th 2004 – July 4, 2004

She left the US on July 4, 2004 because her OPT ended and returned on an H-1B visa sponsored by the State on August 7, 2005. Her H-1B is valid from July 19, 2005 to December 1, 2007. She's filed the 1040NR consecutively all this time. Because of her length of stay in the United States and the change in her visa status, which form(s) does she have an option to file this year and what would prove to be the best way to file her return in your opinion?

AtlantaTaxExpert

Jan 20, 2006, 08:14 AM

StudFromHawaii:

She can file as a non-resident alien (Form 1040NR) because she clearly does not meet the Substantial Presence Test for 2005.

OR

She can file as a resident alien (Form 1040/1040A/1040EZ) under the First-Year Choice if she waits until the second week of Fenruary 2006 to file. By that time, she will have met the Substantial Presence Test.

She gets to claim the $5,000 standard deduction in either case, so it is likely there will be no difference in taxes paid. The requirement for a statement (as required by IRS Pub 519) means she cannot file electronically. She will have to mail the tax return in.

It's basically her choice.

studfromhawaii

Jan 20, 2006, 11:38 AM

Great. Thank you so much for your quick response. You've been extremely helpful.

RAHUL BHOSE

Jan 21, 2006, 10:36 AM

Hi
I am a citizen of India and I had almost similar questions to others. But I would to please clarify the situation.
OPT Started from Jan 20' 2005 and is valid till Jan 20' 2006. My H1B was approved and started work on H1B from Oct 1 2005.
1) As I clear the substantial presence test, am I eligible to file form 1040 NR_EZ?
2) Am I eligible for standard deduction for year 2005? If so what is the standard deduction under the US income tax treaty?
3) Are the forms I would have to file for Federal Income Tax be 1040 NR_EZ and 8843 only?
4)I don't think I would come under dual status as I have met the substantial presence test. Is that correct?
5) Do I have to pay tax on any local bank gains / stock investment gains prior to Oct 2005?
6) Can I claim for stock loss (income - loss = net income) only after Oct 2005? Or can I claim it for the entire year?

Thanks in Advance

AtlantaTaxExpert

Jan 21, 2006, 08:02 PM

RAHUL BHOSE:

1) Yes, you can file Form 1040NR-EZ if that is your desire.

2) Yes, your standard deduction will be $5,000.

3) Yes, to my knowledge, those are your only required forms.

4) You do not qualify for Substantial Presence, at least not yet. If you did, you could not file Form 1040NR-EZ. You can wait until you do qualify for Substantial Presence, at which point you would file Form 1040 with the statemment required by IRS Pub 519.

5 & 6) Yes, you must pay on local bank interest and stock investment gains/dividends, but you can also deduct or stock losses or the entire year.

RAHUL BHOSE

Jan 21, 2006, 08:37 PM

Thank You Atlanta Tax Expert for your very prmpt response. Just wanted to reclarfiy the following

1) From Your prvious posts of three choices
"You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.
"

Is there any tax benefit of one over the other?

2) I was assuming by filing 1040NR EZ, I can avail of the standard deduction which I don't think I could have by the latter two.

3) Would the bank dividends be considered as regular income for the full year or only from Oct 2005 onwards.

Thanks once again.

Regards,

RB

AtlantaTaxExpert

Jan 22, 2006, 12:20 PM

RB:

1) If you file as a resident alien, you may be eligible for certain credits (like the Education Credits) that you cannot claim under the other options. Other than that, the tax liability will probably be about the same.

2) You can claim the standard deduction on all three option.

3) Distributions from a bank are not dividends. They are interest, which will be considered ordinary income for all of 2005.

RAHUL BHOSE

Jan 22, 2006, 01:35 PM

Thank You Very Much, Atlanta Tax Expert. The information and your prompt response has indeed been very helpful

studfromhawaii

Jan 24, 2006, 04:56 PM

You stated that "You will need to file Form 4883 one last time for 2005". Did you by any chance mean Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition? I looked on the IRS website and I wasn't able to locate the form titled 4883. Please advise.
Sudfromhawaii:

Refer to page 9, IRS Pub 519 (which can be downloaded from www.irs.gov as a .pdf document) for details about First Year Choice. Please note that the IRS Pub 519 that is online is for 2004, but the provisions have not changed, so you need to add a year when you read about what to do in which year. i.e., read "2003" as "2004, and "2004" as "2005".

You must effectively be under your H-1B status and physically present in the U.S. for at least 183 days before you can file Form 1040. In your case, that would be sometime around 4 April 2006, which means you probably do not have to file for an extension. You will need to add the statement specified on page 9 of IRS Pub 519, and you would also need to file Form 8863 for whichever education credit you qualify for (see chapter 35 of IRS Pub 17, also downloadable) for details on the Education Credits.

As for accounting for your F-1 status, you claim income earned during the F-1 status on the Form 1040.

You will need to file Form 4883 one last time for 2005.

Your exemption from Social Security and Medicare taxes while on F-1 status still stands. Filing as a resident alien has no effect on that exemption.

AtlantaTaxExpert

Jan 24, 2006, 06:23 PM

It is Form 8843!

studfromhawaii

Jan 26, 2006, 05:04 PM

Thank you.

It is Form 8843!

falcon1

Jan 27, 2006, 08:21 PM

Hi Atlanta,

Thanks again for helping people out here..

I was on OPT from Feb 05 to Oct 05 and then my H1 started from Oct 15, 2005.

- I understand from reading posts here that I can still file as a non-resident and submit 1040 nre and 8843. I have been submitting the same forms since on F1. Is that correct? What are the advantages of submitting as dual-status or as resident?

- Will I be able to take the $3100 standard deduction and the $5000 deduction I had been taking while on F1 due to tax treaty between P@kistan and USA. It looks like I can but I am not sure since I was working fulltime but was on OPT from Feb 05 to Oct 05. The tax treaty doesn't mention workers it just mention students. So while I was on OPT I am still considered a student?

- my current employer had been cutting medicare and SS taxes from Feb 05 to Oct 05. I understand I can get a refund on that. Right? Should I get the refund as part of my tax returns or that should be a separate request to IRS/employer. Will it have any impact on my filing as a non-resident.

Any advice would be greatly appreciated.

AtlantaTaxExpert

Jan 28, 2006, 07:16 AM

Falcon1:

1) There are no advantages to filing dual status. You effectively have to prepare two separate tax returns with no beneficial effects. Hence, you should file either as a resident alien (Form 1040) or as a non-resident alien (Form 1040NR).

If you file as a resident alien, it would be under the First Year Choice, which means you must wait until late April 2006 to file. Further, filing as a resident alien may cause problems in claiming the Social Security and Medicare tax refund by filing Form 843.

For these reasons, you should file as a non-resident alien for 2005 (you must file as a resident alien for 2006). You should also file Form 843 (see IRS Pub 519, page 46, for the procedures) to claim the Social Security and Medicare tax refund.

Be sure to request the refund from the employer first, and get the inevitable refusal in writing (it has to be attached to the Form 843).

falcon1

Jan 28, 2006, 09:44 AM

Hi Atlanta

Thanks for the advice. Will I be able to claim the tax treaty 5000 deduction even though I was on F1 OPT for part of the year Feb 05 to Oct 05? How will it work out?

Thanks again

RAHUL BHOSE

Jan 28, 2006, 12:13 PM

Hi Atlanta Tax Expert,

Had posted a few queries before and received your prompt replies. Thank You very much for that.

1) Wanted to clarify , If I file 1040 NR EZ am I eligible for 2 deductions on 1040 NR EZ
Line 11 : 5000 (clarified this with you previously)
Line 13 : 3000? (is that possible as a F1 student till Sept 30 2005 and then H1 from Oct 1 2005)
If so can you please confirm the amounts for year 2005?

2) If I file 1040 then I guess, I wouldn't be eligible for 2 deductions. Is that right?

Regards,

RB

AtlantaTaxExpert

Jan 28, 2006, 09:18 PM

Rahul:

1) Line 13 will be $3,200.

2) If you file Form 1040, you can claim $5,000 and $3,200 as well.

RAHUL BHOSE

Jan 29, 2006, 12:29 PM

Thank you, Atlanta Tax Expert

Rgds,

RB

shahsanket

Jan 29, 2006, 08:58 PM

Hi,
I was on F1 visa till Feb, 01 - 2005 (on OPT) and was on H1 from February till NOW.
I am married and my wife is not working (She is on H4), which form should I file and what deductions should I get?
Thanks in advance

AtlantaTaxExpert

Jan 29, 2006, 09:53 PM

Shahsanket:

File Form 1040, Form 1040A or Form 1040EZ, which is easiest. You and your wife qualify as resident aliens.

You will get $6,400 in personal exemptions ($3,200 each) and a standard deduction of $10,000.

talich

Jan 31, 2006, 06:39 PM

I'm not sure of my tax status, and maybe someone can help me.

I was in OPT from Jan 2005 to Nov 2005, and this is my 6th year as F1, so I guess for this period I'm resident alien. Then start from Dec 1, 2005 I'm in H1. So I don't know whether I'm dual-status or resident alien. Also wife is in OPT for the past whole year. Can she file jointly with me?

ankit_tax

Jan 31, 2006, 08:30 PM

Hello,
I have simillar problem but bit different.

Here is the scenario:

I was on F1 status(on OPT) in the beginning of the year 2005 and was in North Carolina. On 8th feb I moved to California to find a job and got job over there as a independent contractor. So I was on 1099MISC but still as a student on OPT. No tax got deducted from my paycheck(none -no federal, no state, no medicare and no social security) till 26th sept 2005. I worked there in California and received 20,000$ on my 1099Misc. On 26th September my status got converted to H1b and I moved to Arizona. So I am on w2 now and all regular taxes got deducted from my paycheck. I earned 25.000$ from 26sept 2005 to 31dec 2005.

Now my questions are

1. what is my residency status( resident, non-resident or part year resident) for tax filing purpose? (I changed 3 states and 2visa status during 2005). Do I have to file with dual status?

2. which forms to file for federal income tax purpose? (1040NR, 1040, 1099MIsc or 1040 with schedule C).

3. where do I provide info regarding my OPT status and in which form? As I have to pay only federal and state tax for California.(remember I didn't pay any tax on 1099MISC while I was in california)

4. which state tax forms to file? What I mean by that is do I have to file any part year resident form?
Please let me know the answers as this is bit different situation and I am very much confused.

Thanks in advance,
Ankit

AtlantaTaxExpert

Jan 31, 2006, 08:50 PM

Ankit:

I answered your question on the other post!

Talich:

You need to file as a resident alien, because once you hit the five-year mark, your exempt status for the Substantial Presence Test no longer applied.

Yes, your wife can file jointly with you as a resident alien.

falcon1

Jan 31, 2006, 09:03 PM

Hi Atlanta

This is significant news for me as I thought as long as one is in F1 status, he/she is counted as non-resident.

My 7th year in F1 status started in Aug05 but ended in Oct05 when my H1 started. I will defnitely be considered a resident? Right?

And I can't claim the tax treaty deduction now right?

Are there other deductions I can claim besides the 3100 personal exemption?

Do the SS and medicare taxes that were cut while I was on OPT/F1 have to do with this 5 year limit?

AtlantaTaxExpert

Jan 31, 2006, 09:08 PM

Unfortunately, most people do not bother to tell me how long they have been on F-1 status, so I normally assume it is under five years. If I mis-advised you, you have my apologies.

If you were in your 7th year of F-1 status,then, yes, you definitely qualify as a resident alien. If so, you probably cannot claim any tax treaty exemption.

You can claim a $5,000 standard deduction.

You start paying Social Security and Medicare taxes once you finish the fifth year of your F-1 status.

falcon1

Jan 31, 2006, 09:43 PM

Hi Atlanta,

I am reading the 519 publication and it says that for substantial presence test, one has to be in US for at least 31 days during the current year and 183 days during the 3-year period that includes the current year and 2 years immediately before that.

Does that mean if one willl be a resident after 5+2 years ?

When does the dual-status or first year choice apply?

I couldn't find the 5 year F1 visa limit in the publication. Can you let me know where I can find more information on this.

AtlantaTaxExpert

Jan 31, 2006, 09:56 PM

Falcon1:

Yes, after 5 years on F-1 visa, then two successive years, you will become a resident alien under the Substantial Presence Test. Dual-Status applies in the year the 60th month ends and the 61st month begins. You can do the First Year Choice at that time.

You will not find the 5-year limitation in IRS Pub 519. The issue has come up in the past several years, so I know from experience that the five-year rule applies. If you do not want to take my word for it, you can ask on the forum on www.thetaxguy.com, which specializes in tax returns for aliens. That is where I learned about the F-1 visa 5-year limitation.

talich

Jan 31, 2006, 10:41 PM

Thanks a lot Atlanta. You are really a great help!!

studfromhawaii

Feb 1, 2006, 01:24 PM

This would take care of the Federal Tax part but what about State Taxes? Would I have to continue to file the form N-15, Hawaii Nonresident and Part-Year Income Tax return? Please advise.

Sudfromhawaii:

Refer to page 9, IRS Pub 519 (which can be downloaded from www.irs.gov as a .pdf document) for details about First Year Choice. Please note that the IRS Pub 519 that is online is for 2004, but the provisions have not changed, so you need to add a year when you read about what to do in which year. i.e., read "2003" as "2004, and "2004" as "2005".

You must effectively be under your H-1B status and physically present in the U.S. for at least 183 days before you can file Form 1040. In your case, that would be sometime around 4 April 2006, which means you probably do not have to file for an extension. You will need to add the statement specified on page 9 of IRS Pub 519, and you would also need to file Form 8863 for whichever education credit you qualify for (see chapter 35 of IRS Pub 17, also downloadable) for details on the Education Credits.

As for accounting for your F-1 status, you claim income earned during the F-1 status on the Form 1040.

You will need to file Form 4883 one last time for 2005.

Your exemption from Social Security and Medicare taxes while on F-1 status still stands. Filing as a resident alien has no effect on that exemption.

AtlantaTaxExpert

Feb 1, 2006, 07:27 PM

Stud:

You have to file the Hawaii state tax return as if you were a resident, regardless of how you file the federal return. If you were in Hawaii for all of 2005, file as a full-year resident. Otherwise, file as a part-year resident.

BTW, I made an error of your First Year Choice computation. I counted your entire 2005 H-1B time on a day-for-day basis. You must count 2005 time on a 3-day-for-day basis (you can only count one-third of your 2005 days for the Substantial Presence Test), which pushes your 2006 filing date to early June instead of early April. So you will have to file an extension after all.

Still, In my opinion, filing as a resident alien is the way to go!

studfromhawaii

Feb 1, 2006, 09:00 PM

AtlantaTaxExpert:

Thanks for your quick response once again. I JUST got a reply from Hawaii Taxpayer Services (to the email which I had sent to them on January 24, 2006 copy of which is attached below) stating:
"You will need to continue to file the form N-15, Hawaii Nonresident and Part-Year Income Tax return".

I was in Hawaii for all of 2005 except for the period between August 19, 2005 - September 28, 2005 (I was in India to get my H-1B visa stamped on my passport then).

I would really appreciate it if you could please analyze and let me know when I would be eligible to file my 2005 Federal and State Tax Returns as a Resident Alien since filing as a Resident Alien would be the most beneficial in my situation because I'm really confused. Thanks for your time.

--------------------------------------------------------------------------
Body of email sent to Hawaii Taxpayer Services on January 24, 2006:

Dear Sir,

Aloha! I'm a 24 year old single male from India. I came to USA on
April 19, 2000 on an F-1 Student Visa and have consecutively since
filed the N-15. My H-1B Work Visa got approved effective October 1,
2005 and I went to India on August 18, 2005 to get my visa stamped on
my passport, which was stamped on September 22, 2005 and I returned to
USA on September 29, 2005. What form(s) do I have to use this year to
prepare my State Tax Return?

Correct me if I'm wrong, but my guess is that sometime around 4 April
2006, I would have effectively been under my H-1B status and
physically present in the U.S. for 183 days which would allow me to
file Form 1040 and I will need to add the statement specified on page
9 of IRS Pub 519 and would also need to file Form 8863 for whichever
education credit I qualify. As for accounting for my F-1 status, I
would claim income earned during the F-1 status on the Form 1040. I
would also need to file Form 4883 one last time for 2005.

This would take care of my Federal Tax Return, but as far as the State
Tax Return is concerned, I would appreciate it if you could please
explain which form(s) I should use and where I should mail the
form(s). Thanks.

Stud:

You have to file the Hawaii state tax return as if you were a resident, regardless of how you file the federal return. If you were in Hawaii for all of 2005, file as a full-year resident. Otherwise, file as a part-year resident.

BTW, I made an error of your First Year Choice computation. I counted your entire 2005 H-1B time on a day-for-day basis. You must count 2005 time on a 3-day-for-day basis (you can only count one-third of your 2005 days for the Substantial Presence Test), which pushes your 2006 filing date to early June instead of early April. So you will have to file an extension after all.

Still, IMHO, filing as a resident alien is the way to go!

AtlantaTaxExpert

Feb 1, 2006, 09:28 PM

Stud:

Apparently, your month+ absence triggered the need to file as a part-year resident of Hawaii.

studfromhawaii

Feb 2, 2006, 12:34 PM

AtlantaTaxExpert:

I was advised by someone on the http://www.thetaxguy.com/ Tax Discussion Forum that:

For 2000-2004, your days as an F-1 student were "exempt." For 2005, all of the days you are here (both as an F-1 and as an H1B) count towards the substantial presence test. You appear to have 183 days in the US, so you would be a resident alien for the entire year.

(http://pub33.bravenet.com/forum/2786238237/fetch/640526/)

Does this mean I don't need to file an extension? Please advise.

Stud:

You have to file the Hawaii state tax return as if you were a resident, regardless of how you file the federal return. If you were in Hawaii for all of 2005, file as a full-year resident. Otherwise, file as a part-year resident.

BTW, I made an error of your First Year Choice computation. I counted your entire 2005 H-1B time on a day-for-day basis. You must count 2005 time on a 3-day-for-day basis (you can only count one-third of your 2005 days for the Substantial Presence Test), which pushes your 2006 filing date to early June instead of early April. So you will have to file an extension after all.

Still, IMHO, filing as a resident alien is the way to go!

AtlantaTaxExpert

Feb 2, 2006, 02:42 PM

Stud:

If, in fact, you were in country for all of 2000 through 2004, then they are correct. The F-1 time in 2004 does count for the Substantial Presence Test. There is a five-year time limit for the exemption under the F-1 visa program. Once the sixth year starts, it counts towards the Substantial Presence Test regardless of your visa status.

studfromhawaii

Feb 3, 2006, 02:03 PM

AtlantaTaxExpert:

Thanks for your help. I have been in the US since April 19, 2000 but I did travel while I was on F-1 status and later went to India to get my H-1B stamped on my passport when my change of status was approved. I don't have access to the exact number of days that I was physically present between 2000 through 2004 in the US at the moment. I have that information at home and will post tonight. Until then, here's what thetaxguy forum advisor triad had to say:

1) Can I also deduct interest on my U.S. Credit Cards?

No.

2) Federal Tax Return:
I need to file form 1040, add the statement specified on page 9 of IRS Pub 519, and file Form 8863 for whichever education credit I qualify for and Form 8843 one last time for 2005. Right?

No, you would only file the 1040 and the 8863. The form 8843 is only filed for the first 5 calendar years as an F-1 student. The pub 519/page 9 letter isn't required since you aren't making the "first year choice." (See below.)

3) Someone on another forum advised me that...

That person missed the fact you were in the 6th calendar year as an F-1 student. There is a huge difference between the 5th and 6th year.

In the 6th calendar year (2005), *all* of your days in the US counted (both F-1 and H1B) and since you were here on January 1, 2005, you were a resident for *all* of 2005...you can file at *any* time. (By the way, on December 31st, you already had roughly 120 days towards your 2006 substantial presence test.)

Had you been in your 5th calendar year, you would have been unable to count the F-1 days. Converting to H1B in October of the 5th year would have left you missing the substantial presence test. You would have been considered a non-resident for the entire year. For someone who converted in their 5th calendar year, who wanted to be a resident (say they were married or had bought a house and wanted to be able to itemize mortgage interest), there is a thing called the first-year choice. That would allow the person to become a dual-status alien (NRA through September, RA for October thru December), but this cannot be done until the 2006 substantial presence test is met.

Replying to:

Triad,

I appreciate your quick response.

Yes, the N-15 is the Hawaii Nonresident and Part-Year Income Tax return. I checked with the Hawaii Taxpayer Services and was told that I would need to continue to file the form N-15.

I would appreciate it if you could please clarify the following:
1) Can I also deduct interest on my U.S. Credit Cards on the 1040 form?
2) Federal Tax Return:
I need to file form 1040, add the statement specified on page 9 of IRS Pub 519, and file Form 8863 for whichever education credit I qualify for and Form 8843 one last time for 2005. Right?
3) Someone on another forum advised me that I must count 2005 H-1B time on a 3-day-for-day basis (because I can only count one-third of my 2005 days for the Substantial Presence Test), which pushes my 2006 filing date to early June which means will have to file an extension. But as per your post, I already meet the substantial presence test that would allow me to file my federal taxes as a resident alien. Are you sure about this?

Please advise. Thanks.
--- --- --- --- --- --- --- --- ---
Replying to:

For 2000-2004, your days as an F-1 student were "exempt." For 2005, all of the days you are here (both as an F-1 and as an H1B) count towards the substantial presence test. You appear to have 183 days in the US, so you would be a resident alien for the entire year.

Is N-15 the Hawaii NR return? If so, since you have now accepted a job on an H visa in Hawaii, you will be considered to be non-transitory. You will file, I think, a part year return. Check with a preparer in Hawaii.

Resident aliens can file a 1040EZ/1040A or a 1040. You will be required to report your worldwide income for the entire year. Eligible student loan interest can be deducted on either the 1040A or 1040 form.

Stud:

If, in fact, you were in country for all of 2000 through 2004, then they are correct. The F-1 time in 2004 does count for the Substantial Presence Test. There is a five-year time limit for the exemption under the F-1 visa program. Once the sixth year starts, it counts towards the Substantial Presence Test regardless of your visa status.

studfromhawaii

Feb 4, 2006, 01:51 AM

AtlantaTaxExpert:

FYI, the actual number of days I was present in the United States on F-1 during:
2000: 227, 2001: 316, 2002: 351, 2003: 245, 2004: 366.
2005: H-1B got approved effective October 1, 2005 & I left for India on August 18, 2005 (until which I was on F-1) and returned on September 29, 2005 with the H-1B stamped on my passport.

AtlantaTaxExpert:

Thanks for your help. I have been in the US since April 19, 2000 but I did travel while I was on F-1 status and later went to India to get my H-1B stamped on my passport when my change of status was approved. I don't have access to the exact number of days that I was physically present between 2000 through 2004 in the US at the moment. I have that information at home and will post tonight. Until then, here's what thetaxguy forum advisor triad had to say:

1) Can I also deduct interest on my U.S. Credit Cards?

No.

2) Federal Tax Return:
I need to file form 1040, add the statement specified on page 9 of IRS Pub 519, and file Form 8863 for whichever education credit I qualify for and Form 8843 one last time for 2005. Right?

No, you would only file the 1040 and the 8863. The form 8843 is only filed for the first 5 calendar years as an F-1 student. The pub 519/page 9 letter isn't required since you aren't making the "first year choice." (See below.)

3) Someone on another forum advised me that...

That person missed the fact you were in the 6th calendar year as an F-1 student. There is a huge difference between the 5th and 6th year.

In the 6th calendar year (2005), *all* of your days in the US counted (both F-1 and H1B) and since you were here on January 1, 2005, you were a resident for *all* of 2005...you can file at *any* time. (By the way, on December 31st, you already had roughly 120 days towards your 2006 substantial presence test.)

Had you been in your 5th calendar year, you would have been unable to count the F-1 days. Converting to H1B in October of the 5th year would have left you missing the substantial presence test. You would have been considered a non-resident for the entire year. For someone who converted in their 5th calendar year, who wanted to be a resident (say they were married or had bought a house and wanted to be able to itemize mortgage interest), there is a thing called the first-year choice. That would allow the person to become a dual-status alien (NRA through September, RA for October thru December), but this cannot be done until the 2006 substantial presence test is met.

Replying to:

Triad,

I appreciate your quick response.

Yes, the N-15 is the Hawaii Nonresident and Part-Year Income Tax return. I checked with the Hawaii Taxpayer Services and was told that I would need to continue to file the form N-15.

I would appreciate it if you could please clarify the following:
1) Can I also deduct interest on my U.S. Credit Cards on the 1040 form?
2) Federal Tax Return:
I need to file form 1040, add the statement specified on page 9 of IRS Pub 519, and file Form 8863 for whichever education credit I qualify for and Form 8843 one last time for 2005. Right?
3) Someone on another forum advised me that I must count 2005 H-1B time on a 3-day-for-day basis (because I can only count one-third of my 2005 days for the Substantial Presence Test), which pushes my 2006 filing date to early June which means will have to file an extension. But as per your post, I already meet the substantial presence test that would allow me to file my federal taxes as a resident alien. Are you sure about this?

Please advise. Thanks.
--- --- --- --- --- --- --- --- ---
Replying to:

For 2000-2004, your days as an F-1 student were "exempt." For 2005, all of the days you are here (both as an F-1 and as an H1B) count towards the substantial presence test. You appear to have 183 days in the US, so you would be a resident alien for the entire year.

Is N-15 the Hawaii NR return? If so, since you have now accepted a job on an H visa in Hawaii, you will be considered to be non-transitory. You will file, I think, a part year return. Check with a preparer in Hawaii.

Resident aliens can file a 1040EZ/1040A or a 1040. You will be required to report your worldwide income for the entire year. Eligible student loan interest can be deducted on either the 1040A or 1040 form.

AtlantaTaxExpert

Feb 4, 2006, 10:15 PM

Stud:

Have checked with several sources. Because you were in country for parts of five years, your F-1 status for 2005 is not exempt for the Substantial Presence Test. File Form 1040 and drive on.

studfromhawaii

Feb 5, 2006, 01:06 PM

Vrooooooooooooooooooooooooooooooooooom

Stud:

Have checked with several sources. Because you were in country for parts of five years, your F-1 status for 2005 is not exempt for the Substantial Presence Test. File Form 1040 and drive on.

AjitBhat

Feb 5, 2006, 05:55 PM

Hi Atlanta tax Expert,

I saw that you have helped a lot of people here, so hoping that you will help me too. I am originally from India on F1 from October 12th 2000 - to October 21st 2005 (including OPT period) and on H1B since October 21st 2005 to date. SSN and Medicare was withheld for me from April 12th 2005 to date. I have been filing 1040NR-EZ. MY questions are:

1) What forms do I need to file?
2) Can I get back the SSN and Medicare paid from April 12th to October 21st 2005 by claiming to be NR?
3) What deductions can I claim?

Cordially,
Ajit.

AtlantaTaxExpert

Feb 5, 2006, 08:27 PM

Ajit:

I answered your questions on the other post.

hoppalah

Feb 6, 2006, 09:50 PM

Hi Atlanta Tax Expert:

I am on H-1B since Apr 15 2005: transferred from F-1 (been on F1 since 2002: no OPT). I've been in the US the entire year of 2005 so I guess pass the Substantial Presence test.

I have two W-2s for my H-1B (two jobs since April '05). I also have a 1042-S (fellowship income statement for aliens) that was my fellowship income prior to Apr 15, 2005. Complicating the situation is that one of my W-2s reflects income earned on both F-1 and H-1B status (since my university where I worked part-time before April 2005 was also my full time employer).

My wife was on F-1 OPT but transferred to H-4 on Apr 15, 2005. She has a W-2 for her OPT period income, but (obviously) has no income since being on H-4.

My questions: (both of us are Indian citizens)
1. Is it better for me to file a resident alien return using 1040/1040EZ, rather than a dual-status return ? (I've seen in your previous posts that you advice against filing the dual status return... )
2. Will I be able to file a "married filing jointly" return, although my wife was initially on F-1-OPT and is now on H-4? (In other words, does she need to file a separate return? Her income was <2K in 2005)
3. How much and what would be the deductions (standard or itemized) that we could claim ?
4. Should I attach the 1042-S to my 1040 along with the W-2s?

Thanks in advance for your help!
hoppalah

AtlantaTaxExpert

Feb 6, 2006, 10:09 PM

Hoppalah:

1) File as a resident alien. It's easier and there is no advantage to file as a dual-status alien.

2) Yes, you can file jointly with your wife.

3) You can claim $10,000 in standard deduction and $6,400 in personal exemptions.

4) Yes, that income is taxable and needs to be reported.

hoppalah

Feb 6, 2006, 10:36 PM

Thanks ATE for the quick reply!

Follow-up questions, if you don't mind:

1. Please advise if I should use 1040-EZ versus 1040 ? (This may sound silly, but any help is appreciated in the interest of saving time)

2. Also, in your opinion, will e-filing my return work in my case, even though I have a kind-of complicated return (with 3 W2s and 1042-S)?

Thanks in advance !
Hoppalah

AtlantaTaxExpert

Feb 7, 2006, 09:57 AM

Hoppalah:

If you use tax software, just enter the data and the tax software will print out the appropriate form. I believe that you do qualify to use Form 1040EZ.

Your return is not that complicated. If the software lets you efile and you have a good-sized refund coming, e-filing will expedite the refund. Example: If you efiled today, you would probably get the refund on 17 Feb 06.

sarab376

Feb 7, 2006, 01:31 PM

Hello,
Wanted to get some Expert Insight for my taxes!

My case:
Completed MS in December 2004, On OPT from 12/20/2004 to 12/19/2005
Started H1 on 12/20/2005
Was working with same employer for all of 2005

I guess I file as a Non-Resident Alien

My Doubt:
1. Wat all Deductions do I Qualify for? ( I guess somethins specific to being Indian Citzen? )

2. I paid part of my Tuition fees for my Masters(Completed in 2004) in 2005 -- does that give me any deductions?

3. My employer has taken off only State and Federal taxes.. What is the general approximation as how much % of Federa should I get as refund.. given that I was on H1 for mere 12 days in 2005.

Hope to get some Nice advice and guidance!

Thanks!

AtlantaTaxExpert

Feb 7, 2006, 03:41 PM

SaraB:

1) Since you are an Indian citizen, you may claim the standard deduction ($5,000) and the personal exemption ($3,200). Depending on how much you have paid in state and local income taxes, it may make sense for you to itemize if the state and local tax withholding exceeds $5,000.

2) If you file as a non-resident alien, you may not deduct your tuition and fees nor claim any education credit. If the tuition and fees were substantial, it may make sense to wait until late June to file as a resident alien (under the First Year Choice), in which case you can either deduct the tuition and fees or claim one of the Education Credits.

3) Since you did not tell me how much you made, I can give you no estmate.

sarab376

Feb 8, 2006, 09:20 AM

Thanks a lot ATE!

Well, Just to add more details to my Info..
Total Earnings for me is around $35 K
Federal Taxes $5.5 K
State Taxes $800
Tuition paid for year 2004 studies : $6K

Now... Will there be any Major Change in my refunds if I file as Resident Alien in June Rather then Non-Resident Today?
( Am assuming that if I file today.. I can file as NR rather then dual-status.. is that true? )

And.. Can I have your expertise and services for my tax file preparations?

Thanks!

vramamu

Feb 8, 2006, 10:08 AM

Hi,
I think I have a strange question/ rather dumb question. [since this is the first time I am filing with H-1]

Facts:
I have been on H-1 starting Jan 11, 2005.
Was on F-1 opt earlier.
Went to India for three weeks in Sep, 2005 [if it matters]

As soon as I received my approval, I had asked my employer to deduct medicare/SS taxes, but there was a delay and deductions started only after a month.

1q) Do I have to do anything about it?
2q) what are the forms that I use to file my federal income tax/
What are my deductions?

Other facts:
I was on F1 starting Dec 25,2000 to Jan 10,2005.
Out of that Sep 18, 2004 to Jan 10, 2005, I was on OPT. Never been out of the country in that period.

Thanks and any help us really appreciated.

THanks
Vijay

AtlantaTaxExpert

Feb 8, 2006, 10:25 AM

SaraB376:

E-mail me at [email protected] to discuss your tax situation and my fee structure. BTW, was the $6K in 2005 (instead of 2004). If so, then it will make a significant difference in your taxes if you file as a resident alien.

Vijay:

You must file as a resident alien, as you clearly meet the Substantial Presence Test.

1) If you promptly informed your employer about your change in status, then you did all that was required of you. The responsibility to collect and pay the Social Security and Medicare taxes rests with the employer, not you. The IRS will not hold you responsible if the employer delayed in collecting these taxes from you.

2) If you are single or married with no children, you can file Form 1040EZ. If you have children, you need to file Form 1040A, but will also get a Child Tax Credit ($1,000 per child). If you ran a business or did outside investment which must be reported, you need to file Form 1040. You will get a $3,200 personal exemption and a $5,000 standard deduction regardless of which form you file.

vramamu

Feb 8, 2006, 10:56 AM

Thanks ATE for the response.

Just one more thing.

Since I clear the sub. Presence test, is that I why don't file 1040NR-EZ?
and the 10 days that I was in F-1 OPT [Jan 1 - Jan10] does not affect in any manner.

So in 1040EZ
my annual income + taxable interest from bank [<1500] - 8200 = AGI
and for this AGI I find the tax rate from the tax tables and find out if I get a refund or if I have to pay ; am I rite?

Thanks
Vijay

zatang90210

Feb 8, 2006, 01:47 PM

Hi,
I was on F-1 from 2002 till Oct 2005. Then I changed to H1B with my employer in Oct 2005. I was on F1 working with the same employer from Jan - Oct 2005 on OPT.

I had filed 1040NR-EZ till now for all previous years as I did internships/TA etc on F-1.

For 2005, what forms do I file?

Also, I got married in Dec 2005 and even my wife worked on OPT till Jun 2005 lasy year in NY. Can we (or should we) file joint? What forms?

Now we stay in TX, so can we file joint even though she had worked in NY?

Any help appreciated.

Thanks

AtlantaTaxExpert

Feb 8, 2006, 03:33 PM

Zatang:

I already answered your other post. Please refer to it.

Avalanche

Feb 11, 2006, 06:34 PM

Hi Atlanta,

I have couple of questions about filling the tax forms and I would appreciate any help. I was a student with F-1 in IL between Aug 2002 and Aug 2005. And for the tax years 2002, 2003, and 2004 I filled 1040NR-EZ and 8843 for federal taxes. I also filled IL tax forms as a nonresident. In Aug 2005, I moved to AZ and started to work under OPT. My H1-B was approved in November. Although I haven't gone back to my country and got the visa stamp, I think approval is enough for the change of my status. At least I have been paying Social Security and Medicare taxes since last November. Since I had the H1-B only for 2 months in 2005, I don't pass the substantial presence test. Here are my questions:
1) If I fill the 1040NR as a nonresident for the full year, will having the H1-B for 2 months be a problem?
2) If I decide to go with the first year choice, fill extension forms, and send my tax forms when I meet the 183-day test (around June 2006), can I fill only 1040 as a resident? If so, am I supposed to pay the SS and Medicare taxes for the whole year?
3) Is the definition of residency same for federal and state taxes? As I have already mentioned, I always filled the IL forms as a nonresident. If I choose to fill 1040NR for federal taxes, can I fill both IL and AZ tax forms as a nonresident? What if I wait for the first year choice? Can I still send my state forms as a nonresident?
4) I have two W-2s, one from IL and one from AZ, and I have to attach both to the fed tax form for sure, yet what about the state forms? In my state forms, should I report my whole income or just the portion that I earned in that state?
Thanks in advance.

Regards,
Avalanche

AtlantaTaxExpert

Feb 11, 2006, 08:44 PM

1) You are not a non-resident alien. You are dual-status and, if you do not do First Year Choice, should file a dual-status return. However, with only two months on H-1B, you can probably file a s a non-resident and the IRS will not challenge it, since the tax liability will be the same.

2) You can file Form 1040, 1040A or 1040EZ, whichever one you can qualify for. Filing as a resident alien will have no effect on your Social Security and Medicare tax exemption.

3) Actually, you have filed incorrectly in Illinois for the last three years. While you were a non-resident alien in 2002, 2003 and 2004, you were a resident of Illinois. Probably not a big deal, as it is likely you paid the same or more income taxes than if you had filed as a Illinois resident. Same logic applies to Arizona. File as a part-year resident for both Illinois and Arizona in 2005, then as a resident of Arizona in successive years.

4) When you file the part-year resident tax returns for both states, attach both copies of the W-2s to each return, along with a copy of the other state tax return. However, only report the income earned in each respective state. Providing the extra W-2 and the other state's tax return shows the state authorities that yo are paying taxes in another state and are not trying to short-change them.

Avalanche

Feb 11, 2006, 09:25 PM

Thanks for the quick reply Atlanta. I checked my old IL tax forms. Resident or not, tax is the same as you mentioned. One last question. If I file as a resident alien under 1st year choice, can I use $5000 standard deduction?
Thanks again.
Regards,
Avalanche

AtlantaTaxExpert

Feb 11, 2006, 10:14 PM

Avalanche:

Yes, you can.

That is the primary reason most people opt to wait the 4-6 months needed to qualify under First Year Choice.

goelvicky

Feb 12, 2006, 12:02 PM

I cannot decide if I am eligible to claim the $5000 (or 4850?) standard deduction. I was on an F-1 visa from aug 2000 until Sep 30 2005 (on OPT from June 29 2005 - Sep 30 2005). I have been on H1-B since Oct 1 2005. I suppose that means I count as a non-resident for tax purposes. Firstly, is that correct? If so, I will file 1040NR and not as a dual-status person

(I do not pass the substantial presence test since the number of days of stay in US while not on F-1 visa do not total to 183 days)

Here is my second question. Now, according to pub 519, student/business apprentices who are residents of india (which I am) can claim the standard deduction of $5000 (or 4850?). I am wondering if I qualify since I have been a student for 9 of the 12 months in 2005

I will appreciate some help on these qns
THanks
Vikas

AtlantaTaxExpert

Feb 12, 2006, 10:10 PM

Vikas:

I answered this under the other post!

goelvicky

Feb 13, 2006, 10:15 PM

Atlanta tax expert
Thanks for the reply. I read pub 519 to figure out why I am a dual status alien. But it is not clear to me at all. I believe I do not pass the substantial presence test. And I do not have a green card. I guess that means I am a non-resident for tax purposes. Is that not so?

I think at a higher level, I do not understand how a person could be a resident and a non-resident in the same year. All definitions for these categories that I have seen are based on the substantial presence and green card tests and they seem to specify resident/nonresident alien status FOR THE ENTIRE YEAR.

What am I missing? Also, I got the impression from some of you postings that a dual status alien does not have to pay ANY social sec/medicare taxes. Even on income earned while on h1. Is my interpretation correct?

I appreciate your help
Thanks
vikas

AtlantaTaxExpert

Feb 13, 2006, 11:31 PM

Vikas:

I admit that IRS Pub 519 could have been written a LOT clearer. You need to read it several times to get the intricacies.

As for SS and Medicare taxes, bottom line: You begin paying the day you start on H-1 visa status. The IRS is quite clear on that!

RAHUL BHOSE

Feb 18, 2006, 02:13 PM

Hi Atlanta Tax Expert,

Its been a long time since I have posted regd. Tax returns. Our previous posts are below for your reference.

I had to clarify a few final things and require your help regarding these. Kindly respond.

1) On using a tax software, it enters on line 37 of 1040NR, amount of 1.3K which is way below the standard deduction of 5K I was expecting to be mentioned?
This amount is actually my state and local income tax.

a) Just wanted to clarify who is eligible for claiming 5K standard deduction?
To reiterate, I was on OPT from Jan 2005 to Sept 30 2005 and got H1B on Oct 1 2005.

b)If I claim 5K is the US-India tax treaty Article 21(2)?

c)Could you send me a link where 5K is mentioned as standard deduction. I could not find this.

2) My Bank interest of around 100 is mentioned on page 5 as Non taxable Bank interest using the software? Last time I was told by you, that

bank interests should be treated as regular income. Please clarify?

I was reading Pub 519 (Page 2 of 70) where it is mentioned, under
What's new for 2005?
Dividends Paid to Non Residents: The following dividneds may be exempt from 30% tax
- Dividends paidby foreign corporations
- Interest related dividens
-Short Term capital gains an dividends

Is this gain Non Taxable? As a Non Resident?

I also have just heard from friends ( not a very reliable source though ) that these can be treated as Non Taxable Ban interest.
Please clarify

3) My short term gains and loss though stocks was added and then multiplied by 30% in line 88 of 1040 NR and this amount was then added on line 53 as "tax on income not effectively connected with US trade from page 4 line 88"
I have 2 questions here
- At one place as mentioned, they have said no 30% tax on short term capital gains and dividends
- If it is to be reported as income, should it be reported on Schedule D

4) Is the amount for 401K( retirement plan) to be reported anywhere on the
tax form? The amounts are accumulated every month into my 401K and I did not withdraw it. So I guess all these just accumulates over the years and need not be reported?

Previous posts below for your ready reference

Thanks in Advance

RB

#115 Comment on this Post Jan 21, 2006, 05:36 PM
RAHUL BHOSE
New Member Join Date: Jan 2006
Posts: 5

Hi
I am a citizen of India and I had almost similar questions to others. But I would to please clarify the situation.
OPT Started from Jan 20' 2005 and is valid till Jan 20' 2006. My H1B was approved and started work on H1B from Oct 1 2005.
1) As I clear the substantial presence test, am I eligible to file form 1040 NR_EZ?
2) Am I eligible for standard deduction for year 2005? If so what is the standard deduction under the US income tax treaty?
3) Are the forms I would have to file for Federal Income Tax be 1040 NR_EZ and 8843 only?
4)I don't think I would come under dual status as I have met the substantial presence test. Is that correct?
5) Do I have to pay tax on any local bank gains / stock investment gains prior to Oct 2005?
6) Can I claim for stock loss (income - loss = net income) only after Oct 2005? Or can I claim it for the entire year?

Thanks in Advance

RAHUL BHOSE
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#116 Comment on this Post Report Inappropriate Post Jan 22, 2006, 03:02 AM
AtlantaTaxExpert
Tax Expert Join Date: Feb 2005
Location: Atlanta, Georgia
Posts: 1,131

RAHUL BHOSE:

1) Yes, you can file Form 1040NR-EZ if that is your desire.

2) Yes, your standard deduction will be $5,000.

3) Yes, to my knowledge, those are your only required forms.

4) You do not qualify for Substantial Presence, at least not yet. If you did, you could not file Form 1040NR-EZ. You can wait until you do qualify for Substantial Presence, at which point you would file Form 1040 with the statemment required by IRS Pub 519.

5 & 6) Yes, you must pay on local bank interest and stock investment gains/dividends, but you can also deduct or stock losses or the entire year.
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#117 Comment on this Post Jan 22, 2006, 03:37 AM
RAHUL BHOSE
New Member Join Date: Jan 2006
Posts: 5

Thank You Atlanta Tax Expert for your very prmpt response. Just wanted to reclarfiy the following

1) From Your prvious posts of three choices
"You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.
"

Is there any tax benefit of one over the other?

2) I was assuming by filing 1040NR EZ, I can avail of the standard deduction which I don't think I could have by the latter two.

3) Would the bank dividends be considered as regular income for the full year or only from Oct 2005 onwards.

Thanks once again.

Regards,

RB

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#118 Comment on this Post Report Inappropriate Post Jan 22, 2006, 07:20 PM
AtlantaTaxExpert
Tax Expert Join Date: Feb 2005
Location: Atlanta, Georgia
Posts: 1,131

RB:

1) If you file as a resident alien, you may be eligible for certain credits (like the Education Credits) that you cannot claim under the other options. Other than that, the tax liability will probably be about the same.

2) You can claim the standard deduction on all three option.

3) Distributions from a bank are not dividends. They are interest, which will be considered ordinary income for all of 2005.
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RAHUL BHOSE

Feb 18, 2006, 02:28 PM

Hi Atlanta Tax Expert,

Just to clarify point 2 in my previous post
"My Bank interest of around 100 is mentioned on page 5 as Non taxable Bank interest using the software" This is Line 5 of form 1040 NR stating
" L Have you excluded any gross income other than the foreign source income not effectively connected with a US trade or business "
And this was ticked marked as "yes"

Kindly respond to the previous post

Thanks and Regards,

RB

AtlantaTaxExpert

Feb 18, 2006, 04:49 PM

Rahul:

1a) In my opinion, you are eligible for the $5,000 standard deduction. You may have to over-ride the software.

1b) The article you cited [21(2)] is correct for the $5,000 standard deduction.

1c) The standard deduction is $5,000. You can verify this by looking up IRS Pub 501 from www.irs.gov.

2) If you file as a non-resident alien, then the bank and dividends are not taxable (I do not believe this filing option is available to you, given the fact you have switched over to H-1B status). If you file as a resident alien, they are taxable. If you file as a dual-status alien, the interest/dividends earned while under the F-1 visa are taxable at a 30% flat rate unless the India-U.S. Treaty sets a lower rate (which it does not), but the interest/dividends earned while under the H-1B visa are taxable at normal U.S. tax rates.

3) The software has it right if you did the stock transactions under the F-1 visa. The dual-status makes money made on stock transactions, dividends and bank interest taxable at a 30% rate. I had to do some research to verify this.

4) It is reported by tax software for resident/U.S. citizen returns on the W-2 mask. It is probably not needed for a non-resident or dual-status returns.

Some of your questions require a lot of research, which I do not have time to do in my busy season. Your software is accurate in some areas, but not in others. Remember, the software does not think and does not have experience or judgement.

If you have extensive stock transactions, dividends and interest, you really need to get professional tax help, especially if you will file a dual-status return.

RAHUL BHOSE

Feb 18, 2006, 05:40 PM

Thank You very much for your prompt response, Atlanta Tax Expert,

From our previous discussions it does look like I qualify filing as a non resident alien as my H1B started on Oct 1 2005 (and was on F1 from Aug 2002-Sept 302005) in which case I would not clear the substantial presence test?
Which would imply regd. You
Point 2) the bank interest would not be taxable in that case ?

Regd point 3) I did some transactions before Oct 2005(F1) and during and after Oct 2005(H1B) but if I file as Non resident because of the above stated(not clearing substantial presence test), Could I consider net gain taxable at 30% rate?
If I mention the gains under these, I need not have to fill Schedule D, right?

Though all these are nominal amounts, I would not want any errors from my side, hence wanted to clarify from you.

Thanks & Regards,

RB

AtlantaTaxExpert

Feb 18, 2006, 06:18 PM

RB:

You cannot file as a non-resident alien. Your only options are dual-status or resident alien.

In either case, the bank interest, the dividends and the stock transaction are taxable. The only issue is at what rate:

30% as a dual status alien

OR

Normal tax rate as a resident alien (probably 15%; maybe 25%).

Your choice!

RAHUL BHOSE

Feb 18, 2006, 09:00 PM

Hi Atlanta Tax Expert,

I guess I am back to Square one again.
Few months back, I was confused as to whether I was a resident or non resident for tax purposes, and on reading previous posts, your reply to my posts and Pub 519, it looked like I was a Non Resident Alien for Tax purposes for 2005 as I would only complete the substantial presence test 183 days from Oct 1 2005 (as this was the time my H1B began) , after which (April 1 2006) I would be a Resident Alien?

I thought I had three choices
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice

I would request you to clarify this basic question?

Thanks & Regards,

RB

AtlantaTaxExpert

Feb 18, 2006, 10:46 PM

RB:

Further research and a detailed reading of an article in Tax Professional Quarterly has caused me to revise my guidance. If you have more than several weeks on H-1B status, you are a dual-status alien, period! There can be no option to file as a resident alien.

That does not mean you won't get away with filing as a non-resident alien. Such filings are done all the time and are never noticed by the IRS. However, as the resident expert to this forum, I cannot advice such a course of action because it is contrary to my current interpretation of the Internal Revenue Code.

RAHUL BHOSE

Feb 18, 2006, 10:59 PM

Thank You Very Much, Atlanta Tax Expert

Your prompt replies have been very helpful

Regards,

RB

goelvicky

Feb 19, 2006, 04:53 PM

Hi AtlantaTaxExpert
I read Pub 519 several times to figure out why I am a dual status alien (like you said I am). My background info is as follows.

* am citizen of india
* Entered US in Aug 2000 on F-1
* Was on F-1 until Sep 30, 2005. Filed 1040 NR for 2000-2004
* Switched to H-1 on Oct 1, 2005

Question of course is: what is my tax status for 2005.

My understanding is for 2005 I do not pass the substantial presence test since being on an f-1 visa until sept 30, 2005 makes me an exempt individual for jan 1, 2005- sep 20 2005. And that these days do not count to the substantial presence test. So I should be a Non-resident.

The only possible catch is that I have already filed as non-resident for 5 successive years (2000-2005) and it seems (though is not clear) that the exemption as student can be claimed for 5 years only. If that rule is applicable, I would be a resident alien.

In fact, I called up the IRS and asked them whether I am a resident, non-resident or dual status. The lady said people can be dual status only in the year in which they enter or leave the US. So I cannot be one. She was not totally sure about the 5 year restriction on the exemption in the substantial presence test but after some research she said she thinks that I can claim the exemption and that I am a non-resident.

Given that you told me I am a dual-status, I am not sure what status to file as. I would really appreciate if you could help me to understand why you said I have to file as dual status. (I have a feeling my tax return would look fairly similar, except for interest earnings, if I were to file as a resident or non-resident; cannot say about dual status)
Thanks
Vikas

AtlantaTaxExpert

Feb 19, 2006, 10:03 PM

Vikas:

I do not recall seeing the 2000 - 2004 timeframe in your original account, Be that as it may, based on the input above, you are a resident alien, as the maximum five-year rule under F-1 status applies.

Ignore what the IRS lady said. Most of the IRS (or, for that matter, tax preparers) do not deal with resident and non-resident aliens, so they do not know the rules very well. When you are on F-1 status, it is as if you are not even in the United States. That lasts only for five years, and any day in the year you are in the U.S. under the F-1 visa uses up the entire year.

You have used up the F-1 visa exemption in 2004. For this reason, you can file as a resident alien in 2005.

RAHUL BHOSE

Mar 1, 2006, 05:31 PM

Hi Atlanta Tax Expert,

Just had one more question.

If I file as "first year choice" after June 3rd,from what I have read, I need to file 1040NR and 1040.

In this case can I claim itemized deduction of local income tax on 1040 from oct 2005 - dec 30 2005 and standard deduction of 5000 for 1040NR from jan 2005- sept 30 2005?

Thanks in Advance,

Regards,

Rahul

AtlantaTaxExpert

Mar 1, 2006, 09:44 PM

Rahul:

If you file First Year Choice, you need only file the Form 1040. You can claim the itemized deduction (which includes the state and local taxes you paid) or the $5,000 standard deduction, whichever is more. You cannot claim both!

Filing both 1040 and 1040NR is for a dual-status return, which no longer applies (see my sticky note posting)

fastclock

Mar 7, 2006, 01:50 PM

Hi,

I have another question that bugs me... I am filing residents alien (H1B) for tax purpose (1040A). I have a child born in the US, and another one that holds H4 visa.

Is this correct that I can claim Child Tax Credit on the child born in the US (since he's a citizen), but I can't on the child that holds H4 visa since she's not a US permanent resident?

I think the term qualifying Child Tax Credit that says: The dependent must be a U.S. citizen or resident means the dependent has to be a US permanent resident and not a resident alien for tax purpose.

However I need to ask the question anyway because a tax helper says otherwise.

Thanks

AtlantaTaxExpert

Mar 7, 2006, 09:39 PM

If your H4 child meets all the criteria for dependency as specified in IRS Pub 17, then he/she qualifies for the Child Tax Credit.

He/She may not qualify for the Earned Income Credit, however.

fastclock

Mar 9, 2006, 08:12 AM

Thanks. She is qualified for the child tax credit, the only part I was not clear was whether her H4 status would cause her to be ineligible.

AtlantaTaxExpert

Mar 9, 2006, 10:19 AM

Glad to help!

AjitBhat

Mar 19, 2006, 09:42 PM

Hi Atlanta Tax Expert,

Details :
* I am citizen of india
* Entered US in Oct 2000 on F-1
* Was on F-1 until Oct 21, 2005 (Worked on OPT from Apr 12,2005 - Oct 21, 2005)
* Switched to H-1 on Oct 21, 2005

My Questions:
1) What forms do I need to file?
2) Can I get back the SSN and Medicare paid from April 12th to October 21st 2005 by claiming to be NR?
3) What deductions can I claim?

Your Answer:
1) Since you came in country in 2000, the five-year time limit for the exemption allowed under the F-1 visa is up. All of the time you spent in 2005 is eligible for the Substantial Presence Test. File Form 1040.
3) You can claim the Aper deduction ($5,000) and a personal exemption ($3,200) for yourself and your spouse and children (if applicable).
2) file Form 843 to claim the refund for SSN and Medicare. The fact that you are filing as a resident alien is irrelevant.

Can you please clarify the 2) answer you have, as the p519 page 46 says I am not eligible for SS / Medicare exemption as I am a resident alien for tax purposes, so does the website http://www.utexas.edu/international/taxes/Form843require.html recommended by IRS.

Any help is greatly appreciated.

Cordially,
Ajit.

AtlantaTaxExpert

Mar 19, 2006, 10:09 PM

Ajit:

I have modified my guidance since I posted that answer.

The website is correct.

You cannot claim the exemption if you file as a resident alien.

AjitBhat

Mar 19, 2006, 10:50 PM

Sorry, I haven't been checking the forums.
Looks like my new laptop is gone in smoke... sigh!

Thanks for your advice,
Ajit.

paramthegreat

Mar 28, 2006, 02:51 PM

Hi AtlantaTaxExpert,

Thank you very much for your previous response to my posts. I have a new question for you though. But let me post my first question, so that you can see the context easily.

Hi everyone,

I am a single individual from India. I am trying to file taxes for year 2005 (actually just calculating to get an estimate). I have been on F1 from Sep 2001 till May 2005. I was never on OPT due to some mistakes made by my school. Also I did not have any earnings between Jan 2005 and July 13, 2005. I had filled my application for H1 in May 2005 and I got my H1 approved with start date of July 13, 2005 with a consulting firm.
Also, I have never left the US between Sep 2003 and now.

Now based on the posts in this thread and above information, please comment if the conclusions I have made are correct:
1. I do not pass the substantial presence test of being on H1 >= 183 days for 2005. That means I am considered a non-resident alien.
2. I can file the form 1040NR and can take standard deduction (which was $3000 for 2004) for 2005
3. I can take another deduction due to tax treaty with india (again $4850 for 2004) for 2005

I will sincerely appreciate all your help,

Thanks,
Parminder

And your response was

Parminder:

Your are correct that you can file as a non-resident alien, in which case you, as an Indian citizen, are entitled to claim a personal exemption of about $3,100 and the standard deduction of $5,000.

Further, you have the option to file as a resident alien, which means filing a Form 1040/1040A/1040EZ. I believe you will find the tax to be the same (but go ahead and do it both ways to be sure).

For 2006 onward, you will have to file as a resident alien.
Now for my question. My wife has been on F-1 in the USA for entire period of 2005. She was a full-time student & was working as an intern so she has made taxable income. But the company she was working for choose to not withhold any Federal taxes and gave her a 1099-C instead. Since we are in Texas, fortunately we do not have to deal with state tax. We were not married in 2005, but we were staying together for the past 2 years. We got married in Jan 2006. I have the marriage certificate from India to prove this.

My question is, Can we file our taxes jointly as married couple or do we have to do separate taxes. When filing individually, I am looking at a refund of approx $1200 and she is having to pay $1700. If we can file jointly, then I was hoping that we could keep our deductions and would have to send only the difference 1700-1200=500 to IRS. I want to avoid having to send a big chunk now to IRS and wait for my refund.

Thanks a lot,
Parminder

quin

Mar 28, 2006, 09:43 PM

Hi, I am an international student from India and I was working on OPT from 1 Octber 2005 till the end of year. I applied for my H1 in August 2005 and got approval in November 2005 for start date of H1 from 12 Feb 2006. Now which form do I need to fill for federal returns. Can I still fill 1040NR-EZ and take both the standard deduction of $5000 and personal excemption of$3200?? Also in 2006 which form will I need to fill??

Also I got around $300 in interest from my bank(savings account). Do I need to mention this to federal or state returns(being on F1)??

Thanks in advance

atesfu

Mar 29, 2006, 01:23 AM

My son was born Dec. 28, 2005. Can I claim him?

quin

Mar 29, 2006, 04:19 PM

Hi Atlanta Tax Expert,
Can you please help me with these questions. I would really appreciate it.
Thanks,

Hi, I am an international student from India and I was working on OPT from 1 Octber 2005 till the end of year. I applied for my H1 in August 2005 and got approval in November 2005 for start date of H1 from 12 Feb 2006. Now which form do I need to fill for federal returns. Can I still fill 1040NR-EZ and take both the standard deduction of $5000 and personal excemption of$3200???? Also in 2006 which form will I need to fill???

Also I got around $300 in interest from my bank(savings account). Do I need to mention this to federal or state returns(being on F1)???

Thanks in advance

AtlantaTaxExpert

Mar 30, 2006, 11:05 AM

Atesfu:

Yes, you can claim your son.

Quin:

File Form 1040NR. You can claim the standard deduction of $5000 and personal excemption of $3200. You must also claim the $300 in interest earned in your savings account.

paramthegreat

Mar 30, 2006, 01:10 PM

Any inputs of my post #190 please.

Atesfu:

Yes, you can claim your son.

Quin:

File Form 1040NR. You can claim the standard deduction of $5000 and personal excemption of $3200. You must also claim the $300 in interest earned in your savings account.

quin

Mar 30, 2006, 01:18 PM

Thanks AtlantaTaxExpert, but how do I claim for my interest of savings account? Do I need to fill any other form for that? Can I fill 1040NR-EZ instead of 1040NR?? What difference does it make if I fill either of these (I don't have any dependents)...
Thanks,

AtlantaTaxExpert

Mar 30, 2006, 11:51 PM

Quin:

Unfortunately, you cannot claim interest on Form 1040NR-EZ. That's why you must use Form 1040NR.

quin

Mar 31, 2006, 11:08 AM

This is what I got from instructions for form 1040NR (for line 9a and 9b)...

"If you received interest not effectively connected with a U.S. trade or business, report it on Form 1040NR page 4, unless it is tax exempt under a treaty and the withholding agent did not withhold tax on the payment. See Pub. 901 for a quick reference guide to the provisions of U.S. tax treaties. In addition, interest from a U.S. bank, savings and loan association, credit union, or similar institution, and from certain deposits with U.S. companies, is tax exempt to a nonresident alien if it is not effectively connected with a U.S. trade or business."

From what I can understand it says that we need not report these interests... Am I right?? Please help clarify this point...

Also do you mean that we need to report it and then claim for an excemption?? If so then how to do it??

Quin:

Unfortunately, you cannot claim interest on Form 1040NR-EZ. That's why you must use Form 1040NR.

AtlantaTaxExpert

Apr 1, 2006, 11:54 AM

The exemption I spoke of is the personal exemption of $3,200. That exemption is not related to the interest that must be reported as taxable income.

Where did you get the money that earned this interest? If the answer is from a job located in the U.S. then the interest IS considered to be connected to a U.S. trade or business and is fully taxable.

Interest income that is not effectively connected with a U.S. trade or business is documented with other audit trail forms, such as Form 1042-S. It IS taxed, but at a different rate than normal interest, as documented on Page 4 of Form 1040NR.

iamian

Apr 5, 2006, 07:28 PM

Hi,
I was on OPT until May 31 and my H1B started on June 1. I had no income on OPT.
Can I file a resident return with 1040EZ and claim the exemption and standard deduction, instead of a dual-status return.
Thanks.

AtlantaTaxExpert

Apr 6, 2006, 04:24 PM

Yes, file as a resident alien, filing Form 1040EZ.

Do NOT file as a dual-status alien; it does not apply in your case.

engdude

Apr 7, 2006, 10:09 PM

Hi,

My situation is similar to the previous poster "iamian" but I would appreciate your reasons for filing the tax under Residency status instead of dual resident. To give you a better picture of my case

1) been on F-1 from July 2002 - may 2004.
2) continued on OPT ( still F-1) from June 2004 - May 31st 2005 ( Have a separate W2 for this time)
3) Turned to H1 status on June 1 - till date (have a separate W2 with SS tax deductions for this period)
4) I am fron India
5) I am single

From 3) , Its clear that I pass the substantial presence test thereby I should be a "resident"
But since this is my first year as resident ( bcos I was exempt as a student under F-1 from 1 and 2 ), I I am in a "dual status".
From 5) ( being single) , I cannot "choose" to be a residing alien (I do not satify the rules.. accordnig to the rules in Pub 519 "You are married to a U.S. Citizen or resident alien at the end of the year")

Insofar (without taking into account the fact I am from India) , it seems to be that I need to file my tax under dual status using 1040 ( NO standard deduction, only itemized deduction, mostly of state and local taxes) and I can take a personal exemption of $3200.

But, how does 4) being frm India affect my standard deductions / emeptions? Can I take the $5000 deduction off from my non-resident portion of Income( first W2). If so, do I fill that standard deduction in the 1040 form, instead of itemized deductions (inspite of the fact that dual status doesn't allow to make use of standard deduction, but arguing that the special case of Indian student allows me to make use of the deduction)? Is that the reasoning you apply when you had replied to "iamian" previously to file as resident status? Even still, I would have to file as dual status and send in the additiona 1040 NR as a "dual status statement" for proof of the non resident income portion ? Correct?

I understand that this issue has been discussed earlier, but I couldn't find a similar scenario and the reasons for the suggested option to file under. I appreciate your time and clarifications once again.

Thanks,
MB