Atlanta Tax Expert,

I have been following this forum for some time now and I really appreciate all your help and advice.

I entered the US in 2002 on an F1. I recently transitioned to an H1 on October 1, 2005. This is the summary of my stay in the US so far:

2002 - Entered US on Dec 27 2002 on F1 – Days in US - 4
2003 – F1 – Days in US - 365
2004 – F1 – Days in US - 347
2005 – F1 (OPT) till September 30, 2005 – Days on F1 OPT – 273
H1B from Oct 01, 2005 – Days on H1B – 92

I filed 1040NR EZ for 2002, 2003 and 2004. I have claimed Tax treaty benefits from India in 2003 and 2004.

I am a single, Indian citizen. I started working with my employer when I got my OPT in Jan 2005.

My questions are:

1. Am I a resident alien for tax purposes?
2. How do I show the F1 – H1 split for 2005?
3. What form should I use to file my returns?
4. Can I claim the India Tax Treaty benefit for a 3rd consecutive year?

I tried using CINTAX for preparing my returns and it determined I was a NR Alien and wasn’t eligible for tax treaty benefits as my status had changed from a student to a worker.

Please advise.

Thanks.

Atlanta Tax Expert,
My questions are:

1. Am I a resident alien for tax purposes?
2. How do I show the F1 – H1 split for 2005?
3. What form should I use to file my returns?
4. Can I claim the India Tax Treaty benefit for a 3rd consecutive year?

I tried using CINTAX for preparing my returns and it determined I was a NR Alien and wasn’t eligible for tax treaty benefits as my status had changed from a student to a worker.

Please advise.

Thanks.


I was on the same boat last year... jan-oct opt oct-dec h1

1) You will be Non Resident for tax purpose as you are less than 183 days for substantial presence test.

2) I did not do any splits.

3) I used forms 1040NR-EZ + 8843 forms.

4) Yes you can claim the India-US treaty deductions( I do not know much is it this time).

Thanks Verdict. I wonder why the CINTAX software determined I wasn't able to claim tax treaty benefits.

Atlanta Tax Guy / David: Could you please confirm/verify. Thanks a lot.

Confirm. It looks good to me. Of course, it's almost 2 A.M. and I am rather tired, so anything may look good to me. :-)

Of course, it's almost 2 A.M. and I am rather tired, so anything may look good to me. :-)

That's a pretty indifferent response. Wasn't expecting this after reading all your responses on this forum and others.

Thanks.

VOC:

Look, I am a rather serious guy. Sometimes, however, I like to be a little silly, hence, the smiley face.

In short, Verdict's response seems to be accurate.

I understand A.T.E. I appreciate your assistance on this forums and others.

Verdict:

Were you able to claim 3100+4850 in deductions last year? I need to know so I can do the same this year (3200+5000).

This would make a big diffrence in my refund. Do let me know.

Please advise.

Thanks

[email protected]

v0C:

See his answer below:

4) Yes you can claim the India-US treaty deductions( i do not know much is it this time).

This being the case, he did claim both personal exemption and standard deduction. If you are from India, so can you!

Thanks A.T.E.

Here's another response I recieved:

Your F-1 days do not count towards the substantial presence test for the first 5 calendar years of your presence here in the United States.

Thus, the only days that will count towards the substantial presence test will be the 92 days from Oct. 1, 2005 to December 31, 2005. In this case, you have a choice between being taxed as a nonresident for the last 92 days of the year, or filing a first-year alien’s election to be treated as a resident, starting October 1, 2005 (assuming you will have 153 days of presence in 2006).

Ordinarily, the $5,000 standard deduction is not available to a nonresident alien; however, a student from India can claim Treaty benefits and claim the $5,000 standard deduction. I believe that the $5,000 standard deduction would not be allowed in your case unless you make the first year alien’s election.

The $3,200 personal exemption will be available even if you don’t make the first year alien’s election to be treated as a resident.

As a student, you may claim treaty benefits for payments which arise outside of the United States for the purposes of your maintenance, education or training. You may claim treaty benefits for any period of time that you are a nonresident, but not for any period in excess of the time as may be reasonable or customarily required to complete the education or training undertaken.

I don’t see how you can claim treaty benefits for payments received from a U.S. employer.
:confused:
How do I file a first year alien's election to be treated as a resident. Which forms should I use (1040NR and 8843)? Is there something different I need to do to show that I am making that selection?

Here's more from that respondent:

Assuming that you file the first year alien’s election, you will need to file a Form 1040 with a supporting schedule showing your income the first 9 months of the year. You will also need to attach Form 8833 for treaty benefits. Yes, Form 8843 will be required. You will not be able to file your returns until you satisfy the substantial presence test in 2006 (probably after 153 days).

The contents of the first year alien’s election can be found in Reg §301.7701(b)-4 or Publication 519.

V0C:

From where did you get this information?

I got it from www.accountantsworld.com

Can you offer some more insight into this matter?

I went to H&R and they weren't too sure either. I never thought a tax return would be this complicated!

The main idea of bieng a R or NR will be directly refelected as wrong based on the Replies from whoever gave you that information.

The very first line of who should file a 1040R or NR clearly states your substantial presence test. Which you fail because you were only 92 days on h1B.

So in this case you have to file 1040NR. Regarding the treaty benifts. You can claim them as long as you are not staying continiouly more than 5 years on the same F1.

Things look complicated if you think they are complicated and it will be the other way round if you think they are straight forward.

Even if IRS comes no where it states that you have violated any of their rules. So I am not understanding your point.

AS you said even the H&R block could not solve your issue, direclty implicates that there isn't much information for these kind of situations and filling based on what looks correct in the TAX Publications should solve your problem.


Let me even put this... If you want to file under regular 1040. There are what is called as 5000 in standard dedcutions which is eqaulent to your Treaty deductions of 5000. So even in the worst case you are not doing anything wrong.

So Peace Up and file 1040NR with 8843.

Verdict:

I agree that IRS Pub 519 could be clearer, but tax treatment of resident and non-resident aliens are driven in large part by the individual tax treaties that have been negotiated with the various countries around the world. Hence, it is a subject that defies simplification.

Now, your advice to v0c2000 is one way to deal with the issue. If he filed as such, it it likely the IRS will accept the return and not challenge it, even though the last page of both Form 1040NR and Form 1040NR-EZ, if filled in correctly, would tell the IRS that v0c2000 was filing an inaccurate return.

Filing Form 1040NR is not, however, the technically correct way to deal with his situation.

If he does not file as a resident alien under the First Year Choice (which means he must wait until early June before filing), he must file a dual-status return, which requires filling in both Form 1040 and Form 1040NR. That is, as I stated earlier, an excessive paperwork drill which has little value-added to the process.

BTW, in all three ways (resident, non-resident, dual-status), it is likely that v0c2000 will pay the same amount of tax.

A.T.E.'s last response seems to have cleared much of the water I muddied!

I have two objectives, like most people:
1. To file a tax return that won't be challenged.
2. To legally pay as little tax as I am required to.

Several sources have told me that either way I am entitled to the 3200 and the 5000 deductions.

I will have to see what filing the 1040 (as opposed to the 1040NR) entails. As of now I know it invloves:
1. Applying for an extension
2. Preparing a schedule for the months from Jan to Sep 2005

I wish I could use Verdict's approach, but I am afraid it may not be 100% fail safe. Using the 1040NR approach is technically wrong as ATE pointed out. But I also know several people who have used this approach with a good measure of success.

I suppose I'll research the issue some more before I make a final determination. In the interim, please keep me posted if you find anything more.

I really appreciate all your efforts ATE and Verdict. Thanks.

Here's another opinion I got from a leading tax attorney specializing in taxes for foreigners.

1. Am I a resident alien for tax purposes?
You were an “exempt individual” (exempt from counting days for purposes of the 183-day substantial presence test) for 2002 through 5. You must include a Form 8843 with your nonresident return for the F-1 period.
Since you did not have 183 countable days in H-1B status, you are a nonresident alien for 2005.

2. How do I show the F1 – H1 split for 2005?
See question D on the Form 1040NR or 1040NR-EZ which asks for type of entry visa (F-1) and current status (H-1B) and date of change..

3. What form should I use to file my returns?
Form 1040NR or 1040NR-EZ. See page 1 of the instructions to see if you qualify to use this return. They increased to amount of wages that you can earn and still use this return to $100,000.

4. Can I claim the India Tax Treaty benefit for a 3rd consecutive year?
You can claim the India Tax Treaty benefit since you were a student for part of the year. Under Article 21 you can take the standard deduction to offset your income while in F-1/OPT. Since this will obviously not exceed your OPT income, there should be no issue with claiming it.

5. Can I claim the $5000 and the $3200 deductions?
You can claim the personal exemption amount for yourself. I do not know of any other deduction that you are entitled to. The Student/Trainee Article in the treaty with India does not have a compensation benefit such as the $2000 to $5000 exemption in other treaties.

6. Can I file as a first year alien and claim resident alien status?
You can make the first-year choice election as explained in IRS Publication 519. If you make this election, you will be a part-year nonresident and a part-year resident. It’s worth doing if you have deductions such as mortgage interest and real estate taxes that you can claim as a resident, but not as a nonresident. (Deductions would be for amounts paid during the residency period only.) These are complicated returns and not explained very well in IRS publication 519.

Vindicated!

But if you file an extension and wait to file the 1040 under First Year Choice, you do NOT have to prepare a schedule for the months from Jan to Sep 2005

Thanks ATE

Dear experts,
My situation is similar. OPT Jan. 2005-August 19, 2005. Then, H-1, August 19,2005--December 2005. The only difference is I bought a house and paid mortgage for the whole year in 2005, so where do I put the mortgage interest deduction on form 1040NR-EZ? If I choose to use 1040 and 1040NR, do I need to split the income and tax withheld?

Silverstar:

There is nowhere on a daul-status return to claim mortgage interest, because dual-status aliens are not eligible to claim the mortgage interest deduction.

To claim this deduction, you must file as a resident alien under the First Year Choice.

After a lot of deliberation I have decided to file a 1040NR. Its not perfect, but it works.

Are you using $5000 standard deduction with 1040NR ?

DealsBoy

Yes, the 3200 exemption and the 5000 deduction.

Are you still using CINTAX. I am thinking of buying it.

CINTAX won't let you claim both deductions, so I am not using it. I will use it to go as far as possible, and will then copy it by hand on the 1040NR I guess. The calculations are pretty easy so it shouldn't be a problem even if you wanted to do it all by hand.

The other alternative is to use CINTAX as a referene. Deduct 5000 from your income and plug in that value as your actual income. This will give you an accurate idea of your tax liability. So if your income was 70K, you punch in 65K. CINTAX will then apply a 3200 expemtion and tell you what your tax bill is. Don't SUBMIT the CINTAX return though, use it just as a guide to complete the actual 1040NR.

Another caveat, I have been advised to file a 1040 after May 15 by 3 experts. This lets you file as a first year resident. I am filing the 1040NR so I can get my refund sooner.

Atlanta Tax Expert and others:

What happens to my SS and Medicare taxes if I elect to file as a first year resident? Do I have to pay SS and Medicare taxes for the full year (2005) or just the part I was on H1?

Please advise.

Just the part that you are under the H-1.

Payment of SS and Medicare taxes is driven exclusively by your visa status, not your filing as either a resident or non-resident alien.

I also have the similar question. Did you find the answer for your question. I appreciate your info.

Thanks Mahesh

Mahesh:

I am planning to file an extenstion till June 2006. I will then file as a resident under the first year choice provision.

I originally planned to file using an 1040NR but was advised against it. I guess a lot of people have filed successfully using the 1040 NR and 1040 NR - EZ.

I just feel that the extension + 1040 EZ combination suits me best.

v0c2000,
Appreciate your inputs as I'm in the same situation.
What exactly are the 3200 and 5000 deductions you mentioned when you were earlier planning to file 1040NR.
Thanks
Storm

StormCrow:

Everyone gets a $3,200 personal exemption when they file Form 1040NR.

Indian nationals in country under a F-1 visa are also authorized to claim a standard deduction of $5,000.

To ATE

I thought the standard deduction is $4850 and not $5000. Am I confusing 2 different numbers?

I am also in a similar situation where I converted from F1 to H1b on Oct 1 2005. I am planning to use 1040NR-EZ form.

I am married and can I claim my wife as a dependent? Will it benefit me in anyway? If it does, which form should I use to claim my wife as a dependent?

Also can you explain the difference between the $3200 and $5000 you were referring too earlier.

Thanks in advance

$4,850 was the standard deduction for 2004; $5,000 is for 2005.

$3,200 is your personal exemption.

Use Form 1040NR to claim your wife as a dependent. However, it would be better to file jointly as a resident alien (by filing in June 2006 under First Year Choice). That doubles your standard deduction to $10,000.

Thank you ATE

My wife is on H4 and is not working or receiving any sort of US income.

She also does not have a Tax-Id number as she just came to the US on November 24th 2005. I have to obtain a tax-id number to claim her as a dependent.

If I wait till June to file for first year choice, can you explan in brief, what I should do from now till June to file, what forms should I fill and what formalities I should do to file in June jointly with my wife.

Also, I am from Iowa, do I file the state taxes also in June or do I have to do the state taxes separately.

If it is a long procedure, can you please tell which publication I can read to get this information.

I really appreciate your answers. Thanks.

Anand

Thanks ATE for clearing my doubt.
Do you think I'll be able to get more deductions if I file as a resident using the first year choice provision. I'm single with no dependents. I pay rent and monthly instalments on my car loan. Do you think it's advisable to go through the extension, etc.





Mahesh:

I am planning to file an extenstion till June 2006. I will then file as a resident under the first year choice provision.

I orginally planned to file using an 1040NR but was advised against it. I guess a lot of people have filed successfully using the 1040 NR and 1040 NR - EZ.

I just feel that the extension + 1040 EZ combination suits me best.

StormCrow:

If you are Indian and do not have any chance at claiming a credit (such as the Education Credit), then file as a non-resident alien. The tax rates are the same and, while filing as a resident or a non-resident alien, you get to claim the $3,200 personal exemption and $5,000 standard deduction.

Anand:

Download Form W-7 from www.irs.gov. Follow the isntructions and fill it out with your wife's information. She must sign the W-7. Make a photocopy of your passport and get it notarized as a true copy. Staple the photocopy to the W-7, then attach it to the tax return. Mail the return with W-7 and the photocopy to the address in the W-7 instructions. The IRS will issue the ITIN, insert it on the tax return, then process it. They will then notify you by letter what your wife's ITIN is. Then (and only then) can you file the Iowa tax return.

Thank you for your advice ATE. I really appreciate it.

You mentioned that I can do my State Tax return only filing the Federal Tax return.

Now, if I decide to file my taxes in June, I will qualify as a Resident alien and file my taxes jointly as married and have a standard deduction of $10,000 and personal exemption of $6400 for me and my wife. The problem is if I wait till June and have to file my state taxes by April 15, I do not have my wife's Tax ID number and hence cannot file jointly.

Can I file my state taxes (Iowa) also after I file my federal taxes in June 2006?

If I cannot do that, what do you advice I should do?

Thanks

Anand

Anand:

If you have a refund coming from Iowa, then you can wait until June 2006 to file your Iowa tax return as well as the federal return with no problem.

If you owe Iowa taxes, then you must request an extension and make a payment with the request. Iowa, like most states, will honor requests for refunds for up to three years after the original April 15th due date.

Thanks ATE. I really appreciate your help.

This is what I am going to do.

File an extension for the Federal and State returns ( as I estimate both have to refund and I do not owe money).

Wait 6 months (till first week of June 2006) and file 1040-EZ as "married filed jointly" for federal returns along with W7 form to obtain a Tax id number for my wife. Once I file my 1040 EZ and get my wife's tax id number, I will file my state taxes.

If you think I am doing something wrong in this procedure, please let me know.

Thanks a lot!

Anand

Won't Anand need an 8843 as well?

Negative. If you file as a resident alien, the requirement to file Form 8843 no longer applies.

Excellent, thanks ATE

Atlanta Tax Expert: First thanks a lot for your time and help.

I have been reading all the postings on this case
My case is very similar to v0C2000:

I entered the US in 2002 on an F1. I recently transitioned to an H1 on October 1, 2005. This is the summary of my stay in the US so far:

2002 - Entered US on August 20 2002 on F1
2003 – F1
2004 – F1
2005 – F1 (OPT) till July 20, 2005, I left the country
And I came back on an H1B on Oct 01, 2005 – Days on H1B – 92

I'm single, Ecuadorian citizen. From what I read on the previous questions I should file my taxes using the form 1040NR or 1040NR-EZ.

My question now is about the Social Security and Medicare tax that was withheld by both of my employers during 2005. The last 2 years I have filed forms 8316 & 843 to get that money back, but I’m not sure if I can do that this year. If I’m not wrong I can only claim those taxes back while I was on an F1 so I don’t know how should I file those forms because my W2 does not separate the SS & MC taxes withheld before and after Oct 01.

Thanks again for all your help.

You can request a refund for the Social Security and Medicare taxes withheld while under the F-1 visa.

You will have to show the calculations on how you determined which portion of the salary was under F-1 and which part was under H-1B, but that is grade school math based on what you made on a daily basis.

Hi A.T.E and others,
Read most of the messages in this thread and I must appreciate everone's efforts. I posted this message as a separate thread too, just hoping to get some attention here.

Thanks for your advice and time. Let me keep it as straight as possible:
1. Can I claim US-India treaty benefits while filing state taxes in Mass.
2. Can I claim my brother as dependent if I am paying his tuition fee for undergrad education in US? If yes, where do I reflect it in 1040NR form? (This is assuming that I am and was always on F-1)
3. Can I put tuition paid for my own graduate studies as deductible in taxes?
4. Is there any other deduction apart from personal exemption and standard deduction that I can or could take in last/this year tax return as a student from India?
5. (This is not inline with point 2, but please consider points 2 and 5 on case by case basis, thanks) Being on H-1 from October 2005, would you suggest filing just non-resident 1040NR or employing complicated first year resident's election by filing for extension and filling 1040 later? (I do not own a house or pay mortgages and do not anticipate taking any benefits that I can not take as a non resident). I want to do it right more than get more return back.

Thanks,
Amit

A.T.E. thanks a lot for your quick response:

I understand the math part I'm just not sure how to present those results, is there a form for that or should I just show those calculations on a piece of paper?

Thank you

You can show the calculations in Box 5 of Form 843, or on an attached page.

Hello:
I was on F-1 from Aug 2001-dec 2004. Then on OPt till oct 2005 and on H1B since then . I am totally confused on what forms are tobe filed because of the dual status last year. Any help is grealty appreciated.
Thanks
Vineet

You need to file as a non-resident alien, filing Form 1040NR or 1040NR-EZ.

Dual-status does not apply to you (read my sticky note announcement). Because you did not physically enter the country in 2005.

Hello ATE,
My case is same as others. Entered US 2002 (F1 visa)
Graduated Dec 2004. Worked on OPT till Oct 2005 & am since on H1.
If I file 1040NR can I apply for itemised deduction on monthly payment of my car & 3 air travels during 2005?
Some people say I can even claim daily gas mileage for commuting to work?
Thanks in advance,
Sameer

ATE:
I just saw your answer to vineet's question. You said that he can not file as a dual status because he didn't physically entered the country in 2005. In my case, I did leave the US in July 2005 when my OPT expired and then I came back in October with the H-1 visa. Since I physically entered the country in 2005, does that mean that I can file as a dual status?

As always, thanks for your time and help

Sameer:

No, the deductions you cite are not legitimate itemized deductions.

Pabloldu:

You read too much into it. You must start in country on 1 Jan and end out of country on 31 Dec, or vice versa to be considered dual-status.

Hi Atlanta Tax Expert:

You have been very helpful on this forum. Thanks a lot I had a question on the F-1 to H1 issue.

These are the facts:

1) I meet the substantial presence test for 2005 since I am on H1 since 07/27/2005. Total of 188 days in 2005. Since I was on F-1 in 2004, 2003 and 2002. I can claim dual status this year.
2) I am a resident of India.
3) I am married and my wife was also on F-1 and then H-1. (Both of us went to school and are now working)

From my reading of the IRS publications it appears I can either file using the 1) dual status (i.e. File 1040 and Attach 1040NR) or
2) Elect to be treated as resident for 2005 year and file only using 1040

Since I am a resident of India I understand I can claim the standard deduction and the personal exemption under both the situations. [PLEASE CONFIRM THIS]

However if I elect to file as "dual status" I will not be able to claim deductions on account of interest on education loan since under "dual status filing" I have to do separate returns and my status will be "married filing separately"

Thus I want to be treated as resident for the year which will let me file a joint return and claim credit on account of interest on education loan.

My questions are:
1) Is the above "understanding" correct?
2) Will I be liable for Social Security and Medicare for the whole year if I choose to file as a resident or only the period when I was on H-1?

Thanks a ton,

Sanjeev.

SanJeev:

You do NOT have the dual-status option. You must file as a resident alien. Read my sticky note post dated 27 Feb 06.

You will be able to claim the education credit and deduct student loan interest if you file as a resident alien.

You will NOT be liable for the Social Security and Medicare taxes not withheld while you were under the F-1 visa. You only have to pay the Social Security and Medicare taxes for income earned while on H-1 visa status.

Thanks for your help. How do I read the "Sticky note Post" I can't find it

Please let me know
Thanks

Found the "sticky note post" Thanks. On your guidance on Social Security and Medicare I am confused by the following language in Publication 519 -

"Social Security and Medicare taxes will be withheld from your pay for these services if you are considered a resident alien under Chapter 1, even though your non-immigrant classification (“F”, “J”, M or “Q”) remains the same"

This is on page 46 of Publication 519. Given that I am a resident under Chapter 1 under since I meet the substantial presence test does that mean that I owe social security and Medicare?

I was on the same boat last year...jan-oct opt oct-dec h1

1) You will be Non Resident for tax purpose as you are less than 183 days for substantial presence test.

2) I did not do any splits.

3) I used forms 1040NR-EZ + 8843 forms.

4) Yes you can claim the India-US treaty deductions( i do not know much is it this time).


Hi,

Please could you let me know how did you complete the tax returns? I am using CINTAX but it does not give me the tax treaty benefit. Any suggestions would help.
Thanks.

A.T.E. and others

I filing out my form 1040NR-EZ and there ara a couple of things that I'm not sure since I'm filing as a non-Resident but I'm on a different status today.
1. Your Occupation in the United States:??
2. Give the purpose of your visit to the United States:??
3 Type of entry visa:?? And current nonimigrant status and day of chabge?

As a reminder I was on my OPT from jan to oct when I got my H1 visa.

Thank you so much, I really appreciate your help

Sanjeev:

The citation is a worst-case scenario. Most students under F-1 status do NOT pay Social Security and Medicare taxes. When you converted to H-1B, you started paying Social Security and Medicare taxes, as required by law.

Love Rhtdmin:

CINTAX does not work well when you convert from F-1 to H-1 visa. You may have to do it manually.

Pabloldu:

1) Student
2) Attend school.
3) F-1; H-1; then put date you converted to H-1

ATE and others,
You are doing great job here in this forum by solving a lot of doubts. Many thanks.

Just a few quick questions:
1. How do you read the sticky post?
2. Though I am on H1 from Oct 1st, 2005, do I still need to write "student" for Your occupation in United States and for point C on page 2 of 1040 NR-EZ (your purpose of visit to the United States) ? I know this has been answered by ATE, just confirming :-o



Prem

The sticky post was posted on 27 Feb 06. Just look for it.

Yes, you are considered a student for 2005.

A.T.E.

I'm filing Form 843 to get my SS and MC taxes back. To file this form you need to attach:
- a copy of your visa
- Form I-94 (Arrival - Departure Record)
- If you have an F-1 visa, FOrm I-20
- If you have a J-1 visa, Form DS-2019
- If you are engaged in OPT, Form I-766 or Form I-688B

Since I'm on a H1 visa since October, what copy should I submit (H1 or F-1) and which I-94 (I have my current one from the last time I entered the country in Jan but I also have a copy of the one last one I had while I was on F-1)

Thanks a lot for your time

Submit the F-1 visa and the last I-94 that you had while on F-1 visa.