How to File Income Taxes When Converting from F-1 to H-1 Visa Status (AtlantaTaxExp)
To All Who Have Read My Postings On This Issue:
After further consultation with NATP, I am making some additional editing changes, which will be in bold red. I have also been referred to a website maintained by a CPA with extensive credentials and experience doing returns for resident and non-resident aliens. The website is www.thetaxguy.com. Based on information from that website, I am adding guidance below in bold green. His website has a forum which may be an excellent medium to discuss nonresident tax returns.
Over the past two weeks, I have answering multiple questions regarding how to submit tax returns for foreign nationals who, in 2004, were in a F-1 visa status, then converted to a H-1 visa.
My initial interpretation was that aliens who met the Substantial Presence Test were not in a dual-status tax year and therefore should:
1) File Form 1040/1040A/1040-EZ, claiming all income for the entire year and claim the standard deduction, if applicable.
2) File Form 8843 to account for their time under F-1 visa status.
3) NOT file Form 1040NR/1040NR-EZ to account for the income while under F-1 status.
However, I could not find clear guidance on such conversion in visa status in either the 2004 Instructions for Form 1040NR nor in the 2003 version of IRS Publication 519. Since I got multiple queries on this matter, and given the fact that the guidance was neither clear nor explicit, I realized I could not rely solely on my own interpretation of these publication. For this reason, I queried the National Association for Tax Professionals (NATP) on this matter and requested an expert opinion.
They could not cite specific guidance either, but rather gave an interpretation, which is cited verbatim below:
Our interpretation of Pub. 519 is if a taxpayer is a resident for part of the year and a nonresident for part of the year, this would be a dual status year. Taxpayers under an F-1 visa are considered nonresidents for that period. Therefore, based on the situation you described below, your client would be dual status in the first year her status changes and would not be allowed the standard deduction.
I read too much into NATP's original statement and assumed that two return were required. That is NOT the case.
First, to file under dual-status (as noted by Deepatrix below), you MUST meet either the Substantial Presence Test or the Green Card Test. To meet the Substantial Presence Test requires that your F-1 visa convert to H-1 visa no later than 2 July 2004.
If you meet the requirement to file dual status, you are in effect preparing two returns. The first one is as a resident alien, using Form 1040 to account for income earned while under H-1 visa status. Print the word "DUAL-STATUS RETURN" on this Form 1040. You cannot claim the standard deduction. You claim your personal exemption(s) on the Form 1040. The second return, as a nonresident alien, is Form 1040NR/1040NR-EZ to account for the income earned while under F-1 visa status and is actually a "dual-status statement" that will be filed as an attachment to your resident alien return (Form 1040). Print the words "Dual-Status Statement" on the Form 1040NR/1040NR-EZ.
Since you cannot claim the standard deduction on either return, you can claim itemized deductions on both returns. Use the appropriate Schedule A for each return. On the Form 1040NR Schedule A, you can claim charitable donations, state and local income taxes paid, casualty and theft losses, employee business expenses and miscellaneous expenses (as detailed on Form 1040NR's Schedule A). Note that if you live in a high-tax state such as New York, California or Massachusetts, it is very possible that the state and local income taxes paid will exceed the standard deduction. If you have only one W-2 for the entire year, you need to prorate the income to account for the time on F-1 status. You were still be exempt from Social Security and Medicare taxes while you were under the F-1 visa status. If your employer withheld these taxes during that period in error, request a refund from your employer. If that is not possible, you can file Form 843 requesting a refund from the U.S. government.
The dual-status rule is different if you are from India, however. If you are an Indian citizen, you are eligible to claim the standard deduction on the Form 1040NR "DUAL-STATUS Statement" up to the amount of income earned while on the F-1 visa, but not more than $4,850. Example: The income earned under F-1 is $2,500. You can claim a standard deduction of $2,500. Second Example: The income earned under F-1 is $10,000. You can claim a standard deduction of $4,850. Since you are claiming the standard deduction, you CANNOT claim any itemized deductions on either the Form 1040NR "DUAL-STATUS Statement" nor on the Form 1040. For this reason, you should prepare the returns BOTH WAYS (claiming the standard deduction on Form 1040NR or claiming itemized deductions on both returns) and use the one which produces the least amount of taxes owed.
File Form 8843 to account for your F-1 visa status. This should be the last time you need to file this form.
Be sure to sign the Form 1040. Mail all documents in the same envelope to the following address:
Internal Revenue Service Center
Philadelphia PA 19255
Now, if you do NOT meet either the Substantial Presence Test or the Green Card Test, this is NOT a dual-status year for you. You are considered a nonresident alien for the entire year for income tax purposes, even though your visa status changed from F-1 to H-1 sometime after 2 July 2004 and even though you began paying Social Security and Medicare taxes when you converted to H-1 visa status. You should file JUST the Form 1040NR or Form 1040NR-EZ. If you were eligible, as an Indian citizen, to claim the standard deduction, you can do so again for 2004. When you file for 2005, you will be considered a resident alien and you will not have to worry about the dual-status issue for 2005.
I apologize for the confusion on this issue.
How to file tax when F-1 convert to H-1 visa (from IRS help)
Thanks for your detailed reply. I tried to contact IRS twice, I got two different answers from this issue. One is filing dual-status, and the other is filing resident status only.
When I firstly asked the IRS, I just mentioned my questions very simply: (I entered the US in 2000 with F-1. I held my F-1 until Jan 2004 and started from H-1 in Feb 2004), then they replied in email by saying that I should file dual status.
However, I doubt their answer because I thought that I could pass the substantial presence test. So I called IRS again. Finally the person replied by phone. I asked that person very detailed regarding this issue. Finally they said that I should file resident status because:
1. I pass the substantial presence test in 2004.
2. My last day in the US in 2004 was resident (>183 days)
3. During the transition from F-1 to H-1, I didn't leave the US, i.e. I have been physically present in the US for more than 183 days.
4. The difference to determine the status by using substantial presence test and dual resident is that Dual status involved the person whether he/she has left the country during the F-1 to H-1.
Anyway, what do you think about the answer from IRS? When I look at your answer, yours still make sense. So what should I do? Will you check with IRS?
F1 to H1: Where is the repost?
Sorry, Where is the repost?
Dual status for Federal tax return, how about State?
Hi, thanks for your prompt reply. I would like to know if I was determined to be dual status in 2004, how about my State tax? I'm from Hawaii. I don't know whether I'm a resident (more than 200 days in Hawaii) or part-year resident?