Hi,

Before I put forward my queries, here is some background:

Citizen of India

2003: F1 : Single : 152 days : Filed 1040-NREZ with 8843
2004: F1 : Single : 313 days: Filed 1040-NREZ with 8843
2005: F1 : Single: 104 days H1B : Married : 117 days Rest of time: India and Europe

H1B issued: Aug 25 2005, Entered US on H1b on Sep 6 2005, Started work on Sep12 2005

My wife joined me in the US in Dec 2005 on an H4.

Social Security and Medicare withheld till date: $0

Queries:
a) If I file 1040-NR, can I claim:
I) Standardized deduction instead of Itemized deduction ($5000) for myself? (under the US-India Income tax treaty)
ii) Standard Exemption ($3200) for myself
iii) Standardized deduction and Standard exemption ($5000 + $3200) for my wife as my dependent?

b) If I can show my wife as a dependent for the ($5000 + $3200), how do I do that? The 1040-NR does not seem to allow a non-resident to claim another non-resident as a dependent unless they are Students of India. Being that I was on the H1b for the last part of the year (including Dec 31), Am I eligible to do this?

c) Should I wait till June and file under the First Year Choice? Will this mean that I can get $5000 + $3200 off for myself and another $5000 + $3200 for my wife? How much will I have to pay the Govt for Social security and Medicare in this case?

Thanks
Netisan

Netisan:

The best way for you to file is to wait until June 2006, then file as a resident alien under First Year Choice. You hsould download Form W-7 from www.irs.gov, fill it out, have your wife sign it and attach it to your Form 1040, 1040A or 1040EZ, along with a notarized copy of your wife's passport.

Filing jointly as a resident alien will allow you to claim a $10,000 standard deduction and $6,400 in personal exemptions. It will cause you to effectively forfeit any refund of withheld Social Security or Medicare taxes during your F-1 visa status, but if no Social Security or Medicare taxes were withheld, you will NOT have to pay these taxes after the fact.

Atlanta Tax Expert,

This has been very helpful! Thank you very much for the quick response and showing the direction to take.

No social security has been withheld till date either on my F1 or my H1B. I will inform my employer that they should start withholding social security etc from now on.

Clarification queries:
a) Do I need to file for en extension till June? Because by April 15th, I would have the 183 days on the H1b (from Sep of last year to date). Therefore, can I not go ahead with first year choice right now?

b) Will I need to file just the resident form? Or will this be a dual status? (as a result of which I will have to file the 1040NR statement for the non resident period of 2005)

c) Will I still report income only till Dec 2005 on the 1040?

d) My wife worked in India till November 2005. Will I need to declare her income as part of the 1040? (Under the worldwide income clause). If so, will I need to declare her income for the whole year or just the part from September (when my residency period starts)? She entered the USA in late December. What proof of income will I need to provide?

e) How will this impact my state taxes? I got part of my income living in PA (Student job on F1 and bonus from future employer will still on F1) and part in OH (Wages for the period worked).

Thanks a lot!
Netisan

a) File the extension. You can only count one-third of the 2005 days towards Substantial Presence Test.

b) Just resident alien.

c) Yes, until 31 Dec 2005.

d) If you are filing jointly with her, you need to claim her income, However, you can claim a credit for the taxes she paid in India AND claim a foreign income exclusion using Form 2555. The India tax documents will be needed to show what taxes she paid and to prove her income.

e) You need to file both PA and OH tax returns to report the income you earned in those states.

Given ts complexity, I suggest you get professional help for this return.

Wasn't he supposed to pay social security or medicare taxes while on H1B status?

Yes, he was. But as long as he informed his employer of his visa status, it is NOT his responsibility to ensure that the Social Security and Medicare taxes are collected and paid to the IRS. That responsibility rests solely with the employer; the IRS has been abundantly clear about that over the years.