I came to the US as a J1 exchange student. During the first 5 years (yes not the usual 2 because of the student status), I was considered non-resident for tax purposes. Afterwhich I started filing resident tax returns, and my employer obviously was taking out FICA social... etc. I have since left the US mid June and would like to file my final tax return.

According to the substantial presence test I was a resident. However since the last year I was in the US for less than 183 days "I can be treated as non-resident"-from Pub 519

I've been advised to file as a dual status year, which basically calculates to filing as a non-resident for tax purposes, and do not get the standard deduction. Is that correct?

If so, does that mean, since I am considered a non-resident for tax puropses on a J1 exchange, that I am elligible to a refund of my FICA social etc. that was withheld by my employer (only for the final year of course)? - again from Pub 519.

The sticking point is if I was considered a resident for the part for the year I was in the US and non-resident for when I left, does that mean that the social security taxes were withheld correctly, and since filing dual I don't get the standard deduction. Which obviously means I'm being taxed twice on part of my income, and that doesn't make sense. Please advise.

Many thanks

You can file as a dual-status alien, or yo can extend your residency termination date to 31 December 2010 and file as a resident. In either case, you will have to file a Residency Termination Statement.

If you file dual-status, you pay taxes ONLY on the income earned while in the United States, but you cannot claim the standard deduction; you must itemize. Finally, the dual-status return MUST be mailed.

The dual-status return is NOT for amateurs; get professional help from someone who regularly prepares dual-status returns.

If you file as a resident, you can claim the standard deduction and may qualify for the $400 Making Work Pay credit, but you must also declare ALL world-wide income. You will probably file Form 1116 to claim the Foreign Tax Credit for the income taxes paid in your home country. You may also be able to file this resident return electronically

If you need professional help, email me at [email protected].

Thanks, I was hoping you'd reply since I've read through your other replies. Looks like the simplest would be to file as a resident and forget the social security FICA contributions. The difference comes out to be $700 if I do the dual status thing and ask for that part of the withholding back (if even that is possible, since I was advised that I was a resident during those 6 months and may not be able to get those back). Which really smacks of double taxation. However, I don't want to fight the system, I just want to do it lawfully and over with. I've done my resident tax filing online before so that seams the easiest.

Yes I'm aware for the $400 make work pay credit and basing my difference calculations on that included.

Thanks again.

Glad to help!

Do NOT forget to submit the Residency Termination Statement with a termination date of 31 December 2010. That has to be mailed to the IRS Center in Austin, Texas.

You can find the details on page 10 of IRS Pub 519, which can be donwloaded from www.irs.gov.

I'm curious why you say that one should file even if I elect Dec 31st. Since this is what is published...

"If you were a U.S. resident in one year but are not a U.S. resident during any part of the following year, you cease to be a U.S. resident on your residency termination date. Your residency termination date is December 31 unless you qualify for an earlier date as discussed next." I read that to be the default unless I file the statement.

and

"If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries." and since I'm not claiming that as I'm filing as resident, I read it to mean Dec 31st is the default unless you do a dual status filing, in which case to claim closer connection for the part of the year that you are a non-resident you'll have to file for an earlier residency termination date.

Obviously this is in tax code speech, so I may be reading it completely wrong.

http://www.irs.gov/businesses/small/international/article/0, id=96389,00.html
and in Pub519 verbatim as well.

I'm also curious on your take on the social security FICA withholding for dual status last years. You didn't address that point.

Regarding the FICA taxes: Sorry, but you were liable for those taxes while you worked as a resident within the United States. You have NO legal standing for requesting a refund of those taxes.

As for the Residency Termination Statement, the IRS typically WILL consider you to be a non-resident alien for the following years if the statement is NOT filed. However, that statement is the FORMAL notification to the IRS that you are terminating residency, and that MAY be important if you have some income source within the U.S.

Here is an example of WHY this is important: I had a Russian client who spent about nine years in the United States, first on a F-1 visa, then on a J-1 visa (as a teacher), then on a F-2 visa. After the J-1 tour, he automatically reverted to resident status for tax purposes because he failed to submit Form 8843 and 8840 annually to maintain a "closer connection" to Russia. When he left in 2008, he failed to submit the Residency Termination Statement, so, from the IRS point of view, he retained resident status.

He then started day trading from Russia in his stock brokerage account in the United States in late 2008. His total stock transactions exceeded $45 MILLION, on which he showed short-term capital gains in excess of $750,000. Since he was in Russia, he paid Russian taxes on those trades.

Last year, the IRS tracked him down IN RUSSIA and insisted he file a U.S. tax return as a U.S. resident. The final tax bill came out to about $200,000, all because he failed to submit a single page Residency Termination Statement!

Very informative, thank you for your thoughtful replies.