[b.c.s.d.]

I have a friend who has been a full time student and on an F-1 visa since Aug. Of 2006. What does he have to do for the 2011 tax year? Does he have to file as a resident? Or will he be a dual-status alien? He has some income from a couple of sources, and they are always reported on a 1099-MISC, totaling about $5,000 a year. He is on a scholarship, but it doesn't cover the whole amount he has to pay as tuition. Can he claim any credits, like the making work pay credit, or earned income credit, or educational credits?

[taxesforaliens]

He would be a resident alien for 2011. As a resident alien he would be eligible for all the credits citizens are eligible for. Note that in 2011 there is no making work pay credit.
He will also be liable for self-employment taxes for the income reported on the 1099.

[MukatA]

After completing 5 years on F1, your friend is resident. He can not file Form 1040NR or 1040NR-EZ.
On 1099-misc income, he must pay self employment taxes.

[AtlantaTaxExpert]

There IS a third option: If he has filed the Form 8843 each of the five years he has been in the U.S. he can submit BOTH Forms 8843 and 8840 in order to establish a "closer connection" to his home country. If he is successful, then he can retain his non-resident alien status beyond the normal five-year period allowed for F-1 visaholders. This assumes he has NOT applied for an H-1 or H-1B visa.

The principal benefit of taking this course of action is that it will maintaiin his exemption from the self-employment taxes, which, at 15.3%, is a rather STEEP tax.

[taxesforaliens]

The instructions for from 8840 state, that you can only apply for the closer connection to your home country if you stayed less than 183 days in the US in 2011. So if your friend was in the US the entire year, he would not be eligible to retain his non-resident alien status.



Use Form 8840 to claim the closer connection to a foreign country(ies) exception to the substantial presence test. The exception is described later and in Regulations section 301.7701(b)-2.
Note: You are not eligible for the closer connection exception if any of the following apply.
• You were present in the United States 183 days or more in calendar year 2011.
• You are a lawful permanent resident of the United States (that is, you are a green card holder).
• You have applied for, or taken other affirmative steps to apply for, a green card; or have an application pending to change your status to that of a lawful permanent resident of the United States.
Even if you are not eligible for the closer connection exception, you may qualify for nonresident status by reason of a treaty. See the instructions for line 6 for more details.

[AtlantaTaxExpert]

That is why you also file the Form 8843, to EXCLUDE the days of presence in the U.S.

I did not say it was an easy sell to the IRS; it most definitely is NOT, but it CAN be done.

I know this because I have done it for several clients who, for reasons of NOT wanting to pay taxes on rather large overseas income sources, maintained their non-resident status for OVER five years past the normal five-year F-1 period while they pursued a PhD in their fields of study.

[taxesforaliens]

You can always be lucky and find someone at the IRS not knowing what they are doing and allowing things that shouldn't be allowed and you can get away with a lot of things. So it's probably more of an ethical question since these people most probably also didn't pay any taxes on their overseas income in their home country.

[AtlantaTaxExpert]

Not likely; both India and Australia (the countries involved for the clients with whom I handled this issue) both have very good tax collection departments, especially when it comes to the top 10% of the income bracket.