[pranavtest]

HI Atlanta Tax Expert.
Thanks for your response. Was not aware that profession does not change tax status (since Students are usually not charged the high Federal and State taxes that my wife's employer did charge.).

Your post greatly helps.

Thanks again.
Pranav

[studfromhawaii]

I’m a 24 year old single male from India. I came to USA on April 19, 2000 on an F-1 Student Visa and have consecutively since filed the 1040NR. My H-1B Work Visa got approved effective October 1, 2005 and I went to India on August 18, 2005 to get my visa stamped on my passport, which was stamped on September 22, 2005 and I returned to USA on September 29, 2005. August 17, 2005 was my last day at the on campus job. No Social Security or Medicare deductions were withheld from my paycheck for on campus job. But now that I’m on H-1B, Social Security and Medicare deductions are being withheld (effective October 1, 2005). What form(s) do I have to file this time? Also, do I qualify for either the Hope Scholarship or Lifetime Learning tax credits (for pursuing a Post Baccalaureate Certification in spring 2005)? I have a personal student loan in USA, Mutual Funds purchased with funds from a Non-Resident Indian Account in India and stocks purchased in USA with funds from my account at the local Credit Union. Taking all of this into consideration, what would be the best possible way to file my return? Please advise. Thanks.

[AtlantaTaxExpert]

Pranav:

While students do generally qualify for exemption from Social Security and Medicare taxes in jobs they have while at the university, it does not affect their income tax rates. I thought you were citing the block next to the signature on the tax returns.

Studfromhawaii:

You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.

If you file as a non-resident alien, you file Form 1040NR by April 15, 2006, in which case you cannot claim the standard deduction. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file as a dual-status alien, you file Form 1040 with Form 1040NR as an attached "statement" to document the income you earned while under the F-1 visa. If you file as a dual-status alien, then you normally will not be allowed to claim the standard deduction; however, that prohibition does not apply to you since you are an Indian citizen. Also, you would file your return prior to April 15, 2006, so Form 4868 would not be needed. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file under the First Year Choice, then you file as a resident alien, which means you can claim the standard deduction. You would file Form 4868 to apply for an extension to file (submitted with a check if your calculations determined that you would owe taxes) so that you would meet the Substantial Presence Test prior to filing your 2005 tax return. Since you are choosing to count your entire 2005 year as a resident alien, filing Form 4883 is not required for 2005. Only by filing as a resident alien can you claim either the Hope Scholarship or Lifetime Learning tax credits.

In my opinion, the First Year Choice makes the most sense in order to claim the Hope Scholarship or Lifetime Learning tax credits.

[jdzorba]

AtlantaTaxExpert
Thank you, it helps a lot.

[studfromhawaii]

AtlantaTaxExpert:

I appreciate your quick response to my question. The First Year Choice does make the most sense in order to claim the Hope Scholarship or Lifetime Learning tax credits. Under this choice, I would just file Form 4868 to apply for an extension to file (submitted with a check if my calculations determined that I would owe taxes) so that I would meet the Substantial Presence Test prior to filing my 2005 tax return first and then when I meet the Substantial Presence Test, which form(s) would I file next? Just the 1040 form right? How would I then account for my F-1 visa (exempt individual) time? There were no social security or Medicare deductions withheld from my paycheck for my on campus job. These deductions were only withheld for the work that I performed for my current employer on an H-1B visa.

Also, please clarify what entails meeting the Substantial Presence Test? In 2005, I was in the US on an F-1 visa until August 18, 2005. Then I went to India to get my H-1B visa stamped on my passport and returned to the US on September 29, 2005. My H-1B status is valid from October 1, 2005 to September 30, 2005. In my case, when would I meet the Substantial Presence Test? Please advise.

Thank you so much for your time.

Pranav:

While students do generally qualify for exemption from Social Security and Medicare taxes in jobs they have while at the university, it does not affect their income tax rates. I thought you were citing the block next to the signature on the tax returns.

Studfromhawaii:

You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.

If you file as a non-resident alien, you file Form 1040NR by April 15, 2006, in which case you cannot claim the standard deduction. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file as a dual-status alien, you file Form 1040 with Form 1040NR as an attached "statement" to document the income you earned while under the F-1 visa. If you file as a dual-status alien, then you normally will not be allowed to claim the standard deduction; however, that prohibition does not apply to you since you are an Indian citizen. Also, you would file your return prior to April 15, 2006, so Form 4868 would not be needed. You would also have to file Form 4883 to account for your F-1 visa (exempt individual) time.

If you file under the First Year Choice, then you file as a resident alien, which means you can claim the standard deduction. You would file Form 4868 to apply for an extension to file (submitted with a check if your calculations determined that you would owe taxes) so that you would meet the Substantial Presence Test prior to filing your 2005 tax return. Since you are choosing to count your entire 2005 year as a resident alien, filing Form 4883 is not required for 2005. Only by filing as a resident alien can you claim either the Hope Scholarship or Lifetime Learning tax credits.

IMHO, the First Year Choice makes the most sense in order to claim the Hope Scholarship or Lifetime Learning tax credits.

[AtlantaTaxExpert]

Sudfromhawaii:

Refer to page 9, IRS Pub 519 (which can be downloaded from www.irs.gov as a .pdf document) for details about First Year Choice. Please note that the IRS Pub 519 that is online is for 2004, but the provisions have not changed, so you need to add a year when you read about what to do in which year. i.e. read "2003" as "2004, and "2004" as "2005".

You must effectively be under your H-1B status and physically present in the U.S. for at least 183 days before you can file Form 1040. In your case, that would be sometime around 4 April 2006, which means you probably do not have to file for an extension. You will need to add the statement specified on page 9 of IRS Pub 519, and you would also need to file Form 8863 for whichever education credit you qualify for (see chapter 35 of IRS Pub 17, also downloadable) for details on the Education Credits.

As for accounting for your F-1 status, you claim income earned during the F-1 status on the Form 1040.

You will need to file Form 4883 one last time for 2005.

Your exemption from Social Security and Medicare taxes while on F-1 status still stands. Filing as a resident alien has no effect on that exemption.

[studfromhawaii]

You ROCK! Thank you so much.

[AtlantaTaxExpert]

No problem! That's what I here for!

[deejay]

Hello,

I am a citizen of India, single and was on F-1 until June 26, 2005. My OPT started on April 13, 2005 and I visited in India from May 2 - May 16 2005. Since my F-1 was still valid, I didn't get it extended. I was hired (with OPT) status on June 6, 2005 and my status changed to H1B on October 1, 2005.

I would appreciate if you would answer the following questions:

1) Which forms should I file for my tax returns for 2005?

2) Even though my F-1 expired on June 26, I was told by my student advisor that it would be okay as long as I don't leave the US after that until I got my H1B. That is all fine, but now I don't know how to account for this on the tax forms.

3) What kind of deductions can I claim (standard $3000 + $4500)?

4) My employer didn't deduct SS and medicare taxes while I was still on OPT, but did so after my status changed to H1B. Since my stay under H1B has been < 183 days in 2005, can I claim a refund for the SS and medicare taxes they deducted in 2005? If so, which form do I need to fill?

Please note that I worked at the university (on F-1 status) in Arizona from Jan 2005 until April 2005 and joined work in June 2005 in Oregon. In addition to filing tax returns for both AZ and OR, is there anything else I need to keep in mind while filling the forms?

Please advice. Thanks!

[AtlantaTaxExpert]

Deejay:

1) Please see my previous answers to StudFromHawaii for the three filing options. They apply to you as well. I recommend you wait and file as a resident alien under the First-Year Choice. You can file in early April after you have been on H-1B status for at least 183 days.

2) Filing as a resident alien relieves you of the requirement to account for your days under F-1 visa status (which is done by filing Form 4883).

3) Regardless of the option you take, because you are an Indian citizen, you will get a $3,200 personal exemption and a $5,000 standard deduction.

4) This last issue is problematic. Before you can claim a refund from the IRS, you have to request your employer refund you the withheld SS and Medicare taxes. If the employer refuses (and he probably will refuse), you must get the refusal in writing. Refer to page 46 of IRS Pub 519 for the details on how to submit a claim for the refund. The Form number is 483. However, the fact that you allowed the F-1 visa to expire, then got a H-1B visa, may cause the IRS to take the position that your intent was to get an employment visa, thus making you liable for SS and Medicare taxes as soon as the F-1 visa expired, if not sooner.

Finally, you should probably get professional tax help to file these forms. I am available if you want; you can contact me at [email protected] for rates and references.

[deejay]

Thanks! This is very helpful information!

[studfromhawaii]

Atlanta Tax Expert:

An Indian Citizen I know was in the US on an F-1 visa during the following period:

19th April 2000 – 28th June 2002
26th July 2002 - 19th December 2003
Jan 10th 2004 – July 4, 2004

She left the US on July 4, 2004 because her OPT ended and returned on an H-1B visa sponsored by the State on August 7, 2005. Her H-1B is valid from July 19, 2005 to December 1, 2007. She's filed the 1040NR consecutively all this time. Because of her length of stay in the United States and the change in her visa status, which form(s) does she have an option to file this year and what would prove to be the best way to file her return in your opinion?

[AtlantaTaxExpert]

StudFromHawaii:

She can file as a non-resident alien (Form 1040NR) because she clearly does not meet the Substantial Presence Test for 2005.

OR

She can file as a resident alien (Form 1040/1040A/1040EZ) under the First-Year Choice if she waits until the second week of Fenruary 2006 to file. By that time, she will have met the Substantial Presence Test.

She gets to claim the $5,000 standard deduction in either case, so it is likely there will be no difference in taxes paid. The requirement for a statement (as required by IRS Pub 519) means she cannot file electronically. She will have to mail the tax return in.

It's basically her choice.

[studfromhawaii]

Great. Thank you so much for your quick response. You've been extremely helpful.

[RAHUL BHOSE]

Hi
I am a citizen of India and I had almost similar questions to others. But I would to please clarify the situation.
OPT Started from Jan 20' 2005 and is valid till Jan 20' 2006. My H1B was approved and started work on H1B from Oct 1 2005.
1) As I clear the substantial presence test, am I eligible to file form 1040 NR_EZ?
2) Am I eligible for standard deduction for year 2005? If so what is the standard deduction under the US income tax treaty?
3) Are the forms I would have to file for Federal Income Tax be 1040 NR_EZ and 8843 only?
4)I don't think I would come under dual status as I have met the substantial presence test. Is that correct?
5) Do I have to pay tax on any local bank gains / stock investment gains prior to Oct 2005?
6) Can I claim for stock loss (income - loss = net income) only after Oct 2005? Or can I claim it for the entire year?

Thanks in Advance

[AtlantaTaxExpert]

RAHUL BHOSE:

1) Yes, you can file Form 1040NR-EZ if that is your desire.

2) Yes, your standard deduction will be $5,000.

3) Yes, to my knowledge, those are your only required forms.

4) You do not qualify for Substantial Presence, at least not yet. If you did, you could not file Form 1040NR-EZ. You can wait until you do qualify for Substantial Presence, at which point you would file Form 1040 with the statemment required by IRS Pub 519.

5 & 6) Yes, you must pay on local bank interest and stock investment gains/dividends, but you can also deduct or stock losses or the entire year.

[RAHUL BHOSE]

Thank You Atlanta Tax Expert for your very prmpt response. Just wanted to reclarfiy the following


1) From Your prvious posts of three choices
"You have three choices to file:
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice.
"

Is there any tax benefit of one over the other?

2) I was assuming by filing 1040NR EZ, I can avail of the standard deduction which I don't think I could have by the latter two.

3) Would the bank dividends be considered as regular income for the full year or only from Oct 2005 onwards.

Thanks once again.

Regards,

RB

[AtlantaTaxExpert]

RB:

1) If you file as a resident alien, you may be eligible for certain credits (like the Education Credits) that you cannot claim under the other options. Other than that, the tax liability will probably be about the same.

2) You can claim the standard deduction on all three option.

3) Distributions from a bank are not dividends. They are interest, which will be considered ordinary income for all of 2005.

[RAHUL BHOSE]

Thank You Very Much, Atlanta Tax Expert. The information and your prompt response has indeed been very helpful

[studfromhawaii]

You stated that "You will need to file Form 4883 one last time for 2005". Did you by any chance mean Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition? I looked on the IRS website and I wasn't able to locate the form titled 4883. Please advise.

Sudfromhawaii:

Refer to page 9, IRS Pub 519 (which can be downloaded from www.irs.gov as a .pdf document) for details about First Year Choice. Please note that the IRS Pub 519 that is online is for 2004, but the provisions have not changed, so you need to add a year when you read about what to do in which year. i.e., read "2003" as "2004, and "2004" as "2005".

You must effectively be under your H-1B status and physically present in the U.S. for at least 183 days before you can file Form 1040. In your case, that would be sometime around 4 April 2006, which means you probably do not have to file for an extension. You will need to add the statement specified on page 9 of IRS Pub 519, and you would also need to file Form 8863 for whichever education credit you qualify for (see chapter 35 of IRS Pub 17, also downloadable) for details on the Education Credits.

As for accounting for your F-1 status, you claim income earned during the F-1 status on the Form 1040.

You will need to file Form 4883 one last time for 2005.

Your exemption from Social Security and Medicare taxes while on F-1 status still stands. Filing as a resident alien has no effect on that exemption.