Hi,
I was on F-1 from 2002 till Oct 2005. Then I changed to H1B with my employer in Oct 2005. I was on F1 working with the same employer from Jan - Oct 2005 on OPT.

I had filed 1040NR-EZ till now for all previous years as I did internships/TA etc on F-1.

For 2005, what forms do I file?

Also, I got married in Dec 2005 and even my wife worked on OPT till Jun 2005 lasy year in NY. Can we (or should we) file joint? What forms?

Now we stay in TX, so can we file joint even though she had worked in NY?

Any help appreciated.

Thanks

Zatang:

I already answered your other post. Please refer to it.

Hi Atlanta,

I have couple of questions about filling the tax forms and I would appreciate any help. I was a student with F-1 in IL between Aug 2002 and Aug 2005. And for the tax years 2002, 2003, and 2004 I filled 1040NR-EZ and 8843 for federal taxes. I also filled IL tax forms as a nonresident. In Aug 2005, I moved to AZ and started to work under OPT. My H1-B was approved in November. Although I haven't gone back to my country and got the visa stamp, I think approval is enough for the change of my status. At least I have been paying Social Security and Medicare taxes since last November. Since I had the H1-B only for 2 months in 2005, I don't pass the substantial presence test. Here are my questions:
1) If I fill the 1040NR as a nonresident for the full year, will having the H1-B for 2 months be a problem?
2) If I decide to go with the first year choice, fill extension forms, and send my tax forms when I meet the 183-day test (around June 2006), can I fill only 1040 as a resident? If so, am I supposed to pay the SS and Medicare taxes for the whole year?
3) Is the definition of residency same for federal and state taxes? As I have already mentioned, I always filled the IL forms as a nonresident. If I choose to fill 1040NR for federal taxes, can I fill both IL and AZ tax forms as a nonresident? What if I wait for the first year choice? Can I still send my state forms as a nonresident?
4) I have two W-2s, one from IL and one from AZ, and I have to attach both to the fed tax form for sure, yet what about the state forms? In my state forms, should I report my whole income or just the portion that I earned in that state?
Thanks in advance.

Regards,
Avalanche

1) You are not a non-resident alien. You are dual-status and, if you do not do First Year Choice, should file a dual-status return. However, with only two months on H-1B, you can probably file a s a non-resident and the IRS will not challenge it, since the tax liability will be the same.

2) You can file Form 1040, 1040A or 1040EZ, whichever one you can qualify for. Filing as a resident alien will have no effect on your Social Security and Medicare tax exemption.

3) Actually, you have filed incorrectly in Illinois for the last three years. While you were a non-resident alien in 2002, 2003 and 2004, you were a resident of Illinois. Probably not a big deal, as it is likely you paid the same or more income taxes than if you had filed as a Illinois resident. Same logic applies to Arizona. File as a part-year resident for both Illinois and Arizona in 2005, then as a resident of Arizona in successive years.

4) When you file the part-year resident tax returns for both states, attach both copies of the W-2s to each return, along with a copy of the other state tax return. However, only report the income earned in each respective state. Providing the extra W-2 and the other state's tax return shows the state authorities that yo are paying taxes in another state and are not trying to short-change them.

Thanks for the quick reply Atlanta. I checked my old IL tax forms. Resident or not, tax is the same as you mentioned. One last question. If I file as a resident alien under 1st year choice, can I use $5000 standard deduction?
Thanks again.
Regards,
Avalanche

Avalanche:

Yes, you can.

That is the primary reason most people opt to wait the 4-6 months needed to qualify under First Year Choice.

I cannot decide if I am eligible to claim the $5000 (or 4850?) standard deduction. I was on an F-1 visa from aug 2000 until Sep 30 2005 (on OPT from June 29 2005 - Sep 30 2005). I have been on H1-B since Oct 1 2005. I suppose that means I count as a non-resident for tax purposes. Firstly, is that correct? If so, I will file 1040NR and not as a dual-status person

(I do not pass the substantial presence test since the number of days of stay in US while not on F-1 visa do not total to 183 days)

Here is my second question. Now, according to pub 519, student/business apprentices who are residents of india (which I am) can claim the standard deduction of $5000 (or 4850?). I am wondering if I qualify since I have been a student for 9 of the 12 months in 2005

I will appreciate some help on these qns
THanks
Vikas

Vikas:

I answered this under the other post!

Atlanta tax expert
Thanks for the reply. I read pub 519 to figure out why I am a dual status alien. But it is not clear to me at all. I believe I do not pass the substantial presence test. And I do not have a green card. I guess that means I am a non-resident for tax purposes. Is that not so?

I think at a higher level, I do not understand how a person could be a resident and a non-resident in the same year. All definitions for these categories that I have seen are based on the substantial presence and green card tests and they seem to specify resident/nonresident alien status FOR THE ENTIRE YEAR.

What am I missing? Also, I got the impression from some of you postings that a dual status alien does not have to pay ANY social sec/medicare taxes. Even on income earned while on h1. Is my interpretation correct?

I appreciate your help
Thanks
vikas

Vikas:

I admit that IRS Pub 519 could have been written a LOT clearer. You need to read it several times to get the intricacies.

As for SS and Medicare taxes, bottom line: You begin paying the day you start on H-1 visa status. The IRS is quite clear on that!

Hi Atlanta Tax Expert,

Its been a long time since I have posted regd. Tax returns. Our previous posts are below for your reference.

I had to clarify a few final things and require your help regarding these. Kindly respond.

1) On using a tax software, it enters on line 37 of 1040NR, amount of 1.3K which is way below the standard deduction of 5K I was expecting to be mentioned?
This amount is actually my state and local income tax.

a) Just wanted to clarify who is eligible for claiming 5K standard deduction?
To reiterate, I was on OPT from Jan 2005 to Sept 30 2005 and got H1B on Oct 1 2005.

b)If I claim 5K is the US-India tax treaty Article 21(2)?

c)Could you send me a link where 5K is mentioned as standard deduction. I could not find this.

2) My Bank interest of around 100 is mentioned on page 5 as Non taxable Bank interest using the software? Last time I was told by you, that

bank interests should be treated as regular income. Please clarify?

I was reading Pub 519 (Page 2 of 70) where it is mentioned, under
What's new for 2005?
Dividends Paid to Non Residents: The following dividneds may be exempt from 30% tax
- Dividends paidby foreign corporations
- Interest related dividens
-Short Term capital gains an dividends

Is this gain Non Taxable? As a Non Resident?

I also have just heard from friends ( not a very reliable source though ) that these can be treated as Non Taxable Ban interest.
Please clarify

3) My short term gains and loss though stocks was added and then multiplied by 30% in line 88 of 1040 NR and this amount was then added on line 53 as "tax on income not effectively connected with US trade from page 4 line 88"
I have 2 questions here
- At one place as mentioned, they have said no 30% tax on short term capital gains and dividends
- If it is to be reported as income, should it be reported on Schedule D

4) Is the amount for 401K( retirement plan) to be reported anywhere on the
tax form? The amounts are accumulated every month into my 401K and I did not withdraw it. So I guess all these just accumulates over the years and need not be reported?

Previous posts below for your ready reference

Thanks in Advance

RB





#115 Comment on this Post Jan 21, 2006, 05:36 PM
RAHUL BHOSE
New Member Join Date: Jan 2006
Posts: 5


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


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#116 Comment on this Post Report Inappropriate Post Jan 22, 2006, 03:02 AM
AtlantaTaxExpert
Tax Expert Join Date: Feb 2005
Location: Atlanta, Georgia
Posts: 1,131


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.
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#117 Comment on this Post Jan 22, 2006, 03:37 AM
RAHUL BHOSE
New Member Join Date: Jan 2006
Posts: 5


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


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#118 Comment on this Post Report Inappropriate Post Jan 22, 2006, 07:20 PM
AtlantaTaxExpert
Tax Expert Join Date: Feb 2005
Location: Atlanta, Georgia
Posts: 1,131


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.
__________________
Hope This Helps!

Atlanta Tax Expert

Hi Atlanta Tax Expert,

Just to clarify point 2 in my previous post
"My Bank interest of around 100 is mentioned on page 5 as Non taxable Bank interest using the software" This is Line 5 of form 1040 NR stating
" L Have you excluded any gross income other than the foreign source income not effectively connected with a US trade or business "
And this was ticked marked as "yes"

Kindly respond to the previous post

Thanks and Regards,

RB

Rahul:

1a) In my opinion, you are eligible for the $5,000 standard deduction. You may have to over-ride the software.

1b) The article you cited [21(2)] is correct for the $5,000 standard deduction.

1c) The standard deduction is $5,000. You can verify this by looking up IRS Pub 501 from www.irs.gov.

2) If you file as a non-resident alien, then the bank and dividends are not taxable (I do not believe this filing option is available to you, given the fact you have switched over to H-1B status). If you file as a resident alien, they are taxable. If you file as a dual-status alien, the interest/dividends earned while under the F-1 visa are taxable at a 30% flat rate unless the India-U.S. Treaty sets a lower rate (which it does not), but the interest/dividends earned while under the H-1B visa are taxable at normal U.S. tax rates.

3) The software has it right if you did the stock transactions under the F-1 visa. The dual-status makes money made on stock transactions, dividends and bank interest taxable at a 30% rate. I had to do some research to verify this.

4) It is reported by tax software for resident/U.S. citizen returns on the W-2 mask. It is probably not needed for a non-resident or dual-status returns.

Some of your questions require a lot of research, which I do not have time to do in my busy season. Your software is accurate in some areas, but not in others. Remember, the software does not think and does not have experience or judgement.

If you have extensive stock transactions, dividends and interest, you really need to get professional tax help, especially if you will file a dual-status return.

Thank You very much for your prompt response, Atlanta Tax Expert,

From our previous discussions it does look like I qualify filing as a non resident alien as my H1B started on Oct 1 2005 (and was on F1 from Aug 2002-Sept 302005) in which case I would not clear the substantial presence test?
Which would imply regd. You
Point 2) the bank interest would not be taxable in that case ?

Regd point 3) I did some transactions before Oct 2005(F1) and during and after Oct 2005(H1B) but if I file as Non resident because of the above stated(not clearing substantial presence test), Could I consider net gain taxable at 30% rate?
If I mention the gains under these, I need not have to fill Schedule D, right?

Though all these are nominal amounts, I would not want any errors from my side, hence wanted to clarify from you.

Thanks & Regards,

RB

RB:

You cannot file as a non-resident alien. Your only options are dual-status or resident alien.

In either case, the bank interest, the dividends and the stock transaction are taxable. The only issue is at what rate:

30% as a dual status alien

OR

Normal tax rate as a resident alien (probably 15%; maybe 25%).

Your choice!

Hi Atlanta Tax Expert,

I guess I am back to Square one again.
Few months back, I was confused as to whether I was a resident or non resident for tax purposes, and on reading previous posts, your reply to my posts and Pub 519, it looked like I was a Non Resident Alien for Tax purposes for 2005 as I would only complete the substantial presence test 183 days from Oct 1 2005 (as this was the time my H1B began) , after which (April 1 2006) I would be a Resident Alien?

I thought I had three choices
- As a non-resident alien.
- As a dual-status alien.
- As a resident alien under the First Year Choice

I would request you to clarify this basic question?


Thanks & Regards,

RB

RB:

Further research and a detailed reading of an article in Tax Professional Quarterly has caused me to revise my guidance. If you have more than several weeks on H-1B status, you are a dual-status alien, period! There can be no option to file as a resident alien.

That does not mean you won't get away with filing as a non-resident alien. Such filings are done all the time and are never noticed by the IRS. However, as the resident expert to this forum, I cannot advice such a course of action because it is contrary to my current interpretation of the Internal Revenue Code.

Thank You Very Much, Atlanta Tax Expert

Your prompt replies have been very helpful

Regards,

RB

Hi AtlantaTaxExpert
I read Pub 519 several times to figure out why I am a dual status alien (like you said I am). My background info is as follows.

* am citizen of india
* Entered US in Aug 2000 on F-1
* Was on F-1 until Sep 30, 2005. Filed 1040 NR for 2000-2004
* Switched to H-1 on Oct 1, 2005

Question of course is: what is my tax status for 2005.

My understanding is for 2005 I do not pass the substantial presence test since being on an f-1 visa until sept 30, 2005 makes me an exempt individual for jan 1, 2005- sep 20 2005. And that these days do not count to the substantial presence test. So I should be a Non-resident.

The only possible catch is that I have already filed as non-resident for 5 successive years (2000-2005) and it seems (though is not clear) that the exemption as student can be claimed for 5 years only. If that rule is applicable, I would be a resident alien.

In fact, I called up the IRS and asked them whether I am a resident, non-resident or dual status. The lady said people can be dual status only in the year in which they enter or leave the US. So I cannot be one. She was not totally sure about the 5 year restriction on the exemption in the substantial presence test but after some research she said she thinks that I can claim the exemption and that I am a non-resident.

Given that you told me I am a dual-status, I am not sure what status to file as. I would really appreciate if you could help me to understand why you said I have to file as dual status. (I have a feeling my tax return would look fairly similar, except for interest earnings, if I were to file as a resident or non-resident; cannot say about dual status)
Thanks
Vikas

Vikas:

I do not recall seeing the 2000 - 2004 timeframe in your original account, Be that as it may, based on the input above, you are a resident alien, as the maximum five-year rule under F-1 status applies.

Ignore what the IRS lady said. Most of the IRS (or, for that matter, tax preparers) do not deal with resident and non-resident aliens, so they do not know the rules very well. When you are on F-1 status, it is as if you are not even in the United States. That lasts only for five years, and any day in the year you are in the U.S. under the F-1 visa uses up the entire year.

You have used up the F-1 visa exemption in 2004. For this reason, you can file as a resident alien in 2005.

Hi Atlanta Tax Expert,

Just had one more question.

If I file as "first year choice" after June 3rd,from what I have read, I need to file 1040NR and 1040.

In this case can I claim itemized deduction of local income tax on 1040 from oct 2005 - dec 30 2005 and standard deduction of 5000 for 1040NR from jan 2005- sept 30 2005?

Thanks in Advance,

Regards,

Rahul

Rahul:

If you file First Year Choice, you need only file the Form 1040. You can claim the itemized deduction (which includes the state and local taxes you paid) or the $5,000 standard deduction, whichever is more. You cannot claim both!

Filing both 1040 and 1040NR is for a dual-status return, which no longer applies (see my sticky note posting)

Hi,

I have another question that bugs me... I am filing residents alien (H1B) for tax purpose (1040A). I have a child born in the US, and another one that holds H4 visa.

Is this correct that I can claim Child Tax Credit on the child born in the US (since he's a citizen), but I can't on the child that holds H4 visa since she's not a US permanent resident?

I think the term qualifying Child Tax Credit that says: The dependent must be a U.S. citizen or resident means the dependent has to be a US permanent resident and not a resident alien for tax purpose.

However I need to ask the question anyway because a tax helper says otherwise.

Thanks

If your H4 child meets all the criteria for dependency as specified in IRS Pub 17, then he/she qualifies for the Child Tax Credit.

He/She may not qualify for the Earned Income Credit, however.

Thanks. She is qualified for the child tax credit, the only part I was not clear was whether her H4 status would cause her to be ineligible.

Glad to help!

Hi Atlanta Tax Expert,

Details :
* I am citizen of india
* Entered US in Oct 2000 on F-1
* Was on F-1 until Oct 21, 2005 (Worked on OPT from Apr 12,2005 - Oct 21, 2005)
* Switched to H-1 on Oct 21, 2005

My Questions:
1) What forms do I need to file?
2) Can I get back the SSN and Medicare paid from April 12th to October 21st 2005 by claiming to be NR?
3) What deductions can I claim?

Your Answer:
1) Since you came in country in 2000, the five-year time limit for the exemption allowed under the F-1 visa is up. All of the time you spent in 2005 is eligible for the Substantial Presence Test. File Form 1040.
3) You can claim the Aper deduction ($5,000) and a personal exemption ($3,200) for yourself and your spouse and children (if applicable).
2) file Form 843 to claim the refund for SSN and Medicare. The fact that you are filing as a resident alien is irrelevant.

Can you please clarify the 2) answer you have, as the p519 page 46 says I am not eligible for SS / Medicare exemption as I am a resident alien for tax purposes, so does the website http://www.utexas.edu/international/...43require.html recommended by IRS.

Any help is greatly appreciated.

Cordially,
Ajit.

Ajit:

I have modified my guidance since I posted that answer.

The website is correct.

You cannot claim the exemption if you file as a resident alien.

Sorry, I haven't been checking the forums.
Looks like my new laptop is gone in smoke... sigh!

Thanks for your advice,
Ajit.

Hi AtlantaTaxExpert,

Thank you very much for your previous response to my posts. I have a new question for you though. But let me post my first question, so that you can see the context easily.

Quote:

---

Originally Posted by paramthegreat

Hi everyone,

I am a single individual from India. I am trying to file taxes for year 2005 (actually just calculating to get an estimate). I have been on F1 from Sep 2001 till May 2005. I was never on OPT due to some mistakes made by my school. Also I did not have any earnings between Jan 2005 and July 13, 2005. I had filled my application for H1 in May 2005 and I got my H1 approved with start date of July 13, 2005 with a consulting firm.
Also, I have never left the US between Sep 2003 and now.

Now based on the posts in this thread and above information, please comment if the conclusions I have made are correct:
1. I do not pass the substantial presence test of being on H1 >= 183 days for 2005. That means I am considered a non-resident alien.
2. I can file the form 1040NR and can take standard deduction (which was $3000 for 2004) for 2005
3. I can take another deduction due to tax treaty with india (again $4850 for 2004) for 2005

I will sincerely appreciate all your help,

Thanks,
Parminder

---

And your response was

Quote:

---

Originally Posted by AtlantaTaxExpert

Parminder:

Your are correct that you can file as a non-resident alien, in which case you, as an Indian citizen, are entitled to claim a personal exemption of about $3,100 and the standard deduction of $5,000.

Further, you have the option to file as a resident alien, which means filing a Form 1040/1040A/1040EZ. I believe you will find the tax to be the same (but go ahead and do it both ways to be sure).

For 2006 onward, you will have to file as a resident alien.

---

Now for my question. My wife has been on F-1 in the USA for entire period of 2005. She was a full-time student & was working as an intern so she has made taxable income. But the company she was working for choose to not withhold any Federal taxes and gave her a 1099-C instead. Since we are in Texas, fortunately we do not have to deal with state tax. We were not married in 2005, but we were staying together for the past 2 years. We got married in Jan 2006. I have the marriage certificate from India to prove this.

My question is, Can we file our taxes jointly as married couple or do we have to do separate taxes. When filing individually, I am looking at a refund of approx $1200 and she is having to pay $1700. If we can file jointly, then I was hoping that we could keep our deductions and would have to send only the difference 1700-1200=500 to IRS. I want to avoid having to send a big chunk now to IRS and wait for my refund.

Thanks a lot,
Parminder

Hi, I am an international student from India and I was working on OPT from 1 Octber 2005 till the end of year. I applied for my H1 in August 2005 and got approval in November 2005 for start date of H1 from 12 Feb 2006. Now which form do I need to fill for federal returns. Can I still fill 1040NR-EZ and take both the standard deduction of $5000 and personal excemption of$3200?? Also in 2006 which form will I need to fill??

Also I got around $300 in interest from my bank(savings account). Do I need to mention this to federal or state returns(being on F1)??

Thanks in advance

My son was born Dec. 28, 2005. Can I claim him?

Hi Atlanta Tax Expert,
Can you please help me with these questions. I would really appreciate it.
Thanks,

Quote:

---

Originally Posted by quin

Hi, I am an international student from India and I was working on OPT from 1 Octber 2005 till the end of year. I applied for my H1 in August 2005 and got approval in November 2005 for start date of H1 from 12 Feb 2006. Now which form do I need to fill for federal returns. Can I still fill 1040NR-EZ and take both the standard deduction of $5000 and personal excemption of$3200???? Also in 2006 which form will I need to fill???

Also I got around $300 in interest from my bank(savings account). Do I need to mention this to federal or state returns(being on F1)???

Thanks in advance

---

Atesfu:

Yes, you can claim your son.

Quin:

File Form 1040NR. You can claim the standard deduction of $5000 and personal excemption of $3200. You must also claim the $300 in interest earned in your savings account.

Any inputs of my post #190 please.

Quote:

---

Originally Posted by AtlantaTaxExpert

Atesfu:

Yes, you can claim your son.

Quin:

File Form 1040NR. You can claim the standard deduction of $5000 and personal excemption of $3200. You must also claim the $300 in interest earned in your savings account.

---

Thanks AtlantaTaxExpert, but how do I claim for my interest of savings account? Do I need to fill any other form for that? Can I fill 1040NR-EZ instead of 1040NR?? What difference does it make if I fill either of these (I don't have any dependents)...
Thanks,

Quin:

Unfortunately, you cannot claim interest on Form 1040NR-EZ. That's why you must use Form 1040NR.

This is what I got from instructions for form 1040NR (for line 9a and 9b)...


"If you received interest not effectively connected with a U.S. trade or business, report it on Form 1040NR page 4, unless it is tax exempt under a treaty and the withholding agent did not withhold tax on the payment. See Pub. 901 for a quick reference guide to the provisions of U.S. tax treaties. In addition, interest from a U.S. bank, savings and loan association, credit union, or similar institution, and from certain deposits with U.S. companies, is tax exempt to a nonresident alien if it is not effectively connected with a U.S. trade or business."

From what I can understand it says that we need not report these interests... Am I right?? Please help clarify this point...

Also do you mean that we need to report it and then claim for an excemption?? If so then how to do it??

Quote:

---

Originally Posted by AtlantaTaxExpert

Quin:

Unfortunately, you cannot claim interest on Form 1040NR-EZ. That's why you must use Form 1040NR.

---

The exemption I spoke of is the personal exemption of $3,200. That exemption is not related to the interest that must be reported as taxable income.

Where did you get the money that earned this interest? If the answer is from a job located in the U.S. then the interest IS considered to be connected to a U.S. trade or business and is fully taxable.

Interest income that is not effectively connected with a U.S. trade or business is documented with other audit trail forms, such as Form 1042-S. It IS taxed, but at a different rate than normal interest, as documented on Page 4 of Form 1040NR.

Hi,
I was on OPT until May 31 and my H1B started on June 1. I had no income on OPT.
Can I file a resident return with 1040EZ and claim the exemption and standard deduction, instead of a dual-status return.
Thanks.