You have a dual-status tax year when you have been both a resident alien and a nonresident alien in the same year. Dual status does not refer to your citizenship, only to your resident status in the United States. In determining your U.S. income tax liability for a dual-status tax year, different rules apply for the part of the year you are a resident of the United States and the part of the year you are a nonresident.

The most common dual-status tax years are the years of arrival and departure. See Dual-Status Aliens in chapter 1.

If you are married and choose to be treated as a U.S. resident for the entire year, as explained in chapter 1, the rules of this chapter do not apply to you for that year.

You must file your tax return on the basis of an annual accounting period called a tax year. If you have not previously established a fiscal tax year, your tax year is the calendar year. A calendar year is 12 consecutive months ending on December 31. If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December, or a 52–53 week year) and are considered to be a U.S. resident for any calendar year, you will be treated as a U.S. resident for any part of your fiscal year that falls within that calendar year.

For the part of the year you are a resident alien, you are taxed on income from all sources. Income from sources outside the United States is taxable if you receive it while you are a resident alien. The income is taxable even if you earned it while you were a nonresident alien or if you became a nonresident alien after receiving it and before the end of the year.

For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources and on certain foreign source income treated as effectively connected with a U.S. trade or business. (The rules for treating foreign source income as effectively connected are discussed in chapter 4 under Foreign Income.)

Income from sources outside the United States that is not effectively connected with a trade or business in the United States is not taxable if you receive it while you are a nonresident alien. The income is not taxable even if you earned it while you were a resident alien or if you became a resident alien or a U.S. citizen after receiving it and before the end of the year.

Income from U.S. sources is taxable whether you receive it while a nonresident alien or a resident alien unless specifically exempt under the Internal Revenue Code or a tax treaty provision. Generally, tax treaty provisions apply only to the part of the year you were a nonresident. In certain cases, however, treaty provisions may apply while you were a resident alien. See chapter 9 for more information.

When determining what income is taxed in the United States, you must consider exemptions under U.S. tax law as well as the reduced tax rates and exemptions provided by tax treaties between the United States and certain foreign countries. For a further discussion of tax treaties, see chapter 9.

The following restrictions apply if you are filing a tax return for a dual-status tax year.

As a dual-status taxpayer, you usually will be able to claim your own personal exemption. Subject to the general rules for qualification, you can claim exemptions for your spouse and dependents when you figure taxable income for the part of the year you are a resident alien. The amount you can claim for these exemptions is limited to your taxable income (figured before subtracting exemptions) for the part of the year you are a resident alien. You cannot use exemptions (other than your own) to reduce taxable income to less than zero for that period.

Special rules apply to exemptions for the part of the tax year you are a nonresident alien if you are a resident of Canada, Mexico, Japan, or the Republic of Korea (South Korea), are a U.S. national, or are a student or business apprentice from India. For more information, see Exemptions in chapter 5.

When you figure your U.S. tax for a dual-status year, you are subject to different rules for the part of the year you are a resident and the part of the year you are a nonresident.

The U.S. income tax return you must file as a dual-status alien depends on whether you are a resident alien or a nonresident alien at the end of the tax year.

If you are a resident alien on the last day of your tax year and report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year. If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. In either case, file your return with the Internal Revenue Service Center, Philadelphia, PA 19255.

If you are a nonresident alien on the last day of your tax year and you report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year if you receive wages subject to withholding. If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. If you did not receive wages subject to withholding and you report your income on a calendar year basis, you must file no later than June 15 of the year following the close of your tax year. If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 6th month following the close of your tax year. In any case, file your return with the Internal Revenue Service Center, Philadelphia, PA 19255.

Sam R. Brown is single and a subject of the United Kingdom (U.K.). He temporarily entered the United States with an H-1 visa to develop a new product line for the Major Product Co. He arrived in the United States March 18, 2004, and left May 25, 2004, returning to his home in England.

The Major Product Co. later offered Sam a permanent job, and he returned to the United States with a permanent visa on September 10, 2004.

During Sam's temporary assignment in the United States, the Major Product Co. paid him $6,500. He accounted to his employer for his expenses for travel, meals, and lodging while on temporary assignment, and was reimbursed for his expenses. This amount was not included on his wage statement, Form W-2, given to him when he left the United States.

After Sam became permanently employed, his wages for the rest of the year were $21,800, including reimbursement of his moving expenses. He received a separate Form W-2 for this period. His other income received in 2004 was:

Interest income paid by the U.S. Bank (not effectively connected):

Dividend income paid by Major Product Co. (not effectively connected):

Interest income (in U.S. dollars) paid by the U.K. Bank:

Sam paid the following expenses while he was in the United States:

Before Sam left the United States in May, he filed Form 1040-C (see chapter 11). He owed no tax when he left the United States.

Form 1040

Sam completes Form 1040 as follows.

Page 1.   Sam prints his name, social security number, and address on page 1 of Form 1040. He checks “Yes” for the Presidential Election Campaign Fund and “Single” under filing status. He also checks the exemption block for himself and prints “Dual-Status Return” across the top of the form.

  Sam reports on line 7, Form 1040, all wages received during the period he was a resident of the United States ($21,800) and the wages received during the period he was a nonresident alien ($6,500) that was effectively connected with his U.S. trade or business. This income is taxed at the graduated rates.

  Sam reports on Form 1040 the interest income credited to his account by the U.S. Bank and the U.K. Bank in September and December, while he was a U.S. resident. If any of the interest income received while he was a nonresident alien was effectively connected with his U.S. trade or business, he would also report these amounts on Form 1040. If he had paid foreign income tax on the interest income received from the U.K. Bank, he would claim a foreign tax credit.

  The dividend income includes only the October dividend, which was received while Sam was a U.S. resident. The dividend income received during his period of nonresidence was not effectively connected with his U.S. trade or business and, therefore, not taxed at the graduated rates.

  Sam completes Form 3903 (not illustrated) to figure his moving expense deduction and reports the total on Form 1040, line 29.

Schedule A (Form 1040).   Sam cannot claim the standard deduction because he has a dual-status tax year. He reports his itemized deductions on Schedule A (Form 1040). The only itemized deduction he had while he was a nonresident alien was the state income tax withheld from his pay. For information purposes, he lists this amount on Schedule A, line 1, Form 1040NR, in addition to including it on Schedule A, Form 1040.

  Sam totals his itemized deductions on line 28, Schedule A (Form 1040).

Page 2.    Sam checks box 38 and reports the amount from line 28 of Schedule A (Form 1040) on line 39, Form 1040.

  Sam enters $3,100 for one personal exemption on Form 1040, line 41. He subtracts the amount on line 41 from the amount on line 40 to figure his taxable income, line 42.

  Sam is now ready to figure the tax on his income taxed at the graduated rates. He uses the column in the Tax Table for single individuals. He enters $2,114 on line 43. Because he had no alternative minimum tax to add, he enters $2,114 again on line 45.

  Sam also enters $2,114 on line 56 because he had no credits to subtract.

  To this tax he must add the tax on the income taxed at the 30% or lower treaty rate. Since there is no line on Form 1040 for this tax, he reports the amount ($36) on the dotted line next to line 62 and includes it in the total tax on line 62.

  Sam reports the total amount of tax withheld ($2,700) from his wages on Form 1040, line 63. He includes in this amount the tax withheld at source ($36 from Form 1040NR, line 65) on dividends paid to him while he was a nonresident alien. He also writes a brief explanation.

  Sam compares the total tax on Form 1040, line 62 to the total payments on line 70, to see if he has overpaid his tax or if he owes an additional amount. Since the amount of tax withheld and the amount of tax paid at source are more than his total tax, he has overpaid his tax. He subtracts the amount on line 62 from the amount on line 70 to figure his refund. He draws a line through the boxes on lines 72b and 72d because he does not want his refund directly deposited into his account.

  Sam checks to be sure that he has completed all parts of Form 1040 that apply to him. He also checks to see if he has completed the necessary parts of the Form 1040NR that he is attaching as a statement. He then signs and dates the return and enters his occupation.

  

Sam mails the return to the following address.

Internal Revenue Service Center
Philadelphia, PA 19255

Form 1040 pg 1&2

Sch A (form 1040) & Form 1040NR pg1

Form 1040NR pg 2&3

Form 1040NR pg 4

Form 1040NR pg 5