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:

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, Austin, TX 73301-0215.

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, Austin, TX 73301-0215.

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, 2006, and left May 25, 2006, 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, 2006.

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 2006 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 the “You” box 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 26.

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 39b and reports the amount from line 28 of Schedule A (Form 1040) on line 40, Form 1040.

  Sam enters $3,300 for one personal exemption on Form 1040, line 42. He subtracts the amount on line 42 from the amount on line 41 to figure his taxable income, line 43.

  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 $2,064 on line 44. Because he had no alternative minimum tax to add, he enters $2,064 again on line 46.

  Sam also enters $2,064 on line 57 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. Because there is no line on Form 1040 for this tax, he reports the amount ($36) on the dotted line next to line 63 and includes it in the total tax on line 63.

  Sam reports the total amount of tax withheld ($2,700) from his wages on Form 1040, line 64. He includes in this amount the tax withheld at source ($36 from Form 1040NR, line 66) 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 63 to the total payments on line 72, to see if he has overpaid his tax or if he owes an additional amount. Because 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 63 from the amount on line 72 to figure his refund. He draws a line through the boxes on lines 74b and 74d 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
Austin, TX 73301-0215

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Form 1040 pg 1&2

Form 1040 U.S. Individual Income Tax Return 2006, Pages 1 and 2. Written above title “Dual-Status RETURN”. Summary: This is an example of Form 1040 (2005), pages 1 and 2 with items included as described in the text. Additionally, these line items are completed:

Page 1:

Under “Income”:

“7. Wages, salaries, tips, etc. Attach Form(s) W-2” field contains 28,300 “8a. Taxable interest. Attach Schedule B if required” field contains 395 “9a. Ordinary dividends. Attach Schedule B if required” field contains 120 “22. Add the amounts in the far right column for lines 7 through 21. This is your total income” field contains 28,815

Under “Adjusted Gross Income”:

“26. Moving expenses. Attach Form 3903” field contains 8,300 “36. Add lines 23 through 31a and 32 through 35” field contains 8,300 “37. Subtract line 36 from line 22. This is your adjusted gross income” field contains 20,515

Page 2:

Under “Tax and Credits”:

“38. Amount from line 37 (adjusted gross income)” field contains 20,515 “39b. If you are married filing separately and your spouse itemizes deductions, or you were a dual-status alien, see page 35 and check here” field contains box with check mark “40. Itemized deductions (from Schedule A) or your standard deduction (see left margin)” field contains 922 “41. Subtract line 40 from line 38” field contains 19,593 “42. If line 38 is over $109,475, or you provided housing to a person displaced by Hurricane Katrina, see page 37. Otherwise multiply $3,200 by the total number of exemptions claimed on line 6d.” field contains 3,200 “43. Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter 0” field contains 16,393 “43. Tax (see page 37). Check if any tax is from a (checkbox) Form(s) 8814 b (checkbox) Form 4972” field contains 2,091 “46. Add lines 44 and 45” field contains 2,091 “57. Subtract line 56 from line 46. If line 56 is more than line 46, enter 0” field contains 2,091

Under “Other Taxes”:

“62. Add lines 57 through 62. This is your total tax. Total from 1040NR $36” field contains 2,127

Under “Payments”:

“64. Federal income tax withheld from Forms W-2 and 1099 (Line 62 includes $36 from Form 1040NR.)” field contains 2,736 “71. Add lines 64, 65, 66a, and 67 through 70. These are your total payments” field contains 2,736

Under “Refund”:

“72. If line 71 is more than line 63, subtract line 63 from line 71. This is the amount you overpaid” field contains 609 “73a. Amount of 72 you want refunded to you” field contains 609

Under “Sign Here”:

“Your signature” field contains Sam R. Brown “Date” field contains 3-16-2006 “Your occupation” field contains R&D Specialist

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Sch A (form 1040) & Form 1040NR pg1

Schedules A&B (Form 1040) Schedule A--Itemized Deductions 2006 and Form 1040NR U.S. Nonresident Alien Income Tax Return 2005. Summary: These are examples of Schedule A (Form 1040) 2005 and Form 1040NR 2005 with items included as described in the text. Additionally, these line items are completed:

Schedule A (Form 1040):

Under “Taxes You Paid”: “5. State and local taxes” field contains 612 “9. Add lines 5 through 8” field contains 612 Under “Gifts to Charity”: “15a. Total gifts by cash or check. If you made any gift of $250 or more, see page A-7” field contains 310 “18. Add lines 15a, 16, and 17” field contains 310 Under “Total Itemized Deductions”: “28. Is Form 1040, line 38, over $145,950 (over $72,975 if married filing separately)? No. Your deduction is not limited. Add the amounts in the far right column for lines 4 through 27. Also, enter this amount on Form 1040, line 40.” checkbox checked, field contains 922

Above title of form “Dual-Status Statement”

Form 1040NR (2005):

“Check if: Individual” checkbox checked “Country” field contains U.S.A. “Of what country were you a citizen or national during the tax year?” field contains United Kingdom “Give address outside the United States to which you want any refund check mailed. If same as above, write Same.” field contains Not Applicable “Give address in the country where you are a permanent resident. If same as above, write Same.” field contains Same Under “Income Effectively Connected With U.S. Trade/Business”: “8. Wages, salaries, tips, etc. Attach Form(s) W-2” field contains 6,500 “23. Add lines 8, 9a, 10a, 11-15, 16b, and 17b-21. This is your total effectively connected income” field contains 6,500 Under “Adjusted Gross Income”: “34. Add lines 24 through 33” field contains 0

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Form 1040NR pg 2&3

Form 1040NR (2006), Pages 2 and 3. Summary: These are examples of Form 1040NR. (2005), pages 2 and 3 with items included as described in the text. Additionally, these line items are completed:

Form 1040NR., Page 2:

Under “Tax and Credits”: “37. Itemized deductions from page 3, Schedule A, line 17” field contains 195 Under “Other Taxes”: “53. Tax on income not effectively connected with a U.S. trade or business from page 4, line 88” field contains 36 Under “Payments”: “59. Federal income tax withheld from W-2, 1099, 1042-S, etc.” field contains 536 “66. U.S. tax withheld at source from page 4, line 85” field contains 36 “68. Add lines 59 through 68b. These are your total payments” field contains 572

Form 1040NR., Page 3:

Schedule A--Itemized Deductions: Under “State and Local Income Taxes”: “1. State income taxes” field contains 195 “3. Add lines 1 and 2” field contains 195 Under “Total Itemized Deductions”: “17. Is Form 1040NR., line 36 over $145,950 (over $72,975 if you checked filing status box 3, 4, or 5 on page 1 of Form 1040NR)? No. Your deduction is not limited. Add the amounts in the far right column for lines 3 through 16. Also enter this amount on Form 1040NR, line 37” checkbox checked, field contains 195

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Form 1040NR pg 4

Form 1040NR (2006), Page 4. Summary: This is an example of Form 1040NR (2005), page 4, with items included as described in the text. Additionally, these line items are completed:

“75a. Dividends paid by: U.S. corporations (c) 15%” field contains 240

“85. Total U.S. tax withheld at source. Add column (a) of lines 75a through 84. Enter the total here and on Form 1040NR, line 66” field contains 36

“86. Add lines 75a through 84 in columns (b)-(e): (c) 15%” field contains 240

“87. Multiply line 86 by rate of tax at top of each column” field contains 36

“88. Tax on income not effectively connected with a U.S. trade or business. Add columns (b)-(e) of line 87. Enter the total here and on Form 1040NR, line 53” field contains 36

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Form 1040NR pg 5

Form 1040NR (2006), Page 5. Summary: This is an example of Form 1040NR (2005), page 5, with items included as described in the text. Additionally, these line items are completed:

“A. What country issued your passport?” field contains United Kingdom

“B. Were you ever a U.S. citizen? No” checkbox checked

“C. Give the purpose of your visit to the United States” field contains Temporary assignment

“D. Type of entry visa” field contains H-1

“and current nonimmigrant status and date of change (see page 27)” field contains Permanent 3-18-05

“G. Dates you entered and left the United States during the year. Residents of Canada or Mexico entering and leaving the United States at frequent intervals, give name of country only.” field contains

Entered--March 18, 2005 Departed--May 25, 2005 Entered--September 10, 2005

“H. Give number of days (including vacation and nonworkdays) you were present in the United States during:”

“2003” field contains 0 “2004” field contains 0 “and 2005” field contains 182

“J. Did you file a U.S. income tax return for any year before 2005? No” checkbox checked

“M. If you are claiming the benefits of a U.S. income tax treaty with a foreign country, give the following information. See page 24 for additional information.”

“Country” field contains United Kingdom “Type and amount of income not effectively connected that is exempt from or subject to a reduced rate of tax. Also, identify the applicable tax treaty article: For 2005” field contains Additional income of $240 taxed at 15% under Article 10 “Were you subject to tax in that country on any of the income you claim is entitled to the treaty benefits? Yes” checkbox checked “Did you have a permanent establishment or fixed base (as defined by the tax treaty) in the United States at any time during 2005? No” checkbox checked

“P. Is this an expatriation return (see page 28)? No” checkbox checked

“Q. During 2005, did you apply for, or take other affirmative steps to apply for, lawful permanent resident status in the United States or have an application pending to adjust your status to that of a lawful permanent resident of the United States? Yes” checkbox checked

“If Yes, explain” field contains Permanent resident status granted