Monthly Archives: July 2015

Visa Type Change: Changing Status, Visa, U.S. Tax Obligation, by Jean Mammen, EA

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Changing Status, Changing Visa, Changing U.S. Tax Obligation

 Part II of III

For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S. See Part I.

If you changed your visa type during your first visit, or if this is your second visit, more possibilities exist, and more analysis is needed.

VISA TYPE CHANGE:  What are the tax and tax residency effects if you changed visa types?

If your new visa allows counting days immediately, you do so.

Example: You had an F1 visa and were still in the eXempt period. You did not count days in the U.S. as days of presence. Now you have an H1b visa. You begin to count days.

 Example: Your new visa is a kind where you can never count days, such as a G visa, or do not count days during an eXempt or eXclusion period. You do not count days while in this period.

Tax residency status change? Immediately before you got the new visa type, what was your tax residency status?  Non-resident alien? Or tax resident? Filing on form 1040NR? or on Form 1040?

Example: First visit, you were in your sixth year on an F1 visa and had begun counting days. Maybe you reached 183 days and met the SPT, or maybe you had almost enough countable days.  Then, with just a short break, you get an H1b visa. You resume counting days. On December 31st, you add together your countable days from the F visa period and the H1b visa days.  Did you meet the SPT?  If so, you are now a US tax resident. You file on Form 1040.

Example: First visit, you were in the third year of an H1b visa. You rarely left the US. You had met the SPT. After a brief break, you got a G visa and stopped having countable days of presence in the US. You had already met the SPT. You were a tax resident. You will file on form 1040 for this tax year. But the following year, you are on the G visa for all the time you are in the US. You do not have 31 countable days in the US for that tax year. Or maybe you got the G visa the following year but before you spent 31 countable days in the US.  Either way, for this year you are now a non-resident alien. If you do have US source income, perhaps from rental real estate or investment income, you are back to filing on form 1040NR.

Example: You were in the US on an H1b visa and then decided to get an advanced degree. After a brief break, you got a student visa. On this student visa, whether F1 or J1, you are usually eXempt or eXcluded from counting days for any part of five calendar years. You had met the SPT in an earlier year. You were a tax resident. You filed on form 1040. If you had at least 31 countable days in the US during this year, and were in the US for most days in the prior two years, you would remain a tax resident through December 31st of this year and file as a tax resident on form 1040 at least one more time.

You must do the math to be sure whether or not you are a tax resident. If you spent just 31 days in the U.S. in this tax year, and 365 days in the US in each of the two prior years, your three-year day count exceeds 183 by 30 days. This leaves a small margin for spending days outside the US and still meeting the SPT.  31 + 1/3(365) + 1/6(365) = 31 + 121 2/3 + 60 2/3 = 213 1/3. Then 213 – 183 = 30.

The following year is your second year on a student visa. You spent no countable days in the U.S. You are a non-resident alien. You file on form 1040NR if you have any US source income.

This Series

FIRST VISIT / NO VISIT: If you have U.S. source income, how do you choose between form 1040NR and form 1040?. What are the tax and tax residency effects?

See Part I

 

VISA TYPE CHANGE:  What are the tax and tax residency effects when you change visa types?

Part II, above

 

SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?

See Part III

 

 

Second Visit or Multiple Visits to the U.S.: Changing Status,Visa, U.S. Tax Obligations, by Jean Mammen, EA

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Changing Status, Changing Visa, Changing U.S. Tax Obligation

 Part III of III

For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S. See Part I

If this is your second visit, or if you have changed visa type, more possibilities exist, and more analysis is needed. See Part II for the effects of visa type changes

SECOND VISIT/MULTIPLE VISITS TO THE US

If you leave the US, and then return on another visit, you must then look back at your past visa history to determine which form to use to report income, 1040NR or 1040.

Q: Were you a tax resident of the U.S. during any part of your most recent year in the U.S.?

Maybe you were gone only a few months, maybe you were outside the US for several years, but while here you were already a tax resident. You may or may not be a tax resident in your first year of this visit.

Q: Were you outside the U.S. for more than a full calendar year between this visit and your most recent visit? Yes? No?

If you were gone less than a full calendar year, were you a tax resident during any part of last year? And when you returned, did you become a tax resident again during this year?

If so, you continued to be a tax resident of the U.S. while you were outside the U.S.

Even if your only income was from foreign sources, and none of it was from U.S. sources, it is subject to U.S. taxation by the U.S. Internal Revenue Code provisions for form 1040.

Residency persists during this absence from the U.S. by the “no lapse” sections of the U.S. tax code: IRC 301.7701(b)-4(e)(1) and (2)

Q: Was your most recent year in the U.S. within the three-year window for counting days for the substantial presence test (SPT)? Did you have any countable days of presence? As a tourist? On an “all the rest, count your best’ visa type? Or on a student or exchange visitor (teacher, trainee, researcher) visa like F or J, after the eXempt period had ended?

If so, do the calculation over the three years to determine if you meet the SPT during this tax year.

Q: On your most recent visit, were you not able to count days for the SPT because you were on an A or G visa?

If so, double-check back through the three-year window, and do the SPT calculation over the three years, as if this were your first visit to the U.S,

Q: Is your current visa a student visa (F, J, M)? If so, to determine if you have already used up some of the 5 calendar years of the student eXempt/eXclusion period, look back all the way to 1985. Why 1985? That is the year this section of the tax code came into effect. Treasury Regulation governing the transition: 301.7701(b)-3(b)(7)(iv). Look back at your visa history during all your prior visits to the U.S. since 1985. In how many of those calendar years were you on an F, J, M, or Q visa?

Subtract that number of years from the 5 years in the ‘student’ look back period. The result is the remaining number of calendar years during which you are eXempt/eXcluded from counting days to meet the SPT.

Example:  8 years ago you were in the U.S. as a J visa high school exchange student, for an entire academic year. Now you are in the U.S. on a student F visa for a multi-year combined Master’s degree and Ph.D. program. The eXempt period on an F visa is 5 years. During your lookback period you were in the U.S. on a J visa for parts of two calendar years. 5-2=3. You have three years remaining in your eXempt period. You will start counting days of presence for the SPT on your first day in the U.S. of your fourth year in the U.S. on this student visa

Example: You accompanied your parents to the U.S. when you were a child. They left your twin sister back home with Grandmother. You were in the U.S. for all or part of three calendar years. That visit took place sometime between 1985 and last year. Your parents were on J visas. You had a J2 visa, as a dependent. Now you and your twin sister are students in the U.S. on F1 visas.

The student eXempt period lasts five years. You have already spent 3 years in the U.S.  on an F, J, M, or Q visa. Only two years remain in your eXempt period. You will start counting days for the SPT on your first day in the U.S. in the third year of this visit. Your sister will not begin counting days until after her fifth year is past. She will begin counting days on her first day in the U.S. in her 6th year on this visit.

If you have income – whether U.S. source or foreign source, you might file on Form 1040 as a tax resident as soon as your third year as a student in the U.S. Your sister would file a U.S. tax return only if she has U.S. source income, until at least her sixth year. Until then, if she needs to file a U.S. tax return, she will use form 1040NR.

Q: Is your current visa a J or Q exchange visitor visa as a teacher, trainee, researcher, etc? Look back at the six previous years to see in how many of them you were in the U.S. on an F, J, M, or Q visa. If that number is two years or more, you have exhausted the eXempt period.

Subtract that number of years from the two years available as eXempt status in the “teacher or trainee” J visa look back period. If you counted one (1) year, you have one eXempt year left before you start counting days for the SPT. If you counted two (2) or more years, you begin counting days for the SPT on your first day in the U.S. on this visit. If you counted zero (0) years on an F, J, M, or Q visa, you have the full two-year eXempt period remaining.

Example: You left the U.S. two years ago this August, after a twenty-four month stay as a J visa researcher. You returned to the U.S. on the two-year anniversary of your departure, again as a J visa researcher.

You had been in the U.S. during parts of three calendar years during the six-year lookback window. You began counting days for the SPT on the day in August that you arrived in the U.S. on this visit.  The count did not reach 183 days before December 31st. You file on form 1040NR.

You had been out of the U.S. for a full calendar year, plus some months before and after that full year. Thus, your prior status as a tax resident, during the January through August of your third calendar year in the U.S. during your previous visit, was extinguished during that full year outside the U.S.  Your previous visit was within the six-year look back period. It exhausted the two-year eXemption period potentially available for this visit.

 

This Series

FIRST VISIT / NO VISIT: If you have U.S. source income, how do you choose between form 1040NR or form 1040?. What are the tax and tax residency effects?

See Part I

 

VISA TYPE CHANGE:  What are the tax and tax residency effects when you change visa types?

See Part II

 

SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?

Part III, above

 

 

First Visit /No Visit to the U.S.: Changing Status, Visa, U.S. Tax Obligation, by Jean Mammen, EA

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Changing Status, Changing Visa, Changing U.S. Tax Obligation

Part I of III

For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S.

If you have changed visa status, or if this is your second visit, more possibilities exist, and more analysis is needed.

FIRST VISIT/NO VISIT: If you have US source income to report, choosing between form 1040 and form 1040NR is relatively simple. Determine if any days you were physically in the US may be counted towards meeting the substantial presence test (SPT).

If you have no visa, or any visa except F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you usually immediately begin to count all days where you spent any time at all in the US.

A common exception to counting days is for people who live in Mexico or Canada and cross the border regularly to work in the US during some period of the tax year. These “commuters” do not count as days present in the U.S. any day they commuted to or from their U.S. workplace, no matter what their visa type. IRC 7701(b)(7)(B); 301.7701(b)(3)

If you are not in the U.S., there are no days to count.

And A1, A2, and G1, G2, G3, and G4 visa holders are never going to count days.

Counting: Count the days that may be counted to see if they add up to 183 days in the tax year and meet the SPT.

Filing requirement if SPT is not met: If you have any US source income at all you will file form 1040NR. If you were not in the U.S. or this is your first visit to the US and you spent fewer than 183 countable days in the U.S., then 0+ is the threshold even if the income is not taxable. An exception is if the only US source income is from wages, and the wages are less than the amount of one personal exemption. ($4,000 for 2015)

Filing requirement if SPT is met: You will file on form 1040 as a tax resident if you meet the SPT by December 31st, and your income exceeds the form 1040 filing threshold. If you began counting days July 2, you could meet the SPT in your first year in the US.

Taxable income for form 1040 is total worldwide income from any source derived that is not specifically exempt from US income tax.  The threshold for filing is when taxable income exceeds the sum of the personal exemption and the standard deduction appropriate to your filing status (single, married filing jointly, married filing separately, etc.).  You will also pay FICA tax (Medicare and social security) on wage income if your employer and job are part of the US economy, unless you are a student in an on-campus job.

FIRST VISIT, second year: If you have any visa other than F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you could meet the SPT in your second year in the US and change from tax non-resident to tax resident.

FIRST VISIT, third and sixth year: In the third year of your first visit to the US, J visa exchange visitors usually start counting days for the SPT on their first day in the US after January 1st.  Students usually do so in their sixth year in the US. You could meet the SPT by December 31st and become a tax resident for the year if you spend most of your days in the U.S.

Substantial Presence Test (SPT):

When day counting is allowed, and you spent at least 31 countable days in the U.S. in the tax year, then:

Count all countable days present in the U.S. in the tax year, and add:

1/3 of all countable days present in the first prior year, plus

1/6 of all countable days present in the second prior year.

Add any fractions to the whole numbers.

If the total reaches 183 by December 31st, you have met the SPT. You are a U.S. tax resident.

 

LET ME COUNT!

G or A, No Way!

F, J, M, or Q, There’s a Delay Waiting for you!

All the rest, Count your best!*

*includes A3, G5

 

This Series

FIRST VISIT/NO VISIT: If you have U.S. source income, how do you choose between form 1040NR and Form 1040? What are the tax and tax residency effects?

See above

VISA TYPE CHANGE:  What are the tax and tax residency effects when you change visa types?

See Part II

SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?

See Part III