If you are recent U.S. immigrant your first tax return can get complicated. Some special tax rules apply to so called dual-status residents.

According to IRS, you are considered a dual-status resident when you have been both a resident alien and non-resident alien during the same year.

Dual status is not about your citizenship, it refers only to your residence status in the United States.

The most common examples of dual-status residence are the years of arrival to the US and departure from the US.
If you arrived to the United States and became a resident based on the number of days spent in the US ( substantial presence) or became a green card holder in the current year, you should be aware of the tax implications

First of all, it is very important to understand that if at some point you became a resident based on the “substantial presence” test, it means that your residence began on the date of your entrance to the United States (not the date when “substantial presence” test was actually met).

Your income is taxed differently for the part of the year when you are a U.S. resident as compared to the non-residence period:

• While a non-resident, you have to pay taxes on income from U.S. sources and on certain foreign source income treated as effectively connected with a U.S. trade or business
• While a resident, your income from both U.S. and foreign sources is taxed

There are some very important restrictions which significantly limit options available for dual-status residents to reduce their taxable income.

As a dual-status resident you CAN’T:

1. use standard deduction
2. use tax benefits of the Head of Household filing status
3. file joint return with your spouse.
4. claim educational credits, EIC (earned income credit)
5. claim child and dependent care credit (if married)

As a dual-status resident you CAN:

1. itemize
2. claim dependent on your tax return
3. claim foreign tax credit
4. claim retirement savings contribution credit (subject to restrictions)
5. claim child and other dependent credit

You can find more information about taxes for dual-status aliens, non-residents and expatriates here

If you are not sure about your residence status and filing requirements do not hesitate to contact us directly