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I am h1b and came on 25th of Sep 2014 with wife and child as H4. I will use the "first year choice" and file when meet the substantial presence requirement. I had income from Greece for all 2014.

  1. From Jan-Sep (no US income) do I have to file 1040NR and pay again taxes in US for the Greek income?If yes How can adjust this tax?

  2. For 25th Sept-31 Dec do I have to file 1040 with two W7 and request ITIN for my wife and child correct?What do I have to file for CA state and how I will adjust the tax from foreign income?

  3. All the forms that I have to submit, what and how is this statement for SPT that I have to submit and what is tricky that I should be aware in my case.

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If you make the "first year choice", you'll become a dual-status alien. Which means, you are non-resident until September 25th, and resident from that date on. That means you'll file two tax returns: 1040NR for the period when you're non-resident, and 1040 for the period you're resident, both for the same year. You'll pay the combined tax on both of them.

From Jan-Sep (no US income) do I have to file 1040NR and pay again taxes in US for the Greek income?If yes How can adjust this tax?

For the period you're non-resident, you'll only have to report US-sourced income. If you have none - it will be an empty return.

For 25th Sept-31 Dec do I have to file 1040 with two W7 and request ITIN for my wife and child correct?

Yes.

What do I have to file for CA state

You're partial-year resident in CA (California, I'm guessing), and you'll file form 540NR. Similarly, until your residency starts (September 25th), you only report California-sourced income, after that - worldwide. Unfortunately, with California you don't have an option of filing as non-resident for the entire year, and you cannot offset foreign taxes. You'll be taxed twice.

how I will adjust the tax from foreign income?

On Federal tax return you can use form 1116 to calculate foreign tax credit for the period of your residency. You don't need to do any thing for the period when you're non-resident since the foreign income is not taxed.

You can also deduct foreign taxes on your Schedule A, instead of using foreign tax credit. In some cases, this may end up better for you, but you need to do the math. You need to remember that for both the deduction and the credit, you can only use the taxes you paid in Greece on earnings after September 25th.

Another alternative is to file as non-resident for the whole year, and only report the US-sourced income, and pay tax on that. You'll need to calculate all the options and choose the one that is the most beneficial for you.

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As littleadv said in his answer, if you use the First-Year Choice, you are dual-status for 2014 (nonresident Jan-Sep, resident Sep-Dec). Here are all your options:

  1. If you don't use First-Year Choice, you are nonresident for all of 2014.
  2. If you just use First-Year Choice, you are dual-status for 2014.
  3. If you use First-Year Choice, and then also use Choosing Resident Alien Status, you will be resident for all of 2014 and have to file jointly with your spouse.

Note that #2 has basically no advantage over #1; for both nonresident and dual-status statuses, you do not get a standard deduction, and you cannot file jointly with your spouse. And #2 has the disadvantage that for the time you're resident, your worldwide income will be subject to U.S. taxes.

#3 has the advantage that as resident, you get a standard deduction, you file jointly with your spouse (and Married Filing Jointly is generally much better tax-wise than Married Filing Separately, especially for couples who have dissimilar incomes), and there are many deductions and credits that you can get that are not available to nonresidents, or not available to couples who file separately. It is true that as resident, your worldwide income the whole year will be subject to U.S. taxes, but you can use the Foreign Earned Income Exclusion for the months before you came to the U.S., to effectively not have to pay U.S. taxes on that income unless you're a really high earner (e.g. you can choose the 12-month period mid-Oct 2013 - mid-Oct 2014, and if you are out of the U.S. 330 days out of that, then foreign income during that period up to $99K can be excluded), so #3 is not really worse than #2 in that respect.

For both #2 and #3, you can use the Foreign Tax Credit as littleadv says for the months you are here. The effect of it is that you basically pay whichever is higher of U.S. and Greek taxes, on your Greek income.

  • Doesn't #2 have the advantage that it allows exemptions for dependents, which #1 does not? – Markus Hallmann Feb 6 '17 at 7:26
  • And doesn't #3 require being married to a U.S. citizen or resident alien at the end of the year? – Markus Hallmann Feb 6 '17 at 7:31
  • "Doesn't #2 have the advantage that it allows exemptions for dependents, which #1 does not?" That may be true. – user102008 Feb 6 '17 at 7:45
  • "And doesn't #3 require being married to a U.S. citizen or resident alien at the end of the year?" Well if both spouses use the First-Year Choice, then both spouses will be dual-status, i.e. residents at the end of the year, so Choosing Resident Alien Status. If only one spouse uses First-Year Choice, then only one spouse will be resident at the end of the year, in which case Nonresident Spouse Treated As Resident can be used. Both of those achieve the same result -- both spouses become resident for the whole year. – user102008 Feb 6 '17 at 7:46

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