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I'm on F1 visa with OPT status working at a company in US. Normally, F1 visa students qualify for 1040-NR for at least 5 years if they do not pass the substantial presence test. However, there seems to be a caveat with this rule according to IRS website.

Exceptions to the Substantial Presence Test Closer Connection

Exception for Foreign Students only Answer the following questions:

Do you intend to reside permanently in the United States?

Have you taken any steps to change your U.S. immigration status toward permanent residency?

Have you substantially complied with the United States immigration laws for your student nonimmigrant status during your stay in the United States?

During your stay in the United States, have you maintained a closer connection with a foreign country than with the United States?

If you answered "NO" to the first two questions above, and "YES" to the last two questions above, then you have a basis for claiming you are still a nonresident alien, even though you have passed the substantial presence test. To claim the exception for students on an income tax return, a student should attach Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition, to his form 1040NR or 1040NR-EZ. Refer to The Closer Connection Exception to the Substantial Presence Test for Foreign Students for further discussion.

The bolded questions listed on the website is what's confusing me. I haven't applied for a green card yet but I intend to do so in next few years after I get my H1B visa. Would it jeopardize my green card application in the future if I choose to file 1040NR now? And what do they exactly mean by maintaining a closer connection with a foreign country?

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    Is it beneficial (less tax) for you to file NR? IRS generally wants people to file as residents so they can tax your worldwide income. But for F-1 students (after 5 years) 1040 often ends up being less tax because students don't have much income and because of the standard deduction. Your question about the green card is really an immigration question. But keep in mind F visa is a non-immigrant visa and you're not suppose to intend on staying in the US permanently. – d_dd Feb 2 '17 at 5:30
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Have you already been an exempt individual as a student, teacher, or trainee for part of 5 calendar years before 2016? If not, you are a exempt individual for the time you were in student status in 2016 and the provision you quoted is not relevant.

It's only if you want to still be an exempt individual beyond 5 years (which is not normally the case), that you need to establish closer connection to a foreign country. In that case, intending to be a permanent resident would preclude you from establishing closer connection to a foreign country.

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File under the status you had in the year covered by the tax return.

If your status changes, you will probably have to file some kind of pro-rated return for the partial year, but that's far outside my expertise.

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