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I am on H1 B visa since Oct 1, 2017. Last year, I was on F1 OPT. I am filing a Married filing jointly with my wife (is on H4 without any income). I am planning to fill in Form 4868 for extension and pay the necessary amt. After I meet the substantial presence test, say by May end, I will file form 1040 as Resident Alien. Is this the right thing to do? Or should I file taxes as a Non resident like I did last year? If I have both the options, which is the best?

marked as duplicate by Pete B. united-states Feb 27 '18 at 14:18

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  • Changing your status in 2018 does not affect your status for filing 2017 taxes. I am unclear why you think waiting till May will change anything. – Rupert Morrish Feb 26 '18 at 23:27
  • Thanks..But, First Year choice is different from Dual Status Alien right? Why would I have to file both 1040 and 1040 NR? – Josh Feb 26 '18 at 23:44
  • Waiting until May will give me time to meet the Substantial presence test. Do you think that is the right thing to do? – Josh Feb 27 '18 at 0:40
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In summary, yes, filing as a resident alien and married filing jointly often is the right and the sensible thing to do, and will likely minimize your tax liability. As usual with taxes, it is the best to calculate your liability using different methods, and pick the best.

Going in more details, tax residency status in this situation works in stages.

  1. Since you arrived on October 1st, you do not meet substantial presence test as of the end of 2017. Thus, without making any elections, you would file as a non-resident alien.

  2. Once you meet substantial presence test, which should happen in May 2018, your tax residency automatically propagates back in time to the beginning of 2018, but not into 2017. Thus, you still remain a non-resident alien for the entirety of 2017.

  3. Once you have actually become a resident alien, you can make an election, referred to as the first year choice, to further propagate you residency back in time to the date of your arrival. That would make you a dual-status resident alien - non-resident alien before October 1, and resident alien after October 1. Your spouse is eligible for the same choice.

  4. There is another election which is only available to married people under 26 USC paragraph 6013(h). Since both you and your spouse were non-resident aliens at the beginning of 2017, and resident aliens at the end of 2017 (due to both of you making the first year choice), you can elect to be treated as resident aliens for the entirety of 2017.

While everyone's situation is unique, and, like with many other things related to finances and taxes, there is no "one size fits all" answer, under a wide range of circumstances, electing to be treated as a resident alien in 2017 has numerous advantages:

  • Non-resident aliens and dual-status aliens are not eligible to use the standard deduction. They are thus forced to itemize their deductions.

  • The list of itemized deductions available to them is greatly limited. About the only thing they can deduct is state taxes. Chances are your state income tax was not very big, since you only worked 3 months in 2017. Claiming tax residency for the entirety of 2017 is thus a huge advantage.

  • Only resident aliens are eligible to file as married filing jointly. That often reduces tax liability - especially in situations where only one of the two spouses has income, so this turns into another substantial tax break.

There are, however, few things to keep in mind:

  • As a resident alien, you and your spouse would need to report your worldwide income. There is foreign earned income exclusion and foreign tax credit options available, due to which your tax liability will likely not increase much.

  • In case your spouse does not have SSN, you would need to apply for ITIN. This means you cannot e-file. Processing time will be longer than normal, too.

  • Don't forget about your state taxes, both extension, and filing as a partial-year resident of your state. Note that state tax law may not have a concept of tax residency comparable to the federal law, so this would need to be treated accordingly.

  • Does the above all hold true given the F1 OPT status prior to the H1 B status? – Hart CO Feb 27 '18 at 4:35
  • I only have experience with H1B, not with F1. But quick search reveals that the days in F1 status are not counted towards the substantial presence test, so being in F1 status prior to H1B should not change anything. Someone more familiar with F1-to-H1B transition may want to elaborate on this. – void_ptr Feb 27 '18 at 4:41
  • Thank you for the elaborate explanation. So, I am on H1B since October 1 2017 I have been in the U.S since August 2013 (on F1). Being a student on F1, I am not allowed to consider 5 years from my arrival while counting days for the Substantial Presence test (exempt individual). Number of days present in the U.S: 2013: 159, 2014: 347, 2015: 365, 2016: 332, 2017: 365. Thus, no of days presence in U.S on HB in 2017 is 90days. How should I calculate residency? – Josh Feb 27 '18 at 19:49
  • @Josh 0.5 * (2017 days in H1B) + (2018 days) = 45 + (2018 days). You should become tax resident on or around May 19th, 2018. – void_ptr Feb 27 '18 at 20:35
  • Ok.Thanks a lot. One more follow up question. So, while calculating my estimated tax (for filing Form 4868) which form should I use to figure the amount, Form 1040 or Form 1040 NR? I read somewhere on the IRS website that I should be using Form 1040 NR, but I am not able to locate that info now. Thanks – Josh Feb 27 '18 at 23:20

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