2021 Dual-status resident - first year-choice for whole 2021. Unsure about eligibility and potential benefits.

Forum|Forum|4 years ago
March 5, 2022
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My wife and I are living in the U.S. from the end of June 2021 in a J1/J2 visa. Due to past presence in the U.S. in 2018/2019, we met the substancial presence test in Dec 2021, therefore being dual-residents for CY2021.

I heard of the first year choice, however it is not completely clear for me if we are eligibe for it. We met the criteria published in IRS pub 519.

If you do not meet either the green card test or the substantial presence test for 2020 or 2021 and you did not choose to be treated as a resident for part of 2020, but you meet the substantial presence test for 2021, you can choose to be treated as a U.S. resident for part of 2021. To make this choice, you must:

Be present in the United States for at least 31 days in a row in 2021, and
Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2021. For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States.

Altought I interpret I should be eligible, all the examples I saw mentioned a residency status change in the following year (say 2022), which would allow the first choice for 2021. Therefore, I would like to clarification on whether we are eligible for the first year choice for 2021 tax return.

If we do make the first year choice, would we be considered residents for the whole year or just from June-Dec 2021?

In my interpretation of pub 519, we met the criteria below for being residents for the whole year, but I would appreciate an expert opinion.

Choosing Resident Alien Status

If you are a dual-status alien, you can choose to be treated as a U.S. resident for the entire year if all of the following apply.

You were a nonresident alien at the beginning of the year.
You are a resident alien or U.S. citizen at the end of the year.
You are married to a U.S. citizen or resident alien at the end of the year.
Your spouse joins you in making the choice.

Lastly, the most important part of my incomed started when I arrived in the U.S. from a US source, therefore I believe it would be more advantageous to have this income taxed as resident.

But I would appreciate feedback on how filling as a whole-year resident compare to filling a as dual-resident (either as non-resident from Jan-Nov or Jan-May)?

Thanks!

Best answer by MAK70

Based on your description, you met the substantial presence requirement in December 2021.

Because 2021 is the first year you qualify, you have the option to treat all of 2021 as U.S. resident or dual status. 2022 will be your first full year as U.S, residents.

A dual - status election for the first year works better if you had more income outside the U.S. because U.S. residents are taxed on their worldwide income. In your case, you had more U.S. income even when in nonresident status so a first year election to be treated as a resident is more simple (because you do not have to file a resident and nonresident return.

The most important factor to consider is how much non-U.S. income you had in 2021 and if it was taxes in a foreign country.

MAK70Answer

Based on your description, you met the substantial presence requirement in December 2021.

Because 2021 is the first year you qualify, you have the option to treat all of 2021 as U.S. resident or dual status. 2022 will be your first full year as U.S, residents.

The most important factor to consider is how much non-U.S. income you had in 2021 and if it was taxes in a foreign country.