Understanding Dual-Status Taxpayer Requirements
June 7, 2023
A dual-status taxpayer is someone who spends a portion of the year residing in the United States and a portion of the year residing in another country. While that person is here in the United States, they will be considered a U.S. person or resident for purposes of taxation. When that person is outside of the U.S., they will be considered a nonresident alien and not subject to U.S. taxes.
The Internal Revenue Service (IRS) defines a U.S. person – who must pay taxes for the income they earn while in the States. – as one who possesses a green card or one who meets the “substantial presence test.” The latter can get tricky to understand, so you will need to seek professional legal guidance.
If you believe you may fall into the dual-status alien category when it comes to paying taxes and reside in or around Fort Lauderdale, Florida, contact me at Zuckerman Law, LLC. I am a tax attorney with more than 30 years of experience who can help you with all your issues. Also, if you have run into any issues involving a dual-status tax return, whether filing it or being challenged by the IRS, I can help with that as well. In addition to Fort Lauderdale, I proudly serve clients throughout South Florida, including Miami, Boca Raton, Sunny Isles, Hollywood, and Aventura.
Who Needs to File for Dual-Status Taxes?
The basic definition of a dual-status taxpayer is any foreign national who works part of the year here in the U.S. and part of the year in another country. That person will likely be subject to dual-status taxation. The basic distinction is between resident status and nonresident status.
While you are here, you are considered to have resident status, and while in the other country, you will be a non-resident. Any income you receive while in resident status, even from abroad, is taxable. However, if you earn income from the U.S. while in nonresident status, that too, is taxable. Resident status hinges on one of two factors – you have a green card or qualify under the substantial presence test (more below).
Here's an example of a foreign national who must file dual-status taxes. A citizen from another country obtains an H-1B visa to work in the U.S. and arrives on May 1st. The period from January 1st to April 30th would confer nonresident status on that person. After that, the resident status would apply. However, if the person received U.S.-based income between January and May, that would be taxable as well.
Substantial Presence Test
Most countries use a 183-day rule to determine if a foreign national is a resident who must pay taxes. In other words, if you have been in the country for more than half the year or 183 days, you are considered a resident owing taxes. The U.S. goes into strong detail by using a complicated formula that counts any days from the previous two years as well as the current year.
Here’s an example of the formula from the IRS website:
“You were physically present in the U.S. on 120 days in each of the years 2019, 2020, and 2021. To determine if you meet the substantial presence test for 2021, count the full 120 days of presence in 2021, 40 days in 2020 (1/3 of 120), and 20 days in 2019 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test: for 2021.”
There are exceptions to this test, and some foreign nationals are exempt from U.S. taxation via treaties between their nation and the U.S. Exceptions are challenging, so you will need to check with a reliable attorney.
Filing Dual-Status Taxes – Restrictions
If you fall into the dual-status taxation bracket, you will file on IRS Form 1040 but cannot take the standard deduction. Also, you can’t take the earned income tax credit (EITC), the credit for the elderly or disabled, or education credits.
However, if you are married to a U.S. citizen or lawful permanent resident, then you can file jointly.
Understand Your Expectations
The issue may seem straightforward: While working here, you might and probably do owe U.S. taxes, and while in your home country, you will owe them taxes. But there are nuances, definitions, legalities, and as always, the possibility – no matter how difficult to obtain -- of an exemption.
If you have questions or concerns about dual-status taxation in the Fort Lauderdale area or anywhere in Southern Florida, reach out to me at Zuckerman Law, LLC. I can address your concerns and help you navigate the dual-status taxation system.