Alien tax status and foreign income

[Nashvan 133]

I'm having a hard time understanding the tax implications for someone who earned foreign income, moved to the US, and received a GC all in the same year.

 

In March 2019, I moved to the US and got married, then in October I received the GC. During the entire year I did not earn any US income, only my husband. According to the IRS, that makes me a dual status alien from being a RA and NRA in the same tax year. But then I'm also considered a RA from meeting the GC test. So do I still have to submit an election statement to be treated as a RA for 2019 taxes? (According to the stickied topic, yes?)

 

Also in 2019, I made Canadian income in January from work and again in April (after entering US) from TFSA interest. Both were under $1k. FEIE allows exclusion of foreign "earned income" like work wages, so can I use Form 2555 to exclude my few hundred work earnings? If so, which test do I use? Aside from Schedule B, is there anything else I should be aware of regarding foreign interest?

[Wuozopo 4,293]

3 hours ago, Nashvan said:

I'm having a hard time understanding the tax implications for someone who earned foreign income, moved to the US, and received a GC all in the same year.

 

In March 2019, I moved to the US and got married, then in October I received the GC. During the entire year I did not earn any US income, only my husband. According to the IRS, that makes me a dual status alien from being a RA and NRA in the same tax year. But then I'm also considered a RA from meeting the GC test. So do I still have to submit an election statement to be treated as a RA for 2019 taxes? (According to the stickied topic, yes?)

 

Also in 2019, I made Canadian income in January from work and again in April (after entering US) from TFSA interest. Both were under $1k. FEIE allows exclusion of foreign "earned income" like work wages, so can I use Form 2555 to exclude my few hundred work earnings? If so, which test do I use? Aside from Schedule B, is there anything else I should be aware of regarding foreign interest?

Green card means you don’t have to choose to be an RA, but to skip all that dual status stuff I would just make the election to be RA for entire year, not from the date you entered. 

You can file a joint return with your US husband, but worldwide income, interest, dividends, etc have to be reported. You actually earned that interest in April (after POE) so that is US income. Separate returns would not benefit you. 

 

Your January work wages can be excluded as you surmised. If you were a citizen of Canada, then you you were a bonafide resident of Canada. You have to understand the forms and instructions are geared toward Americans who go work abroad. So they are looking to know they had some kind of visa that allowed them to live and work in that foreign country (Canada). Well you didn’t need one if you were a native Canadian and had a passport that made you a bonafide resident. Make sense? Well I am assuming you were born and raised Canadian. On my 2555 I actually filled out both tests

Date bonafide residence began [the date of my birth]
Same for Physical Presence.  I had lived there since the day I was born.

More later on interest. Out of time.

 

 

 

 

[Wuozopo 4,293]

16 hours ago, Nashvan said:

Aside from Schedule B, is there anything else I should be aware of regarding foreign interest?

continued from previous reply....

Schedule B for the interest. Yes. 
A foreign bank account may need reporting on the FBAR (separate from tax return but tax filing always prompts my memory to do it.

 

Do you know Schedule 1 is where your  Foreign Earned Income Exclusion goes from Form 2555? You will need to do Schedule 1.  Total from everything from Schedule 1 ends up on Form  1040:

 

TBH, I have not looked at all the changes for 2019, so not yet super up on the current forms and where they moved things. I know there is a new for 1040SR for seniors and Schedules 1-3 instead of 1-6 last year. No 2555EZ (short version) this year.  I use TurboTax cd version and read lots of instructions and publications on the IRS website. Not there yet for 2019. 

Edited January 21, 2020 by Wuozopo

[Nashvan 133]

15 hours ago, Wuozopo said:

Green card means you don’t have to choose to be an RA, but to skip all that dual status stuff I would just make the election to be RA for entire year, not from the date you entered. 

You can file a joint return with your US husband, but worldwide income, interest, dividends, etc have to be reported. You actually earned that interest in April (after POE) so that is US income. Separate returns would not benefit you. 

 

Your January work wages can be excluded as you surmised. If you were a citizen of Canada, then you you were a bonafide resident of Canada. You have to understand the forms and instructions are geared toward Americans who go work abroad. So they are looking to know they had some kind of visa that allowed them to live and work in that foreign country (Canada). Well you didn’t need one if you were a native Canadian and had a passport that made you a bonafide resident. Make sense? Well I am assuming you were born and raised Canadian. On my 2555 I actually filled out both tests

Date bonafide residence began [the date of my birth]
Same for Physical Presence.  I had lived there since the day I was born.

2 hours ago, Wuozopo said:

Schedule B for the interest. Yes. 
A foreign bank account may need reporting on the FBAR (separate from tax return but tax filing always prompts my memory to do it.

 

Do you know Schedule 1 is where your  Foreign Earned Income Exclusion goes from Form 2555? You will need to do Schedule 1.  Total from everything from Schedule 1 ends up on Form  1040:

 

TBH, I have not looked at all the changes for 2019, so not yet super up on the current forms and where they moved things. I know there is a new for 1040SR for seniors and Schedules 1-3 instead of 1-6 last year. No 2555EZ (short version) this year.  I use TurboTax cd version and read lots of instructions and publications on the IRS website. Not there yet for 2019. 

 

Thanks for your responses. I'll try to digest what you wrote but you might have to dumb it down for me if I'm misunderstanding.

 

So meeting the GC test means I can either do a dual status return OR choose to be a RA for the entire year (but I do not have to choose this)?

 

Regarding the 2555, would I be able to do both tests like you did? I am a Canadian citizen, spent majority of my life in Canada but was not born there. So would the bona fide residence / physical presence start from the day I immigrated to Canada, or day I acquired citizenship?

 

FBAR is a must as I have over $10k abroad.

 

I did not know about Schedule 1. After factoring that in, I think the forms listed below are what we need to report my contributions. Wages would be excluded from being taxed. Interest is considered "US income" from being earned after POE and therefore is taxable (i.e. is not reported on the 2555), correct?

 

1040 - Wages, line 7a (from Schedule 1) + Interest, line 2b (from Schedule B)
Schedule 1 - Wages
Schedule B - Interest
2555 - Wages
FBAR - $10k+ abroad

 

I'd say you're more caught up than most of us lol. Appreciate the help!

[Wuozopo 4,293]

3 hours ago, Nashvan said:

Regarding the 2555, would I be able to do both tests like you did? I am a Canadian citizen, spent majority of my life in Canada but was not born there. So would the bona fide residence / physical presence start from the day I immigrated to Canada, or day I acquired citizenship?

You only need one.  I just did two for the heck of it. 
I would say physical presence started the day you began living there. 

Bonafide resident since citizenship. 
 

3 hours ago, Nashvan said:

So meeting the GC test means I can either do a dual status return OR choose to be a RA for the entire year (but I do not have to choose this)?

I see no benefit to a dual status year. You can’t file a joint return if a NR and are taxed at a higher rate. Without reviewing every little detail, I would say choose to be RA all year. The other might be for a person working on a  student visa who has to file a NR return, but toward the end of the year got a green card so can split the year and not pay the higher amount for the RA months. I don’t know that much about a dual status return.  From Pub 519. 
 

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.

How To Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.

• A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.

• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

3 hours ago, Nashvan said:

did not know about Schedule 1. After factoring that in, I think the forms listed below are what we need to report my contributions. Wages would be excluded from being taxed. Interest is considered "US income" from being earned after POE and therefore is taxable (i.e. is not reported on the 2555), correct?

 

1040 - Wages, line 7a (from Schedule 1) + Interest, line 2b (from Schedule B)
Schedule 1 - Wages
Schedule B - Interest
2555 - Wages
FBAR - $10k+ abroad

You have to go through the instructions. And there may be certain things that Canadians get to do that Brits (me) didn’t,  so read carefully if you are doing this yourself. 
 

I can’t comment on what the entire joint return will include...kids, self-employed spouse, credit for various things, own a farm, tips, gambling winnings....who knows.?? There’s a gazillion forms that might fit your family...or not.

 

Schedule 1 - Wages It’s your excluded wages you calculated on 2555 and carried to Schedule 1. It will be a negative number indicated by parentheses. You have to read the instructions that tell you these things.   

 

If you work through the 2555 and read the form and instructions, it will say enter this number in parentheses on Line x Of Schedule 1. That’s a clue you need it. 

 

FBAR is not in the tax return. Filed with the Treasury Dept online. We used to mail it but do online now.Start here https://bsaefiling.fincen.treas.gov//NoRegFBARFiler.html

If you have $100k, then also FATCA which is in the tax return. Well it was last year. Things change every year. 

 

[Nashvan 133]

17 hours ago, Wuozopo said:

You only need one.  I just did two for the heck of it. 
I would say physical presence started the day you began living there. 

Bonafide resident since citizenship.

Understood. I guess I'll do the physical presence test as that will put me at the longest duration, even though they only want the 12-month period.

 

17 hours ago, Wuozopo said:

I see no benefit to a dual status year. You can’t file a joint return if a NR and are taxed at a higher rate. Without reviewing every little detail, I would say choose to be RA all year. The other might be for a person working on a  student visa who has to file a NR return, but toward the end of the year got a green card so can split the year and not pay the higher amount for the RA months. I don’t know that much about a dual status return.  From Pub 519.

Agreed. Dual status gets confusing with my dates and amounts, and might not yield the best result. Since we're opting for MFJ, I will elect to be RA all year. We'll run the numbers once we get the tax software.

 

17 hours ago, Wuozopo said:

You have to go through the instructions. And there may be certain things that Canadians get to do that Brits (me) didn’t,  so read carefully if you are doing this yourself. 
 

I can’t comment on what the entire joint return will include...kids, self-employed spouse, credit for various things, own a farm, tips, gambling winnings....who knows.?? There’s a gazillion forms that might fit your family...or not.

 

Schedule 1 - Wages It’s your excluded wages you calculated on 2555 and carried to Schedule 1. It will be a negative number indicated by parentheses. You have to read the instructions that tell you these things.   

 

If you work through the 2555 and read the form and instructions, it will say enter this number in parentheses on Line x Of Schedule 1. That’s a clue you need it. 

I was mainly looking for guidance on the Canadian wages and interest since that is the new stuff my husband is not familiar with. Our joint return won't be too extensive, aside from the forms for me. After looking at the 2555 again, I see the part I missed about Schedule 1. I'll go through all the instructions more closely to make sure each amount is reported on the appropriate forms.

 

17 hours ago, Wuozopo said:

FBAR is not in the tax return. Filed with the Treasury Dept online. We used to mail it but do online now.Start here https://bsaefiling.fincen.treas.gov//NoRegFBARFiler.html

If you have $100k, then also FATCA which is in the tax return. Well it was last year. Things change every year.

Okay I will file FBAR online. I have less than $100k so FATCA is not applicable.

 

Thanks for explaining everything. I'm not good at interpreting tax information but now I got the gist of it. I'll do some more research, maybe consult with a local tax specialist, and report back if I have any other questions.

[Wuozopo 4,293]

3 hours ago, Nashvan said:

was mainly looking for guidance on the Canadian wages and interest since that is the new stuff my husband is not familiar with. Our joint return won't be too extensive, aside from the forms for me. After looking at the 2555 again, I see the part I missed about Schedule 1. I'll go through all the instructions more closely to make sure each amount is reported on the appropriate forms.

 

👍Having the concept is a good thing so you know what you are looking for if you use tax software. The software will automatically slot things onto the proper forms for you and make the calculations, but you need that knowledge to review their form creation and know if it seems right. Software leads you through an "interview" but if you answer the question randomly with no concept research, it can take you down the wrong path.

 

One thing to remember is the various software brands create the questions to channel you in the proper direction. They aren't written by the IRS. One year H&R Block gave us a free software cd to try to maybe pull us away from TurboTax. We used both. Our final return came out exactly the same. Identical. But the path and questions to get there were very different. If you see unexpected results that don't seem right based on the concepts you are learning from the IRS, then you may have not understood how to answer one of their "interview" questions. Sometimes you have to "trick" the software to move on because you understand the concept of where it's leading you.

 

Take the questions leading you toward Form 2555 eligibility---

Did you earn money in a foreign country?

Did you have a visa to a foreign country? So some immigrants are thinking "yes, I had a visa to America."  No they are writing this primarily to an American audience.  The foreign country is Canada and their question is geared toward Americans working abroad with some kind of visa that gave them "legal presence" or "bonafide residency"  to work in Canada. A native born Canadian may say No to "did you have a visa?" based on the fact they didn't require a visa to live and work in Canada because they were a citizen. The software will shut them down and say "not qualified for Foreign Income Exclusion". But if you just say "yes" to having a visa to work in Canada (because you understand they just want to know if you were allowed to work in Canada), the software will move on to form 2555 where you get to the real IRS parts. By saying Yes to trick the software, you aren't lying to IRS, but lying to TurboTax and the way they structured the question to get to the Foreign Income Exclusion. That visa question is not on the IRS tax form so tricking the software in this example is in no way telling falsehoods to a direct IRS question. 

[Tesco 70]

If you paid tax on your interest income file a 1116 with your return. This is the foreign tax credit form and you'd be able to carry forward any amounts not utilized (for 10 years). You will not pay tax twice on the same income.

[Nashvan 133]

17 hours ago, Wuozopo said:

One thing to remember is the various software brands create the questions to channel you in the proper direction. They aren't written by the IRS. One year H&R Block gave us a free software cd to try to maybe pull us away from TurboTax. We used both. Our final return came out exactly the same. Identical. But the path and questions to get there were very different. If you see unexpected results that don't seem right based on the concepts you are learning from the IRS, then you may have not understood how to answer one of their "interview" questions. Sometimes you have to "trick" the software to move on because you understand the concept of where it's leading you.

That makes sense. I think we can figure it out the "interview" from the context of the forms. We'll most likely be using H&R Block this year.

 

12 hours ago, Tesco said:

If you paid tax on your interest income file a 1116 with your return. This is the foreign tax credit form and you'd be able to carry forward any amounts not utilized (for 10 years). You will not pay tax twice on the same income.

Thanks. I did not pay tax on the interest because it was from a Tax Free Savings Account (TFSA) exclusive to Canada, so no 1116.

 

This tax free benefit is not recognized by the IRS so any interest earned in a TFSA is treated as taxable in the US. That's why it is advisable for Canadians to liquidate their TFSAs before moving. I learned too late.

[Wuozopo 4,293]

1 hour ago, Nashvan said:

That makes sense. I think we can figure it out the "interview" from the context of the forms. We'll most likely be using H&R Block this year.

Do you mean an H&R Block tax center to do your taxes for you? Beware that often they are not knowledgeable on the Foreign Income Exclusion and the K1 spouse not being a resident alien yet.Their brief training may not have included foreign situations.  In past years many K1s on this forum have reported “H&R filed our taxes jointly and said we only had to report income earned in the US.”  Just because they are H&R, doesn’t mean they did it correctly. 

[Nashvan 133]

3 hours ago, Wuozopo said:

Do you mean an H&R Block tax center to do your taxes for you? Beware that often they are not knowledgeable on the Foreign Income Exclusion and the K1 spouse not being a resident alien yet.Their brief training may not have included foreign situations.  In past years many K1s on this forum have reported “H&R filed our taxes jointly and said we only had to report income earned in the US.”  Just because they are H&R, doesn’t mean they did it correctly. 

Oh I meant the H&R Block software. Actually some of their office specialists claim to have experience in foreign income, and I had an appointment booked with one but cancelled it last minute because apparently they charge $60 just to ask questions.