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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 2859
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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I have a tricky question regarding dual-status alien tax

Customer Question

I have a tricky question regarding dual-status alien tax filing and income from an international organization (United Nations) while in G-4 (exempt individual status). Basically, the situation is as follows:
1. Me and my wife were in G-4 status from Jan 1 -- Oct 23 this year.
2. During this time, I was working for a US employer and being paid US sourced income while my wife worked for the UN and was paid by the UN.
3. Since Nov 1, I've been in H-1B status and my wife's been in H-4 status, i.e. my wife has had no income for the end of the year.
My original plan for filing taxes was the following:
1. I file as married filing separately a dual status return claiming residency starting Nov 1.
2. My wife files a nonresident tax return for the year and reports income as zero, since the UN income while in G-4 status isn't US taxable.
My main concern is if I could somehow manage to do a dual status alien tax return while filing jointly, thus getting better tax brackets, AND avoid paying taxes on my wife's income while she's been in G-4 status? Basically, I'm wondering if the following is possible:
1. We would file a dual status return filing as married filing jointly and claiming resident status starting Nov 1.
2. I would include my US sourced income on the nonresident part and my wife would leave out any income she was paid by the UN for the nonresident part of the year (i.e. this wouldn't be US sourced income)
=> Only my income would become taxable, but I would enjoy the lower filing jointly tax brackets.
I'm afraid that doing this would somehow get the IRS a hold of her UN income, which would end up costing us tens of thousands. In other words, is it possible to be able to file jointly as dual status while still avoiding paying any tax on the UN income for the nonresident part of the year.
Submitted: 15 days ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 15 days ago.

Dear Customer,

Your plan II makes more sense. Please consult with the IRS website link below.

https://www.irs.gov/individuals/international-taxpayers/employees-of-foreign-governments-or-international-organizations

It is advised that since your wife and you worked and work for UN, you may have access to the location and CPA specializing in reporting tax returns for the UN workers. Retain one of the good CPAs. Do not try to do this yourself.

You should do Form 1040 because your days in the U.S. past the days of physical presence unless your countries have special treaties signed with the US. Check the IRS website which has all the US tax treaties signed with all foreign countries.

Report only the H-1 visa earned income. File Married Filed Jointly. Don't worry about the IRS taking your wife's income. As stated in the IRS website on United Nation income in the U.S. not U.S. sourced income. When you are right, you are right. Follow the rules and regulations. Her and yours UN income is not U.S. taxable income.

You may have to report that UN income to your own country's income tax. This is important.

Regards,

Fiona

Fiona Chen, MPA, PH.D., CPA, ABV, CFF, CITP

Customer: replied 15 days ago.
Thanks. I just want to clarify a few things that got miscommunicated, in case that makes any difference. To make it clearer:Me: Worked for US tech company on EAD with G-4 status until Oct 23. Currently work on H-1B for same company and same position. In other words, all my income this year is US taxable, including my income while I was in G-4 status.Wife: Worked for UN until Oct 23 with G-4 status. Currently unemployed in H-4 status while waiting for work authorization.I have an approved EB-1 green card application and we filed a change of status to become permanent residents a few weeks ago. In other words, we'll become permanent residents next year. This shouldn't have an impact on this year's taxes though.All I'm concerned about is that I can file the 1040, mark it as "dual status", and just leave out all my wife's income that she got from the UN while in G-4 status and that there's nothing wrong with doing that. This makes our effective US taxable income my income only while I would still get the lower tax rate from filing jointly.We've also been abroad for long enough that our country of citizenship doesn't even require us to fill out tax returns anymore, so we don't pay taxes anywhere else.
Expert:  Dr. Fiona Chen replied 15 days ago.

Dear Customer,

Part I.

All I'm concerned about is that I can file the 1040, mark it as "dual status", and just leave out all my wife's income that she got from the UN while in G-4 status and that there's nothing wrong with doing that. This makes our effective US taxable income my income only while I would still get the lower tax rate from filing jointly.

Answer: It is the advice here that you don't mark "dual status" and use electronic filing and retain a professional CPA who is familiar with filing such tax return. Your filing situation is very common and normal for residents and non-U.S. citizens in the U.S. filing tax returns. Please read the IRS website with the link provided in the last posting.

Part II.

Question: We've also been abroad for long enough that our country of citizenship doesn't even require us to fill out tax returns anymore, so we don't pay taxes anywhere else.

Answer: Whoever issue and still remain the holder of your passports are your countries. There is no one non-citizen and no-nation in this world. I cannot speak for your countries. However, you still want to find out whether there is a tax treaty signed with the U.S. from your countries.

Also, if you no longer are residents of any another country, you are the resident of the U.S. You also don't have dual status if you don't have another status.

Regards,

Fiona

Customer: replied 8 days ago.
I've spent some time researching this in order to confirm that it's possible to do a dual-status joint filing while avoiding payment of tax on the UN income. Having spoken to multiple people at the IRS, this is not possible. In other words the advice given here is wrong. If one opts to file jointly in dual-status, then one is required to report global income FOR THE WHOLE YEAR to the IRS. In essence, this means that the US tax exempt income earned prior to becoming a resident for taxation purposes becomes US taxable in the same way that a permanent resident working for the UN has to pay income tax on their UN income. However, it is possible to have both file their own dual status reports as married filing separately, but this won't give the cheaper tax rates, which was the purpose of the whole question.
Expert:  Dr. Fiona Chen replied 8 days ago.

Dear Customer,

Everything I responded to you, there was cited sources. Other than a verbal conversation with an IRS rep on the phone, do you have cited sources for your statements here?

I will research and respond to you as soon as possible.

But you have to understand that the person who answers phone at the IRS may not be correct. Did that person provide any citations and references?

It is your tax return, I have already suggested you to work with a CPA familiar with the subject area. You can prepare your tax return any way you prefer. But since you came back here, you must still want to continue the conversation.

Would you please kindly give me your references and citations to facilitate the dialogue here? Thank you.

I will do my part and continue with you as soon as possible.

Regards,

Fiona

Expert:  Dr. Fiona Chen replied 8 days ago.

Dear Customer,

Please refer to the following IRS website link, it is not clear that you are or have dual status. We have done that discussion to a certain degree.

https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens

We have also suggested that you refer to the tax treaty signed with the U.S.

Regards,

Fiona

Expert:  Dr. Fiona Chen replied 8 days ago.

Dear Customer,

In your prior posting, you stated repeated that your wife's income is non-taxable in the U.S. because she is non-U.S. resident and you have other country's residence. Then, somehow, later on, you stated that you don't have another country as your residence. Then, the point was on whether you had dual residence to start with.

If she is a U.S. resident and would like and chose to be taxed as a U.S. citizen and without another country, her income should be self-employment income.

http://www.un.org/Depts/oppba/accounts/tax/faqs/faq04.htm

You were very sure that her income was not taxable in the U.S. Revisit the basis. You had a basis for that claim. Maybe you still would like to revisit that basis.

As previously posted, please retain a CPA familiar with the area of application to help you prepare the tax return.

Thank you for the follow up.

Regards,

Fiona

Expert:  Barbara replied 8 days ago.

Different expert here - my name is ***** ***** please allow me to provide you with information you will find helpful.

Many G-4 visa holders are confused over their U.S. tax residency status. They have heard from others that simply holding a G-4 visa entitles the holder to be a nonresident. This is not always the case.

The general rule under the U.S. tax code is that a foreign national who is present in the United States for 183 days or more in a calendar year becomes a U.S. income tax resident under the so-called “substantial presence test."

An important exception under the Substantial Presence Test of residency provides that any day that an individual is present in the United States as an “exempt individual” is not counted as a day of U.S. presence. An “exempt individual” includes a foreign national who is present in the United States by reason of “his or her full-time employment with an international organization.” Therefore, as long as a G-4 visa holder is employed and working on a full-time basis for an international organization, his/her days are not counted as U.S. days and the individual will be treated as a nonresident for income tax purposes.

Based on the information you provided and the dialog with the first expert, it appears that you are a resident for tax purposes and your wife is a nonresident for tax purposes. You met the Substantial Presence Test, but your wife did not.

http://www.thewolfgroup.com/article/u-s-tax-residency-issues-faced-by-g-4-visa-holders/

Make sense?

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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