Dual Status Taxpayers

If an individual is a citizen or resident of the United States at the beginning of the year but a nonresident alien at the end of the year, or a nonresident alien at the beginning of the year but a citizen or resident alien at the end, he is taxed for that year as if his tax year consisted of two periods, one for the time he was a U.S. citizen or resident and the other for the time he was a nonresident alien.

Although the income tax liability for the period that the individual is a nonresident alien is determined under the rules relating to nonresident aliens, the taxable income for the year that is subject to the regular graduated tax is determined by combining all income for the period of U.S. citizenship or residency with any income for the nonresidency period that is effectively connected with the conduct of a U.S. trade or business.

 A dual status individual is entitled to one personal exemption, on the presumption that if a person is a nonresident alien for any part of the year, he will only be allowed one personal exemption. If the person was a resident of Canada or Mexico for the nonresident period, however, he may claim exemptions for the nonresident period for his spouse and children. In addition he is entitled to other allowable exemptions, but only to the extent those additional exemptions don't exceed his taxable income (determined without regard for any deduction for personal exemptions) for the period he was a U.S. citizen or resident.

 The taxable income for the year that is subject to the regular graduated tax is determined by combining all income for the period of U.S. residency with any income for the nonresidency period that is effectively connected with the conduct of a U.S. trade or business.

 The above rules don't apply to:

an alien who is a nonresident at year-end, is married to a U.S. citizen or resident at year-end, and both elect to have the nonresident treated as a resident for joint return purposes for the year, or an alien who is a nonresident at the beginning of the year but a resident at year-end, is married to a U.S. citizen or resident at year-end, and both elect to have the nonresident treated as a resident for joint return purposes for the year. Follow this link for information on the election available to married dual status taxpayers to be treated as U.S. residents for the entire year.

 If an alien individual determines that he is a foreign resident for treaty purposes in a tax year in which he is a dual resident, and he claims a treaty benefit as a U.S. nonresident, which reduces his U.S. income tax liability on any income item covered by the treaty, he is treated as a U.S. nonresident alien for that part of the tax year he is considered to be a dual resident taxpayer when computing his U.S. income tax liability. For these purposes, a dual resident taxpayer is an individual who is considered a U.S. resident under the internal laws of the U.S. and also a resident of a treaty country under that country's internal laws.

Mark T. Serbinski Certified Public Accountants and Serbinski Partners PC, Chartered Accountants specialize in situations involving the taxation of U.S. citizens living abroad and Canadians living or working in the United States.  Please contact us for a complimentary initial review of your particular situation on a confidential basis. ^{(Click here for details of our Complimentary services.)}

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