New to the U.S.? What a Dual-Status Return Means for Your First Tax Filing

Many Houston families moved here for work in energy, medicine, or tech. If you became a U.S. tax resident partway through the year, your first U.S. tax return is likely a dual-status return.

What dual status means

For part of the year you were a nonresident for U.S. tax purposes. For the rest of the year you were a resident. Each part follows different rules:

• As a nonresident, the U.S. generally taxes only income from U.S. sources.
• As a resident, the U.S. taxes your income from everywhere in the world.

How you become a resident for tax purposes

There are two main tests:

1. The green card test. You are a resident from the day you become a lawful permanent resident.
2. The substantial presence test. You are a resident if you were in the U.S. at least 31 days this year, and the total of all your days this year, plus one third of last year's days, plus one sixth of the days from the year before, adds up to 183 or more.

Limits on a dual-status return

• You cannot take the standard deduction. You can only itemize.
• You generally cannot file jointly with your spouse.
• Some credits are not available.

Choices that can lower your tax

There are elections that can treat you as a resident for the whole year:

• First-year choice. If you did not meet the substantial presence test this year but will next year, you may be able to choose to be treated as a resident for part of this year.
• Treating a nonresident spouse as a resident. A married couple can choose to file jointly and be treated as residents for the full year. This often unlocks the standard deduction and lower joint tax rates, but it also puts your worldwide income for the full year on the return.

Which choice is best depends on your income abroad, your spouse's situation, and the timing of your move. We run the numbers both ways.

Money you still have back home

Once you are a resident, you may also need to report:

• Foreign bank accounts on an FBAR (FinCEN Form 114) if they added up to more than $10,000 at any point in the year
• Foreign financial assets on Form 8938, if you are over its limits
• Foreign mutual funds, which are usually treated as PFICs and reported on Form 8621

Missing these forms can bring steep penalties, even when no tax is owed.

Our advice

Do not use a basic tax app for your first year. Get the residency dates, elections, and foreign reporting right once, and every year after gets easier. We do these returns often.

Sources: IRS Publication 519, U.S. Tax Guide for Aliens.