What Is a Dual-Status Taxpayer?
The IRS is fairly aggressive when it comes to taxing all of the worldwide income earned by U.S. citizens. However, certain American taxpayers are not yet — and may never become — citizens, and they are treated differently for tax purposes.
Dual-status taxpayers are among these types of individuals. Although the names are similar, dual-status taxpayers are not the same as dual-status U.S. citizens when it comes to taxation. Here is how the IRS defines a dual-status taxpayer and what the ramifications are for filing a tax return.
How the IRS Defines ‘Dual-Status Taxpayer’
If you change your status from a resident to a nonresident, or vice versa, over the course of a single tax year, the IRS will classify you as a dual-status taxpayer. Usually, this situation arises when a foreign citizen spends a significant amount of time in the United States.
In the jargon of the IRS, dual-status occurs “…when you have been both a U.S. resident alien and a nonresident alien in the same tax year.” However, if you’re dual-status and married to a U.S. citizen or resident, you can choose to file a joint tax return.
Although the broad strokes are simple, the specifics of the dual-status taxpayer designation can get quite complicated. For example, one of the first tests the IRS uses is the “substantial presence” test. Under this test, you are deemed a resident for tax year 2022 if you live in the United States for:
- 31 days during 2022; and
- 183 days during the 3-year period that includes 2022, 2021, and 2020, counting:
- All the days you were present in 2022,
- 1/3 of the days you were present in 2021, and
- 1/6 of the days you were present in 2020
But even if you meet the requirements of the substantial presence test, you can be treated as a nonresident alien if you:
- Are present in the United States for less than 183 days during the year,
- Maintain a tax home in a foreign country during the year, and
- Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a closer connection to two foreign countries, discussed next).
The bottom line, generally speaking, is that spending more than half the year in the U.S. deems you a resident for that portion of the year, while you’ll be classified as a nonresident for the remainder of the year. Of course, as the specifics can get very tricky, you may want to consult a tax professional.
How a Dual-Status Taxpayer is Taxed
By definition, a dual-status taxpayer is both a resident alien and nonresident alien over the course of the year, by virtue of their presence either within or outside of the United States. The IRS taxes dual-status taxpayers based on their status at the time they earn their income. During the time a taxpayer resides in the United States, they are taxed on income from all sources, both inside and outside of the United States. During the time a dual-status taxpayer is a nonresident alien, only U.S.-sourced income is taxable.
Note that one of the biggest drawbacks to filing as a dual-status taxpayer is that you are not entitled to the standard deduction. As the standard deduction for tax year 2022 is $12,950 for singles and $25,900 for joint filers, this can be a significant blow. However, certain itemized deductions are allowed.
Is Dual-Status a Permanent Classification?
Unlike resident or nonresident alien status, which can often last for a number of years or even be permanent, dual-status is usually just a temporary classification.
According to the IRS, taxpayers are typically classified as dual-status only for the years they arrive and depart the U.S. After the first year of being classified as dual-status, most taxpayers end up being classified as resident aliens until they depart the United States. In the year of departure, they may be classified as dual-status a final time before having no further tax obligations the following year after leaving the U.S.
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