Immigrants to the U.S. may have a physical presence in the country before becoming a lawful permanent resident. For the calendar year in which permanent residency status is obtained, the income tax return for a new immigrant reports income differently for the periods before and after becoming a permanent resident.
For income tax purposes, a permanent resident with a green card is taxed in a manner somewhat similar to that of a U.S. citizen. Beginning on the first day of permanent residency, all worldwide income becomes taxable. In contrast, a non-permanent resident alien without a green card is taxed only on U.S. sources of income.
Form 1040NR and Form 1040
A non-permanent resident alien normally files IRS Form 1040NR to report U.S. sources of income. If you have a presence in the U.S. before becoming a permanent resident, your tax status in the year of transition is referred to as that of a dual-status resident. For that year, you may file a regular Form 1040 to report your taxable income for the entire portion of the year in which you resided in the U.S.
As a dual-status resident, your filed Form 1040 may include a Form 1040NR attached as a supporting schedule. Any tax due on Form 1040NR is entered on a designated line on Form 1040. The remainder of Form 1040 is completed for your period of permanent residency. To mark the status of the return, IRS instructions advise to write "Dual Status Resident" across the top of the form.
Different tax deductions are allowable during permanent residency than for a period of non-permanent residency. You generally cannot file as married filing jointly if you are filing a dual-status income tax return. However, you may file a joint return if your spouse is a U.S. citizen or permanent resident.
The standard deduction is not available on a dual-status return, but you may claim some allowable itemized deductions. As a permanent resident, deductions are allowed for your spouse and dependents. The total amount deducted for your spouse and dependents cannot exceed your taxable income for the period of the year in which you are a permanent resident.
Although you are taxed on worldwide income as a permanent resident, a foreign income tax credit may be available to avoid double taxation of income. Contact an immigration attorney like Tesoroni & Leroy for more information about the many aspects of obtaining a green card and becoming a permanent resident.
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