DUAL TAX RESIDENCY FOR US NRIS:

USA TAX COMPLIANCE

1. WHAT IS DUAL RESIDENCY?
2. A dual-status taxpayer is someone who qualifies as both a resident and a non-resident of the U.S. in the same tax year. 
3. This typically happens in two scenarios:
4. NRIs who arrives and leaves the U.S mid-year.
5. Transition from resident to non-resident status (vice versa).
6. It requires filing two tax returns- Form 1040 (resident period) and Form 1040NR (non-resident period)

• HOW DUAL TAX RESIDENCY IS DETERMINED?

 To determine your U.S. residency status, the IRS applies the Substantial Presence Test (SPT), which requires:

• 31+ days in the U.S. in the current tax year.
• 183 days over three years, calculated as-
• All days in the current year.
• 1/3rd of days in the previous year.
• 1/6th of days in the year before that.

NOTE: Green card holders are automatically considered U.S Tax residents. Their world-wide income is taxable until the green card is surrendered (tax treaty provision may apply).

• TAX OBLIGATION FOR DUAL RESIDENTS

1. Resident Period
2. Taxed on worldwide income, including foreign salary, rental income, dividends, etc.
3. Same filing rules as US citizens 

• Non-Resident period 
• Only U.S.-sourced income is taxable (employment, rental income, business income, etc.)
• Two categories:
• Effectively Connected Income (ECI) Tax at graduated rates.
• Fixed/Determinable Income – Flat 30% tax (unless treaty applies)

• No standard deduction: Dual status tax payers must itemise deductions.

• No joint filing: You must file individually at higher tax rate.

• FILING REQUIREMENTS FOR DUAL RESIDENTS

1. TAX FORM SELECTIONS- 
2. If a resident on 31^st Dec- File from 1040 plus attach 1040 NR statement.
3. If a non-resident on 31st Dec- File from 1040NR plus attach 1040 statement.
4. Write “Dual Status return” at the top of the main return.

• DOCUMENTATION NEEDED–
• Resident Period- Report worldwide income.
• Non-Resident Period- Report only U.S income. 
• Maintain records for travel dates, income source and deduction.
• IRS Deadlines for Dual-Status Taxpayers
• April 15: (June 15 if you do not have U.S. wage income.)

• Must be paper filed – No E filing option, must print and mail forms.

• STRATEGIC TAX PLANNING FOR DUAL RESIDENTS

1. Utilise Tax Treaty Benefits– India and the U.S. have a Double Taxation Avoidance Agreement (DTAA). allows: Reduced tax rates on U.S.-sourced income.

• Possible Benefits 
• Reduce tax rates on investment income.
• Expectation from double taxation
• Foreign tax credit for the taxes abroad.

• State Tax consideration-
• State residency rule may differ from federal tax residency.
• Some states do not follow tax treaties.
• States may challenge your non-residency status if you maintain ties.

For expert guidance on cross-border taxation, visit www.rtulsian.com  or reach out to us ishan@rtulsian.com or WhatsApp us on +91 6289107303 for a personalized consultation and seamless tax compliance solutions.