The first thing you must know in order to file your tax return is whether you are a resident or nonresident for U.S. tax purposes. If you find that you are both a resident and nonresident in the same year, you are a dual status alien for which special rules apply. The designation of resident for tax purposes is completely separate from your designation for immigration purposes. You might qualify as a resident for tax purposes while remaining a nonimmigrant alien for immigration purposes. Here is an interactive test for determining your tax residency status through a series of yes-or-no questions: Residency Test.

A nonresident files a special tax form, pays tax only on U.S. source income, is subject to special rates, and might qualify for treaty exemptions. Conversely, if you are a resident for U.S. tax purposes, you are under the same rules and file the same forms as a U.S. citizen. That means you pay tax on your worldwide income rather than just U.S. source income. The rules you will find on these pages do not apply if you are a resident. A great deal of help is available elsewhere, however. Free taxpayer assistance workshops for residents are much more available than for nonresidents, and it is easy to find a competent preparer. Software programs such as TurboTax are inexpensive, and make it easy for a complete novice to fill out the forms. TurboTax even has a Web site, Web TurboTax,

Determining Residency Status

If you have not already obtained a copy of Publication 519, U.S. Tax Guide for Aliens, you should do so now. You can either print out a copy from the Treasury's Forms and Publications site, or call 1-800-TAX-FORM (1-800-829-3676) and ask them to mail it to you. On the first few pages of Publication 519 it explains the two tests for determining if you are a resident or nonresident alien. Here are a few notes that will clarify (hopefully) that explanation.

The Green Card Test

If you receive permanent residency status during the year, you are automatically a resident for U.S. tax purposes from that point forward. However, you might not be considered a resident for U.S. tax purposes for the portion of the year you did not have permanent residency status. That means you might be a dual status alien. See the discussion below about dual status aliens.

The Substantial Presence Test and Definition of Exempt Individual

Before you read the entire explanation in Publication 519, note the definition of Exempt Individual on page 5. An exempt individual is someone whose days in the United States are not counted toward the substantial presence test, not someone who is exempt from tax. If you are an exempt individual, you are a nonresident alien until you are no longer an exempt individual, or until you receive permanent residency status. You are generally in this category under the following conditions.

Teacher or trainee. If you are a teacher or trainee temporarily in the United States on a J or Q visa, and you have been present in the United States during no more than two calendar years out of the last six calendar years, you are an exempt individual. For example, let's say you entered the U.S. on December 28, 1997 as a trainee on a J visa, and have remained here until now. Your days in this country are exempt from the substantial presence test for 1997 and 1998, but they all count in 1999 and later years. That means you were a nonresident alien in 1997 and 1998. But if you were in the U.S. for at least 183 days in 1999, you are considered a resident for U.S. tax purposes in 1999. You will remain so until you leave the country.

Exception: If all of your compensation during the six year period is from a foreign employer, the two year exemption period is extended to four years.

Student. If you are a student temporarily in the United States on an F, J, M or Q visa, and you have been present in the United States during no more than five calendar years, you are an exempt individual. For example, let's say you entered the U. S. on June 4, 1995 as a student on an F visa, and have remained here until now. You are a nonresident alien for 1995, 1996, 1997, 1998 and 1999. If you are in the U.S. for at least 183 days in 2000, you will be a resident in 2000.

Members of Your Family

Note that on page 5 of Publication 519 it tells you that if you are an exempt individual, members of your immediate family who are with you in the United States on visas derived from your visa (J-2, F-2, etc.) are also exempt individuals. If they are employed, make sure their employer withholds taxes from their wages based on their nonresident alien status. That usually means taxes should be withheld allowing for no standard deduction. This is often an area of confusion for nonresidents and employers. Some believe that the wages are not taxable, which is incorrect. If the employer does not adequately withhold, your family member will end up owing the balance when their tax return is filed.

Dual Status Aliens

Note on page 7 of Publication 519 under Dual Status Aliens that you could be both a nonresident alien and a resident alien in the same year. That means your tax return becomes more complicated. Publication 519 explains how to figure the tax beginning on page 25. Here are the most common circumstances of dual status:

• When you enter the country as a nonexempt individual, and receive permanent residency status (receive a Green Card) during the year, but before you are able to pass the substantial presence test
  
• When you hold a J, F, M, or Q visa the first part of the year and receive permanent residency status during the year
  
• When hold a J, F, M or Q visa during part of the year, but later change to an H visa or other status eligible to use the substantial presence test, and pass the test
  
• When you leave the United States permanently during a year in which you qualify as a tax resident, but only if certain conditions apply. (See Last Year of Residency on page 8 of Publication 519.)
  

You might be a dual-status alien if you permanently left the U.S. during the year. If you left the U.S. to re-establish your residence in your home country after you met the substantial presence test, your residency termination date is generally December 31 of the year you leave. You are therefore considered a U.S. resident for the entire calendar year. However, you can claim to be a dual-status alien for the year you leave if you meet the following conditions:

1. You are not a U.S. resident during any part of the following year, and
   
   
2. You establish that, after you left the U.S., your tax home was a foreign country and you had a closer connection to that country.
   

If you meet these conditions, you have the option to determine your residency termination date as the last day in the calendar year that you were physically present in the United States, which means that you will be a dual-status alien for that year.

When filing as a dual-status alien, different rules apply for the part of the year you were a tax resident of the United States and the part of the year you were a nonresident. A dual-status taxpayer cannot use the standard deduction and, if married, cannot file a joint return. You must file Form 1040NR or Form 1040NR-EZ and write "Dual-Status Return" across the top. Include Form 1040 with your return to show the income and deductions for the part of the year you were a resident. Write "Dual-Status Statement" across the top. For detailed instructions see Chapter 6 of IRS Publication 519, U.S. Tax Guide for Aliens.

Before leaving the United States, aliens are generally required to obtain a certificate of compliance, also known as a sailing permit or departure permit, by filing Form 1040-C with a local IRS office. Visiting students and teachers are not required to get a sailing permit, however, as long as their employment income is authorized by the Immigration and Naturalization Service (INS).

Nonresident Spouse Treated as a Resident

If you or your spouse is a resident for tax purposes at the end of the year, and the other spouse is a nonresident, you can elect to treat both you and your spouse as residents for the entire year. This rule applies even if the spouse who is a resident at the end of the year is a dual status alien (a nonresident at the beginning of the year). See Publication 519 under Nonresident Spouse Treated as a Resident beginning on page 9.