What I am gonna share is a brief incident and lesson learnt to make more Green currency , Maximizing your benefits , and minimizing expenses.
Recently I had a business trip to US on L1 (Blanket) Visa, Earning moolah , Visiting places and actually seeing the Land of Opportunity.
That golden Honeymoon being over, My company policies and hassles apart, Finally arrived the last Golden Light of Green Golden Money ($) - A K A - Federal and State Tax returns.
I was surprised to see huge almost 4 Digit figure in the tax return , which added a loads of Financial Planning into over ride frenzy ;). BUT then , Comparing with other counterpart's returns , I hit a bottom ...
Lets Keep the story telling apart , and come to the Money talk.
US Income tax return comes into two Chunks:
1. Federal Tax returns (the major Chunk)
2. State Tax returns
The tax is deducted at source (just like india), and if you've paid an extra, a refund is being provided.
Simple ! Ain't it ?
Lets Come to the complex picture.
CRITERIA
There are two major tax filing for Indians working in US:
1. Non Resident Alien (Usually Fills 1040 NR form)
2. Resident Alien (Usually fill 1040 or 1040 EZ)
As the name suggests , Resident Alien , do enjoy benefits over the Non Resident counterparts in terms of tax benefits as well as in some other scenario (please vist IRS website for details.)
Our point however is , how to cash in on the Resident Alien criteria, and how to fit in to reap Maximum Money ($ is what we work for ).
Rule of Thumb:
1. Stay in US for more than 183 Days (from entry immigration check to exit immigration check)
2. Stay in India in that Financial year for less than 182 days.
In case of a Tie (183+182 is 365 and you may face a tie), if Criteria 2. is false (you stayed for 182 or more days in India), you'll be considered Non Resident, and easily be chopped off approx 1200$+.
If however, Criteria 2 is true , but not 1, You'll still be Considered Non Resident.
BUT (there always is a "BUT")
If in the two years preceding the financial year in question , you were in US (eg. for 2009-10 returns , 2008 and 2009), Following calculation will be made:
You are a Resident alien IFF (if and only if) -
1. Sum of Total days in US in current Financial year + 1/3 Days in US in Last Financial year + 1/6 Days in US in Last to Last Financial year >= 183
AND
2. Days in India in current Financial Year < (and not equal to) 182 Days.
eg.
1. Exit From Indian Soil : 21st June 2009
2. Entry in US (at Atlanta) : 22nd June 2009
3. Exit From US (at Atlanta) : 20th Dec 2009
4. Entry into India : 22nd Dec 2009
5. Previous duration : 93 Days on B1 Visa in 2008
According to the current Calculations,
Number of Days in US: 182 + (93) * 1/3 = 213 Days
Number of Day in India in this Financial year: 1 April 2009 to 21 June 2009 + 22 Dec 2009 to 31 March 2010 = 182 days
and hence Criteria 2 Fails.
PS: The Day in Transit, is not accounted for in either US or India
Hopefully this will help filing and planning the tax returns.
The post is based on personal experience, where I was on a long term L1 Visa, during single US tax Cycle
For Glossary of terms , and Imp Details, I Considered following Links helpful:
1040 NR
1040 NR Details
Various IRS Tax Glossary
Famous PUB. 519
1040NR Vs 1040 and other details
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