Mexican Family with Temporary Work Visa

[Kaz]

I had a client originally from Mexico, and she obtained Green Card in February 2011. Before she physically received Green Card, she was on Temporary Work Visa with Employment Authorization Document, which looked just like a card for OPT or H1-B visa.

My questions is about residency treatment on EIC. Is she treated as nonresident part of the year, or do we actually apply Substantial Presence Test? If she meets the test, then she can take EIC? She has a valid SSN.

This forum has been very helpful. Thank you all for your great help!!


Kaz

[Koss]

Resident Alien

Check the rules in Publication 519.

In most cases, the person can elect to be treated as a resident alien for the entire year.

BMK

[MilTaxEA]

Check the rules in Publication 519.

In most cases, the person can elect to be treated as a resident alien for the entire year.

BMK

Even if you elect to be treated as a resident alien, would that then allow you to take the EIC? My gut says "no" since you cannot be a nonresident alien *at any time* during the tax year when you claim the EIC. Just because you elect to be treated as a resident, does not mean you were not a nonresident. I'd dig into the regs before going either way though.

[Kaz]

I wonder if we have to apply the substantial presence test for the temporary work visa since it is "temporary". The questions is whether the visa and other visas such as student and H1 are treated differently. Probably, yes, because it is still a visa, nothing to grantee the permanent residency of the taxpayer.

Please let me hear your opinion.

[Koss]

Resident or Nonresident Alien

If the taxpayer in question is married to a resident alien or US citizen, then that changes everything. If she is unmarried, or if she is married to a nonresident alien, that makes a big difference, too.

This is complicated.

In general, if you become a resident alien during the year, the rules allow you to make a "first year election," which means that you elect to be treated as a resident alien for the entire year. This avoids the nightmare known as dual status, which requires filing a Form 1040NR for part of the year, and Form 1040 for the other part of the year.

And I would have thought that since this is an election to be treated as a resident alien for tax purposes, that it would apply to the rules for EIC. But it's not that simple.

The substantial presence test is actually the easy part. If she is considered a resident alien under the substantial presence test, then she is indeed considered a resident alien for the entire year, and that means she can claim EIC, assuming all the other requirements are met, i.e., filing status must be S, MFJ, or HOH.

If she doesn't meet the substantial presence test, then everything hinges on filing status. If she is not married, she's out of luck.

According to Rule 4 in Publication 596:

If you (or your spouse, if married) were a nonresident alien for any part of the year, you
cannot claim the earned income credit unless your filing status is married filing jointly.
You can use that filing status only if one spouse is a U.S. citizen or resident alien and you
choose to treat the nonresident spouse as a U.S. resident. If you make this choice, you
and your spouse are taxed on your worldwide income. If you need more information on
making this choice, get Publication 519, U.S. Tax Guide for Aliens. If you (or your
spouse, if married) were a nonresident alien for any part of the year and your filing status
is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in
the space to the left of line 38a (Form 1040A).

Note that this rule explicitly refers to Publication 519. This publication contains all the rules that determine whether a person is a resident alien or a nonresident alien, including the substantial presence test.

Thus, there is an aspect of this rule that is potentially confusing. The substantial presence test is not an "optional" test, or an "election." A person who meets the substantial presence test is NOT a nonresident alien who has "chosen" to be "treated" as a resident alien for the entire year. A person who meets the substantial presence test is a resident alien for tax purposes, and if they meet the other requirements, such as having an SSN, then they can claim the earned income credit.

But the "first year election" is just that: an election. And according to Pub. 596, that method of being treated as a resident alien for the entire year doesn't qualify you for EIC. But if you "elect" to be treated as a resident alien for the entire year because you are married to a resident alien or a US citizen, then that method of being treated as a resident alien for the entire year does qualify you for EIC.

BMK

[mactoolsix]

Instructions From 1040NR

Tax credits. You cannot take the earned income credit, the credit for the elderly or disabled, or any education credit unless you elect to be taxed as a resident alien (see Election To Be Taxed as a Resident Alien, earlier) instead of a dual-status taxpayer.


Election To Be Taxed as a Resident Alien

You can elect to be taxed as a U.S. resident for the whole year if all of the following apply.

You were married.

Your spouse was a U.S. citizen or resident alien on the last day of the tax year.

You file a joint return for the year of the election using Form 1040, 1040A, or 1040EZ.

To make this election, you must attach the statement described in Pub. 519 to your return. Do not use Form 1040NR.

So, looks like to be eligible for EIC, she must elect to be "treated as a resident alien." To qualify to be treated as a resident alien, she must be married.

If she's married, she might quality. If not married - she can't qualify.