Split tax year - half year US, half year Canada, US taxes payable for full year

[EnjoyTheJourney]

Not sure about logistics for US taxes for 2022.

The following things happened in 2022 ...

We lived in the US until very close to the end of June.
We moved to Canada after leaving the US.
We voluntarily abandoned our green cards effective the date we moved to Canada.

These facts would seem to mean that we should be filing form 1040 for the first half of the year and form 1040NR for the last part of 2022. These go to the same location in Austin, TX, which perhaps means we should put both forms into the same envelope?

We do have US-sourced income for both halves of the year, which is why form 1040NR will need to be filed.

Our thanks to anybody who has gone through this process and knows how this process works!

[NotJen]

The IRS website seems to answer your question: https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens

You must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U.S. resident on the last day of the tax year.

[EnjoyTheJourney]

I didn't have the right language for the search, but now I have a solid place to start.

Thank you!

[EnjoyTheJourney]

I'll leave what's below the line for informational purposes in case somebody does a search for form 1042-S in the future.

Form 1042-S needs to be reported on Form 1040NR in general. If I find exceptions to the general rule then I'll post about it here.

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Have heard mixed things about reporting for US-sourced annuity payments received that have already been subject to 15% tax withholding as per the US-Canada tax treaty. This is income reported on Form 1042-S.

After the 15% withholding I've heard that the income in question has been "fully taxed" and isn't reported on Form 1040NR. Another view I've heard is that all US-sourced income for a given tax year is reported (including annuity income already subject to withholding) and added together to arrive at tax payable, but with tax withholdings already taken by the IRS being recognized as "taxes already paid" when calculating the net amount of total tax owed (or to be refunded).

The second one of these possibilities sounds much more intuitive and logical. But, it results in the IRS getting less tax from us in 2022. Just in case we are supposed to treat all US-based annuity income already subject to 15% tax as it is being remitted to us as "fully taxed already, don't include in form 1040NR as income for that year" it could leave a bad impression if we made the mistake of reducing our total tax bill for the year by including it in income calculations for 2022.

This sounds very complicated to write, but hopefully it isn't as complicated when reading it.

[EnjoyTheJourney]

New question, no definitive answer yet in instructions for 1040NR, but probably (hopefully) not problematic ...

We received taxable distributions which would be categorized as "lumpsum, not periodic" while we were still green card holders and living in the US. Tax was withheld at a 20% rate for the those distributions. We set up and started receiving annuity payments with a greater than five year term after surrendering our green cards and while living in Canada. Those annuity payments had tax withheld at the rate of 15% as per the US-Canada tax treaty.

However, documentation from the disbursing organization doesn't give detailed time frames for the different kinds of disbursements. The 1099R and the 1042S just cover the year as a whole. In a "worst case" scenario the IRS would treat all of these disbursements for 2022 as being subject to the rules of the US-Canada tax treaty (which taxes lumpsum distributions at 30%, and not at the receiving party's marginal tax rate), regardless of our actual tax resident status for the first half of the year. Is that how it's done?

If that's how it's done, then that's pretty much the end of the conversation. We should file accordingly and our taxes payable to the US for 2022. If that's not how it's done then we have documentation which we can provide with our tax filing to show exactly when each type of distribution occurred.

All of this raises another question, which is does the tax rate applicable to a 1040NR filing override the initial tax withholding rate, whether it be 15% or 30%?

[EnjoyTheJourney]

Connected question to a home sale in 2022 ...

Normally while holding a green card if you sell your primary residence in the US there's a very large allowed deduction for that before taxes might apply. We would be well within that limit and no capital gains tax would apply. However, we're not sure if being treated as "dual status aliens" means that we would be treated as non-residents of the US for the purposes of determining capital gains taxes, despite being long term green card holders when we sold our home.

Being dual-status non residents who were not in the US at the end of 2022 seems to make figuring out some things fairly complicated.