US Individual Tax Filing (Form 1040)

Form 1040 or Form 1040-NR: which one is yours

This is the decision that has to be made before anything else, and it is the single most consequential error made by people filing their first US return. Consumer tax software generally assumes you are filing a 1040 and does not ask the question, so it is possible to complete a return that is internally consistent, e-filed successfully, and on the wrong form.

The test is residency for tax purposes, which has nothing to do with immigration status or with holding a green card interview. You are a US tax resident for a year if you are a lawful permanent resident, or if you meet the substantial presence test: 31 days in the current year and 183 days across a weighted three-year count, taking the current year in full, a third of the prior year and a sixth of the year before that.

F-1 and J-1 holders are the important exception. They are generally exempt individuals for a period of years, meaning their days in the US do not count toward the substantial presence test at all, so a student can be present for four years and still be a non-resident filing a 1040-NR. H-1B and L-1 holders are not exempt individuals: their days count from arrival.

There is a third case that fits neither column, and it catches almost everyone in their first year. If your status changed part-way through the year — you arrived on H-1B in September, or your student exemption ran out — you are dual-status for that year, and neither form alone is correct.

Filing a 1040 when you should have filed a 1040-NR, or the reverse, is not a formatting problem. It changes which income is taxed and which deductions you are entitled to, and correcting it means an amended return. If you are unsure, the substantial presence calculation is mechanical and worth doing before you file rather than after.

Your first US return is the hardest one you will file

Every return after the first is routine. The arrival year is not, for three reasons that compound.

First, it is usually a dual-status year, which means applying non-resident rules to the part of the year before your residency started and resident rules afterwards, filed as one return with the other form attached as a statement. Consumer software does not attempt this. Second, a dual-status filer cannot take the standard deduction, cannot file jointly and cannot use head of household — so a dual-status return can produce more tax on the same income than a full-year resident return would. Third, elections exist that change the outcome materially, and every one of them has to be claimed to exist.

The two that matter most are the first-year choice, which lets you be treated as a resident from a chosen date earlier than you would otherwise qualify, and the election to be treated as a resident for the entire year where you are married to a US citizen or resident. The second restores the standard deduction and joint filing, which is frequently worth more than the additional worldwide income it brings into scope — but not always, and the only reliable way to know is to compute it both ways.

State returns are where self-filed returns most often go wrong

Federal is one return. State is as many returns as your year requires, and the count is not obvious. If you moved during the year you may owe a part-year return in each state. If you live in one state and work in another you may owe both, with a credit in your resident state for tax paid to the other. If you worked remotely for an employer headquartered elsewhere, the answer depends on that specific pair of states rather than on a general rule.

This matters disproportionately to people who move for work, which describes most of this audience. A first US year that includes a few months in one state and the rest in another is common, and it is the scenario where a return that looks complete federally is missing an entire state filing.

A handful of states levy no personal income tax at all, which simplifies things — though moving to one does not remove the obligation to the state you left for the part-year you lived there.

If you still hold anything in India, the 1040 is not the whole filing

A resident 1040 taxes worldwide income, and for this audience that usually means more than the W-2. NRE interest — exempt in India and therefore widely assumed to be tax-free everywhere — is ordinary taxable interest to the IRS. NRO interest is taxable in both countries, generally with credit available for the Indian TDS. Indian mutual funds are almost always PFICs with their own reporting form. Rental income from an Indian property is reportable, computed under US rules.

Alongside the return there may be disclosures: an FBAR when your foreign accounts together exceeded $10,000 at any point in the year, and Form 8938 at higher thresholds. Neither is part of the 1040, and filing the return does not file them.

None of this makes a return unmanageable, and none of it means paying tax twice — the foreign tax credit and the India-US treaty exist for exactly that. But it does mean a return prepared from the W-2 alone is incomplete, and the gap is not visible from the return itself.

Where this comes from

• IRS — About Form 1040, US Individual Income Tax Return
• IRS — About Form 1040-NR, US Nonresident Alien Income Tax Return
• IRS — Substantial Presence Test, including the weighted three-year count and exempt individuals
• IRS Publication 519 — US Tax Guide for Aliens: residency, dual-status years and the available elections
• IRS — About Form 4868, Application for Automatic Extension of Time to File