Tax Filing Considerations for Split-Year Residency

Overview

Split-year residency matters because your tax liability and reporting obligations change the day your residency status changes. For U.S. taxpayers and foreign nationals entering or leaving the United States, split-year residency typically creates “dual-status” tax treatment where part of the year is taxed on worldwide income (resident period) and part of the year is taxed only on U.S.-source income (nonresident period).

Key U.S. rules and where to start

• Residency tests: In U.S. tax law, residency is determined by the green card test and the Substantial Presence Test (SPT). The green card test treats you as a U.S. resident for the calendar year if you are a lawful permanent resident at any time during the year. The SPT counts days physically present in the U.S. across a three-year formula (current year + 1/3 prior year + 1/6 second prior year). See IRS Publication 519 for the details (IRS Pub. 519) (https://www.irs.gov/publications/p519).

• Dual‑status and split‑year concepts: If you either become a U.S. resident during the year or cease U.S. residency during the year, the IRS generally treats you as a dual-status alien for that tax year. The rules and available elections (for instance, making a choice to be treated as a resident for the full year in limited cases) are explained in Publication 519 and in the IRS guidance on split-year residence tax treatment (https://www.irs.gov/businesses/international-businesses/split-year-residence-tax-treatment).

Which returns and forms you may need

• Form 1040 and Form 1040-NR: Residents file Form 1040 and report worldwide income. Nonresidents use Form 1040-NR. Dual-status filers commonly file both: a Form 1040 (or 1040-SR) for the resident portion and Form 1040-NR for the nonresident portion, with special attachments and allocations as required (IRS Pub. 519).

• Form 2555 (Foreign Earned Income Exclusion) and Form 1116 (Foreign Tax Credit): If you have foreign-earned salary during your resident period or you elect residency treatment, you may use the Foreign Earned Income Exclusion (Form 2555) or claim a foreign tax credit (Form 1116). See FinHelp guides on qualifying for the Foreign Earned Income Exclusion and Form 2555 details for fitting these tools into split-year scenarios (how to qualify: https://finhelp.io/glossary/how-to-qualify-for-the-foreign-earned-income-exclusion/; Form 2555 reference: https://finhelp.io/glossary/form-2555-foreign-earned-income/).

• Information reporting: Documents such as FinCEN Form 114 (FBAR) and Form 8938 (FATCA) may still be required depending on account balances and filing thresholds even if part of the year is nonresident (FinCEN/FBAR guidance: https://www.fincen.gov/report-foreign-bank-and-financial-accounts; IRS Form 8938 info: https://www.irs.gov/forms-pubs/about-form-8938).

How to allocate income and deductions

• Resident portion: While you are a U.S. resident, you report worldwide income and can use standard deductions and credits available to residents, subject to special limitations.

• Nonresident portion: For the nonresident part of the year, you generally report only U.S.-source income and claim deductions and credits that apply to nonresidents. That requires documenting dates of departure and arrival, source of each income item, and any treaty-based exemptions.

• Practical allocation: Keep a calendar and detailed records (pay statements, bank deposits, employer location, client contracts) so you can show which items belong to which period. In my practice, clients who preserved daily travel logs and copies of employment contracts lowered audit friction and obtained cleaner tax outcomes.

Tax treaty tie‑breakers and relief from double taxation

• Tax treaty rules: If you are a dual resident under both U.S. rules and another country’s rules, look to the applicable tax treaty’s residency tiebreaker provisions. Treaties generally name a primary residence based on permanent home, center of vital interests, habitual abode, or nationality.

• Foreign tax credits vs exclusions: Use Form 1116 to claim credit for taxes paid to the foreign jurisdiction, or use Form 2555 to exclude qualifying foreign-earned income. Which is better depends on rates, types of income, and whether you remain a U.S. resident for part of the year (compare strategic uses and read the IRS descriptions of each option) (IRS: Form 2555; IRS: Form 1116).

Common scenarios and examples

• Moving to the U.S. mid-year: A foreign national who arrives in July and meets the SPT will be a resident for the remainder of the year. U.S. tax will apply to worldwide income earned after residency begins; U.S.-source income before arrival might be reportable on Form 1040-NR.

• Leaving the U.S. mid-year: A U.S. green-card holder who abandons residence or an SPT-qualified individual who leaves the U.S. and breaks ties could be treated as a nonresident for the latter part of the year, triggering split-year handling and possible dual-status filing.

• Expat returning to the U.S.: If you were a U.S. resident, left and became nonresident, then returned, your prior foreign tax payments and the timing of the return year affect credits and exclusions. Track departure/return dates carefully.

Practical checklist for a split-year filing year

1. Fix your status date: Determine the exact date you became or ceased to be a resident under green card or SPT rules.
2. Create a timeline of income: Map every paystub, pension, dividend, and capital gain to calendar dates.
3. Gather foreign tax documents: Collect foreign tax returns, proof of payment, and withholding statements to prepare Form 1116 or treaty claims.
4. Check treaty position: Locate and read the relevant treaty article for residency tiebreakers or exemptions (U.S. Department of Treasury lists treaties). When treaty claims are used, retain translations and certified copies where possible.
5. File necessary information returns: FBAR (FinCEN 114) and Form 8938 if thresholds are met, even for split years where you are resident part of the year.
6. Consider elections: In narrow situations you can elect to be treated as a resident for the full year—understand the pros and cons before choosing.

Common mistakes to avoid

• Relying only on day counts: The 183-day rule or SPT is necessary but not always sufficient—ties, domicile, and treaty provisions matter.
• Missing information returns: FBAR and FATCA penalties are steep; treat reporting rules separately from income tax rules.
• Assuming treaty benefits are automatic: Some treaty exemptions require disclosure or a treaty-based return position.

Documentation and audit posture

Retain travel records, employment contracts, lease agreements, and copies of foreign filings for at least six years in case of IRS inquiry. In my practice, well-organized documentation reduced response time during audits and often avoided proposed adjustments.

When to get professional help

Because split-year residency blends residency law, treaty analysis, and allocation mechanics, most cross-border taxpayers benefit from a CPA or international tax specialist. If your situation includes pensions, stock sales, U.S. real property, or complex employer arrangements, seek specialized advice.

Further reading and internal resources

• How the IRS Defines and Verifies Tax Residency (FinHelp) — explains residency tests and enforcement: https://finhelp.io/glossary/how-the-irs-defines-and-verifies-tax-residency/
• How to Qualify for the Foreign Earned Income Exclusion (FinHelp) — practical steps for Form 2555: https://finhelp.io/glossary/how-to-qualify-for-the-foreign-earned-income-exclusion/
• Form 1116 — Foreign Tax Credit (FinHelp) — when and how to claim foreign taxes: https://finhelp.io/glossary/form-1116-foreign-tax-credit-2/

Authoritative sources

• IRS Publication 519, U.S. Tax Guide for Aliens: https://www.irs.gov/publications/p519
• IRS — Split-Year Residence Tax Treatment: https://www.irs.gov/businesses/international-businesses/split-year-residence-tax-treatment
• IRS Form 2555 information and instructions: https://www.irs.gov/forms-pubs/about-form-2555
• FinCEN FBAR guidance (FinCEN Form 114): https://www.fincen.gov/report-foreign-bank-and-financial-accounts

Professional disclaimer

This article is educational and reflects general U.S. tax rules as of 2025. It is not individualized tax advice. For a decision that affects your taxes, consult a licensed CPA, tax attorney, or enrolled agent who can analyze your specific dates, treaty status, and financial facts.

Closing practical tip

If you are approaching a move, create a migration tax plan before travel: lock in travel logs, request employer allocations, and ask your foreign employer for year-to-date pay records. Early planning frequently reduces surprises and preserves treaty or exclusion options.