Form 1040-C Filing Checklist for Tax Year 2012
Overview and Purpose
Form 1040-C is the U.S. Departing Alien Income Tax Return filed by aliens leaving the United States to certify tax compliance before departure. This form is required for aliens departing the country during 2012 and serves as evidence that you have satisfied your U.S. tax obligations.
Form 1040-C is not your final annual tax return. After the tax year ends on December 31, 2012, you must file either Form 1040 if you were a resident alien on December 31 or Form 1040-NR if you were a nonresident alien, reporting all income for the entire year.
For tax year 2012, the personal exemption amount is $3,800 per qualifying exemption. The 2012 tax rate schedules apply to income calculations. No year-specific tax relief programs, stimulus reconciliation, Affordable Care Act penalties, or Tax Cuts and Jobs Act modifications apply to 2012 Form 1040-C filers.
Alien Status Classification
Your tax treatment depends on your classification into one of three groups. Group I includes resident aliens who are taxed on worldwide income similar to U.S. citizens. Group II includes nonresident aliens with income effectively connected with a U.S. trade or business. Group III includes nonresident aliens with income not effectively connected with a U.S. trade or business, who are typically subject to a 30 percent withholding tax on U.S.-source income.
Ten-Step Filing Process
Step 1: Confirm Filing Timing and Determine Alien Status
File Form 1040-C at your local IRS office between 30 days before your planned departure date and at least 2 weeks before you actually depart. In-person filing is required to obtain a Certificate of Compliance, also known as a sailing permit or departure permit. You cannot mail this form.
Complete Part I of Form 1040-C to identify your alien status classification. Check the box for Group I if you are a resident alien. Check the box for Group II if you are a nonresident alien with income effectively connected with a U.S. trade or business. Check the box for Group III if you are a nonresident alien with income not effectively connected with a U.S. trade or business.
Resident aliens generally include individuals who meet either the green card test or the substantial presence test. Nonresident aliens are individuals who do not meet either of these tests. Your status determines which income you must report, which deductions you may claim, and how your tax is calculated.
Step 2: Gather All Income Documentation Through the Departure Date
Collect all Forms W-2 showing wages, salaries, tips, and other compensation received or expected through your departure date during 2012. Gather all Forms 1099 reporting interest income, dividend income, nonemployee compensation, and different types of income. Obtain Form K-1 if you are a partner in a partnership or shareholder in an S corporation.
Collect records of all other income received through your departure date, including rental income, royalties, capital gains, business income, and any other taxable income. Organize your documentation by income type and source to facilitate accurate reporting on the required schedules.
Step 3: Determine Allowable Personal Exemptions
Calculate the number of personal exemptions you may claim based on your alien status classification. If you are a resident alien in Group I, you may claim the same exemptions as U.S. citizens. Claim one exemption for yourself, one for your spouse if filing jointly, and one for each qualifying dependent. Each exemption equals $3,800 for 2012.
If you are a nonresident alien in Group II, you may generally claim only one personal exemption for yourself. However, special rules apply if you are a resident of Canada, Mexico, South Korea, or India, or if you are a U.S. national. Consult the Form 1040-C instructions for detailed rules regarding additional exemptions available under these circumstances.
If you are a nonresident alien in Group III, you may not claim any personal exemptions. Your tax is calculated differently without the benefit of exemption deductions.
Step 4: Complete Schedule A for Income Categorization
Schedule A of Form 1040-C categorizes your income by type and source. List each income item separately on the appropriate lines. Use column d to report income if you are a resident alien in Group I. Use column e if you are a nonresident alien in Group II reporting income effectively connected with a U.S. trade or business. Use column f if you are a nonresident alien in Group III reporting income not effectively connected with a U.S. trade or business.
Report wages and salaries on the designated lines, entering amounts from Forms W-2. Report interest income, dividend income, business income, rental income, and all other income types on the appropriate lines. Column c shows the federal income tax withheld from each income source.
Total each column at the bottom of Schedule A. Include all income received or accrued through your departure date during 2012. If you expect to receive additional income after filing Form 1040-C but before year-end, you must report it on your final annual return filed after December 31, 2012.
Step 5: Report Capital Gains and Losses on Schedule B
Complete Schedule B if you sold or exchanged capital assets during 2012 through your departure date. Schedule B is used primarily by nonresident aliens to report gains and losses from property transactions that are not effectively connected with a U.S. trade or business.
For each capital asset transaction, provide the description of the property, date acquired, date sold or exchanged, gross sales price, cost or other basis, and the resulting gain or loss. If federal income tax was withheld on the transaction, enter the amount withheld in the designated column.
Capital gains for nonresident aliens not effectively connected with a U.S. trade or business are generally subject to 30 percent withholding tax or a lower treaty rate if applicable. Attach documentation supporting any claim for a reduced treaty rate.
Step 6: List Itemized Deductions on Schedule C
Complete Schedule C to claim allowable itemized deductions based on your alien status classification. The deductions you may claim depend on whether you are in Group I, Group II, or Group III.
If you are a resident alien in Group I, you may claim the same itemized deductions available to U.S. citizens. These include medical and dental expenses exceeding 7.5 percent of adjusted gross income, state and local taxes, home mortgage interest, charitable contributions, casualty and theft losses, and miscellaneous deductions subject to 2 percent of adjusted gross income. Alternatively, you may claim the standard deduction if you do not itemize.
If you are a nonresident alien in Group II, you may claim deductions directly related to your income that are effectively connected with a U.S. trade or business. Even if they don't directly relate to effectively connected income, you can still claim casualty and theft losses, as well as charitable contributions. State and local income taxes are deductible only to the extent they are connected to effectively connected income.
If you are a nonresident alien in Group III, you may not claim any deductions. Your tax is calculated as a flat percentage of your gross income, without deduction of allowances.
Step 7: Calculate Tax Liability Using Schedule D
Complete Schedule D to calculate your total tax liability. The calculation method depends on your alien status classification.
For Group I resident aliens, calculate adjusted gross income by totaling all income from Schedule A column d and subtracting any allowable adjustments to income. Subtract either your total itemized deductions from Schedule C or the standard deduction for your filing status. Subtract your total exemption amount calculated by multiplying the number of exemptions by $3,800. The result is your taxable income. Apply the 2012 tax rate schedule for your filing status to determine your regular tax.
For Group II nonresident aliens, follow the same calculation process using income from Schedule A column e. Apply the 2012 tax rate schedule to determine your regular tax on effectively connected income.
For Group III nonresident aliens, multiply your total income from Schedule A column f by 30 percent. This represents the standard U.S. withholding tax rate on income not effectively connected with a U.S. trade or business. If a tax treaty between the United States and your country of residence provides for a lower rate, you may apply the treaty rate instead. Attach a statement showing your treaty rate calculation and the specific treaty article providing the benefit.
If you are subject to alternative minimum tax, complete Form 6251 and add the AMT amount to your regular tax. Enter your total tax on the designated line of Schedule D.
Step 8: Report Tax Payments and Calculate Balance
Report all federal income tax withheld from your income sources on the designated line. Transfer the total withholding amounts from the Schedule A column C to this line. Include all withholding through your departure date during 2012.
Report any estimated tax payments you made during 2012 on the designated line. Include any overpayment from your 2011 tax return that you elected to apply to your 2012 estimated tax.
Add total withheld tax and estimated tax payments to calculate your total tax payments. Subtract your total tax payments from your total tax liability calculated on Schedule D. If your tax liability exceeds your payments, the result is your balance due. Pay this amount when you file Form 1040-C.
If your payments exceed your tax liability, the result is an overpayment. You may request a refund of the overpayment or apply it to your 2012 estimated tax.
Step 9: Assemble Required Documentation for IRS Office Visit
Prepare all required documentation to bring to your IRS office appointment. Please bring your valid passport, which must show your alien registration card or visa. Bring copies of all U.S. income tax returns you filed in the prior two years. If you have been in the United States for less than two years, bring copies of all returns filed during your U.S. residence.
Bring receipts or canceled checks supporting all tax payments you reported. Bring bank statements and canceled checks supporting all deductions you claimed on Schedule C. Bring all Forms W-2 from employers showing wages and federal income tax withheld. If you have self-employment income, bring statements showing all income received and expenses paid.
Organize your documentation by category to facilitate efficient review during your IRS office visit. Make copies of all documents for your personal records before submitting originals to the IRS.
Step 10: Sign, Date, and File at the IRS Office
Review Form 1040-C for accuracy and completeness. Verify that all schedules are correctly completed and attached. Verify that all calculations are correct. If filing jointly with your spouse, both of you must sign and date the return.
Visit your local IRS office at least two weeks before your planned departure date. File the original Form 1040-C and one copy. The IRS will review your return and supporting documentation. If everything is in order, the IRS will issue a Certificate of Compliance, also known as a sailing permit or departure permit. Retain your copy of Form 1040-C and the Certificate of Compliance for your records.
Remember that Form 1040-C is not your final tax return for 2012. After December 31, 2012, you must file either Form 1040 if you were a resident alien on December 31 or Form 1040-NR if you were a nonresident alien on December 31. Report all income for the entire year on your final return. The tax you paid with Form 1040-C will be credited against your total tax liability for 2012 on your final return.
Special Filing Rules and Limitations
Joint Filing Restrictions
Nonresident aliens may not file joint returns. Resident aliens may file joint returns only if their spouse is also departing the United States at the same time and also files Form 1040-C. Both spouses must sign Form 1040-C if filing jointly.
Tax Credit Limitations
Tax credits available to nonresident aliens are severely limited. Nonresident aliens generally may not claim the earned income credit, education credits, or child tax credit unless specific tax treaty provisions or special status rules apply. Resident aliens may claim these credits if they meet all eligibility requirements.
Certificate of Compliance Exemptions
Specific individuals are exempt from the requirement to obtain a Certificate of Compliance before departure. These exemptions include certain foreign government officials, employees of international organizations, students, exchange visitors, and individuals meeting other specific criteria. Consult IRS Publication 519 to determine if you qualify for an exemption.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
