Form 1040-C (2021): U.S. Departing Alien Income Tax Return Checklist
2021 Form Uniqueness
Form 1040-C for 2021 is unique in requiring aliens departing from the United States to report all income received or reasonably expected to be received up to their departure date and to obtain a certificate of compliance before departure. Unlike Form 1040, which applies to all U.S. taxpayers for the complete calendar year, Form 1040-C serves as an interim return specifically for departing aliens. Resident and nonresident alien status determines whether graduated tax rates similar to those of U.S. citizens apply or whether a flat 30% withholding applies to fixed, determinable, annual, or periodical (FDAP) income. This form is not a final return; a final annual return on Form 1040, Form 1040-NR, or Form 1040-SR must be filed after the tax year ends to report complete annual income and finalize tax liability.
Year-Specific Applicability
The 2021 substantial presence test requires at least 31 days of physical presence in the United States during 2021 and at least 183 days across the three years covering 2021, 2020, and 2019, using a weighted calculation that counts all days in 2021 as full days, one-third of days in 2020, and one-sixth of days in 2019.
The closer connection exception allows individuals to be treated as nonresidents even if they meet the substantial presence test, provided they were present fewer than 183 days in 2021, maintained a tax home in a foreign country throughout the year, and had a closer connection to one foreign country than to the United States. If an individual has a closer connection to two foreign countries during the year, specific rules in Publication 519 apply.
Ten-Step Compliance Checklist
Step 1: Determine Alien Status Per 2021 Substantial Presence Test
You meet the substantial presence test if you were physically present in the United States for at least 31 days during 2021 and for at least 183 days total, using the weighted calculation (counting all 2021 days as full days, one-third of 2020 days, and one-sixth of 2019 days). If your residency status changes mid-year between resident and nonresident, you will file a dual-status return using both Form 1040 or Form 1040-SR for the resident portion and Form 1040-NR for the nonresident portion.
Obtain IRS Publication 519 (U.S. Tax Guide for Aliens), which is referenced in the 2021 Form 1040-C instructions, to verify your status determination before checking the appropriate box in Part I of Form 1040-C. Your alien status classification fundamentally determines your tax treatment and filing requirements.
Step 2: Establish Residency Status Group (Part I, Line 1)
Check only one box on Form 1040-C, Part I, Line 1 to identify your filer group: Group I for resident aliens who are taxed on worldwide income at graduated rates similar to U.S. citizens; Group II for nonresident aliens with income effectively connected with a U.S. trade or business taxed at graduated rates; or Group III for nonresident aliens with income not effectively connected with a U.S. trade or business taxed at flat statutory rates.
Your choice determines which tax computation section applies, which schedules you must complete, and what deductions you may claim. Misidentifying your tax status group can directly affect the tax rate applied to your income and may result in underpayment or overpayment of tax, as well as potential penalties.
Step 3: Gather All 2021 Income Documentation
Collect all Forms W-2 showing wages, salaries, and tips from each employer; all Forms 1099 showing interest, dividends, rents, royalties, and nonemployee compensation; and any Forms 1042-S showing income from scholarships, fellowships, grants, or other U.S.-source income subject to withholding. For self-employment income, compile detailed income and expense records through your departure date, showing all business receipts and deductible business expenses.
Under 2021 rules, you must report all income received or reasonably expected to be received for the entire tax year up to and including the date of departure on Form 1040-C, not income you wish to receive after departure. Organize all documentation by income type and source to facilitate accurate reporting on the appropriate schedules.
Step 4: Compile Alien Identification and Visa Documentation
Gather your valid passport, alien registration card (green card) if you are a lawful permanent resident, visa number, and class under which you were admitted to the United States, and proof of any reentry permit with its expiration date. The 2021 instructions require you to complete Item 3 on page 1 of Form 1040-C with your visa information, including type and number, and Item 4 to verify whether you have a re-entry permit and its expiration date.
The IRS requires this documentation before issuing a certificate of compliance. Ensure all identification documents are current and valid, as expired documents may delay processing of your Form 1040-C and issuance of your sailing permit.
Step 5: Document Date of Departure from the U.S.
Obtain documentary evidence of your exact planned departure date, such as an airline ticket, travel itinerary with confirmed reservations, or customs departure record if you have already departed. The 2021 Form 1040-C requires you to enter the date on which you plan to leave the United States at the top of the form in the designated space.
The certificate of compliance issued by the IRS applies only to departures on or after your stated departure date and expires if not used within a reasonable time. If your departure date changes after filing Form 1040-C, you may need to file an amended Form 1040-C or obtain a new certificate of compliance.
Step 6: Complete Schedule A and Schedule D (Form 1040-C)
For Group I resident aliens: Complete Schedule A (Form 1040-C) to report all income in column (d) and calculate itemized deductions using the same rules as Form 1040, including deductions for medical expenses, state and local taxes subject to the $10,000 limitation, home mortgage interest, and charitable contributions. Complete Schedule D (Form 1040-C) to calculate your tax liability using graduated rates and either the standard deduction or itemized deductions from Schedule A.
For Group II or Group III nonresident aliens: Use Schedule A (Form 1040-C) columns (e) and (f) to separate effectively connected income from income not effectively connected with a U.S. trade or business. Group III filers report income in column (f) exclusively, with no deductions allowed against this income category. In 2021, FDAP income for Group III filers is taxed at a flat 30% rate or a lower treaty rate if you qualify for treaty benefits, with no deductions permitted against this income category.
Step 7: Document Treaty Benefits for Final Return
If you plan to claim relief under a tax treaty when you file your final return after year-end, such as claiming a treaty-based position to reduce withholding rates or claiming exempt status under a treaty provision, gather documentation to support your qualification for treaty benefits, including proof of tax residency in the treaty country, the specific treaty article being claimed, and Form W-8BEN or Form 8233 provided to payers.
Nonresidents may establish qualification for treaty benefits, including deduction carryovers or reduced withholding rates, on their final Form 1040-NR filed after the year ends. Failure to adequately disclose a treaty-based position may result in penalties under Section 6712 of the Internal Revenue Code. Note that Schedule OI (Other Information) appears on Form 1040-NR filed after year-end, not on Form 1040-C.
Step 8: Report Business Income if Self-Employed (Schedule A, Form 1040-C)
If you operated a trade or business in the United States during 2021, report net profit or loss from self-employment on Schedule A (Form 1040-C), column (e) for Group II filers with effectively connected income, or column (f) for Group III filers. Document all ordinary and necessary business expenses incurred through your departure date, including supplies, rent, utilities, insurance, professional fees, and depreciation. In 2021, the self-employment tax applies at 15.3% (12.4% for Social Security on the first $142,800 of net self-employment income plus 2.9% for Medicare on all net self-employment income) if you are a nonresident alien not covered by a totalization agreement. Resident aliens remain subject to self-employment tax on worldwide self-employment income regardless of source.
Step 9: Verify Material Participation Status and Passive Activity Limitations
If you held a passive activity interest or rental property interest during 2021, determine whether you materially participated in the activity under the seven tests established by regulations, including working more than 500 hours in the activity, performing substantially all the participation in the activity, working more than 100 hours with the involvement at least as much as any other person, or meeting other specific tests.
According to the 2021 tax rules, passive activity losses are subject to limitations and can generally only be offset by passive activity income. If passive activity loss limitations apply, you will complete Form 8582 (Passive Activity Loss Limitations) when you file your final Form 1040 or Form 1040-NR after year-end, not with Form 1040-C. Nonresident aliens cannot claim the $25,000 passive activity loss allowance available to resident taxpayers who actively participate in rental real estate activities.
Step 10: File Original and One Copy of Form 1040-C Before Departure; Sign and Date
File Form 1040-C at the IRS Field Assistance Area Director's office for your region at least 2 weeks, and preferably 4 weeks, before your planned departure date to allow sufficient processing time. File the original Form 1040-C and one copy, both signed and dated. Sign the return under penalties of perjury, certifying that you have examined the return and accompanying schedules and statements and that, to the best of your knowledge, they are true, correct, and complete.
Include your passport number, alien registration card number if applicable, and your planned date of departure. Consult the IRS "Where to File" page for Form 1040-C for tax year 2021. Locate the correct Field Assistance office address for your jurisdiction. The certificate of compliance, once issued and signed by an IRS Area Director or authorized agent, serves as your sailing permit or departure permit and authorizes your departure from the United States.
Form-Specific Limitations
Nonresident Alien Deduction Restriction
As a Group II or Group III filer, you may claim only deductions directly connected to U.S. trade or business income reported in Schedule A (Form 1040-C), column (e). General personal deductions, including the standard deduction and most itemized deductions, are not allowed for nonresidents. Limited exceptions include specific charitable contributions to U.S. organizations and casualty and theft losses of property located in the United States, which do not require a business connection.
This restriction differs fundamentally from Form 1040 treatment, where all taxpayers claim either the standard deduction or itemized deductions. Nonresident aliens in Group II may claim one personal exemption amount, while Group III filers cannot claim any personal exemptions.
Certificate of Compliance Requirement
Form 1040-C is not a final income tax return and does not satisfy your filing obligation for the entire 2021 tax year. After you depart and your 2021 tax year closes on December 31, 2021, you must file a final annual return on Form 1040 if you are a resident alien, Form 1040-NR if you are a nonresident alien, or Form 1040-SR if you are age 65 or older and qualify to use the senior return.
The final return reports all income for the complete year and allows you to claim all applicable deductions and credits. The Form 1040-C certificate of compliance permits only your departure and certifies that you have paid all taxes due up to your departure date; however, it does not release you from the obligation to file a final 2021 return after the year ends.
Sections Added, Removed, or Updated for 2021
Substantial Presence Test Day-Counting Rules (Updated for 2021)
In previous years, the same substantial presence test formula was applied, but to the prior three-year period. For 2021, the substantial presence test specifically counts full days present in 2021, one-third of days present in 2020 (multiplier 0.333), and one-sixth of days present in 2019 (multiplier 0.167).
This year-specific calculation is documented in the 2021 Form 1040-C instructions and Publication 519, and directly affects whether you qualify as a resident or nonresident alien for tax purposes at the time of your departure. The weighted calculation means that a more recent presence counts more heavily toward establishing residency status.
Virtual Currency Reporting (2021 Update Note)
For 2021, Forms 1040, 1040-SR, and 1040-NR added a checkbox asking, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” This question appears on the final annual returns filed after the end of the year, not on Form 1040-C filed at departure. Virtual currency transactions during 2021 would be reported on your final return (Form 1040, Form 1040-NR, or Form 1040-SR) filed after December 31, 2021, not on Form 1040-C. This addition reflects expanding IRS guidance and enforcement related to cryptocurrency transactions and reporting requirements.
For professional assistance with your 2021 Form 1040-C departing alien income tax return or any tax filing questions, contact our tax experts at (888) 260-9441.
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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.
