Cross-Border Tax Worked Examples and Practice Questions

These cross-border tax worked examples run real arithmetic through the points where Publication 17 hands readers with Canadian or Indian ties to another publication. They start from chapters 1, 11 and 13 of the 2025 edition (printed pages 6 to 12, 96 to 100 and 106 to 108), which the 2023 and 2024 editions repeat. Four examples use tax year 2025, then twelve practice questions cover tax years 2023 to 2026. Every person and amount is invented. These are unofficial study notes in our own words; the IRS publication controls.

What Pub 17 says and where it stops

Pub 17 is clear about each hand-off, and the arithmetic lives on the other side of it.

Page 8 says your alien status decides whether and how you file. Page 7 tells citizens and resident aliens abroad to count even excludable foreign pay when testing whether a return is required. Page 97 allows a deduction or a credit for foreign income tax but nothing for tax on income you exclude. Page 108 says the IRS will not figure your tax if you file Form 2555 or your taxable income is $100,000 or more, so these examples figure it by hand. Pages 111 to 123 hold the Tax Table, used below $100,000, and the Tax Computation Worksheet, used from $100,000. Pub 17 never names Pub 901, so treaty points here stay brief.

Cross-border tax worked examples for tax year 2025

Each example shows every step, with form lines where a form exists, and rounds to the cent. Compare your own facts with the method, not with the answer.

Example 1: Does a Hyderabad consultant pass the substantial presence test?

Rohini Reddy, tax year 2025. She lives in Hyderabad, is paid by her Indian employer and has no green card or pending application. She serves clients near Chicago for 128 days in 2025, 114 days in 2024 and 108 days in 2023. None are commuting, transit or exempt days.

1. Minimum days. 128 days this year is at least 31.
2. Weighted days. 128 + (114 ÷ 3) + (108 ÷ 6) = 128 + 38 + 18 = 184.
3. Result. 184 is at least 183, so she meets the test by one day.
4. Exception. She was present fewer than 183 days (128), keeps her tax home in India all year and has closer ties to India, so she can stay a nonresident by filing her own Form 8840 by the Form 1040-NR due date. Her pay carries no U.S. withholding, so that date is June 15, 2026. Filed late, the form loses the exception unless she shows by clear and convincing evidence that she took reasonable steps to comply.
5. Where it ends. At 183 days or more, or with a green card application pending, the exception is closed, and the remaining route would be a treaty tie-breaker with Form 8833 if the facts fit. See our residency tests guide and the tie-breaker comparison.

Example 2: How much exclusion is left after a mid-year return to the U.S.?

Karan Mehta, single U.S. citizen, tax year 2025. He was a bona fide resident of India from March 1, 2024 until he flew back to Chicago on October 19, 2025, which covers all of 2024. A Bengaluru employer paid him $125,000 for January 1 to October 19, and a U.S. employer paid him $20,000 for the rest of the year. He elects the exclusion on Form 2555.

The return then runs as follows:

1. Wages $145,000 − exclusion $104,000 = adjusted gross income $41,000. Minus the $15,750 standard deduction, taxable income is $25,250.
2. On the Foreign Earned Income Tax Worksheet, line 3 is $25,250 + $104,000 = $129,250.
3. Line 4, tax on $129,250 at the 24% row: 0.24 × 129,250 − 7,153 = 31,020 − 7,153 = $23,867.
4. Line 5, tax on $104,000: 0.24 × 104,000 − 7,153 = 24,960 − 7,153 = $17,807.
5. Line 6 is $23,867 − $17,807 = $6,060 of tax.

Taxing $25,250 alone by the rate schedule would give 1,192.50 + 0.12 × (25,250 − 11,925) = $2,791.50, so stacking the excluded pay under the remaining pay adds $3,268.50. That comparison uses the rate schedule; below $100,000 the printed Tax Table can differ by a few dollars. The $21,000 of Bengaluru pay he did not exclude ($125,000 − $104,000) stays taxable, and Indian tax allocable to the excluded $104,000 earns no credit or deduction. See U.S. citizens living in Canada for the same choice with a Canadian job.

Example 3: How big is the foreign tax credit after a move from Calgary?

Tara Singh, single U.S. citizen, tax year 2025. She worked in Calgary until June 30 and then moved to Naperville. A Calgary employer paid her $60,000 for services performed in Canada, and a U.S. employer paid her $60,000 for the second half. Canada took $12,000 of income tax on the Calgary pay (income tax only, already translated at payment-date rates). She takes the credit rather than the exclusion and has no other items.

1. Taxable income. Wages $120,000 − $15,750 standard deduction = $104,250.
2. U.S. tax. 0.24 × 104,250 − 7,153 = 25,020 − 7,153 = $17,867.
3. Source. Pay for work done in Canada is foreign source, and wages are general category income. Her U.S. pay is U.S. source.
4. Standard deduction share. Apportion it by gross foreign income over gross income: $15,750 × ($60,000 ÷ $120,000) = $7,875.
5. Foreign-source taxable income. $60,000 − $7,875 = $52,125.
6. Limit. $17,867 × ($52,125 ÷ $104,250) = $17,867 × 0.5 = $8,933.50.
7. Credit. The smaller of $12,000 paid and the $8,933.50 limit is $8,933.50, so U.S. tax falls to $17,867 − $8,933.50 = $8,933.50.
8. Unused tax. $12,000 − $8,933.50 = $3,066.50, which can go back one year and then forward up to ten years in the general category.

Credits are figured per category, so unused general-category tax cannot offset tax on passive income. The Canadian side is for her CPA; our foreign tax credit guide shows how the three countries fit together.

Example 4: What changes in the year a green-card holder arrives?

Mehul Shah, unmarried, tax year 2025. He worked in Ahmedabad until July 31, 2025, earning INR 400,000 a month. He arrived on an immigrant visa and became a lawful permanent resident on August 1, 2025, then earned $24,000 a month from a Naperville employer through December. He had no earlier U.S. presence. Allowable itemized deductions are $9,000.

1. Residency dates. A green-card holder's residency starts on the first day present as a permanent resident, August 1. Resident days: 31 + 30 + 31 + 30 + 31 = 153. Nonresident days: January 1 to July 31 = 212. Check: 153 + 212 = 365.
2. Resident-period income. U.S. wages: 5 × $24,000 = $120,000.
3. Nonresident-period income. 7 × INR 400,000 = INR 2,800,000 of Indian salary, all paid by July 31, is foreign source, not connected with a U.S. business and received while a nonresident, so the United States does not tax it.
4. Deduction. A dual-status year allows no standard deduction, so he itemizes: $120,000 − $9,000 = $111,000 taxable income.
5. Tax. 0.24 × 111,000 − 7,153 = 26,640 − 7,153 = $19,487.
6. Return. He is a resident on December 31, so he files Form 1040, checks the "Other" box, writes "Dual Status Return" and attaches a statement (Form 1040-NR marked "Dual Status Stmt") for the nonresident part. Dual-status returns could not be e-filed for 2025, and the date is April 15, 2026.

Form 8938 for the year covers only the part of the year he was a resident. See first-year returns for newcomers, and ask us about the FBAR for a part-year resident, which needs a separate look.

By tax year: 2023, 2024, 2025 and 2026

The examples use 2025. To rerun one for another year, change these inputs.

2026 planning figures; Pub 17 (2026) is not yet published. The 31-day and 183-day tests, the dual-status rules, the proration formula, the credit limit formula and the Form 8938 thresholds in the questions are the same each year. The worksheet subtractions of $7,153 and $5,086 are 2025 numbers; other years have their own.

Mistakes to avoid

• Dropping the arrival or departure day. Form 2555 counts both ends of the qualifying period, so January 1 to October 19 is 292 days, not 291.
• Dividing by 365 in a leap year. For 2024 the divisor is 366.
• Rounding the Form 2555 fraction too hard. The form asks for at least three decimal places, so 292 ÷ 365 is 0.800 but 304 ÷ 365 is 0.833, not 0.8.
• Treating the closer connection exception as automatic. It needs a timely Form 8840 and fails if a green card step is pending.
• Claiming the credit or deduction for foreign tax on wages you excluded.
• Taking the standard deduction on a dual-status return.

Check yourself

Question 1 (tax year 2023): A visitor with no green card and no exempt days was in the United States 110 days in 2023, 90 days in 2022 and 120 days in 2021. Does she meet the substantial presence test for 2023?

Answer: No. Weighted days are 110 + (90 ÷ 3) + (120 ÷ 6) = 110 + 30 + 20 = 160. Check: (110 × 6 + 90 × 2 + 120) ÷ 6 = 960 ÷ 6 = 160. She meets the 31-day minimum, but 160 is below 183.

Question 2 (tax year 2025): Imran lives in Windsor, Ontario. In his working period he worked 60 days in Detroit, returning home each evening, and 20 days at his employer's Windsor office. Are his Detroit days excluded from the day count as regular commuting?

Answer: No. Workdays are 60 + 20 = 80, and 60 ÷ 80 = 0.75, exactly 75 percent. The exclusion needs commuting on more than 75 percent of workdays, so the 60 days count toward the test.

Question 3 (tax year 2025): A Calgary resident was present 140 days in each of 2025, 2024 and 2023, and her green card application was pending during 2025. Can she claim the closer connection exception?

Answer: No. She meets the test: 140 + (140 ÷ 3) + (140 ÷ 6) = 140 + 46.67 + 23.33 = 210, which is at least 183. Although 140 is under 183 days, a pending application for adjustment of status bars the claim. Whether a treaty tie-breaker applies is a separate question for a CPA and an immigration lawyer.

Question 4 (tax year 2024): Nikhil, a U.S. citizen, was a bona fide resident of India from 2022 through July 1, 2024 (his last qualifying day), then moved back. His India pay for that stretch was $90,000. What is his 2024 exclusion?

Answer: $63,250. Qualifying days January 1 to July 1, 2024: 31 + 29 + 31 + 30 + 31 + 30 + 1 = 183. The year has 366 days, so the share is 183 ÷ 366 = 0.500. The prorated maximum is $126,500 × 0.500 = $63,250, which is less than $90,000.

Question 5 (tax year 2026, planning figure): Zoya has been a bona fide resident of Canada since September 2024 and returns to the United States on May 26, 2026, her last qualifying day. Her Canadian pay for January 1 to May 26 is $70,000. What is her planning exclusion?

Answer: $53,160. Days: 31 + 28 + 31 + 30 + 26 = 146. The share is 146 ÷ 365 = 0.400. With the 2026 planning maximum of $132,900, the prorated amount is $132,900 × 0.400 = $53,160, which is less than $70,000.

Question 6 (tax year 2025): A single filer has taxable income of $100,000 and U.S. tax of $16,914 (0.22 × 100,000 − 5,086). Foreign-source taxable income, all general category, is $40,000, and she paid $9,000 of foreign income tax. What is the credit limit, the credit and the unused tax?

Answer: The limit is $16,914 × ($40,000 ÷ $100,000) = $16,914 × 0.4 = $6,765.60. The credit is the smaller of $9,000 and $6,765.60, so $6,765.60. Unused tax is $9,000 − $6,765.60 = $2,234.40, carried back one year and then forward up to ten.

Question 7 (tax year 2025): Kiran and Anita file jointly. Their only foreign income is Canadian dividends on a U.S. brokerage Form 1099-DIV, with $540 of Canadian tax shown. Can they skip Form 1116? What if Kiran filed as a single person with the same $540?

Answer: Jointly, yes: $540 is within the $600 limit, provided all their foreign-source gross income is passive, the income and tax appear on a payee statement and they elect. Nothing carries back or forward. Single, no: $540 is over the $300 limit, so Form 1116 (or the deduction) is needed.

Question 8 (tax year 2023): Asha, a single U.S. resident, held Indian accounts worth $48,000 on December 31, 2023, with a peak of $80,000 during the year. Must she file Form 8938 and an FBAR?

Answer: Yes to both. For a single person living in the United States the Form 8938 tests are more than $50,000 at year-end or more than $75,000 at any time. The year-end $48,000 does not pass, but the $80,000 peak is over $75,000. The FBAR applies because combined foreign accounts were over $10,000 at some point, and it goes to FinCEN separately.

Question 9 (tax year 2024): Ravi and Priya, both U.S. citizens, were bona fide residents of Ontario for all of 2024, with their tax home there, and file jointly. Their foreign assets were $350,000 on December 31 and peaked at $620,000. Must they file Form 8938?

Answer: Yes. Living abroad on a joint return, the tests are more than $400,000 at year-end or more than $600,000 at any time. The year-end $350,000 does not pass, but the $620,000 peak is over $600,000. In the United States, the joint tests would be $100,000 and $150,000.

Question 10 (tax year 2025): A single U.S. resident earned INR 240,000 of interest in 2025 on an NRO deposit. Its balance on December 31, 2025 was INR 6,500,000. Using the IRS yearly average of 87.133 for the interest and the Treasury December 31 rate of 89.854 for the balance, convert both. Does the balance alone pass the Form 8938 year-end test?

Answer: Interest: 240,000 ÷ 87.133 = $2,754.41. Balance: 6,500,000 ÷ 89.854 = $72,339.57. That is over the $50,000 year-end test for a single person living in the United States, so Form 8938 is required on this account alone, and so is an FBAR.

Question 11 (tax year 2024): Sanjana, a U.S. citizen, lives and works in Calgary. By what date must she file and pay her 2024 return without Form 4868, and what date does Form 4868 give her?

Answer: June 15, 2025 was a Sunday, so the automatic date is Monday, June 16, 2025, with a statement attached. Interest runs from April 15, 2025. Form 4868 filed by June 16, 2025 with the line 8 box checked extends filing to Wednesday, October 15, 2025, but not payment.

Question 12 (tax year 2025): A single person had no earlier U.S. residency and became a green-card holder. September 12, 2025 was her first day in the United States as a permanent resident, and she was not in the country earlier that year. How many resident and nonresident days did she have, and may she take the standard deduction?

Answer: Resident days: 19 (September 12 to 30) + 31 + 30 + 31 = 111. Nonresident days: 365 − 111 = 254, which matches January 1 to September 11 (31 + 28 + 31 + 30 + 31 + 30 + 31 + 31 + 11). She may not take the standard deduction; she itemizes and files a dual-status return by April 15, 2026.

How we can help

We are a U.S. CPA firm in Aurora, Illinois. We run tests like these on your real dates and accounts, prepare the U.S. return and foreign reports, and coordinate with your Canadian CPA or Indian Chartered Accountant, who handle the Canadian and Indian filings. See returns for newcomers and NRIs and cross-border tax services.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.