Nonresident Alien Tax Information--General Information
IntroductionThis section focuses on the federal income tax obligations of students in F and J status. It will give you a basic understanding of your responsibilities and tell you how to get more information. Do not construe the information presented here as tax advice. It is very important for you to attend the tax workshop that is held in the Spring. Tax officials will be available to answer any additional questions you might have.
Several Kinds of Tax, Collected at Several Levels
Who is a Non-resident Alien?
Are there exceptions to the Substantial
Presence Test?
What are tax treaties?
How are NRA's employed on the UMSL
campus?
What are the procedures when an NRA is
hired by an UMSL department?
What if the NRA employee does not have a
Social Security Number?
Are scholarships and prize awards
taxable?
Filing tax returns
Reporting Requirements for Dependents
Social Security Tax Exemption
Individual Taxpayer Identification Number
(ITIN) vs. Social Security Number (SSN)
Several
Kinds of Tax, Collected at Several Levels
The U.S. tax system encompasses at least six different types of taxes
(income tax, Social Security tax, sales tax, and personal property tax)
and three layers of taxation (local, state and federal). You have obligations
at several levels.
"Sales tax" is similar to the value-added tax collected in many countries except that in the U.S. the amount of tax is not included in the advertised price of goods. In Missouri, the state sales tax is 6.75%. Missouri also assesses a personal property tax on automobiles and other valuable property.
U.S. tax laws are difficult to understand, so some students may want to ignore this obligation. Be aware, however, that the amount of information shared by the USCIS and IRS is increasing every year. It is in your interest to meet your tax obligations.
All F-1 and J-1 students with U.S. income, are required to file a tax return every year. Sources of U.S. income may include on-campus employment, scholarships, fellowships, graduate assistantships, practical or academic training, and any compensation received for labor. International students do not have to pay taxes on interest paid to them by U.S. banks.
Note
that "income" is not limited to wages paid to you in cash, but
also includes that portion of your scholarship, fellowship or assistantship
that is applied to your housing and meal expenses. The portion applied
to your tuition fees, books and supplies is not counted as income. Be
sure to inquire about the applicability of any tax treaty that might exist
between your country and the U.S.
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Who is a Non-resident Alien?
Two U.S. government agencies, the U.S. Citizenship and Immigration Service
(USCIS) and the U.S. Internal Revenue Service (IRS) use the term non-resident
alien.
USCIS Definition:
Persons who reside temporarily in the United States in non-immigrant status
are known by USCIS as non-resident aliens. The most common non-immigrant
statuses at UMSL include F-1, F-2, J-1, J-2, H-1B, and TN.
IRS Definition:
For IRS purposes, a non-resident alien is any non-citizen or legal permanent
resident who has not resided in the U.S. for more than 182 days in any
given year, as evidenced by the Substantial Presence Test (SPT). Persons
who meet the SPT will be taxed primarily the same as legal permanent residents
and citizens, which may include withholding of FICA from employment compensation.
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Are there exceptions to
the Substantial Presence Test?
Persons in F and J student status are exempt from counting days toward
the Substantial Presence Test for a period of five tax years. Therefore,
as NRA's, FICA withholding will not be required and tax returns must be
filed on the Form 1040NR or 1040NR-EZ.
Persons in J-1 non-student status are exempt from counting days toward the SPT for a period of two tax years. Therefore, as NRA's, FICA withholding will not be required and tax returns must be filed on the Form 1040NR or 1040NR-EZ until two years of physical presence have been completed.
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What are tax treaties?
The United States currently has tax treaties with more than 50 countries.
These treaties are designed to decrease the likelihood that the NRA will
be taxed on the same income both in the U.S. and the country of tax residency.
Treaty benefits will
not be honored unless appropriate treaty forms are completed and on file
with the tax specialist.
Working for an investigator at UMSL who received a grant is considered
compensation for services, which is covered under the independent personal
services article of a treaty. This is because the institution or the investigator
is deemed to be the recipient of the grant, not the NRA.
Student Treaties:
Tax treaty benefits for students receiving compensation for employment
are generally limited to a specific amount of income for each tax year
(usually between $2,000 and $5,000 per year). Most treaty benefits will
end once the student becomes a resident alien for tax purposes, so most
treaty benefits will last no more than five years, with only a few exceptions.
Tax treaty benefits for scholarship income may also be available for students, even if there is not a corresponding treaty for compensation income.
Non-Student
Treaties:
Tax treaties for non-students are generally not limited to a specific
amount of income, but are limited by a specific number of years. In some
cases, if a non-student remains in the U.S. beyond the period covered
by the treaty (usually two years from the date of entry), a "retroactive
clause" in the treaty requires payment of all taxes that were previously
exempt. It is, therefore, important to monitor these dates and treaty
benefits carefully.
Recipients of a research grant may be eligible for tax treaty benefits on the maintenance allowance provided in the grant, and should initiate a tax review immediately upon receipt of the grant.
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How are NRA's employed
on the UMSL campus?
Most students in F-1 and J-1 immigration status may be employed for up
to 20 hours per week when school is in session and up to full-time during
authorized vacation periods. Employment is limited to on-campus jobs only,
without additional authorization from either the U.S.
Citizenship and Immigration Service (USCIS)
or a staff member of the UMSL International Student and Scholar Services
office.
Employment of postdoctoral researchers and others in J-1 non-student status is also common. Persons in J-1 non-student status are eligible for full-time employment at UMSL and may be in benefit-eligible positions.
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What are the procedures
when an NRA is hired by an UMSL department?
When a department decides to hire an NRA, all routine "new hire"
paperwork should be completed with no delay.
The W-4 must be completed with name, address, SSN and a signature and date. (The figures on the W-4 are irrelevant to the "new hire" process for an NRA.)
There is no requirement to have an SSN at the time of hire for a newly-arrived NRA.
The new employee must complete and submit the UM374 Tax Assessment Intake Form as soon after the hire as possible. The UM374 is available for downloading as a pdf document here.
Once the UM374 has
been submitted, the employee must e-mail Sandy Crawshaw, the UMSL Nonresident
Alien Taxation Specialist at scrawshaw@umsl.edu to schedule an appointment.
The e-mail subject line should read, "New employee" and the
body of the message should include several alternative times and days
of availability for appointments.
The employee will be notified as to the time and date of the appointment
by reply e-mail.
The employee must bring the
following immigration documents when they meet with the NRA Tax Specialist:
•
Passport
• Original immigration documents (I-20, DS-2019, I-94, I-797, and
any work permits you have been issued)
• Social Security Card (if available)
• Student Identification Card
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What if the NRA employee does not have a Social Security
Number?
A Social Security number is not required from nonresident employees before
they are allowed to begin work. However, a Social Security number is required
before a foreign employee can benefit from a tax treaty exemption from
withholding.
On July 1, 2002, the Social Security Administration (SSA) was mandated to verify Social Security number applicants with a U.S. Immigration and Naturalization (now called BCIS) database. While modifications are being made to the system to provide for more expeditious review, this process currently may take several weeks.
Because of this new system, the SSA suggests that newly-arrived nonresidents wait 10 days after their U.S. arrival before submitting an application for a Social Security number.
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Are scholarships and prize awards taxable?
Scholarships made to NRA students will be taxable income for any portions
of the scholarship greater than the student's educational expenses or
any amount provided directly to the student by cash or check. Educational
expenses include resident and non-resident fees, student activity fees,
information technology fees, and any additional fees required by an academic
department. The portion of scholarship or prize award determined to be
taxable will be withheld at a minimum of 14% unless there is a tax treaty
that exempts the scholarship income from withholding.
Students who have
already completed the tax assessment process do not need to submit the
UM374 again. They must contact Sandy Crawshaw at scrawshaw@umsl.edu so the scholarship can be added to existing income information.
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Filing tax returns
Everyone
in the U.S., regardless of immigration status, is responsible each year
for submitting a complete and accurate income tax statement to the Internal
Revenue Service (IRS), an agency of the U.S. Treasury Department. Americans
call this process "filing a tax return." International students
must file an appropriate return each year when they have US source income.
In many countries, the government assesses and collects from individuals the tax they owe. In the U.S., however, it is the responsibility of the individual to meet his or her tax obligations; the government will not do it for you, but it will penalize you if you do not do it yourself. You are responsible first of all for helping you employer estimate how much of your income should be "withheld" (or deducted) from your wages for the purpose of paying taxes. Your employer pays those amounts directly to the U.S. Treasury on your behalf. In your annual tax return, you must reconcile your account with the government to verify that you paid the right amount over the course of the year. If you paid too much, you may claim a refund, which will be paid promptly unless the government disagrees with your calculations.
Each year between mid-January and April 15, persons who have income in the United States (including international students and researchers) are required to file income tax returns. Tax returns provide an opportunity to apply for money that was withheld in amounts greater than the actual tax liability to be refunded to the applicant.
Form W-2:
All employees who have taxable income from employment in the United States
will receive a Form W-2, which is a statement of earnings. This form will
arrive at the home address of the employee in mid-January. The Form W-2
is essential for filing a tax return.
Form 1042-S:
All non-resident aliens who have scholarships that are greater than the
amount of their fees or have tax treaty exempt wages will receive a Form
1042-S, which is a statement of that type of income received during the
year. Persons who have ONLY a TA or RA fee waiver or a scholarship less
than their semester fee charges will NOT be issued a Form 1042-S. The
NRA will receive this Form 1042-S mid-March. Therefore, persons with the
above types of income may not file a tax return until AFTER they have
received Form 1042-S.
Nonresidents living in St. Louis may seek tax return assistance through the UMSL NRA VITA site each spring, according to information that will be provided at the beginning of each calendar year. More inforamtion can be found here.
Nonresidents outside St. Louis will be provided assistance via e-mail and fax whenever possible. Prior to leaving St. Louis, students and researchers with income must provide a forwarding address to the NRA Taxation Specialist to ensure timely delivery of Forms W-2 and 1042-S.
Persons who are outside
the United States on April 15 have until June 15 to file their tax return.
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Reporting
Requirements for Dependents
F-2 and J-2 dependents, regardless of age, are expected to file tax returns
annually in the U.S., even if they have no income from a U.S. source.
In the case of F-2's (who cannot work in the U.S.), the completion of
a tax form is simple. A J-2 dependent, who may get permission to work
in the U.S., is taxed on his or her earnings.
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Social
Security Tax Exemption
IRC Section 3121(b)(19) provides that an
individual will be exempt from FICA tax if:
1. he/she is a "nonresident alien";
2. he/she is in the U.S. on an F, J, or M visa; and
3. the compensation that he/she earns is related to the purpose of the
visa.
The position of the IRS is that an individual who is treated as a "U.S. resident" for income tax purposes under the green card/substantial presence test discussed above will also be treated as a U.S. resident for FICA tax purposes. (An exception to this rule would be if the resident alien is in full-time student status and exempt under IRC Section 3121(b)(10).)
The
IRS also takes the position that spouses and dependents of primary visaholders
(i.e. the "-2" visaholder) do not qualify for the IRC Section
3121(b)(19 exemption because the compensation that is paid to them is
not in furtherance of the purpose for which their particular visa ("-2")
was issued.
NOTE: A resident alien in non-student status will be liable for FICA tax
beginning on the 1st day of the year in which they become a resident alien.
Individual
Taxpayer Identification Number (ITIN) vs. Social Security Number (SSN)
A
taxpayer identification number is required before tax treaties can be
honored or tax returns can be filed. The Social Security number is available
to all work-eligible nonresidents and must be provided at time of employment.
If you are not work-eligible, you must complete an application for an
Individual Taxpayer Identification Number (ITIN). The Nonresident Alien
Tax Specialist will certify the application (Form
W-7) and submit it to the IRS who will then issue the ITIN to the
nonresident alien.
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