International Student and Scholar Services

Nonresident Alien Tax Information--General Information

 

Introduction
This 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 who has not resided in the U.S. for 183 countable days or more in any given year, as evidenced by the Substantial Presence Test (SPT). Persons who meet the SPT will be taxed  the same as legal permanent residents and citizens, which may include withholding of FICA from employment compensation.  The Substantial Presence Test counts all countable days of presence in the current year, one third of the countable days of the previous year, and one sixth of the countable days of the year before that.  If the total equals 183 or more in the current year, the individual is a U.S. resident for tax purposes.  Additionally, Lawful Permanent Residents are treated as residents if they are present in the U.S.  This information is described in IRS Publication 519.

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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 calendar years. Therefore, as NRA's, FICA withholding will not be required and tax returns must be filed on the Form 1040NR or 1040NR-EZ.  All F and J students must file IRS Form 8843 for the first five calendar years in the U.S.

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.  All J-1 non-students must file IRS Form 8843 for the first two calendar years in the U.S.

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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. 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 $9,000 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.

Teacher/Researcher Treaties:
Tax treaties for teachers and researchers 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.  Most NRA employees must file their W-4 at the "Single" tax rate with no more than one allowance in Box 5.  The MO-W4 also must be at the "Single" tax rate with no more than one allowance claimed.  Exceptions are residents of Canada, Mexico, Korea, and India who may claim additional exemptions for spouse and dependents under certain circumstances.  Additionally, NRA's married to a U.S. citizen or resident may elect to be treated as a U.S. resident in certain circumstances.

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 Jim Webb, the UMSL Nonresident Alien Taxation Specialist at webbjj@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 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.  Prizes and awards are taxable at 30% unless a treaty exemption applies.

Students who have already completed the tax assessment process do not need to submit the UM374 again. They must contact Jim Webb at webbjj@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 return 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 for instructing your employer 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.  If you did not pay enough, you will have to pay the IRS the balance due.

Each year between mid-February 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 J-1 non-student status will be liable for FICA tax beginning on the 1st day of the year in which they become a resident alien.  Nonresident aliens in other statuses such as H-1B and TN are always subject to FICA tax.

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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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