This chapter 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. Volunteer Income Tax Assistance (VITA) sites are set up each Spring to assist students and scholars with income tax filing requirements.
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, if they have any U.S. source income while in the U.S., must file an appropriate return each year.
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.
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 INS 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.
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.
Social Security Tax
Students often have questions about payment of a U.S. tax called "Social Security" or "FICA." FICA is a taxation system that provides benefits to retired workers. Most F-1 and J-1 students are not subject to this tax, but J-2 dependents with work authorization are.
Taxing Terms: A Glossary
Alien: A term used by the IRS to denote an individual who is not a U.S. citizen
Exempt Individual: A person not subject to the Substantial Presence Test (see below), which determines whether an individual is a resident or nonresident for tax purposes. Many students misconstrue this to mean they are not required to file a tax return and or pay taxes.
Internal Revenue Service: Also known as the IRS, this is the federal agency responsible for collecting federal income taxes and enforcing tax reporting and collection laws.
Nonimmigrant: An individual with a permanent residence abroad and in the U.S. temporarily, as in the case of an international student.
Nonresident alien: A nonimmigrant who is not a lawful permanent resident or has not been in the U.S. long enough to be considered a resident alien for tax purposes as determined by the Substantial Presence Test (see below).
Resident alien: An individual who has been granted lawful permanent residence in the U.S. as a permanent resident or a nonimmigrant who has been in the U.S. long enough to be considered a resident for tax purposes. Residency is determined by the Substantial Presence Test (see below).
Social Security: A term used to describe an agency, a card, and two types of tax. The Social Security Administration (SSA) is an agency of the U.S. Department of Health and Human Services. The card bears a unique nine-digit identification number and is issued to qualified individuals primarily to determine eligibility for social benefits earned primarily through various forms of employment. The number on the card is also used by the IRS for data collection and record keeping. The taxes, known as FICA and Medicare, are withheld by employers from workers' wages and paid to the federal government for redistribution to workers after their retirement. The FICA amount withheld from wages is 7.65% of total earnings up to a certain salary level.
Substantial Presence Test: A formula devised by the IRS to determine whether an alien is a resident or nonresident for tax purposes. F and J students do not use the test during their first five calendar years in the U.S.. After that time, individuals who spend more than 183 days a year in the U.S. become "residents for tax purposes" for that year.
Tax Treaty: An agreement between the U.S. and another country to determine how the country's nationals will be taxed when temporarily in the U.S.. A treaty can confer certain tax benefits. A note of caution, however. Tax treaties are very specific, and not all residents of a tax treaty country will qualify for tax benefits. Note: A Social Security Number or Taxpayer Identification Number is required to claim an income treaty exemption.
Taxpayer Identification Number (TIN): Individuals who are not eligible for a Social Security number receive from the IRS a unique nine-digit number for tax purposes.
Withholding: Deduction of a given amount of an individuals salary for purposes of meeting that individuals income tax obligation. Amounts are deducted directly by the employer and paid directly to the U.S. Treasury on the individual's behalf.
April 15: The last day on which residents and nonresidents who have earned wages from U.S. sources may file their U.S. Federal income tax returns.
June 15: The last day nonresidents who have not had earned wages from U.S. sources may file Form 8843.
December 31: Expiration date for all income tax treaty exemptions. Form 8233 must be submitted to the NRA Tax Specialist prior to December 31 to renew your treaty benefits.
519: "U.S. Tax Guide for aliens," an IRS publication. Helpful when preparing a nonresident tax return.
901: "U.S. Tax Treaties" an IRS publication. Essential for individuals from countries having tax treaties with the U.S.
8233: "Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual" This form is used to claim exemption from federal income tax under the terms of an income tax treaty.
8843: "Statement for Exempt Individuals and Individuals with a Medical Condition" This verifies nonresident alien tax status and must be completed and returned with 1040NR and 1040NR-EZ.
1040 NR: "U.S. Nonresident Alien Income Tax Return" The longer version of the return completed by many nonresidents. This form is distinct from 1040, 1040A, or 1040EZ filed by residents for tax purposes. It is not interchangeable with those forms. The IRS publishes an instruction booklet to accompany the form.
1040NR-EZ: "U.S. Income Tax Return for Certain Nonresident Aliens with no Dependents" A simplified version of 1040 NR. Most F-1 and J-1 students who are nonresidents may file the 1040NR-EZ. The IRS publishes an instruction booklet to accompany the form.
1042-S: "Foreign Person's U.S. Source Income Subject to Withholding" A form issued annually before March 15 to report taxable scholarships/fellowships and wages exempt from tax under an income tax treaty.
W-2: "Wage and Tax Statement" A form issued annually by employers during the month of January. Copies of the W-2 must be filed with federal, state, and local tax returns.
W-4: "Employee's Withholding allowance Certificate" A form completed by employees at the time of hire to indicate how much tax is to be withheld from the paycheck.
The IRS provides information through free publications and a telephone information hotline. The phone number for general tax information is 1 800 829-1040 (ask for the Technical Division). To order any of the federal publications or forms mentioned here contact the IRS at 1 800 829-3676. The IRS has a Web site on the Internet from which it is possible to download forms: http://www.irs.ustreas.gov/
In addition to these IRS sources, ISSS also carries most of these forms and organizes a VITA tax workshop in the spring.