U.S.

Taxation for Foreign Students and Scholars

Presented by IRS Tax Consultant Jerrie Muir March 12, 2012

Aliens

For tax purposes, an alien is an individual who is not a U.S. citizen Aliens are classified as nonresident aliens and resident aliens Resident aliens generally are taxed on their worldwide income, the same as U.S. citizens
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Aliens

Nonresident aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States

Nonresident and Resident Aliens

Under the residency rules, any alien who is not a RESIDENT ALIEN is a NONRESIDENT ALIEN. An alien becomes a RESIDENT ALIEN in one of three ways:

Nonresident and Resident Aliens

Admitted to the United States as, or changing status to, a Lawful Permanent Resident under the immigration laws- the Green Card Test

Nonresident and Resident Aliens

Passing the Substantial Presence Test

A numerical formula which measures days of presence in the United States

Nonresident and Resident Aliens

Making what is called the "First-Year Choice- a numerical formula under which an alien may pass the Substantial Presence Test one year earlier than under the normal rules

Nonresident and Resident Aliens

Even an undocumented (illegal) alien under the immigration laws who passes the Substantial Presence Test will be treated for tax purposes as a RESIDENT ALIEN

Resident Aliens
Green Card Test

Are you an immigrant (Lawful Permanent Resident) of the United States under the immigration laws of the United States?

Aliens who are Immigrants are Resident Aliens of the United States for tax purposes, under the condition that they spend at least one day in the United States.

Aliens
Substantial Presence Test

You must pass both the 31-day and 183-day tests. Present 31 days in current year A. Current tax year- days in United States x 1 =_____days B. First preceding tax year days in United States x 1/3 =_____days C. Second preceding tax year days in United States x 1/6 =_____days D. Total Days in United States =_____days (add lines A, B, and C) If line D equals or exceeds 183 days, you have passed the test

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Aliens

Substantial Presence Test

Nonresident Aliens who claim to be EXEMPT from the Substantial Presence Test must file Form 8843, Statement of Exempt Individuals, with their:

Form 1040NR-EZ/1040NR

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Aliens

Taxpayer Identification Number

SSN or ITIN

Use Form W-7 to apply for ITIN Publication 1915, Understanding Your IRS ITIN

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Aliens and FICA

Social Security and Medicare Taxes

General Rule- Aliens performing services in U.S. are liable to pay FICA taxes

Aliens EXEMPT from FICA:

A, D, F, J, M, Q, G, and H Visas

Services must be allowed by USCIS Includes on-campus employment up to 20 hours a week and off-campus employment authorized by USCIS

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Federal Income Tax Reporting and Withholding on Wages

Different rules for withholding for Resident and Nonresident Aliens

Nonresident Aliens CANNOT report EXEMPT in Line 7 of Form W4 (Withholding Certificate) Nonresident Aliens claim SINGLE on Line 3 of Form W4 Nonresident Aliens exempt from federal tax withholding due to a tax treaty provision file Form 8233, Exemption from Withholding of a Nonresident Alien with their payroll office Payroll offices REPORT wages paid to Nonresidents exempt under tax treaty on Form 1042 and 1042-S

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Withholding Federal Income Tax on Scholarships, Fellowships, and Grants Paid to Aliens

Payments of taxable scholarships, fellowships, and grants to Nonresident Aliens are generally reported and subject to withholding
Reported on Form 1042 and Form 1042-S

Qualified Scholarships are NOT included in gross income

Includes payments for tuition, fees, books, supplies, or equipment

Nonresident Aliens who claim a scholarship is EXEMPT from tax due to a tax treaty must file a Form W-8BEN with their school/university

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Interest Income

Nonresident Aliens are not taxed on certain kinds of interest Nontaxable interest income is NOT reported on Form 1040NR-EZ Nontaxable interest income is reported on Form 1040NR

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Claiming Personal Exemptions

General Rule for Nonresident AliensCLAIMS one (1) personal exemption Exceptions
Residents of Canada, Mexico, U.S. Nationals Residents of the Republic of Korea Students and Business Apprentices who are residents of India -Everyone on tax return MUST have a SSN or ITIN

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Which Form to File

Nonresident Aliens

Form 1040NR-EZ or Form 1040NR Form 2063, U.S. Departing Alien Income Tax Statement-SAILING/DEPARTURE PERMIT Form 1040C, U.S. Departing Alien Income Tax Return- NOT AN ANNUAL RETURN After the end of the tax year, file Form 1040NR-EZ or 1040NR

Departing Aliens

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Where to File
Department of the Treasury Internal Revenue Service Austin, Texas, 73301-0215 IRS International Tax Law Hotline: 267-941-1000

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Summary

Determine if your are a Resident or Nonresident Alien Address your income situation Take advantage of tax treaty benefits FILE A RETURN IF REQUIRED

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Contact Information
Jerrie Muir IRS Tax Consultant PH: 714-347-9257

Publication 519, U.S. Tax Guide for Aliens Publication 901, U.S. Tax Treaties

www.irs.gov

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