Foreign Students & US Tax Returns

Foreign Students & US Tax Returns
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If you’re a foreign student – also known as an international student – in the U.S., you might wonder which of your income is taxable and what the tax filing process involves. Whether your income gets taxed in the U.S. depends on its source, type, your tax residency status and any applicable tax treaties. You can generally expect that the Internal Revenue Service will require some type of U.S. tax form to be filed even if you have no taxable U.S. income this tax year. Here are the basic federal tax rules and procedures for international students.

IRS Classification of International Students

IRS rules for international students differ from those for U.S. citizens and permanent residents because there’s a good chance you’re a nonresident taxpayer for tax purposes. This results in no minimum income threshold for filing compared to the minimum federal tax return filing requirements for other taxpayers. Filing your tax return ensures you meet the rules set by your visa and could result in a tax refund.

If you’re a nonresident alien on a student visa, the IRS will tax you on U.S.-sourced income only for a certain number of years. If you have a J-1, M-1 or F-1 student visa, you get this status for ​five calendar years​, after which the IRS considers you a resident alien subject to taxes on both foreign and U.S. income. The same applies to dependents with F-2 or J-2 visas. On the other hand, you’d become a resident alien after just ​two years​ if you’re a J-1 scholar.

You get the nonresident alien status because being an international student usually exempts you from the requirements spelled out in the substantial presence test that’s based on your time spent in the country both in the current year and the ​past three years​. You’ll file Form 8843 to claim this exemption. Otherwise, passing the test could make you a resident alien and both have you taxed on foreign income and make you not able to benefit from any tax treaties.

Whether your income gets taxed in the U.S. depends on its source, type, your tax residency status and any applicable tax treaties.

Looking at Filing Requirements

For nonresident aliens, the IRS doesn’t count certain types of income, such as U.S-based interest income, foreign income, nontaxable fellowship grants and scholarships, portfolio interest income and any income types exempted either based on the IRS code or tax treaty. However, the IRS does count taxable fellowship grants and scholarships, income earned from employment and contract work in the U.S., rental income and any other taxable U.S.-sourced income per the IRS code.

To determine whether any federal tax treaty applies to your situation and which rules apply, you should review IRS Publication 901, which details benefits by country. Requirements often include not being physically present for more than a certain number of days per year in the U.S. and may apply to both self-employment and regular employment income. Yearly income thresholds can also apply and depend on the type of work you do.

If you’re a nonresident alien, you’d file a Form 1040-NR nonresident tax return and any necessary state tax return if you have qualifying taxable U.S. income. Those who don’t meet the filing requirements just complete Form 8843 that’s required for any nonresident alien. On the other hand, resident aliens file Form 1040 along with any state return. In any scenario, the tax filing deadline is ​April 15​ or the proceeding non-holiday business day, so the 2022 deadline is ​April 18​.

Implications for Tax Withholding

Normally, you can expect to have various federal and state/local taxes withheld from your earnings. However, if you're a nonresident alien, withholding even extends to 1099 contract income that usually would not have taxes withheld if you were a resident alien, since you’d make estimated tax payments yourself. However, you may end up being exempt from some types of taxes as a nonresident alien student, and contacting your employer or payer may be necessary to ensure proper withholding.

For example, if a tax treaty applies, you’ll need to submit a tax form such as W-8BEN for employment income or Form 8233 for personal services income to the entity paying you. This will let them know you’re exempt from federal tax withholding or subject to a reduced rate. However, note that the treaty doesn’t extend to state or local income taxes unless your locale recognizes it.

Many student visa types – including the F-1 visa and J-1 visa – also qualify you for an exemption from paying Social Security and Medicare taxes as long as your employment is exempt per IRS rules. Examples include having a 20-hour-per-week on-campus job, working as a researcher or teacher, or having off-campus employment that doesn’t go against immigration rules. You also won’t have to pay self-employment taxes as a nonresident alien.

Considering Taxes, Deductions & Benefits

As a nonresident alien, your U.S.-based non-passive income simply gets taxed at the usual rates based on current year tax brackets. However, passive income such as dividends or rent payments would be taxed at either the rate mentioned in a tax treaty or ​30 percent​, whichever is lower. Resident aliens typically just pay their regular tax rate for both types of income.

Your tax residency determines which federal income tax benefits you qualify for as an international student. If you’re a resident alien, you’ll have more options since you can access the deductions and credits as usual. However, students usually have fewer options as nonresident aliens.

For example, such taxpayers can’t use the head of household or married filing jointly filing status options. Unless you qualify under the India tax treaty, you’ll have to itemize rather than receive the standard deduction. You can get tax deductions related to student loan interest, retirement accounts and self-employed health insurance, as well as credits for qualified dependents. However, you won’t qualify for education-related tax credits as a nonresident alien.

Preparing for International Student Tax Filing

Before you file a federal income tax return, you’ll need to know your taxpayer identification number. The IRS states that foreign students on valid visas usually get Social Security numbers. If you can’t for some reason, you’ll file Form W-7 to get an individual taxpayer identification number (ITIN). Note that you won’t need an SSN or ITIN to file only IRS Form 8843 since the field is optional.

You’ll also want to gather other important documents and details related to your income and tax residency status. Examples include Form W-2, 1099s, I-20 or DS-2019 forms, Form 1042(S) (for certain scholarship students), your passport, grant letters, school information and U.S. visit history.

Filing Your U.S. Tax Documents

If you’re filing as a nonresident, then you could use the Sprintax service to complete your Form 1040-NR, Form 8843 and any required state tax return electronically. You can often e-file as long as you meet the service’s requirements. On the other hand, you can use typical online filing providers like TurboTax and TaxAct if you’re a resident alien since you’ll file using the standard Form 1040.

In a situation where you were considered a nonresident for part of the tax year and a resident the rest, this makes you a dual-status taxpayer. As a result, you could end up doing two returns – both Form 1040 and Form 1040-NR – and reporting the relevant information for each period.

While using online services is popular, you can alternatively get the necessary forms from the IRS website to do a paper return. In addition, you can opt to use a tax professional. Along with handling your tax obligations in the U.S., don’t forget you’ll still need to file any necessary tax forms and pay any taxes due in your country of origin as well.

Read More​: How to Verify a Tax Filing

Getting More Tax Information

Since the tax filing rules for foreign students can get tricky, it helps to review the “International Individuals” section of the IRS website for more details. You’ll also be able to access PDF versions of the tax forms required along with helpful instructions.

In addition, your university’s website may have pages providing resources on taxes for international students. However, keep in mind the school’s personnel can't legally give you tax advice. Therefore, you’ll want to contact a tax professional who can assist with your specific tax situation and answer any questions about tax treaty benefits, withholding requirements or 1040/1040-NR filing.