International Students: Sales Tax Exemption Eligibility

International students in the US on F-1 visas are considered nonresident aliens for tax purposes for the first five calendar years of their stay. This means that they are only taxed on US-sourced income and are exempt from paying taxes on income from foreign sources. The US has income tax treaties with 65 countries, and residents of these countries may be eligible for reduced tax rates or complete tax exemptions. However, international students are generally liable for Social Security and Medicare taxes unless they are exempt under the student FICA exemption.

International students with F, J, M, or Q visas are considered exempt individuals

International students on F, J, M, or Q visas are considered "exempt individuals". This means that they are excused from the Substantial Presence Test for the first five years they are in the US if they are an international student or for the first two years if they are a scholar. The Substantial Presence Test is used to determine if someone has been in the US long enough to be considered a resident.

International students on F, J, M, or Q visas are considered exempt individuals because they are classified as nonresident aliens for tax purposes. This means that they will only be taxed on US-sourced income. If their country of residence has signed a tax treaty with the US, they may be partially or completely exempt from tax. The US has income tax treaties with 65 countries. These treaties can often reduce or eliminate US tax on various types of income, such as pensions, interest, dividends, royalties, and capital gains.

International students with F-1 visas are considered nonresident aliens for tax purposes for the first five calendar years of their stay in the US. However, some can be considered 'residents' or 'resident aliens' for tax purposes. This does not mean that the student is a resident, it is only a tax filing status. A student will be considered a resident for tax purposes if they pass the Substantial Presence Test. Income taxes in the US may be imposed by federal, state, and local governments.

International students with F-1 visas are exempt from FICA taxes on wages paid to them for services performed within the US. The Internal Revenue Code grants an exemption from social security and Medicare taxes to nonimmigrant students in F-1 status. However, if a nonimmigrant student earns self-employment income in the US, that income will be subject to US income tax and, if they become a resident alien, self-employment tax as well.

International students and tax treaties

International students can benefit from tax treaties between their home country and the US. The US has income tax treaties with 65 countries, and these treaties can reduce or eliminate US taxes on various types of income, including personal services income and other income such as pensions, interest, dividends, and capital gains. The specific terms of these treaties vary among countries and specific items of income.

To claim a tax treaty exemption, international students must generally be nonresident aliens for tax purposes. Most F-1 visa international students are temporarily present in the US and are considered nonresident aliens by the IRS for the first five calendar years of their stay. After this period, they may become resident aliens for tax purposes if they meet the "Substantial Presence Test".

Nonresident alien students who have taxable scholarship or fellowship grants, income exempt under a tax treaty, or other income taxable under the Internal Revenue Code are required to file taxes. They must file Form 1040-NR (federal tax return) to assess their federal income and taxes. To claim a tax treaty exemption, students must submit Form 8233 to each withholding agent, along with the appropriate statement from Publication 519, U.S. Tax Guide for Aliens.

It is important to note that international students on F-1 visas are exempt from FICA taxes on wages for services performed within the US and are also exempt from social security and Medicare taxes under the Internal Revenue Code. Additionally, certain classes of alien employees, including students, are exempt from US Social Security and Medicare taxes.

For students at UC Berkeley, the GLACIER process is often used to determine eligibility for a tax treaty and provide the necessary documentation.

International students and the 'Substantial Presence Test'

International students in the US on an F-1 visa are generally considered nonresident aliens for tax purposes for the first five calendar years of their stay. However, they may be classified as resident aliens for tax purposes if they meet the requirements of the Substantial Presence Test (SPT).

The SPT is a formula used by the IRS to determine if a person has been in the US long enough to be taxed as a resident alien. To meet the SPT, a person must be physically present in the US on at least 183 days during the 3-year period that includes the current year and the two years immediately before that. Specifically, this includes:

• All the days you were present in the current year
• 1/3 of the days you were present in the first year before the current year
• 1/6 of the days you were present in the second year before the current year

For example, if you were physically present in the US on 120 days in each of the years 2021, 2022, and 2023, you would count the full 120 days of presence in 2023, 40 days in 2022 (1/3 of 120), and 20 days in 2021 (1/6 of 120). Since the total for the 3-year period is 180 days, you would not be considered a resident under the SPT for 2023.

It is important to note that the SPT only applies to individuals who are temporarily present in the US as students and who substantially comply with the requirements of their visas. Additionally, certain exemptions may apply, such as for students employed by a school, college, or university where they are enrolled at least half-time. In such cases, Social Security and Medicare taxes do not apply to services performed by the student.

International students and Social Security and Medicare taxes

International students in the US on an F-1 visa are considered nonresident aliens for tax purposes for the first five calendar years of their stay in the US. After this period, they may be considered a resident for tax purposes if they pass the Substantial Presence Test.

Nonresident aliens are generally exempt from Social Security and Medicare taxes on wages paid to them for services performed within the US. However, this exemption does not apply to employment not allowed by the United States Citizenship and Immigration Services (USCIS) or to employment not closely connected to the purpose for which they were admitted into the US.

There are certain exceptions to the exemption from Social Security and Medicare taxes for nonresident aliens. For example, nonresident aliens who become resident aliens or change to another immigration status that is not exempt may become liable for these taxes. Additionally, nonresident aliens who are employed in the US by an American or foreign employer are subject to Social Security and Medicare taxes, with certain exceptions based on their nonimmigrant status.

International students on F-1 visas who are employed by a school, college, or university where they are enrolled at least half-time may be exempt from Social Security and Medicare taxes under the "'student FICA exemption'". This exemption only applies to on-campus employment that is incidental to and for the purpose of pursuing a course of study.

It is important to note that the US has entered into agreements with several nations called Totalization Agreements to avoid double taxation of income with respect to Social Security taxes. These agreements must be considered when determining an individual's liability for Social Security and Medicare taxes.

If an international student believes they have been incorrectly charged Social Security or Medicare taxes, they should first contact their employer to request a refund. If a full refund is not provided, they can file a claim with the Internal Revenue Service (IRS) using Form 843 and Form 8316, along with supporting documents.

International students and the Totalization Agreement

International students on F-1 visas are typically considered nonresident aliens for tax purposes for the first five calendar years of their stay in the US. This means that they are only taxed on US-sourced income. If an international student's country of residence has signed a tax treaty with the US, they may be partially or completely exempt from tax. The US has income tax treaties with 65 countries.

International students can benefit from a tax treaty with their home country. Under these treaties, residents of foreign countries may be eligible to be taxed at a reduced rate or be exempt from US taxes. These reduced rates and exemptions vary among countries and specific items of income. For example, F-1 visa holders are exempt from FICA taxes on wages for services performed within the US. The Internal Revenue Code grants an exemption from social security and Medicare taxes to nonimmigrant students.

The US has entered into agreements with several nations called Totalization Agreements. These are designed to avoid double taxation of income with respect to social security taxes. Totalization Agreements are advantageous for both current and former workers. For current workers, the agreements eliminate dual contributions they might otherwise be paying to the social security systems of both the US and another country. For persons who have worked in the US and abroad and are now retired, disabled, or deceased, the agreements often result in the payment of benefits to which the worker or their family members would not otherwise be entitled.

International Social Security agreements, or Totalization agreements, have two main purposes. Firstly, they eliminate dual Social Security taxation, which occurs when a worker from one country works in another and must pay Social Security taxes to both countries on the same earnings. Secondly, the agreements help fill gaps in benefit protection for workers who have divided their careers between the US and another country.

An individual who wishes to claim an exemption from US social security and Medicare taxes because of a Totalization Agreement must secure a Certificate of Coverage from the social security agency of their home country and present it to their US employer.

Frequently asked questions