International Students: Tax Filing Obligations And Exemptions

International students in the US are required to file a tax report. This is a condition of their visa, and it applies to all international students who were in the US during the previous calendar year, even if they did not earn any money. Students with an F-1 visa are considered nonresident aliens for tax purposes and are required to file a US tax return for income from US sources. Their residency status may change over time, so it is important to review the guidelines each year.

F-1 visa and tax residency status

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. During this time, they are classified as 'exempt individuals'. However, after five years, they become 'resident aliens' for tax purposes. It is important to note that this change in tax residency status does not affect immigration status or tuition fees.

F-1 students are required to file a US tax return (Form 1040-NR) for income from US sources. This includes income from scholarships or fellowship grants that are taxable or partially exempt from tax under a tax treaty. Additionally, F-1 students must fill out a W-4 tax form with their employer when they start working.

To determine tax residency status, the IRS uses the Substantial Presence Test, which counts the number of days an individual is physically present in the US. To pass this test, an individual must be present in the US for at least 183 days over a three-year period, including the current year and the two preceding years. If an F-1 student passes this test, they will be considered a resident for tax purposes and will need to file the same tax forms as US citizens.

It is important for international students to understand their tax obligations and correctly file their taxes. Resources such as Sprintax can help F-1 students determine their tax residency status and guide them on which forms to file. However, it is recommended to consult a tax expert or accountant for personalised advice.

Tax treaties and exemptions

International students in the US on an F-1 visa are generally considered nonresident aliens for tax purposes and are therefore only taxed on their US-sourced income. If your country of residence has signed a tax treaty with the US, you may be partially or completely exempt from paying taxes on this income.

To claim a tax treaty benefit on income from personal services, compensatory scholarships, or grants, you will need to complete a Form 8233, 'Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual', and submit it to your university. This form must be accompanied by a country-specific statement that details the terms of the treaty. Both forms must be submitted to the IRS for their review and approval.

Students from countries that have a tax treaty with the US that includes a wage article may claim exemption or a reduction of income tax withholding if the payment meets the requirements of the treaty and the student completes the required forms with the university's Tax Department. The taxes covered under a treaty exemption include Federal, Virginia, and/or DC tax. It is important to note that each state has its own tax rules, and not all states recognize tax treaties. For example, Maryland does not recognize tax treaties.

If you are an F-1 student and have been in the US for more than five years, you will be considered a resident for tax purposes and will be taxed on your worldwide income. You will also be considered a resident for tax purposes if you pass the Substantial Presence Test. This test requires you to be present in the US for at least 183 days over a period of three years, including the current year and the two years prior.

Some examples of tax treaty benefits for specific countries include:

• Canadian citizens who are in the US as international students are exempt from tax on any US income received for activity related to education, training, or maintenance.
• Korean international students are exempt from tax on any grant, allowance, award, or income ($2,000 or less) from personal services performed.
• French citizens who are in the US to study, secure training, or research will not be subject to US tax on any income earned from gifts from abroad for the purpose of maintenance, education, study, research, or training.

Tax software for international students

International students in the US, especially those on F-1 visas, are subject to special rules regarding the taxation of their income. While they are classified as nonresident aliens for tax purposes, they are still required to file tax returns if they receive income from US sources.

Sprintax

Sprintax is a cloud-based, user-friendly software designed specifically for international students, scholars, and nonresidents to navigate the complexities of US tax filing. It helps international students and scholars prepare their federal (national) and state tax returns and determine their tax residency status. It is partnered with several major universities, allowing students to fill out their federal returns free of cost. It also offers resources and webinars to help international students understand their tax obligations and maximise their refunds.

TurboTax or H&R Block At Home™

These are commercial tax software or web-based preparation services that can be used to prepare federal and state tax returns. However, it should be noted that these programs are designed for US residents, and using them might result in a higher refund than what international students are actually owed.

It is important to note that tax residency status (resident or nonresident) is a crucial factor in determining an individual's tax obligations and the applicable forms and rates. International students should consult official government websites or seek advice from qualified tax professionals to ensure they fulfil their tax obligations accurately.

Tax forms for nonresident aliens

International students in the United States on an F-1 visa are typically considered nonresident aliens for tax purposes. This means that they are only taxed on their US-sourced income. Nonresident aliens are not eligible for education tax benefits and should not submit Form 1042-S. Scholarship or fellowship grants that cover expenses such as tuition and registration fees are non-taxable and do not need to be reported on Form 1042-S. However, taxable scholarships or fellowship grants, as well as any other taxable income under the Internal Revenue Code, must be reported.

Nonresident aliens who are required to file an income tax return typically use Form 1040-NR, U.S. Nonresident Alien Income Tax Return. This form is used to report income that is effectively connected with a trade or business in the United States. The deadline for filing Form 1040-NR is usually April 15 for employees or self-employed individuals with income subject to US income tax withholding or a business in the country. For those who do not fall into these categories, the deadline is typically June 15.

In the year of transition from nonresident to resident status for tax purposes, an individual is considered a Dual-Status Taxpayer and must file two tax returns: one for the nonresident period and another for the resident period. During this transition year, a taxpayer may elect to be treated as a full-year resident to avoid filing two separate returns.

Before leaving the United States, nonresident aliens must obtain a certificate of compliance, also known as a sailing or departure permit, by filing Form 1040-C, U.S. Departing Alien Income Tax Return, or Form 2063, U.S. Departing Alien Income Tax Statement. Additionally, nonresident aliens may need to fill out a W-4 tax form with their employer when they start working.

Tax obligations and visa complications

International students in the US on an F-1 visa are considered nonresident aliens for tax purposes and are required to file a US tax return (Form 1040-NR) for any income earned from US sources. This includes income from scholarships, fellowships, and grants, which must be reported even if they are exempt from tax due to a tax treaty. Additionally, F-1 students must fill out a W-4 tax form when starting work. While F-1 students are generally exempt from paying FICA tax, they will be obligated to pay this tax if they have been in the US for more than five years.

To determine tax residency status, individuals must pass the Substantial Presence Test, which takes into account the number of days physically present in the US over a three-year period, including the current year and the two years prior. Most foreign students will not meet this test during their first tax year, and they may also be exempt as exempt individuals if they are temporarily admitted to the US as nonimmigrants under specific visas, including F, J, and M visas. However, students cannot exclude days of presence as exempt individuals if they have held this status for more than five calendar years.

It is important for international students to comply with the terms of their visas to maintain their exempt individual status. Engaging in unauthorized employment or failing to maintain full-time student status may result in the loss of visa benefits and exempt status. The Internal Revenue Service independently assesses an individual's compliance with visa requirements, and non-compliance can lead to visa complications.

To assist with tax filing, international students can utilize resources such as Sprintax, which provides guidance on understanding tax obligations, maximizing refunds, and completing tax forms. Universities may also offer support through their International Tax Offices, helping students navigate their specific tax situations and residency status.

Frequently asked questions