International Students: Claiming American Opportunity Tax Credit

International students in the United States are generally treated as nonresident aliens for tax purposes and are therefore ineligible for education tax credits such as the American Opportunity Tax Credit (AOTC). However, if an international student is considered a resident alien, they may be eligible for the AOTC if they meet all the requirements. These requirements include being enrolled in a program leading to a degree or certificate, not having completed the first four years of post-secondary education, carrying at least half of the normal full-time workload, and not having a felony drug conviction. The AOTC provides a maximum tax credit of up to $2,500 per eligible student for qualified education expenses.

International students as nonresident aliens

International students on F-1 visas are generally treated as nonresident aliens for tax purposes for the first five calendar years of their stay in the US. This means that they are taxed only on their US-sourced income. Nonresident aliens have always been ineligible for education tax credits unless they are married filing jointly with a US citizen or resident and elect to be treated as a US resident.

International students who are considered nonresident aliens will need to file Form 1040NR (federal tax return) to assess their federal income and taxes. Even if an international student did not earn any income during their time as an F-1 student in the US, they still have a filing requirement. They must file Form 8843 with the IRS, which is a statement required by the US government for certain nonresident aliens. The deadline for all F-1 students to file their tax documents is April 15.

It is important to note that the designation of resident or nonresident alien is based on the substantial presence test, and there are some international students who may be considered resident aliens for tax purposes. For example, international students in F-1, J-1, or M-1 nonimmigrant status who have been in the United States for more than five calendar years may become resident aliens for tax purposes if they meet the substantial presence test. Additionally, if an international student's parents claim them as a dependent on their tax return, the parents may qualify for the American Opportunity Tax Credit even if the student is a nonresident alien.

International students as resident aliens

International students are generally considered nonresident aliens for tax purposes for the first five calendar years of their stay in the US. However, there are certain conditions under which they can be classified as resident aliens.

Resident Alien Status for International Students

International students on F-1 visas are typically treated as nonresident aliens for tax purposes for the first five calendar years of their stay in the US. This is because the days spent in the US on an F-1 visa are exempt from counting towards the "substantial presence test," which determines tax residency. After the first five years, an international student on an F-1 visa may become a resident alien for tax purposes. It is important to note that being a ""resident" for tax purposes does not equate to being a resident for other definitions, such as tuition or permanent residency (green card holder).

Eligibility for American Opportunity Tax Credit (AOTC)

Nonresident aliens are generally ineligible for education tax credits like the AOTC. However, resident aliens can claim the AOTC if they meet all the requirements, which include:

• Being enrolled in a program leading to a degree, certificate, or other recognised post-secondary educational credential.
• Not having completed the first four years of post-secondary education as of the beginning of the taxable year.
• Carrying at least half of the normal full-time workload for at least one academic period.
• Not having been convicted of a felony drug offence.

Tax Compliance for International Students

The tax compliance of international students is a critical issue, especially with the partially refundable nature of the AOTC. Colleges and universities are encouraged to identify international students as residents or non-residents for tax purposes to ensure proper tax filing and avoid revenue loss for the government.

F-1 Student Visa

The F-1 visa is a non-immigrant visa for those wishing to study in the US. It is the most popular visa choice for foreign students in America. An international student on an F-1 visa is treated as a nonresident alien for US federal income tax purposes, which means that they will be taxed only on US-source income.

International students on an F-1 visa are generally considered nonresident aliens and are therefore ineligible for the American Opportunity Tax Credit (AOTC). This is because the days spent in the US on an F-1 visa do not count toward the Substantial Presence Test for tax purposes, which requires an individual to be present in the US for at least 31 days in the current year and 183 days during the current and preceding two calendar years to be considered a resident alien.

However, there may be some exceptions. For example, if an international student on an F-1 visa meets the requirements for the AOTC and is considered a resident alien, they may be eligible for the credit. To be eligible for the AOTC, a student must be enrolled in a program leading to a degree, certificate, or other recognised post-secondary educational credential, not have completed the first four years of post-secondary education, be carrying at least half of the normal full-time workload, and not have been convicted of a felony drug offence.

Additionally, even if an international student on an F-1 visa is considered a nonresident alien, their parents may still qualify for the AOTC if they claim the student as a dependent on their tax return.

It is important to note that the requirements for the AOTC may change over time, and students should refer to the most up-to-date information available from official sources when determining their eligibility.

International students' tax compliance

International students in the US are generally treated as nonresident aliens for tax purposes and are taxed only on US-source income. This means that international students are ineligible for certain tax credits and deductions, such as the American Opportunity Tax Credit (AOTC).

Tax Compliance for International Students

International students in the US are required to file their tax returns if they were in the country during the previous calendar year and earned income. This applies to students on F-1 visas, who are considered nonresident aliens for tax purposes. It's important to note that the tax compliance of international students is a critical issue, especially with the partially refundable nature of the AOTC.

To ensure tax compliance, international students must adhere to the following:

• File a tax return: International students must file a US individual income tax return using Form 1040NR (or 1040NR-EZ) as nonresident aliens. This is required if they have earned income in the US during the previous calendar year.
• Report all income: Students must report all US-source income, including income from employment, scholarships, or fellowships. They should also report any income that is exempt from tax due to an income tax treaty.
• Withhold tax: International students may need to withhold tax on certain payments, such as taxable scholarships or fellowship grants. This is typically handled by the educational institution, which is required to report these payments to the Internal Revenue Service (IRS).
• Keep records: Students should maintain records of their enrolment, qualified tuition, and related expenses. These documents may be requested by the IRS when reviewing tax claims.
• Comply with state tax laws: In addition to federal income tax, international students may need to file state tax returns and pay state income tax, depending on the state they reside in.

It's important to note that tax laws and regulations can be complex and may vary depending on individual circumstances. International students should seek specific advice or refer to official government websites for detailed information regarding their tax obligations and compliance requirements.

Eligibility criteria for international students

International students' eligibility for the American Opportunity Tax Credit (AOTC) depends on their residency status. Nonresident aliens are generally ineligible for the AOTC unless they are married and filing jointly with a U.S. citizen or resident and elect to be treated as a U.S. resident.

International students who are treated as nonresident aliens include those on F-1 Student Visas, which do not count towards the substantial presence test for federal tax purposes. In contrast, resident aliens are eligible for the AOTC if they meet the standard requirements. The determination of whether an international student is a resident or nonresident alien depends on the type of visa they hold and the length of their stay in the United States.

To be eligible for the AOTC, a student must meet the following criteria:

• Enrolled at least half-time in a program leading to a degree, certificate, or other recognised educational credential for at least one academic period during the tax year.
• Not have completed the first four years of post-secondary education at the beginning of the tax year.
• Not have claimed (or have had someone else claim) the AOTC for more than four years.
• Not have been convicted of a federal or state felony drug offence at the end of the tax year.

To claim the AOTC, eligible students must complete Form 8863 and submit it with Form 1040 or 1040-SR. They must also include the school's Employer Identification Number on this form. Additionally, the student or their parents must have received Form 1098-T, the Tuition Statement, from an eligible educational institution, which is typically issued by the school by January 31. This form will help determine the amount that can be claimed for qualified education expenses.

Frequently asked questions