International Students: Claiming Education Tax Credits

International students in the US may be liable to pay federal income tax on the income they earn in the country, including wages, tips, scholarship and fellowship grants, and dividends. They must use the nonresident tax return form 1040NR to calculate the amount of federal income tax they must pay. Nonresidents are generally not entitled to claim educational tax credits, except in cases where they are married and filing jointly with a US citizen. However, international students can claim a tax treaty benefit, which will allow them to fully or partially exempt their US-sourced income from federal and/or some state income taxes.

Can international students claim education tax credit?

Non-resident international students are generally ineligible for education tax credits

International students studying in the US are generally treated as nonresident aliens for tax purposes. Nonresident aliens are not eligible for education tax credits, including the American Opportunity Tax Credit (AOTC). This is because they are only taxed on their US-source income, and are therefore ineligible for certain tax credits and deductions.

Nonresident international students are, however, able to claim a tax treaty benefit, which can allow them to fully or partially exempt their US-sourced income from federal and/or some state income taxes. The US tax treaty network covers over 65 countries, and most treaties include specific provisions for students.

International students may receive a Form 1098-T (Tuition Statement) from their educational institution, but this cannot be used to claim a tax refund on tuition. If a student is incorrectly assumed to be a resident by their university, they can provide evidence to the contrary to be treated as a nonresident for tax purposes.

It is important to note that each state has its own tax system and regulations, and foreign students may have to file a state tax return and pay state income tax even when no federal return is due.

International students can claim a tax treaty benefit to exempt US-sourced income from federal income tax

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

The US has income tax treaties with 65 countries, and international students can benefit from these treaties to exempt US-sourced income from federal income tax. These treaties often reduce or eliminate US tax on various types of income, such as pensions, interest, dividends, royalties, and capital gains.

To claim a tax treaty benefit on income from scholarships, compensatory scholarships, or grants, international students will need to complete a Form 8233 and submit it to their university. If the student receives wages and a scholarship or fellowship from the same institution, they can claim treaty exemptions on both types of income using Form 8233. Additionally, students who have become residents for US federal tax purposes may be able to claim benefits under a tax treaty to reduce or eliminate US federal tax on scholarship or fellowship grant income.

It is important to note that the student/trainee and teacher/researcher articles of the tax treaties usually contain time limits, and a foreign student should consult the applicable tax treaty article to ensure they haven't expired. For instance, a Chinese student temporarily present in the US can take advantage of Article 20 of the US-China Income Tax Treaty, which allows an exemption from tax for scholarship income. However, this exemption may continue to apply even after the student becomes a resident alien of the US.

International students can receive Form 1098-T but cannot use it to claim a tax refund on tuition

International students can receive Form 1098-T, but they cannot use it to claim a tax refund on tuition. Form 1098-T, Tuition Statement, is an American IRS tax form filed by eligible educational institutions to report payments received and payments due from the paying student. The form is provided to both the student and the IRS. It is used to report, among other things, amounts paid for qualified tuition and related expenses. It may be useful in calculating the amount of allowable education tax credits.

To be eligible to claim the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), a taxpayer or dependent must have received Form 1098-T from an eligible educational institution. However, nonresident alien students are not required to be provided with Form 1098-T by the educational institution unless the student specifically requests it. Therefore, international students can receive Form 1098-T, but they are not automatically entitled to it.

The AOTC and LLC are tax credits that can help cover the cost of higher education. The AOTC, in particular, can help defray the cost of tuition, certain fees, and course materials for four years. It provides a tax credit of up to $2,500 per student each year during the first four years of higher education. The credit covers 100% of the first $2,000 in adjusted qualified education expenses paid and 25% of any excess, up to a maximum of $500.

While international students can receive Form 1098-T, they may not be eligible to claim the AOTC or LLC tax credits. The eligibility requirements for these credits specifically exclude nonresident alien students who do not have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Therefore, international students cannot use Form 1098-T to claim a tax refund on tuition, as they are generally not eligible for these tax credits in the first place.

International students on F-1 visas are not required to pay FICA tax unless they have been in the US for more than 5 years

International students on F-1 visas are typically considered nonresident aliens for tax purposes. This means that they are exempt from paying FICA (Social Security and Medicare) taxes. However, this exemption only applies if they have been in the United States for less than five years. After this period, they may be required to pay FICA taxes.

F-1 visa holders are generally classified as nonresident aliens for tax purposes during the first five calendar years of their stay in the US. This classification means they are only taxed on US-sourced income. Their income from sources outside the US is not subject to US taxation. Additionally, if the student's country of residence has a tax treaty with the US, they may be partially or completely exempt from US taxes.

It is important to note that F-1 students on OPT (Optional Practical Training) or CPT (Curricular Practical Training) are not exempt from federal taxes. They are required to pay taxes on any income earned during their OPT or CPT programs. However, they may be eligible for certain tax deductions and credits, depending on their residency status and personal circumstances.

To claim a refund of Social Security or Medicare taxes withheld in error, international students can file Form 843 (Claim for Refund and Request for Abatement) and Form 8316 (Information Regarding Requests for Refund of Social Security Tax Erroneously Withheld) with the Internal Revenue Service. These forms are specifically applicable to nonresident aliens on F, J, or M type visas.

International students are taxed on their US-source income only

International students in the US on an F-1 visa are typically considered nonresident aliens for tax purposes for the first five calendar years of their stay. This means that they are taxed only on their US-source income.

The IRS uses the substantial presence test to determine whether an individual should be taxed as a resident or a nonresident alien. To pass this test, you need to be present in the US for at least 183 days in a three-year period, including the current year and the two years before that. If you pass this test, you will be considered a resident for tax purposes and will be taxed on your worldwide income.

It's important to note that some countries have tax treaties with the US that can reduce or eliminate federal income taxes. International students should carefully review their tax obligations and consult official IRS resources or a qualified tax accountant for specific guidance.

When it comes to filing taxes, international students must complete a W-4 tax form with their employer and file a US tax return (Form 1040-NR) for any income from US sources. Additionally, they may need to fill out withholding certificate forms (I.R.C. 1441-1464) and report federal income tax on scholarships, fellowships, and grants.

Frequently asked questions