Lori Meadows
International students in the US are generally considered nonresident aliens and are taxed only on their US-source income. They are ineligible for most tax credits and deductions, including education tax credits. However, there are a few ways for international students to reduce their federal income tax liability. For instance, they can claim a tax treaty benefit, which may partially or fully exempt their US-sourced income from federal and state income taxes. Additionally, international students on F-1, J-1, M-1, and Q visas who engage in practical training and earn income are usually not required to pay FICA tax. While international students typically cannot use Form 1098-T to claim a tax refund on tuition, they may still receive this form from their educational institution.
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What You'll Learn
- International students are generally ineligible for education tax credits
- International students can claim a tax treaty benefit to exempt US-sourced income from federal taxes
- Non-resident aliens are taxed only on US-sourced income
- International students on F-1, J-1, M-1, and Q visas can engage in practical training and earn income
- International students can apply for an FICA tax refund
International students are generally ineligible for education tax credits
However, there are some exceptions to this rule. International students can claim a tax treaty benefit, which may allow them to fully or partially exempt their US-sourced income from federal and/or state income taxes. The US tax treaty network covers over 65 countries, and most treaties include provisions for students. Additionally, nonresident aliens can become eligible for education tax credits if they are married and filing jointly with a US citizen or resident, and they elect to be treated as a US resident.
International students on F-1, J-1, M-1, and Q visas may engage in practical training and earn income. F-1 students are usually not required to pay FICA tax, but if they have been in the US for more than five years, they will be obligated to pay this tax. Social security and Medicare taxes may have been withheld in error from pay that is not subject to these taxes, and students can contact their employer for a refund.
To claim education tax credits, students must generally receive a Form 1098-T from their educational institution. This form reports amounts paid for qualified tuition and related expenses. However, eligible educational institutions are not required to provide this form to nonresident alien students unless the student requests it.
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International students can claim a tax treaty benefit to exempt US-sourced income from federal taxes
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. The US has income tax treaties with 65 countries, and international students may be eligible to be taxed at a reduced rate or exempt from US income taxes on certain items of income they receive from sources within the US.
To claim a tax treaty benefit, a nonresident alien student must submit Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting, to the payer of the grant. A nonresident alien student who receives a scholarship or fellowship from an institution that is exempt from tax under a tax treaty can claim treaty exemptions on both kinds of income on Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. If the payee performs personal services as an independent contractor, they must submit Form 8233 to each withholding agent from whom amounts will be received. Students must attach the appropriate statement shown in Appendix A at the end of Publication 519, U.S. Tax Guide for Aliens, to the Form 8233 and give it to the withholding agent.
If a nonresident alien student becomes a resident alien for US tax purposes, the treaty exemption will continue to apply if the tax treaty has an exception to the treaty's saving clause. In this case, the student must give the withholding agent a Form W-9, Request for Taxpayer Identification Number (TIN) and Certification, to claim the treaty withholding exemption.
It is important to note that the student/trainee and teacher/researcher articles of the tax treaties generally contain time limits beyond which a treaty exemption may not be claimed. A foreign student or trainee who has become a resident of the US should consult the applicable tax treaty article to ensure that the time limit for the treaty benefit has not expired.
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Non-resident aliens are taxed only on US-sourced income
The United States has different systems of taxation for resident and non-resident aliens. Non-resident aliens are individuals who do not meet the green card or substantial presence tests. They are usually tourists, students, or other short-term visitors. Non-resident aliens are taxed only on their US-sourced income or income from a business or trade connected with the US. This includes wages, tips, scholarship and fellowship grants, dividends, interest income, and investment income. Non-resident aliens must file a US income tax return and pay taxes to the Internal Revenue Service (IRS). They use Form 1040 NR to report their US-sourced income and must file by the 15th day of the 4th month after their tax year ends (usually April 15).
Non-resident aliens can claim the foreign-earned income exclusion or the foreign tax credit. They must report their income on US income tax returns, just like residents. Non-resident aliens who receive interest income from deposits with US financial institutions are exempt from taxation on this income as long as it is not effectively connected with a US business or trade. However, they should still report this income on Form 1042-S.
International students are typically classified as non-residents for tax purposes and are taxed in the same way as non-resident aliens. They must file a tax return if they were in the US during the previous tax year. Even if they did not earn any income, they must still file Form 8843 to fulfil their visa obligations.
It is important to note that some non-resident aliens may be considered engaged in a trade or business in the US if they were temporarily present in the country on an "F," "J," "M," or "Q" visa. In such cases, they must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, and report their income.
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International students on F-1, J-1, M-1, and Q visas can engage in practical training and earn income
International students on F-1 visas are permitted to work on-campus without prior approval. However, they must work with a DSO (Designated School Official) to ensure the job qualifies as on-campus employment and obtain certification letters from the DSO and the employer. These letters, along with proof of application for a Social Security Number, are required to obtain a Social Security Number. F-1 students can also work off-campus after their first academic year, but this requires prior approval from USCIS or an ISSS Advisor. Off-campus employment must be related to the student's area of study and be authorized by a DSO before starting work.
M-1 visa students are not permitted to work off-campus during their first academic year. However, they may accept on-campus employment subject to certain conditions and restrictions. After completing their studies, M-1 students may engage in practical training, provided it is related to their field of study and authorized by a DSO.
J-1 students may qualify for academic training, which is authorized employment of up to 18 months that can be taken before or after completing their course of study. This includes on-campus and off-campus work. Non-degree students may also be eligible for academic training. J-2 dependents can apply for permission from USCIS to accept employment, provided they make a written request stating that the income will only support J-2 dependents and not the J-1 exchange visitor.
Q visa holders, or border commuter students, can engage in practical training, specifically CPT and post-completion OPT. They must obtain permission from a DSO and follow a specific process, including obtaining a Form I-20 "Certificate of Eligibility for Nonimmigrant Student Status."
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International students can apply for an FICA tax refund
International students in the US on F-1, J-1, or M-1 non-immigrant visas are generally considered nonresident aliens for tax purposes. They are exempt from Social Security and Medicare taxes (FICA) during their first five calendar years in the US if they are full-time students. After this period, they are classified as Resident Aliens for Tax Purposes and are subject to FICA tax withholding. However, they may still be eligible for the Student FICA Exemption if they remain primarily students.
International students who have had Social Security or Medicare taxes withheld in error can request a refund from their employer. If the employer is unable to provide a full refund, students can file a claim with the Internal Revenue Service (IRS) using Form 843, Claim for Refund and Request for Abatement, along with Form 8316, Information Regarding Requests for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien.
To check the status of a FICA refund, individuals can call the NR department within the IRS at 267-941-1000. Additionally, services like Sprintax can assist international students in preparing the necessary forms for their tax filings and refunds.
It is important to note that international students on F-1 visas, even if they did not earn any money during their time in the US, are still required to file Form 8843 with the IRS by the applicable deadline. They may also need to file a state tax return, depending on the specific state they are in.
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Frequently asked questions
International students are generally treated as nonresident aliens and are therefore ineligible for education tax credits. However, they may be eligible if they are married and filing jointly with a U.S. citizen or resident and elect to be treated as a U.S. resident.
The AOTC is a tax credit that helps cover the cost of higher education expenses, including tuition, fees, and course materials. It is available to eligible students enrolled at least half-time in a degree or certificate program at an eligible educational institution.
To be eligible for the AOTC, you must be enrolled at least half-time in a program leading to a degree or other recognized educational credential. You must not have completed the first four years of post-secondary education and must not have claimed the AOTC for more than four years. Additionally, you must not have been convicted of a federal or state felony drug offense.
To claim the AOTC, you must use Form 8863, Education Credits, and include the school's Employer Identification Number (EIN). You will also need to receive Form 1098-T, Tuition Statement, from your eligible educational institution.
