Ibrahim Gardner
Whether or not out-of-state students pay income tax depends on a few factors. In the US, income taxes may be imposed by federal, state, and even local governments. If an out-of-state student is working part-time while studying, they may be required to file a nonresident state income tax return in the state where they are studying and working, and also a resident state tax return. However, if the student is a dependent, they are considered a resident of their parent's state and would need to file a tax return there. Additionally, some states have reciprocal agreements, in which case only a home state return needs to be filed. It is important to note that tax residency requirements and college residency requirements are separate and unrelated.
| Characteristics | Values |
|---|---|
| Who is considered a resident? | A student is considered a resident of the state where their parents live. |
| What if the student is not a dependent? | They are still considered a resident of the state they came from, unless they take specific actions to change that. |
| What if the student is working in a different state? | They would need to file a non-resident state income tax return in the state where they work and a resident state tax return to report all income, including non-resident earned income. |
| What if the non-resident state has no income tax? | The student's home state will still calculate tax on all their income, but may provide a credit for tax paid to the non-resident state. |
| What if the student is an international student? | International students are considered non-residents and only pay tax on income earned in the US. They must file a tax return if they have a taxable scholarship, income under a tax treaty, or other taxable income. |
| What if the student cannot pay their taxes? | The IRS recommends filing a return as soon as possible and paying as much as possible to reduce penalties. Students can also contact the IRS to set up a payment plan or apply for an "offer in compromise" to settle their tax debt for a lower amount. |
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What You'll Learn
Students are considered residents of their parent's state
For most college students who are still dependents of their parents, their home state is the state where their parents live. This is true even if they live off-campus at school. If an undergraduate claims a state other than their parents' as their "tax home", then their parents will be unable to claim education deductions and credits.
Even if you are not a dependent, you are considered a resident of the state you came from until you take steps to change that. However, you may need to look at any state-specific rules. For example, New York considers undergrads to be non-residents, but graduate students and J scholars are considered residents.
If you earned income in the state where your school is located, you may have to file a non-resident state tax return and pay income tax to that state. You will still need to file a home state return, but your home state will give you a credit for what you pay the non-resident state. Some states have reciprocal agreements, in which case you only need to file a home state return.
Your state of residence, or home state, is the state where you have roots. While colleges will have their own residency requirements to determine whether you pay resident or non-resident tuition rates, this has no bearing on your home state for tax purposes.
Technically, your tax home is where you have roots, a driver's license, and are registered to vote. However, as a college student, the simplest approach is to declare your tax home in the state where you earned the income.
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Non-resident state income tax return
As a college student, your tax home is the state where you earned an income, not where your college is located. If you are a dependent, you are considered a resident of your parent's state. If you are not a dependent, you are considered a resident of the state you came from.
If you are in school in a state that is not your resident state and you work in the state where your school is located, then you would have to file a nonresident state income tax return in the state where your school and work are located. You would also have to file a resident state tax return to report all income from all sources, including your nonresident earned income. However, you would claim a state income tax credit on your resident state's income tax return for any state income taxes paid to the nonresident state on income that is being taxed in both states.
If you do not meet the filing threshold requirements for either state and you are just looking to claim a refund of your state withholding, then you would just file a nonresident state income tax return to report your nonresident income.
Some states have reciprocal agreements, in which case you would file only a home state return. For example, if you are a resident of a state without income tax, such as Texas or Florida, and you work in a state with income tax, you will not receive a credit in your home state since there was no tax in the first place.
If you are a nonresident alien student, you must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return only if you have income that is subject to tax, such as wages, tips, scholarship, and fellowship grants.
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Resident state tax return
Whether or not a student is considered a resident of a particular state depends on several factors. These include whether they are a dependent, their domicile, and their place of abode.
If a student is a dependent, they are considered a resident of their parent's or guardian's state. In this case, they would file a resident state tax return for their home state and may also need to file a non-resident state tax return for the state in which they are studying and working.
If a student is not a dependent, they must determine their domicile, which is their permanent legal residence or home to which they intend to return after a temporary move, such as for schooling. They must also determine their place of abode, which is the location of their housing, whether owned or rented. If a student's domicile and place of abode are in a different state than their parent's state, they may need to file both a resident state tax return for their new state and a non-resident state tax return for their parent's state.
It is important to note that each state has its own residency requirements and definitions of what constitutes a resident. Additionally, some states have reciprocal agreements, in which case a student may only need to file a home state return.
For example, a student who is a resident of Virginia and attends school in another state is considered a domiciliary resident of Virginia. They must file a Virginia resident return, which includes income from all sources, even those reported to other states.
In New York, an individual with a New York domicile is considered a resident for tax purposes, even if they live in a different location for an extended period. To change their domicile, an individual must demonstrate clear and convincing evidence that they have abandoned their previous domicile and established a new one.
Therefore, it is essential to consult the specific rules and requirements of each state when determining residency status and filing state tax returns.
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State income tax credit
Students who are dependents on their parents' tax returns are generally not eligible to claim education credits. In this case, the student's parents may be eligible to claim the education deductions and credits. Students can claim a state income tax credit on their resident state's income tax return for any state income taxes paid to the non-resident state on income that is being taxed in both states.
If you are a full-time out-of-state student with a part-time job, you will need to file a non-resident state income tax return in the state where your school and work are located (where you actually earned your money) and a resident state tax return (to report all income from all sources, including your non-resident earned income).
If you are an undergraduate claiming a state different from your parents' "tax home", then when it comes to the education deductions and credits, both parents and the student will lose out.
If you have student loans or pay education costs for yourself, you may be eligible to claim education deductions and credits on your tax return, such as loan interest deductions, qualified tuition programs (529 plans), and Coverdell Education Savings Accounts.
The American Opportunity Tax Credit (AOTC) can help pay up to $2,500 for tuition and other qualifying expenses per student each year on your tax return during the first four years of higher education. The amount of the credit is 100% of the first $2,000 of qualified education expenses you paid for each eligible student and 25% of the next $2,000 of qualified education expenses you paid for that student. To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
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Tax treaties
US tax treaties, also known as double taxation agreements (DTAs), are agreements between the USA and foreign countries that outline how nonresidents will be taxed in each country. Tax treaties benefit residents of foreign countries (including foreign students and scholars) by taxing them at a reduced rate and providing exemptions on various types and items of income. The US currently has tax treaty agreements with approximately 66 countries.
International students and scholars who are nonresidents for tax purposes and intend to take advantage of a tax treaty benefit should provide IRS Form 8233 and a tax treaty statement to their US income provider. This is to reduce or avoid tax withholding on income. Tax treaty benefits are only eligible for federal taxes and not state taxes.
The following are some examples of tax treaty benefits:
- Korean international students in the US for study, training, or research at a university will be exempt from tax on any grant, allowance, award, or income ($2,000 or less) from personal services performed.
- French citizens in the US for study, 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. They will also be exempt from tax on income ($5,000 or less) from personal services performed.
- Students from China with student wages of $6,000 will only have to pay federal taxes on $1,000, as the tax treaty exempts up to $5,000.
To claim a tax treaty benefit on a non-compensatory scholarship or grant, a W-8BEN form must be filled out. To claim a tax treaty benefit on income from personal services, a compensatory scholarship, or a grant, Form 8233 must be completed and submitted to the university.
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Frequently asked questions
Yes, if you are a full-time out-of-state student with a part-time job, you will have to file a non-resident state income tax return in the state where your school and work are located. You will also have to file a resident state tax return to report all income, including non-resident earned income.
You will still have to pay income tax on your earnings to your resident state. Your resident state will give you a credit or partial credit for tax paid to the non-resident state.
As a non-resident for tax purposes, you only pay tax on income earned in the US. The amount of tax you pay will depend on how much you earn, the tax rates of each state, and your entitlement to tax treaty benefits.
Generally, an undergraduate qualifies to be claimed as a dependent on their parents' tax return. In this case, the student's home state is the state they lived in before starting college, and they would file a tax return in their home state.
You will need to file a tax return with the state where the company is based and include the income earned in other states.
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