Understanding Tax Withholding For International Students

International students in the US are taxed differently from US citizens and residents. They are considered nonresident aliens for tax purposes and are only taxed on US-source income. This includes wages and compensation, as well as some scholarships and fellowship grants. To determine income tax withholding, universities must consider whether the student is from a country that has a tax treaty with the US, and if the student is temporarily present in the US with a specific type of visa.

Determining residency status

To determine residency status, international students need to refer to the guidelines set by the IRS. Generally, an individual is considered a non-resident of the United States for tax purposes unless they meet the criteria of either the green card test or the Substantial Presence Test. The Substantial Presence Test takes into account the number of days an individual is physically present in the United States. To be considered a resident for tax purposes, a person must be present in the US for at least 31 days during the current year and 183 days over a three-year period, including the current year and the two preceding years.

International students on F-1 visas are typically considered non-resident aliens for tax purposes during their first five calendar years in the country. This status means they are taxed only on US-source income, such as wages, salaries, and certain scholarships or fellowship grants. However, it's important to note that each state may have different tax rules, and international students may need to file state tax returns even when no federal return is due.

Additionally, there are exceptions to the general rules, as outlined by the IRS. For instance, an individual can be both a non-resident and a resident for tax purposes within the same year, requiring a dual-status income tax return. Some of the approved exceptions include the first-year choice to be treated as a resident, a non-resident spouse treated as a resident, and having a closer connection to a foreign country.

It's important for international students to correctly determine their residency status as it directly impacts their tax obligations and, ultimately, their visa or Green Card applications. Misfiling or failing to file tax returns can have negative consequences on their future visa prospects.

Tax treaties

International students and scholars who are non-residents 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 U.S. income provider to reduce or avoid tax withholding on income. This is often completed through the GLACIER process, and if not, GLACIER Tax Prep will help determine if you are eligible for a tax treaty and provide the necessary documentation.

If a tax treaty between the United States and the foreign individual's country of residence provides an exemption from, or a reduced rate of, withholding for certain items of income, the individual should notify the payor of the income (the withholding agent) of their foreign status to claim the benefits of the treaty. This is generally done by filing Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or Form 8233, Exemption from Withholding on Compensation for Independent (& Certain Dependent) Personal Service of a Nonresident Alien Individual, with the withholding agent.

For income that is not earned from personal services, the individual files Form W-8BEN. For income earned from personal services, the individual files Form 8233. A reduced rate of withholding applies to a foreign person that provides a Form W-8BEN or W-8BEN-E claiming a reduced rate of withholding under an income tax treaty only if the foreign person provides a U.S. or foreign Taxpayer Identification Number (TIN) and certifies that they are a resident of a treaty country, the beneficial owner of the income, and if an entity, it derives the income within the meaning of Section 894 of the Internal Revenue Code.

Students, trainees, teachers, and researchers who perform dependent personal services (as employees) can also use Form 8233 to claim exemption from withholding tax on compensation for services that are exempt from U.S. tax under a U.S. tax treaty. Students, trainees, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of Publication 519, U.S. Tax Guide for Aliens, to the Form 8233 and give it to the withholding agent.

If the individual's country of residence has signed a tax treaty with the U.S., they may be either partially or completely exempt from tax. Tax treaties generally allow the individual to exclude a specified amount of U.S.-source income on their U.S. tax return, which reduces the tax liability because they do not have to pay taxes on that amount. For example, under the U.S.-China treaty, Chinese students in the U.S. solely for the purpose of their education may be able to exclude up to $5,000 of income from work performed in the U.S.

If the individual's income is not taxable because of an income tax treaty, it must still be reported on a U.S. income tax return even though no income tax is due on the U.S. income tax return.

Tax forms

International students in the US are required to file a tax return each year. The Internal Revenue Service (IRS) deadline to file tax returns on the federal level is usually April 15 (or the following Monday if it falls on a weekend) and covers the previous calendar year of January 1 to December 31. The deadline for 2023 was April 18.

All international students and their spouses and dependents, regardless of income, must complete Form 8843, which is informational and lets the IRS know how long you've been in the US. This form must be mailed directly to the IRS in separate envelopes for each family member.

If you received income in the last calendar year, you will also need to file Form 1040-NR (or 1040NR-EZ, the easy version of 1040NR) to assess your federal income and taxes. This form can be e-filed on the IRS website.

If you received a taxable scholarship (e.g. a stipend or housing allowance), you will receive a 1092-S form from your school or institution. You may also receive a 1099 form if you earned rental income, investment income, or if you worked as an independent contractor.

If you worked in the US and received taxable employment compensation, you must apply for a Social Security Number (SSN) with the Social Security Administration. If you are not eligible for an SSN, you must apply for an Individual Taxpayer Identification Number (ITIN) from the IRS to use on forms.

If you are an international student on an F-1 visa, you are not required to pay employment taxes (e.g. Social Security and Medicare, also known as FICA). However, you are required to pay both federal and state income taxes. These taxes are withheld from your pay, and you must file a tax return as part of the process.

If you are in the US on a J-1 visa, you need to pay income taxes on the income you earn.

M-1 visa holders are not allowed to accept employment (except during practical training) and are therefore not required to file income tax unless they are paid for practical training.

Tax withholding

International students in the US are considered nonresident aliens for tax purposes and are taxed only on US-source income. This includes income from wages and compensation, as well as some scholarships and fellowship grants.

Students from countries with a tax treaty with the US may be eligible for reduced tax rates or exemptions. To claim this benefit, students must complete Form 8233, as well as a country-specific statement detailing the terms of the treaty. These forms must be submitted by the university to the IRS for review and approval.

If no tax treaty exists or the treaty does not exempt the total amount of wages, nonresident alien students are subject to the same graduated/progressive federal and state income tax withholding as US citizens and residents. Federal and state income taxes are withheld throughout the year based on the Form W-4, Employee's Withholding Allowance Certificate, and the applicable state form completed by the student.

Nonresident alien students who receive payments that are not completely exempt from income tax withholding will receive a Form W-2, Wage and Tax Statement, from their university's payroll services. This form is also provided to the IRS.

At the end of the year, non-resident income earners must file their tax returns. They will need to submit Form 1040-NR, in which they detail to the IRS exactly how much tax they owe and how much they should be refunded or credited. They may also need to submit Form 1042-S if they received a taxable scholarship, and Form W-7 if they need an Individual Tax Identification Number (ITIN) or need to extend or renew their ITIN.

Tax refunds

International students in the US are required to file a tax return as a condition of their visa, but not all will need to pay taxes to the American government. In fact, if you've overpaid tax throughout the year, you may be entitled to a refund.

International students on F-1, J-1, M-1, and Q visas are considered "exempt individuals" for the first five years they are in the US. After this period, they will be subject to the Substantial Presence Test, which determines whether someone has been in the US long enough to be considered a resident for tax purposes.

International students who are considered nonresident aliens for tax purposes will only be taxed on their US-sourced income. This includes:

• Wages and compensation
• Scholarships and fellowship grants
• Dividends
• Tips

If you are an international student on an F-1 visa, you will need to file Form 1040-NR (federal tax return) to assess your federal income and taxes. Even if you didn't earn any money, you will still need to file Form 8843 with the IRS. Additionally, you may be required to file a state tax return, depending on the state.

To determine if you are due a tax refund, you will need to calculate the amount of tax you have paid throughout the year and compare it to the amount of tax you owe. If you have paid more than you owe, you will be entitled to a refund.

You can use a professional tax preparation service, such as Sprintax, to help you prepare your tax documents and claim your maximum legal tax refund. Alternatively, you can file your tax return yourself directly with the IRS.

It is important to note that there are different tax rules and regulations for international students in different countries. For example, the US has income tax treaties with 65 countries, which can reduce or eliminate taxes on certain types of income.

Frequently asked questions