Savanna Hoffman
International students' tax residency status depends on the country they are studying in and the type of visa they hold. For instance, in the US, international students on F-1 visas are generally considered nonresident aliens for tax purposes for the first five calendar years of their stay. After five years, they become residents for tax purposes. Meanwhile, in Canada, international students' residency status is based on the residential ties they have established with the country. If they have significant residential ties with Canada but are also considered a resident of another country that Canada has a tax treaty with, they may be deemed a non-resident of Canada for income tax purposes.
| Characteristics | Values |
|---|---|
| Visa type | F-1, J-1, B-2, H-1B, O-1, TN |
| Number of calendar years | First 5 calendar years are considered non-resident for F-1 and J-1 visa holders. J-1 scholars are non-residents for the first 2 calendar years. |
| Days spent in the country | More than 183 days of the tax year in H-1B, O-1, or TN status will be considered a resident. |
| Tests | Green card test, substantial presence test |
| Dual-status | An individual can be both a non-resident and a resident for tax purposes in the same year, usually the year of arrival or departure. |
| Tax forms | Form 1040-NR for non-residents, Form 1040 for residents, Form 1098-T for US nationals and residents, Form NR74 for determining residency status |
| Tax treaties | The US has income tax treaties with 65 countries, which may result in reduced or exempted taxes for international students. |
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What You'll Learn
International students in the US on an F-1 visa
The substantial presence test is a critical factor in determining an international student's tax residency status. This test considers the number of days an individual is physically present in the US to determine their residency for tax purposes. To pass this test and be considered a tax resident, a non-resident alien must meet certain day-count requirements, including a minimum number of days in the current year and a total number of days over the past three years, including the current year.
However, F-1 students have a unique consideration due to specific exemptions. Under these exemptions, international students on an F-1 visa may find themselves excluded from the day-count for a certain period of their stay. This can significantly impact their status as tax residents. It is important for F-1 students to understand these exemptions and how they influence their tax residency determination.
Despite the exemptions, international students on an F-1 visa should still be mindful of their tax obligations. Even if they are not considered tax residents, they may still have filing requirements, especially if they have any sources of income while in the US. Understanding the tax implications of their income, whether from employment, scholarships, or other means, is essential for F-1 students to ensure they comply with US tax laws.
In summary, international students in the US on an F-1 visa need to navigate a unique set of tax considerations. While their path to tax residency may differ due to exemptions, they should still remain vigilant about their tax obligations. Consulting relevant resources and seeking expert advice can help F-1 students ensure they comply with tax regulations during their stay in the United States. Understanding their specific situation and staying informed about any updates to tax laws are crucial steps for these international students.
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International students in Canada
As an international student in Canada, you may need to file a Canadian income tax return. Your residency status is based on the residential ties you have with Canada. Residential ties can include having a home in Canada, a spouse or common-law partner, or a dependent who is moving to Canada to live with you. Other residential ties include having a long-term lease, a Canadian bank account, or a provincial ID.
If you do not have significant residential ties to Canada and stay in the country for less than 183 days during the calendar year, you are likely to be considered a non-resident for tax purposes. However, if you have established significant residential ties with Canada and are considered a resident of another country that Canada has a tax treaty with, you may be deemed a non-resident of Canada for tax purposes.
If you are considered a resident of Canada for tax purposes, you may be eligible for benefit and credit payments that can help with your cost of living. To receive these benefits, you will need to file an income tax and benefit return each year. Even if you do not work in Canada or have any taxes owing, you can carry your tuition tax credit forward to the following year to reduce your tax bill.
To file your tax return, you will need various documents, including government forms such as the T1 (Income Tax and Benefit Return form) and your T4 or final payslip. You will also need your payslips and receipts for any eligible expenses. If you plan to claim expenses on your tax return, it is important to keep receipts for expenses such as medical bills. Non-residents must declare their net income earned outside of Canada on their tax return to avail of non-refundable tax credits.
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The substantial presence test
If you are not a US citizen, you are considered a non-resident of the United States for US tax purposes unless you meet one of two tests: the green card test or the substantial presence test. The substantial presence test is a key factor in determining whether you are considered a resident or non-resident alien for tax purposes.
The test is applied on a year-to-year basis and is calculated by counting:
- All the days you were present in the current year
- 1/3 of the days you were present in the first year before the current year
- 1/6 of the days you were present in the second year before the current year
If the total number of days across these three years is 183 or more, you are considered a resident under the substantial presence test. For example, if you were present in the US for 120 days in 2021, 2022, and 2023, you would count 120 days in 2023, 40 days in 2022 (1/3 of 120), and 20 days in 2021 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2023.
Certain days are exempt from the substantial presence test, including days when you:
- Commute to work in the US from a residence in Canada or Mexico
- Are in the US for less than 24 hours when in transit between two places outside the US
- Are in the US as a crew member of a foreign vessel
- Are unable to leave the US because of a medical condition that develops while you are in the US
- Are an exempt individual, such as a student on an F-1 visa
Even if you meet the substantial presence test, you may still avoid being taxed as a resident if you qualify for the Closer Connection Exception. This applies if you spent less than 183 days in the US in the current year and can prove a stronger connection to another country, such as having a permanent residence or family outside the US.
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Dual-status residency
For tax purposes, the IRS defines an "alien" as any non-U.S. citizen. There are three types of aliens: resident alien, nonresident alien, and dual-status alien. Dual-status aliens are treated as both U.S. residents and non-residents for tax purposes during the same calendar year.
Dual-status individuals determine their U.S. residency status under both the Internal Revenue Code and tax treaties. A dual-status individual must file a dual-status return as described in Publication 519, U.S. Tax Guide for Aliens. An individual who did not meet either the green card test or the substantial presence test for the current year or the prior year, and did not choose to be treated as a U.S. resident for part of the prior year, but met the substantial presence test in the following year, can choose to be treated as a U.S. resident for part of the current year and be taxed as a dual-status individual for the current year if certain tests are met.
A nonresident who becomes a U.S. resident under the substantial presence test in the following tax year may choose to be treated as a dual-status resident for this taxable year if certain tests are met. Tax residency determined under the residency article of a tax treaty may differ from the residency provisions of the Internal Revenue Code.
A dual-status individual married to a U.S. citizen or resident may elect to file a joint income tax return with their spouse. If you are a nonresident and married to a U.S. citizen or resident for all or part of the tax year, and you do not choose to file jointly with your spouse, you must use the Tax Table column or Tax Rate Schedule for married filing separately.
For federal tax purposes, resident aliens are subject to tax on worldwide income, and tax treaty benefits may or may not apply. Form 1040 is the federal individual income tax return applicable to U.S. citizens and resident aliens. You can use Form 1040, U.S. Individual Income Tax Return as the statement and write "Dual-Status Statement" across the top. Any statement must have your name, address, and taxpayer identification number on it.
Generally, for F-1 and J-1 students, you are a nonresident for tax purposes for 5 calendar years. After the 5th calendar year in the United States, you become a resident for tax purposes.
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Nonresident aliens
F-1 and J-1 students are generally considered nonresidents for tax purposes for their first five calendar years. The year that an individual enters the U.S. on this visa status counts as their first year, even if they were only in the country for part of that year. After five calendar years in the United States, they become a resident for tax purposes.
The income of a nonresident alien that is subject to U.S. income tax is generally divided into two categories: income that is effectively connected with a trade or business in the United States, and U.S. source income that is fixed, determinable, annual, or periodical (FDAP). Effectively Connected Income is taxed at graduated rates, the same as for U.S. citizens and residents, while FDAP income is taxed at a flat 30 percent (or a lower treaty rate, if the nonresident alien qualifies).
Nonresident alien students and scholars who have a taxable scholarship or fellowship grant, income partially or totally exempt from tax under a tax treaty, or any other income that is taxable under the Internal Revenue Code, are required to file taxes. However, nonresident alien students and scholars are not required to file taxes if their income comes only from a U.S. savings and loan institution, credit union, insurance company, or an investment that generates portfolio interest.
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Frequently asked questions
If you're an international student in the US on an F-1 visa, you're generally considered a non-resident for tax purposes for the first five calendar years of your stay. After the fifth calendar year, you become a resident for tax purposes.
If you're on an H-1B, O-1, or TN visa, you will be considered a resident for tax purposes if you were in the US for more than 183 days of the tax year.
Your residency status is based on the residential ties you have with Canada. If you have established significant residential ties with Canada and are a resident of a country that Canada has a tax treaty with, you may be deemed a non-resident of Canada for income tax purposes.
