Douglas Olsen
International students in the US are required to file a tax return, and in some cases, they may also need to pay federal, state, and local taxes. However, international students are entitled to a number of benefits and exemptions, and not everyone will pay taxes to the American government. Most international students are considered nonresident aliens by the IRS and are exempt from Social Security and Medicare Taxes for up to five years from their date of arrival in the US. Students with an F-1 visa are required to pay federal and state income taxes, while those with an M-1 visa don't pay taxes because they're in the US only to learn and don't earn any income.
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What You'll Learn
F-1 visa holders and state taxes
Foreign students in the United States on F-1 visas are generally considered nonresident aliens for tax purposes and are subject to special rules with respect to the taxation of their income. While nonresident aliens do not need to file US tax returns, there are certain circumstances in which they are required to do so.
F-1 students are considered exempt individuals for the first five calendar years of their time in the US. This means that they are exempt from Social Security and Medicare Taxes on wages paid to them for services performed within the United States. However, if they have been in the US for more than five calendar years, they become resident aliens for tax purposes and are liable for Social Security and Medicare taxes. Additionally, F-1 students who intend to reside in the US for longer than one year are subject to a 30% taxation on their capital gains during any tax year in which they are present in the US for 183 days or more.
F-1 students who have a taxable scholarship or fellowship grant, income partially or totally exempt from tax under the terms of a tax treaty, or any other income that is taxable under the Internal Revenue Code, are required to file a US tax return. They will need to submit Form 1040-NR (federal tax return) to assess their federal income and taxes. Even if they do not earn money during their time in the US, they will still need to file Form 8843 with the IRS. Additionally, they may be required to file a state tax return, depending on the state.
If F-1 students earn an income from OPT (a program that allows international students to work in the US after graduation), they will be required to pay tax and fill in a W-4 tax form with their employer. They may also be able to claim a tax treaty, which can reduce or fully exempt their income from taxes, in which case they will be refunded the overpaid amount.
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Nonresident alien status
International students, scholars, teachers, researchers, and exchange visitors in the United States are subject to special rules regarding the taxation of their income.
A nonresident alien is an individual who is not a US citizen or national and has not passed the green card test or the substantial presence test. Nonresident aliens are generally liable for Social Security and Medicare Taxes on wages for services performed in the US. However, foreign students in F-1, J-1, or M-1 nonimmigrant status for less than five years are exempt from these taxes. These students are typically considered nonresident aliens by the IRS and must file a federal tax return using Form 1040-NR. They may also need to file Form 8843, especially if they have US-sourced income, and possibly a state tax return, depending on the state.
Nonresident aliens are exempt from US taxes in the following cases:
- They are foreign government-related individuals.
- They are electing head-of-household filing status with a nonresident alien spouse.
- Their nonresident alien spouse is treated as a resident alien.
- They have income from US savings and loan institutions or credit unions.
Nonresident aliens who are engaged in a trade or business in the US must pay US tax on their effectively connected income, after allowable deductions, at the same rates as US citizens and residents. If they are not engaged in a trade or business, their US-source income is taxed at a flat rate of 30% (or a lower treaty rate), with no deductions allowed.
In certain cases, F-1 students may claim a tax treaty to reduce or fully exempt their income from taxes, and any overpaid amount will be refunded. Additionally, F-1 students are exempt from social security and Medicare taxes for up to five years from their arrival in the US.
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Social Security and Medicare taxes
International students in the US on F-1, J-1, M-1, Q-1, or Q-2 visas are generally considered nonresident aliens and are exempt from Social Security and Medicare taxes (collectively called FICA taxes) for a certain period. This exemption covers the first five calendar years of their physical presence in the US if they are full-time students, and the first two years if they are not. After this period, they are typically classified as resident aliens for tax purposes and become subject to FICA taxes.
However, if they remain enrolled as students, they may still be eligible for the FICA exemption. The five-year exemption for F-1, J-1, M-1, Q-1, or Q-2 visa holders also applies to any period in which the international student is engaged in "practical training" allowed by the USCIS, as long as they are still considered nonresident aliens.
It is important to note that the exemption only applies to wages earned for services performed within the US that are closely connected to the purpose for which the visa was issued. Additionally, the exemption does not extend to spouses and children of those with F-2, J-2, M-2, or Q-3 nonimmigrant status.
In the case of self-employment, nonresident aliens are generally not liable for self-employment taxes. However, once an individual becomes a resident alien, they become liable for self-employment taxes just like US citizens. It is worth mentioning that the US has entered into Totalization Agreements with several countries to avoid double taxation of income with respect to Social Security taxes.
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Tax treaties
International students in the United States on F-1 visas are typically considered nonresident aliens by the IRS and are therefore exempt from paying Social Security and Medicare taxes. However, they are required to file a US tax return (Form 1040-NR) for any income earned from US sources. Additionally, they must file Form 8843 with the IRS, even if they did not earn any money during their time in the US. Depending on the state, they may also need to file a state tax return.
Some countries have tax treaty agreements with the US, where certain types of income may be exempted from federal taxes. Tax treaties allow individuals to exclude a specified amount of US-source income on their tax returns, thereby reducing their tax liability. To claim a tax treaty exemption, nonresident aliens must generally complete Form 8233 and provide a tax treaty statement. In certain cases, F-1 students may be able to claim a tax treaty to reduce or fully exempt their income from taxes, and any overpaid amounts will be refunded.
It is important to note that if an F-1 student intends to reside in the US for longer than one year, they will be subject to a 30% taxation on their capital gains during any tax year in which they are present in the US for 183 days or more. Additionally, if an F-1 student changes their visa status to H-1B, they may still qualify as a nonresident alien for tax purposes and will need to submit Form 1040NR to the tax office. However, if an H-1B visa holder stays in the US for more than 183 days, they will be considered a resident for tax purposes and will need to file the resident 1040 form.
International students on F-1 visas who are employed by a school, college, or university where they are enrolled at least half-time may be eligible for exemption from Social Security and Medicare taxes under the "student FICA exemption". This exemption applies to services performed by students for their enrolled institution. However, off-campus jobs or working for other employers do not qualify for this exemption. Additionally, students with F-1 visas who participate in OPT (Optional Practical Training) after graduation and earn an income will be required to pay taxes and fill out a W-4 tax form with their employer.
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State-specific requirements
The United States has varying state-specific requirements for international students to be considered tax exempt. These requirements often depend on the type of visa the student holds and the duration of their stay in the country. Here are some state-specific considerations for tax exemption:
- F-1 Visa Holders: Students with F-1 visas are typically considered nonresident aliens and are required to file a federal tax return (Form 1040-NR) for income from US sources. They are generally exempt from paying Social Security and Medicare taxes for up to five years from their arrival in the US. However, they may be subject to a 30% taxation on their capital gains if they intend to reside in the US for longer than a year and are present for 183 days or more during the tax year.
- J-1 Visa Holders: Students with J-1 visas are treated similarly to F-1 visa holders in terms of tax exemption. They are also considered nonresident aliens for the first five years and are exempt from Social Security and Medicare taxes during this period. After five years, they may be classified as resident aliens for tax purposes.
- State-Specific Taxes: In addition to federal taxes, international students may need to pay state and/or local taxes, depending on the state they are studying in. For example, F-1 visa holders typically pay state income taxes, while M-1 visa holders usually don't because they are not expected to earn income.
- Tax Treaties: Some countries have tax treaties with the USA, which may exempt international students from certain taxes or provide reduced rates. It is important for students to understand the specific rules governing tax treaties between their home country and the US to claim any applicable benefits.
- State Deadlines and Requirements: Each state may have its own deadlines and requirements for filing state tax returns. It is essential for international students to be aware of the specific rules in the state where they are attending university.
- OPT and CPT: Students participating in Optional Practical Training (OPT) or Curricular Practical Training (CPT) may have different tax considerations. Income earned through OPT is generally taxable, and students must fill out a W-4 tax form with their employer. CPT participants may also need to declare their compensation on their tax returns.
It is always advisable for international students to consult with their university's international student center or a professional tax advisor to navigate the specific requirements and exemptions applicable to their unique circumstances.
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Frequently asked questions
Yes, every international student in the US is required to file a tax return as a condition of their visa. However, not all students will pay taxes to the American government.
International students with F, J, or M visas who have been in the US for less than five calendar years are considered nonresident aliens and are exempt from federal taxes.
It depends on the state. International students with F-1 visas pay federal and state income taxes. Students with M-1 visas don't pay taxes as they don't earn any income.
International students need to fill out Form 8843. They may also need to fill out Form 1040NR or 1040NR-EZ.
International students cannot file their tax returns electronically and must send them by mail.
