Visa Holder Tax Implications
Aliens temporarily present in the United States as students, trainees, scholars, teachers, researchers, exchange visitors, and cultural exchange visitors are subject to special rules with respect to the taxation of their income. There is no minimum dollar amount of income, which triggers a filing requirement for a nonresident alien, including foreign students or foreign scholars. The dollar limit thresholds which trigger a filing requirement for a U.S. citizen or a resident alien do not apply to nonresident aliens.
Who Must File
Filing IS required by nonresident alien students and scholars who have:
1) A taxable scholarship or fellowship
2) Income partially or totally exempt from tax under the terms of a tax treaty; and/or
3) Any other income, which is taxable under the Internal Revenue Code.
Filing IS NOT required by nonresident alien students and scholars who have income ONLY from:
1) Foreign sources;
2) Interest Income from:
4) A scholarship or fellowship, which is entirely a Tax Free Scholarship or Fellowship as described in Chapter 1 of Publication 970, Tax Benefits for Education; and/or
5) Any other income, which is nontaxable under the Internal Revenue Code. However, income, which is not taxable because of an income tax treaty must be reported on a U.S. income tax return even though no income tax is due on the U.S. income tax return.
Resident Alien vs. Nonresident Alien Filing Status
A nonresident taxpayer pays U.S. federal income tax only on U.S. source income. A nonresident taxpayer must always file a tax return even if he or she has no U.S. source income. All nonresident taxpayers must file the Form 8843.
A resident taxpayer pays U.S. federal income tax on world-wide income. A resident taxpayer must file a tax return only if they received more than a certain amount of income. U.S. citizens and residents (which includes more than merely those who have been admitted for permanent residence - "green card" holders) of the United States pay federal income tax on all taxable income regardless of where the income is sourced.
NOTE: Individuals holding H-1B, TN, O-1 or other non-immigrant visa status must determine their taxpayer status by applying the "substantial presence test", See Below. Generally, if you hold one of these visa statuses above and were in the U.S. for at least 183 days in the prior year, you are considered a resident taxpayer. Persons who have held more than one non-immigrant status during the year will also want to consult IRS Publication 519 to determine whether you are “dual status” alien. Dual Status Alien taxpayers may be considered a nonresident taxpayer for part of the year and a resident taxpayer for the other part of the year.
Tax Treaties
Scholarships and Fellowships
Social Security Numbers and FICA Taxes
For more information on visa tax implication, please contact us.
Aliens temporarily present in the United States as students, trainees, scholars, teachers, researchers, exchange visitors, and cultural exchange visitors are subject to special rules with respect to the taxation of their income. There is no minimum dollar amount of income, which triggers a filing requirement for a nonresident alien, including foreign students or foreign scholars. The dollar limit thresholds which trigger a filing requirement for a U.S. citizen or a resident alien do not apply to nonresident aliens.
Who Must File
Filing IS required by nonresident alien students and scholars who have:
1) A taxable scholarship or fellowship
2) Income partially or totally exempt from tax under the terms of a tax treaty; and/or
3) Any other income, which is taxable under the Internal Revenue Code.
Filing IS NOT required by nonresident alien students and scholars who have income ONLY from:
1) Foreign sources;
2) Interest Income from:
- U.S. bank
- a U.S. savings & loan institution
- a U.S. credit union
- a U.S. insurance company
4) A scholarship or fellowship, which is entirely a Tax Free Scholarship or Fellowship as described in Chapter 1 of Publication 970, Tax Benefits for Education; and/or
5) Any other income, which is nontaxable under the Internal Revenue Code. However, income, which is not taxable because of an income tax treaty must be reported on a U.S. income tax return even though no income tax is due on the U.S. income tax return.
Resident Alien vs. Nonresident Alien Filing Status
A nonresident taxpayer pays U.S. federal income tax only on U.S. source income. A nonresident taxpayer must always file a tax return even if he or she has no U.S. source income. All nonresident taxpayers must file the Form 8843.
A resident taxpayer pays U.S. federal income tax on world-wide income. A resident taxpayer must file a tax return only if they received more than a certain amount of income. U.S. citizens and residents (which includes more than merely those who have been admitted for permanent residence - "green card" holders) of the United States pay federal income tax on all taxable income regardless of where the income is sourced.
NOTE: Individuals holding H-1B, TN, O-1 or other non-immigrant visa status must determine their taxpayer status by applying the "substantial presence test", See Below. Generally, if you hold one of these visa statuses above and were in the U.S. for at least 183 days in the prior year, you are considered a resident taxpayer. Persons who have held more than one non-immigrant status during the year will also want to consult IRS Publication 519 to determine whether you are “dual status” alien. Dual Status Alien taxpayers may be considered a nonresident taxpayer for part of the year and a resident taxpayer for the other part of the year.
- There are two tests to determine if you are a resident alien of the United States (for tax purposes).
- Green card test—you must be a permanent resident granted and/or approved by the Bureau of Citizenship and Immigration Services (formerly the Immigration and Naturalization Service) for an alien registration card.
- Substantial presence test—You must be physically present in the United States on at least 31 days during the current year and on 183 days during the three-year period that includes the current year and the two preceding years calculated as follows:
- count all days present in the current year;
- count one-third of all days present in the year prior to current year; and
- count one-sixth of all days present in the second year prior to the current year.
- Students present in the United States with an F, J, M, or Q visa status are exempt individuals (do not apply the substantial presence test) for five calendar years.
- Researchers and scholars with a J visa status are exempt individuals for two calendar years.
- Other visa holders (H-1, B-1, etc.) must apply the substantial presence test immediately.
- Resident aliens for tax purposes are taxed on their worldwide income. They will be taxed like US citizens. They must file Form 1040EZ, Form 1040A, or Form 1040.
- Nonresident aliens are taxed only on US source income. They must file Form 1040NR-EZ or Form 1040NR, along with Form 8843.
- Resident aliens for tax purposes must file Form W-9.
Tax Treaties
- The United States has entered in tax treaties with over 50 countries.
- These treaties vary greatly with the type and amount of benefits provided for students and scholars. They may or may not give tax exemption for US source income.
Scholarships and Fellowships
- Part of your scholarship or fellowship may be taxable.
- Tuition, required fees, books, equipment, and supplies are considered qualified educational expenses and are not subject to tax.
- Form 1042-S will not be issued for scholarship/fellowship amounts, including tuition waivers/reductions, used for tuition and related fees.
- Room and board, living expenses, and incidental expenses are usually taxable.
- The amounts are taxed at a flat 14 percent for F, J, M, and Q visa holders.
- A Form W-4 and the attachment are required each calendar year to authorize the withholding of federal income tax on taxable scholarships and fellowships.
- These amounts are reported on Form 1042-S to individuals by March 15.
Social Security Numbers and FICA Taxes
- Every employee must have a US social security number in order to receive wages.
- Fellowship/scholarship recipients and independent contractors must have a US social security number or an individual taxpayer identification number (ITIN).
- Nonresident individuals may be exempt from social security tax. Generally, F-1 and J-1 visa holders are exempt from social security taxes for the period they are considered nonresident aliens for tax purposes if the employment is directly related to their purpose for being in the United States.
- Nonresident students legally may only be employed at the educational institution in which they are studying or be approved for internship or co-op job training/experience through the International Programs and Services.
- Authorized F-1 and J-1 employment, including practical or academic training, is exempt from social security taxes, provided you are still considered a nonresident alien for tax purposes. Notify the employer about this exemption so the tax is not withheld.
- It is possible to receive the FICA tax refund, but it is a cumbersome and lengthy process.
- F-2, J-2, and H-1 visa holders are not exempt from the FICA tax.
For more information on visa tax implication, please contact us.