Are you in the United States on a F, J, M or Q visa? Interning or working on an OPT visa? Then welcome to the crazy world of US taxes as an international student!
Whether you recently moved here or are several years into your education, this guide is worth reviewing as we’ve come across many students who have unknowingly filed incorrectly.
Of course, you can always make things simple by letting a Visor tax professional handle your tax filing for you!
All international students have a tax filing requirement
Let’s dispel the first myth right away: all international students will need to file this tax season. What you need to file will vary depending on two factors:
- Your visa status(es) over the relevant tax year
- Whether you earned any income in the U.S. over the relevant tax year
There are three outcomes for what you will need to file based on those two factors:
- File a ‘non-resident’ tax return (called Form 1040NR) and Form 8843
- File a ‘resident’ tax return (called Form 1040) and (maybe) Form 8843
- File only Form 8843
The first step is determining your tax residency
There are two tax filing statuses in the United States for non-US citizens. One is filing as a ‘resident’ which is the equivalent to how a US citizen files. The other is filing as a ‘non-resident’, which comes with some of its own rules as described in the next section.
There are two tests that IRS has to determine whether a non-US citizen should file as a resident, rather than a non-resident.
Note: For a full explanation for determining your residency, check out this article.
- Green Card Test: If you are on a green card, then you are treated as a US citizen
- IRS Substantial Presence Test: This one is more complicated and requires counting the days that you spent in the U.S. over the past 3 years. Days while you were on a F, J, M or Q visa do not count toward the test. Find more detail about the Substantial Presence Test here.
If a non-US citizen meets either of the tests, the Green Card Test or the Substantial Presence Test, then he/she is considered a “resident” taxpayer. Otherwise, he/she will be a “non-resident”.
Differences in filing as a ‘non-resident’ vs. a ‘resident’
There are a few key differences between ‘residents’ and ‘non-residents’. The good news? It’s not necessarily disadvantageous to file your taxes as a ‘non-resident’, and in fact can work out in your favor in some situations.
The below table outlines some of the bigger differences when filing as a ‘non-resident’:
|Any foreign-earned income is exempt from US taxation. Residents, like all US citizens, are taxed on their worldwide income||Ineligible for tuition tax credits. Certain residents with income below the qualification thresholds can lower their taxes by up to $2,500 for tuition expenses.|
|Do not owe FICA payroll taxes (and can have these taxes refunded if were incorrectly withheld). Residents must pay the 7.65% tax taken from their paychecks.||Ineligible to file jointly with their spouse. Residents get to file one joint return, potentially saving taxes and streamlining their filing process.|
|There are many income tax treaties that United States has with various countries, which allow for residents of those countries to exempt certain income or face reduced tax rates.||The student loan interest deduction is not available to any married non-residents. Single non-residents are still eligible for the deduction.|
|Do not have to report foreign bank accounts. Residents must report money held outside the U.S., and can face steep fines for failing to do so.||Ineligible for the more favorable long-term capital gain rates on US-based investments. Non-residents pay a flat 30% on capital gains.|
What documents do you need when filing and what are the deadlines?
Regardless as to whether you are filing as a ‘resident’ or non-resident’, your 2018 tax return is due on April 15, 2019.
However, you do have the option of filing for an extension instead, due on the same date. This extends your filing deadline until October 15, 2019, but any tax balance owed still has to be paid by the original April deadline or you could be subject to penalties. You can learn more about extensions here.
When filling out your tax return, you first need to gather all your tax information. The general rule of thumb is to share anything that looks like a tax document with your tax accountant, as he/she can help you determine whether it’s relevant. But here are the most common forms to look out for:
|Income & Expense Sources||Tax Form||Received by?|
|Salary & bonuses (e.g. internships)||W-2||Jan 31|
|Bank interest, dividends, stock sales||1099||Feb 15|
|Partnership income (e.g. hedge funds / PE)||K-1||Mar 15|
|Other income (self-employed, rental, gambling, etc.)||self-reported||N/A|
|Tuition expenses||1098-T||Jan 31|
|Student loan interest||1098-E||Jan 31|
|Proof of health insurance||1095||Jan 31|
State Tax Filings
Don’t forget, most states (and even a few counties such as NYC) have their own income taxes. That means you likely need to file a state income tax return too. If you lived in more than one state over the course of the year, you might even get the pleasure of having to file multiple state tax returns.
The only states where you won’t have to file a tax return are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. If you earned income in any other state, then expect to have to file a state tax return along with your federal return.
At Visor, we take care of your state tax filing, so that’s one less thing you’ll have to worry about.
What if I didn’t earn any income in the U.S.? What do I file?
If you didn’t earn any income, then there is no need for you to file a full tax return (Form 1040 or 1040NR).
However, if you are on a student visa (F, J, M, or Q) then you still need to register your exempt days from the Substantial Presence Test on Form 8843. As mentioned earlier, the Substantial Presence Test looks at your days in the U.S. over a 3-year window, so exempting days while on a student visa may be important to future tax year filings.
Still not sure why it’s important to file Form 8843? Read more about Form 8843 here.
Exemption from FICA Payroll Taxes
The most common mistake made by non-resident taxpayers (although there are many) is paying FICA payroll taxes unnecessarily.
This mistake is most common during summer internships. The international student takes a job, maybe earns $20,000 working for Google or McKinsey, and mistakenly has 7.65%, or $1,530, taken from their paychecks. Unless you separately make an effort to reclaim these taxes, that’s money down the drain.
The steps to reclaim FICA taxes aren’t overly simple, but you can read how to do so here.
There’s a lot to digest about your US tax obligations as a non-US citizen. Visor is here to help though, and has worked with thousands of non-US citizens, especially international students, on their taxes.
Anything the article didn’t address? Leave a comment below and we’ll reply ASAP!
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