United States Taxation for International Students. Introduction to U.S. Taxation Rules, Tax Withholding and Tax Treaties

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1 United States Taxation for International Students Introduction to U.S. Taxation Rules, Tax Withholding and Tax Treaties 1

2 Disclaimer Please keep in mind that University of Arizona employees, while in their official role at the U of A, are not allowed to act as tax consultants or provide tax advice 2

3 General Guidelines to U.S. Taxes Generally, individuals in the United States, including foreign students, must report income and pay taxes to the U.S. federal government (IRS) and state government on appropriate tax forms It is the student s responsibility to file the appropriate tax forms and pay taxes to or receive a refund from the federal/state government 3

4 U.S. Tax Systems U.S. Tax System: U.S. Citizen Lawful Permanent Resident Resident Alien for Tax Purpose Nonresident Alien Tax System: Nonresident Alien for Tax Purpose 4

5 Immigration Status Versus Tax Status Immigration Status Tax Status U.S. Citizen = U.S. Citizen Lawful Permanent Resident = Lawful Permanent Resident Non Immigration Visa Holder = Resident Alien for Tax Purposes OR Nonresident Alien for Tax Purposes 5

6 Resident Alien or Nonresident Alien Green Card Test Substantial Presence Test (SPT) An international visitor will satisfy the SPT if he/she is present in the U.S. for at least 31 days during the current calendar year AND 183 days during the three year period using the calculation below: Substantial Presence Test Calculation # of days present during current calendar year + 1/3 # of days present during 1 st preceding calendar year + 1/6 # of days present during 2 nd preceding calendar year = 183 or more Resident Alien (RA) for U.S. Tax Purposes OR 182 or less Nonresident Alien (NRA) for U.S. Tax Purposes 6

7 Substantial Presence Test Students in the U.S. under an F 1 or a J 1 visa are exempt from counting the number of days present when calculating the SPT for the first 5 calendar years Rule of Thumb: If you stay in the U.S. for more than five years in F or J student status, you may be a resident alien for tax purpose 7

8 Tax Withholding The payor is required to deduct (withhold) taxes out of the payments made to nonresident aliens at the rate set by law Taxes are withheld depending on the payment type Scholarship Student Account Employment Income Payroll 8

9 Tax Withholding on Scholarship/Fellowship Scholarship/fellowship in excess of tuition and mandatory fees is taxable scholarship For student s in F 1 or J 1 student status, taxable scholarship is subject to 14% Federal Income Tax withholding A BGH service indicator is placed on every international student s account, unless the student is a resident alien, or is granted income tax treaty benefits If you are a resident alien or granted treaty benefits, your scholarship is NOT subject to the tax withholding 9

10 Tax Withholding on Scholarship/Fellowship Continued When a NRA student without treaty benefits has a refundable credit, the student account is reviewed to determine if taxes need to be withheld Once a tax assessment has been made, the BGH is temporarily released to allow the student to receive the funds After the funds are released, the BGH will be placed back on the student account 10

11 Tax Withholding on Scholarship/Fellowship Continued The tax that is charged on your student account will be paid to the IRS After the end of the year, the University will issue you an IRS tax form 1042 S to report the total scholarship and the taxes that have been withheld from your scholarship. You will need the 1042 S to prepare your tax return and file with the IRS Example: Scholarship from the University of Arizona to NRA Student at 14% withholding $860 NRA Student + $1,000 Taxable Scholarship = $140 IRS 11

12 Employment Income If you are a Graduate Teaching Assistant/Graduate Research Assistant, or student worker, you receive employment income through Payroll Applicable taxes will be deducted from your bi weekly paychecks 12

13 Tax withholding on Employment Income Federal Income Tax: based on your Form W 4 and the IRS tax table State Income Tax: based on your Form A 4 FICA taxes: OASDI at 6.2%; MED at 1.45% 13

14 FICA Tax Exemption Nonresident Alien students on F1 and J1 status are exempt from FICA taxes After you become a Resident Alien, you can still be exempt from FICA taxes if you are enrolled as a full time student when you are working. You will be taxed FICA on your employment income if you do not take classes for over 5 weeks during summer sessions 14

15 Tax Withholding on Employment Income Each January, the University issues a Form W 2 to each employee to report the total employment income, and the taxes that have been withheld If any of your employment income is exempt under income tax treaty, the exempt amount will be reported on form 1042 S You will need the W 2 and 1042 S to prepare your tax return and file with the IRS 15

16 Withholding Continued When you file your tax forms, the amount that is owed (liability) to the IRS is reconciled with the amount the IRS received from the withholding, for example: If your tax liability is $200 for the year, $140 was withheld, you owe the IRS $60 If your tax liability is $100, $140 was withheld, you get a refund from the IRS for $40 16

17 Tax Treaties Tax treaties exempt certain types of income from taxation If there is a tax treaty with your home country, you may qualify for a tax treaty exemption In order to qualify for treaty exemption, you must meet the qualifications set forth in the tax treaty and complete all applicable forms 17

18 Tax Treaties Continued The forms you need to fill out will depend on the type of income you receive You must have a SSN or an ITIN to receive treaty benefits The University will review and determine the eligibility of treaty benefits when you submit your form(s) 18

19 Resources IRS Publication pdf/p515.pdf IRS Publication pdf/p519.pdf ISPS Tax Information px?id=19689 Internal Revenue Service Arizona Department of Revenue 19