U.S. Taxation Of Foreign National Students, Scholars And Visitors: A Road Map for an Individual's Tax Return

by Paula N. Singer, Esq.

I. J-1 and F-1 Students

A. In the US in any F, J, M, or Q status 5 calendar years or less
1. Nonresident Alien for federal tax purposes

2. File tax return Form 1040NR or 1040NR-EZ by April 15; by June 15 if no income subject to wage withholding

a. Taxed on US source income

b. Married filing separately or single tax rates

c. Not eligible for standard deduction (except for business apprentices and students from India)

3. Withholding on compensation

a. Single rates and 1 or no exemption regardless of marital status

b. Form W-4 indicating NRA on line 6 required

c. Nonresidents in F-1, J-1, M-1 or Q-1/Q-2 status exempt from U.S. social security/and Medicare taxes on authorized employment

4. Can use Rev. Proc. 88-24 to offset taxable travel grants with a withholding allowance for the travel expenses if visit lasts a year or less.

5. J-2 and F-2 family members follow same rules except no social security/Medicare exemption

6. J-1 and F-1 Nonresident Aliens exempt from US social security and Medicare taxes. Student FICA Exception applies to foreign students in the same manner as to US students.

7. J-2 and F-2 family members follow same rules except no social security or/ Medicare tax exemption

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NOTE: Individuals with Q-1 visas follow the same rules as J-1 Students and Non-Students. Individuals with M-1 visas follow the same rules as F-1 Students. Individuals with other visa types (E, L, O, P, R, etc.) follow the same rules in determining their tax status as individuals on the H-1B visa. Individuals on A and G visas are nonresidents.
B. In the US in any F, J, M, or Q status more than 5 calendar years and satisfies the 183-day substantial presence test

1. Resident Alien for federal tax purposes unless satisfies IRS that he or she does not intend to reside permanently in the US in a statement attached to Form 8843.

2. File tax return Form 1040 by April 15

a. Taxed on worldwide income

b. Tax rates, deductions and exemptions the same as for US citizens

3. Withholding on compensation

a. Single or married filing jointly rates and regular exemptions

b. Can use Form W-4 to reduce withholding

c. Submit Form W-9, Certificate of U.S. Status to Payroll

d. J-1 and F-1 Resident Aliens subject to US social security and Medicare taxes

4. J-2 and F-2 family members follow same rules

II. J-1 Non-Students (Teachers, Researchers, etc.)
A. If the individual was not in the US in an F, J, M or Q status for 2 calendar years (4 years if all income is remuneration paid by a foreign employer) in the preceding 6 calendar years

1. Nonresident Alien for federal tax purpose

2. File tax return Form 1040NR or 1040NR-EZ by April 15; by June 15 if no income subject to wage withholding

a. Taxed on US source income

b. Married filing separately or single tax rates.

c. Not eligible for standard deduction

3. Withholding

a. Single rates and 1 or no exemptions regardless of marital status

b. Form W-4 indicating NRA on line 6 required

c. Nonresidents in F-1, J-1, M-1 or Q-1 or Q-2 status exempt from U.S. social security/Medicare taxes

4. Can use Form W-4 to reduce withholding on scholarships and fellowships under Rev. Proc. 88-24
5. J-2 family members follow same rules except no social security/or Medicare tax exemption

B. In the US in any F, J, M, or Q status for 2 calendar years (4 years if all income is remuneration paid by a foreign employer) or more in the preceding 6 calendar years.
1. Resident Alien for federal tax purposes

2. File tax return Form 1040 by April 15

a. Taxed on worldwide income

b. Tax rates, deductions and exemptions the same as for US citizens

3. Withholding on compensation

a. Single or married filing jointly rates

b. Can use Form W-4 to reduce withholding

c. Submit Form W-9, Certificate of Alien Claiming Resident Status to Payroll

d. J-1 Resident Alien subject to US social security taxes

4. J-2 family members follow same rules
III. H-1B Teachers and Researchers
A. In the US 183 days or more in the calendar year
1. Resident Alien for federal tax purposes from the first day of physical presence in the US

a. If first day of physical presence is January 1, file as Resident Alien for full year

b. If first day of physical presence is not January 1, file as Resident Alien for part-year

c. If first day of physical presence is January 1 but in F, J, M, or Q status in a year in which would have been Nonresident in that status, file as Resident Alien for part-year

d. If married on December 31 and one or both are Resident Aliens or one is a US Citizen or Resident Alien for federal tax purposes may elect to file as Resident Aliens for the full year

2. Resident Alien for full calendar year, file tax return Form 1040 by April 15

a. Taxed on worldwide income

b. Tax rates, deductions and exemptions the same as for US citizens

3. Resident Alien for part-year. See IRS Pub. 519, US Tax Guide for Aliens, for special rules on dual-status tax returns

a. Taxed on worldwide income during residency period only. Taxed as a Nonresident Alien on US source income during pre-residency period.

b. Single or married filing separately tax rates and 1 exemption

c. Not eligible for standard deduction

4. Withholding on compensation

a. Nonresident Period

1) Single rates and 1 or no exemptions regardless of marital status

2) Form W-4 indicating NRA on line 6 required

b. Resident Period

1) Single or married filing jointly rates

2) Can use Form W-4 to reduce withholding

3) Submit Form W-9, Certificate of U.S. Status to Payroll

5. H-4 family members same rules for determining residency

6. A Resident Alien subject to US social security/and Medicare taxes may be entitled to exemption under a social security (totalization) agreement by presenting a Certificate of Coverage evidencing payment of social security taxes to the home country

B. In the US less than 183 days in the calendar year and not a Resident Alien for federal tax purposes in the prior year or prior two years

1. Nonresident Alien for federal tax purposes
2. File tax return Form 1040NR or 1040NREZ by April 15; by June 15 if no income subject to wage withholding

a. Married filing separately or single tax rates and 1 exemption
b. Not eligible for standard deduction

3. Withholding on compensation

a. Single rates and 1 or no personal exemption regardless of marital status
b. Form W-4 indicating NRA on line 6 required

4. Can use personal exemption to offset taxable scholarships and fellowships if not used for employment.

5. H-4 family members same rules for residency determination

6. H-1B Nonresident Alien subject to US social security/Medicare taxes may be entitled to exemption under a social security (totalization) agreement by presenting a Certificate of Coverage evidencing payment of mandatory social security taxes to the home country

7. If in the US at least 31 consecutive days, may elect to file as a part-year resident provided

a. The individual is a resident in the subsequent year and

b. The individual was present 75 percent of the days from the beginning of the 31 days through the end of the calendar year

C. In the US less than 183 days in the calendar year but a Resident Alien under the cumulative 183 days test
1. Nonresident Alien for tax purposes if individual had a closer connection to a tax home in a foreign country and has not taken steps in calendar year to obtain US permanent resident status or applied to adjust to US permanent resident - follow rules in Section B above and include a completed Form 8840, Closer connection Statement, with the return

2. Otherwise Resident Alien for taxes purposes-follow rules in Section A above

IV. J or F Holders Status Individuals Who Change Status to H-1B Visa
A. If a Nonresident Alien for the first part of year under the rules in Section I or II above

1. If number of days of physical presence in the US in the H-1B status equals or exceeds 183 days in the calendar year Resident Alien for federal tax purposes - follow the rules in Section III A above

2. If number of days of physical presence in the US does not equal or exceed 183 days in the calendar year Nonresident Alien for federal tax purposes - follow the rules in Section III B above

3. Section III C exceptions above would not apply since individuals who accept employment in the US have a tax home in the US. Temporarily away from home deductions for travel, food, and lodging which the individual may have been claiming as a student, teacher or researcher while temporarily away from a foreign tax home would not longer be allowed.

B. If a Resident Alien under the rules in Section I or II above, follow the rules for a Resident Alien for federal tax purposes.