International Student and Scholar Advising
Federal Income Tax Brochure
February 2009
James Tenney, Judy Todd, Robin Catmur
P R O F E S S I O N A L N E T W O R K S
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
The information contained in this resource is intended to provide accurate information on federal income
taxes for advisers in the field of international education. It is provided with the understanding that the
publisher and contributing authors are not engaged in rendering legal services, and with the understanding
that the content does not constitute legal advice. NAFSA disclaims any and all liability resulting from
reliance upon this general information. Likewise, no information contained in e-mail messages or Web
postings, or in other correspondence or materials associated with this resource should be construed as
legal advice. Where legal advice or other expert assistance is required, the services of a competent
attorney should be sought.
Federal Income Tax Brochure
February 2009
By: James Tenney, Judy Todd, and Robin Catmur (content editor)
Introduction
This brochure is designed to offer general guidelines only for federal income tax obligations,
including determining tax residency and which forms must be filed and when.
Taxes are often complicated—even for those native to the United States. There are many
different kinds of taxes in the United States, and different agencies are responsible for collecting
these taxes. These taxes include:
Personal Property Tax (supports local roads and schools and is primarily a tax on ownership
of a car). This yearly local tax that will vary, depending on the purchase price of the car or
cars owned. Nonresidents are not exempt from this tax.
Social Security and Medicare taxes (together called FICA). These taxes support U.S. retirees
and the disabled. Nonresidents in F, J, M, or Q categories are exempt from these taxes during
the time they are ―non-resident aliens‖ for tax purposes if they are in valid immigration
status.
City/Local Income Tax is generally required in larger metropolitan areas and may require
that a tax return be filed for that locality.
State Income Tax (only Alaska, Florida, New Hampshire, Nevada, Tennessee, Texas, and
Washington do not have a state income tax). Individuals living in all other states must file a
state income tax return if they receive any U.S. income while living in that state. Some states
allow tax treaty exemptions similar to those available at the federal level; others do not. It is
the responsibility of all taxpayers to follow the tax rules for the state in which they live.
Many state Departments of Revenue have excellent Web site resources or local offices that
can provide answers for taxpayers with questions about their filing obligations.
Federal Income Tax.
What is Considered Income?
Nonresidents, for tax purposes, are taxed only on their U.S. income. With a few exceptions, this
means that any income received from outside the United States is not considered taxable in the
United States. Residents, for tax purposes, are taxed by the United States on their income from
anywhere in the world.
Sources of U.S. income may include on-campus employment, scholarships, fellowships,
graduate assistantships, practical or academic training, and any compensation received for labor.
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
Individuals who are nonresidents for tax purposes (as discussed below) are not required to pay
taxes on interest paid to them by U.S. banks.
Note: ―Income‖ is not limited to wages paid to the nonresident in cash, but also includes that
portion of a scholarship, fellowship, or assistantship that is applied to housing and meal
expenses. The portion applied directly to tuition, fees, and books is not considered income to any
student. If scholarship money is provided directly to the nonresident by check or cash, however,
it is fully taxable even if the student intends to use it to pay for tuition, fees, and/or books.
What is a Tax Return?
In the United States, federal income taxes are prepaid by our employer(s) based on the estimate
of liability provided by the employee on the Form W-4 (usually completed by the employee at
the time of hire). Since the withholding is only an estimate, employees are given a yearly
opportunity to reconcile the amount taken out with how much was owed. The name of the form
on which the reconciliation is made is called the ―Tax Return.‖ The tax return is filed with the
Internal Revenue Service (IRS), an agency of the U.S. government.
In some cases, filing the tax return results in a refund from the IRS because the withholding was
higher than necessary. However, sometimes a taxpayer does not have enough withheld from
payments and must send a payment to the IRS with his or her tax return. Occasionally, the
amount taken out matches the amount due, so no money is due by either the taxpayer or the IRS.
(This happens most often when a tax treaty exemption has been applied, and there is no liability
on the income.)
The deadline for filing the tax return is April 15 of every year for individuals within the United
States. Individuals filing a tax return from outside the United States have an automatic extension
of time to file until June 15. However, this is NOT an extension of time to pay, so care must be
taken to not encourage late filing when tax may be due. Individuals who need to file only the
Form 8843 because they had no income are also given until June 15 to submit their form.
Who Must File a Tax Return?
All individuals in the United States who have income must file a U.S. tax return. Tax residents
usually complete Forms 1040 or 1040-EZ. Nonresidents for tax purposes must complete either
Forms 1040NR-EZ or the longer 1040-NR. (See ―Tax Residency Determination‖ below to
determine which forms must be filed.)
A tax return must be filed even if no taxes are withheld from the income because of a tax treaty
exemption between the United States and the country of tax residence for the international
visitor. Nonresidents who are married and both work must each file a U.S. tax return.
Please note that the IRS changed the withholding requirements for employers and the filing
requirements for nonresident aliens as of January 1, 2006. Non-resident aliens are not required
to file a tax return if the income amount is below the personal exemption amount. If taxes were
withheld, the taxpayer may still choose to file a return, even if the income amount is less than the
personal exemption for that year.
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
In addition to the tax return, all individuals in F, J, M, and Q immigration status who are ―exempt
individuals‖ (including spouse and children) are required to file a Form 8843 - Statement for
Exempt Individuals. Filing this form does not mean the person is exempt from taxes, but rather
that he or she is exempt from counting days of presence in the United States to determine if he or
she is to be taxed as a resident or a nonresident. This form asks for certain information about
immigration status. Therefore, if a nonresident alien has no income in the United States but is
still within the ―exempt individual‖ period, he or she must file the Form 8843.
What is a “Non-Resident” Alien?
Two primary U.S. government agencies use the terms ―Non-resident‖ and ―Resident Alien,‖ but
define them differently, which can be a source of significant confusion to international visitors.
The U.S. Immigration Service (USCIS) defines a nonresident alien as someone in the United
States who is not a U.S. citizen or U.S. permanent resident and who has a residence abroad
he or she does not intend to abandon (i.e., he or she has not been provided authorization to
live in the United States permanently).
The IRS divides everyone into two categories for tax purposes—resident and nonresident:
o Residents: all U.S. citizens, Lawful Permanent Residents (i.e., ―green card‖ holders), and
nonresident aliens for immigration purposes who have met the Substantial Presence Test
(described below).
o Nonresidents: all others, regardless of immigration status.
Determining Tax Residency
The Substantial Presence Test (SPT) is the way the IRS determines when nonresident aliens for
immigration purposes have been in the United States long enough to be considered residents for
tax purposes. To pass the SPT, one must be present in the United States for a total of 183 days,
counted over a period of three years as detailed more fully in IRS Publication 519.
Those in F, J, M, and Q immigration status do not count days of physical presence during the
time they are ―exempt individuals.‖ (Remember that ―exempt individual‖ does not mean exempt
from tax, but exempt from counting days of physical presence toward the substantial presence
test.) The rules for ―exempt individuals‖ are:
F, J, M, or Q students and their dependents are ―exempt individuals‖ for a period of five
years throughout their lifetime (going back to January 1, 1985 when tax laws changed).
J nonstudents and their dependents are ―exempt individuals‖ for a period of two out of every
six tax years.
and institutions
providing income to nonresidents.
http://www.irs.gov/publications/p519/index.html
901: U.S. Tax Treaties
Tables and texts that outline each current tax treaty and any retroactive clauses with older
agreements. This is valuable for both nonresident aliens and institutions making payments to
them. In cases that are ambiguous, the tax treaty text should be used.
http://www.irs.gov/pub/irs-pdf/p901.pdf
http://www.windstar.com/public/treaties.html
4152: Electronic Tool-Kit for Non-Resident Alien VITA Sites
Comprehensive guide for those seeking more detail, including scenarios and frequently asked
questions.
http://www.irs.gov/pub/irs-pdf/p4152.pdf
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
IRS Link and Learn Foreign Student VITA Volunteer Training and Testing (replaced IRS
Publication 678-FS as of tax year 2008)
http://www.irs.gov/app/vita/foreign_student.jsp
IRS Form W-7
http://www.irs.gov/pub/irs-pdf/fw7.pdf
IRS Substantial Presence Test
http://www.irs.gov/businesses/small/international/article/0,,id=96352,00.html
U.S. Citizenship and Immigration Services
http://uscis.gov/graphics/
Social Security Administration
http://www.ssa.gov/
Examples of University Resources
University of Cincinnati
http://www.isso.uc.edu/
University of Missouri
http://cashiers.missouri.edu/nra.htm
University of Tennessee Health Science Center
http://www.utmem.edu/international/incometax.php
