International students with an income in the U.S. are required to pay certain taxes, including taxes on the following:
- Salary
- Interest
- Wages and other means of compensation
- Dividends
- Tips
- Certain grants and scholarships
- Awards and monetary prizes
International students in the U.S. are only taxed on the earnings they make from U.S. sources. Failure to pay and file for taxes can lead to penalties that will significantly hurt your chances of getting a U.S. visa or Green Card in the future.
Do international students pay taxes in the U.S. even if they aren’t earning?
If you’re an F1 Visa holder and not making any form of income while studying in the U.S, you’re not required to pay any taxes. You do, however, need to file Form 8843 with the U.S. Internal Revenue Service (IRS).
International students who are making an income through Optional Practical Training (OPT) are required to pay federal and state income tax. In this case, you will need to fill out a W-4 tax form with your employer at the start of your OPT. You will also need to determine your residency status in order to properly file your taxes.
How to establish your U.S. residency status?
For tax purposes, international students on F-1 visas who have been living in the U.S. for less than five years are typically considered non-resident aliens. Students who have been staying in the U.S. for more than five years are considered resident aliens. You can use this information to figure out your specific tax filing guidelines.
The IRS establishes your U.S. residency and decides how you are taxed based on something called the Substantial Presence Test. You can visit the IRS website to find out about this test, along with exempt categories such as trainees, or students temporarily staying in the U.S. with a J or Q visa.
These are the major factors that are involved in establishing your substantial presence:
- You must have spent at least 31 days of the current year on U.S. soil
- You must have been physically present in the U.S. for a cumulative total of 183 days over the most recent three-year period.
If you fail the substantial presence test, the IRS will consider you a nonresident alien and you’ll only be taxed for income earned through U.S.-based sources. In addition, you may be eligible for partial to complete tax exemption if your home country has entered into a tax treaty with the U.S.
What deductions can you claim on your F1 tax return?
SALT deductions
International students can claim a deduction for taxes that they pay in the form of State and Local Taxes (SALT). Tax deductions based on SALT are capped at $10,000. You can claim a tax deduction by listing SALT as an itemized deduction in your line 11, 1040 NR-EZ form. SALT deductions can also be included in your Schedule A 1040 NR form.
FICA taxes
If you’re an F-1 visa holder that’s staying in the U.S. on a temporary basis, you can claim exemption from Federal Insurance Contributions Act (FICA) taxes. These include the tax on Medicare and Social Security. The exemption period for FICA taxes is five years from the day that you arrived in the U.S.
Standard Deduction
Standard Deduction is the amount of your income that will not be taxed. Currently, only certain international students and business apprentices from India can claim Standard Deduction, based on Article 21 of the U.S. – India Tax Treaty.
How can international students in the U.S. claim tax refunds?
In order to claim a refund on taxes such as FICA, scholarships and grants, you’ll first need to file your tax return on time. Scholarships or grants that are fully or partially covered by your home country’s tax treaty with the U.S. are also eligible for tax refunds. You can file international student tax returns directly at the IRS website or seek assistance from a tax agent, professional accountant or tax filing software.
International Students requirements for filing a tax return
Here is the list of essentials for filing your tax documents with the IRS:
Wage and Tax Statement
Wage and Tax Statement, or W-2 form, is the tax form for reporting your wages paid and taxes withheld during the previous year. You should request your W-2 from your employer at the end of January.
Social Security Number or Individual Taxpayer Identification Number
You’ll be required to provide your Social Security Number when filing your tax return. Students who don’t have Social Security Number can file their tax returns using their ITIN.
1042-S form
If you have received a paid scholarship that provides you with a fixed stipend, you’ll need to acquire a 1042-S tax form for international students from the educational institution that awarded you the scholarship.
1099 form
If you’re earning any investment or rental income, or have drawn any pay working as an independent contractor, you’ll be required to submit a 1099 form when filing your tax return.
Taking care of tax-related procedures might be one of the more unsavory aspects of life as an international student, but it’s certainly essential and demands your undivided attention. Staying organized in your financial affairs and informed about IRS regulations will help you carry out your tax obligations in an easy, timely manner.
