All international students who make money while in the United States are subject to taxation and U.S. tax laws. But, as an international student, you may be classified as an exempt individual and non-resident for tax purposes, which means you are not supposed to pay tax on your income earned.
OPT Students program is used to gain practical training and expertise in the major field of studies. F1 students also earns extra income and this helps to cover their education and other living expenses in the USA. Any income in the USA will certainly catch the attention of the IRS (Internal Revenue Service). So now the question might arise if F1 students need to pay F1 student tax or OPT tax?
Everything About F1 Student Tax or OPT Tax :
F-1 Visa does not let you pay for Social Security tax/ Medicare tax while on F1 status, Which means whether you are doing CPT, OPT or on OPT Extension, you do not have to pay those taxes unless you are in the United States for more than 5 years on F1 OPT social security tax.
Do F1 OPT Students Need to Pay U.S. Taxes?
F-1 Visa does not let you pay for F1 student tax while on F1 status, Which means whether you are doing CPT, OPT or on OPT Extension, you do not have to pay those taxes, or unless you are in United States for more than 5 years.
Students earning an income from an OPT program are required to pay taxes according to U.S. laws. Your tax status will determine the type of taxes you will need to pay. So let’s take a look at how you can determine if you need to pay tax or not depending on your stay in the USA.
Students on OPT are required to pay taxes on their income, according to U.S. laws and will complete a W-4 from their new employer before they begin to get paid, which fall under the category of OPT Tax. Your tax status will be depending on your period of stay in the USA.
If you have passed 5 years waiver period from significance present test while on F1 (before OPT), you will pay the same taxes. The US tax percentage for OPT as well as individual students ranges from 10% to 39.6% Tax rate depending on your income level.
NRA Tax and FICA Tax
There are two types of taxes for the F1 OPT students to pay while they stay in the U.S. They are the Medicare and Social Security tax, which are collectively called the FICA tax. All U.S. tax residents need to pay FICA tax from their salaries. This also includes F-1 students who have been in the U.S. for more than five years. The IRS has, however, decided that an NRA F-1 student (someone who has spent less than five years in the U.S.) does not have to pay FICA tax
Guide to F1 visa Tax Exemption
F1 visa Tax Exemption deals with the Social Security/ Medicare Tax Liability, which means that foreign students in F-1 or another nonimmigrant status who have been in the United States for less than 5 calendar years and are still NONRESIDENT ALIENS are exempted from social security/ Medicare taxes that is the FICA Tax. Based on IRS Pub 519, F1, J1 students are exempt for up to five years during their non-immigrant status as a full-time student in the United States under Student FICA tax exemption.
How to File F1 Visa Tax/ How to File F1 OPT Tax Return
Filing taxes in the United States for an International student can be an intimidating task for some students. How do you feel about filing taxes? Here’s a quick guide for international students who will be filing their first tax returns as an International student in the United States.
Steps to follow while filing for taxes or tax return:
Determine Your Residency TaxStatus
There are two types of people we need to distinguish between. One of them is the resident, and the other is the Non-Resident Alien (NRA). Students and graduates who are on an F-1 visa and are staying in the U.S. for less than five years are Non-Resident Aliens for tax purposes, but for students who have been in the USA for more than five years are considered residents and will need to pay tax.
Although having a resident tax status does not make you a permanent resident of the USA when it is related to your immigration status. Your tax status only depends upon the amount of time you’ve spent in the U.S., while your immigration status depends on the type of visa you hold.
International students on F, J, M, or Q visas are considered “exempt individuals,” which means you are exempt from the SPT for the first 5 years or any part of 5 or fewer calendar years, you are in the US if you are an international student or the first 2 years if you are a scholar. Exempt individuals are and automatically a non -resident for tax purposes.
After this period of 5 years, you will have to undergo the Substantial Presence Test, to determine if you were in the US long enough to be considered a resident for tax purposes or say for proof of your resident stay.
Substantial Presence Test
The Substantial Presence Test (SPT) is a norm used by the Internal Revenue Service (IRS) within the United States to conclude whether an individual who is not a citizen or lawful permanent resident in the recent past certifies as a “resident for tax purposes” or a “nonresident for tax purposes”; it is a form of physical presence test.
H -1B Temporary Workers must always take the SPT to determine their tax status. Unlike individuals in F and J status, H -1B Temporary Workers have no period of exemption from the SPT.
Determine your income from U.S. sources (if any)
Do you have an ITIN yet?
If you have filed for tax previously in last years, you may already have an ITIN number. You have to need ITIN for form 84843b
Get your combination of tax forms printed
Gather all income and tax-related documents received from your employers
Complete the forms (get a professional tax practitioner to help if you don’t know how the forms work or need to be completed)
Assess whether you owe any additional taxes (and find a suitable way to pay like a check, for instance)
Mail your completed tax forms and copies of your W-2’s, 1099’s, and 1042-S’s to the appropriate addresses
The Social Security/Medicare Tax Liability
The Internal Revenue Code (IRC) sets the liability for social security and Medicare taxes on both the employer and the employee, who earns income from wages in the United States. The IRC also gifts an exemption from security/Medicare taxes to alien students, scholars, teachers, researchers, trainees, physicians, au pairs, and other non-immigrants temporarily present or entered the United States on F-1, J-1, M-1, Q status as a non-resident alien.
Non-resident alien temporarily present in the United States is exempt from wages paid to them for services performed within the United States as long as such services are permitted by USCIS and are performed to carry out the purposes for which for non-immigrant status visas were issued to them.
Exempt Employment includes:
- On-campus student employment up to 20 hours a week (40 hrs. during summer vacations).
- Off-campus student employment allowed by USCIS.
- Practical Training student employment on or off-campus.
- Employment as a professor, teacher, or researcher.
- Employment as a physician, au pair, or summer camp worker.
Limitations on the exemption:
- The exemption does not apply to spouses and children in F-2, J-2, M-2, or Q-3 nonimmigrant status.
- The exemption does not apply to employment not allowed by USCIS or to employment not closely connected to the purpose for which the visa was issued.
- The exemption does not apply to F, J, M, or Q non-immigrants who change to an immigration status which is not exempt or to a special protected status.
- The exemption does not apply to F-1, J-1, M-1, or Q-1/Q-2 non-immigrants who become resident aliens.
Self-Employment Tax Liability
The Internal Revenue Code sets the self-employment tax on the self-employment gain of any person within the United States who has such self-employment financial gain. However, the IRC also gifts an exemption from self-employment tax on the self-employment income of NONRESIDENT ALIENS. A NONRESIDENT ALIEN is simply not chargeable for the self-employment tax. Nevertheless, if an alien individual becomes a RESIDENT ALIEN underneath the residency rules of the Code, he then specifically becomes accountable for self-employment taxes under the same conditions as a U.S. citizen.
Filing F1 Student tax returns for International students in USA
Every international student staying in the United States is required to file a tax return as a compulsion of your visa, but not everyone will pay taxes to the American government. International students are granted with a number of benefits and exemptions, so many will not owe anything. If at all you happen to pay a lot of tax, chances are you might even get a refund check.
Performing Tax Planning Strategies for University Students is an important task that should be followed systematically to better management of finances.
If you belong to the category of people who are going to file their taxes for the first time then, it can be an overwhelming procedure. Once you start earning money, you may get one or two W-2 forms from your employer, overall filing tax returns for an international student doesn’t consume a lot of time. Most likely you are using the Standard deductions with tax treaty which benefits your country.
The Standard Deduction is a specific dollar amount that decreases the amount of income on which you are taxed. Your Standard Deduction may include the basic standard deduction and additional standard deduction amounts for age and blindness.
As per IRS – Nonresident aliens cannot claim a standard deduction unless they are filing Form 1040. A majority of international students within the USA would file Form 1040NR-EZ or 1040NR until they become a Resident Alien.
All international students residing in the United States must file their tax returns every year. In this year I.e. 2019 one needs to file taxes before April 15th. An International student tax refund can only be availed by students who qualify for a refund due to tax treaties and a lack of serious income if they have earned income in the US.
Students on F1 visas are taxed as non-resident aliens until they have stayed for a period of more than 5 years, hence they don’t pay the FICA taxes. Non-residents cannot claim the standard deduction and the only allowed itemized tax deductions for F1 students is state taxes paid.
Collect Relevant Tax Documents for F1 Tax Filing
For completing your tax paperwork, you should have the following documents checklist:
- Valid Passport
- Most recent immigration status documents (e.g. I-20 or DS-2019)
- All relevant tax documentation from employers, stipend providers, or other relevant entities who provides taxable money (e.g. W-2, 1042-S and/or 1099).
- A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld
If at all you received a reportable income, you must wait to receive all appropriate documents before completing your tax return. There is no chance of altering or editing your tax documents after you submit them to the IRS. - A copy of the page from your passport showing the visa stamp
- All US entry and exit dates – INS Form I-94,
- Social Security Number (SSN) or Individual Taxpayer Identification Number(ITIN), if you have one
If your ITIN application is still pending and you won’t receive it before the filing deadline, you can apply for a tax-filing extension with the IRS. - We highly recommend you attend a tax workshop before filing tax documents
List of Federal Tax Forms:
Filing of forms will depend on your residency status, US source income in the previous calendar year, whether you need to apply for an ITIN, claim a tax treaty benefit, and a refund on Social Security and Medicare taxes. All the forms can be downloaded from the IRS website.
Form 8843 – Form for non-residents – as a statement for exempt individuals.
Form 1040NR – Form for U.S. Nonresident Alien Income Tax Return.
Form 1040NR-EZ – Form for U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents.
Form W-7 – Application for IRS Individual Taxpayer Identification Number – ITIN.
Form 8233 – Certain foreign nationals are eligible for tax treaty benefits.
Form 8316 – Form for Information Regarding Request for Social Security Tax Refund for Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type Visa
Form 843 – Form to request a FICA tax refund. Claim for Refund and Request for Abatement
Form W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)
Every international student, along with their dependents, needs to file Form 8843 separately. If you have received income in the last calendar year then you will need to file Form 8843 and most likely Form 1040NR-EZ also.
In addition to these federal tax forms, you may need to fill out state tax forms as well depending upon the state where you attend your university.
Overview of the Tax System in the USA
Americans and others residing within this country must pay taxes to the state and federal government, and the process is completed through an agency called the Internal Revenue Service (IRS).
What is FICA Tax?
The Taxes categorized underneath the Federal Insurance Contributions Act (FICA) are collected of the old-age individuals, survivors, and ailment insurance taxes, conjointly referred to as social security taxes, and therefore hospital insurance tax, also known as Medicare taxes.
Students generally do not have to pay FICA taxes. The University follows certain IRS rules in determining a student’s FICA exemption withholding. When eligible, OASDI is withheld at the current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total and Medicare at Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total, for a total tax of 7.65% until an individual does not reach the required age he/she is not eligible for the FICA tax exemption.
What is IRS?
To know about taxes you need to know about the IRS. So what is IRS? IRS or International Revenue Service is a U.S. government agency responsible for the collection of taxes and enforcement of tax laws. These laws were established in 1862 by President Abraham Lincoln, the firm operates under the authority of the United States Department of the Treasury, and its main purpose includes the collection of individual income taxes and employment taxes. It also handles corporate gift, excise, and estate taxes. That is why it is often referred to as the “Taxman” by the residents of the country.
State Income Tax
All the individual states in the USA have the Department of Revenue. This means that the State income taxes will be paid to the specific state where you lived during the Tax year. If at all you happened to live in two states, you may need to file two State Income Tax Returns.
Even if you didn’t earn a single dollar in the previous year, you will still need to file taxes. The filling of the International Student tax doesn’t take a long time. A majority of Universities and Colleges conduct seminars or workshops to inform international students on how to file taxes regarding the F1 visa or J1 visa.
Do I have to file taxes even if I have not earned it throughout the previous year?
Yes, even if you did not earn a single Dollar, as an international student in an F1 visa you will still need to file tax returns. {If this is the case then you just need to fill a simple form 8843}.
What is the tax year?
The period from January 1 to December 31 is considered to be a tax year in the USA.
What is form W-2?
The W-2 form reports an employee’s annual wages and is sent by the employer to the employee and to IRS at the end of the year.
Do I need an SSN (Social Security Number) to file the taxes?
An SSN is a nine-digit number issued to U.S citizens, regardless of permanent or temporary (working) residents. And yes you need an SSN or Individual Tax Identification Number to file taxes. Either of them is compulsory to file the taxes.
What is the Resident or Non-resident alien for tax purposes?
- Form 8843 – If you are an international student or a Non-resident Alien without any income in the previous year. No other tax files are required.
- Form 1040NR–EZ – A majority of international students on F1 and J1 visas who get salaries (W-2) or 1,099 will file their income tax using this form.
- Form 1040NR – If you have a complex tax return to file (if you are a non-resident of the United States with dependents or a qualifying relative and you have any form of U.S. income.
How do I file taxes?
To file all the taxes all you need to do is fill up the complete form of your specific visa and after doing that just mail it to the IRS address.
Is the whole process free?
It really depends on you, if you are comfortable doing the whole filing process by yourself then it will be cost-free but if you are comfortable spending some dollars then a lot of online forums will prepare your forms and direct mail them to the IRS.
What is the cost of filing my tax return?
If you do it yourself, it is free. Professional tax preparation services charge a fee. If you take some services like Sprintax, you will their fees as mentioned by them.
Do I want to file the taxes?
YES! You need to file federal tax returns if you were inside the U.S. for any quantity of it throughout the previous year.
If you receive gain inside the U.S., as well as wages, stipend, or scholarship funds, you’ll probably have federal and state tax withheld from your checks.
Form 8843: Whether or not you attained financial gain within the U.S. within the previous year, you need to file a minimum of the USA federal form 8843.
Form W-2: If you’re utilized by a particular University and/or any U.S. leader you ought to have received kind W-2, Wage and the Tax Statement that summarizes your previous year’s financial gain and taxes withheld, W-2 documents are sent by the start of January. If you have got worked for compensation and not nonetheless received your W-2, please contact your Human Resources department.
Form 1040(s): it’s the foremost kind once filing taxes and news gain. (Please, remember that there are many versions of this kind, consult your tax consultant for any information)
Form 1042-S: It details your blessings if it applies beneath a tax accord between the U.S. and your home country
NOTE: This maybe not a whole list of tax forms. For additional data consult your tax consultant.
