Foreign National Tax Information
Many foreign individuals are unfamiliar with the system of taxation
imposed by the United States on its citizens and residents. The
following is information is to assist foreign nationals on temporary
visas comply with the often complex U.S. Income Tax Laws.
Generally, nonresident foreign nationals must file annual tax statements,
called "tax returns" with the U.S. Internal Revenue Service. Proper
compliance with U.S. income tax laws is extremely important because
temporary visas require compliance with all laws of the United States.
Failure to file required tax forms may jeopardize your ability to
stay in the U.S.
What is the difference between resident
and nonresident taxpayer status?
A nonresident taxpayer
pays U.S. federal income tax only on U.S. source income. A nonresident
taxpayer must always file a tax return even if he or she has no
U.S. source income. All nonresident taxpayers must file the Form
8843, See Below, and complete Form 1040 NR-EZ or Form 1040NR if
required.
A resident taxpayer
pays U.S. federal income tax on world-wide income. A resident taxpayer
must file a tax return only if they received more than a certain
amount of income. U.S. citizens and residents (which includes more
than merely those who have been admitted for permanent residence
- "green card" holders) of the United States pay federal income
tax on all taxable income regardless of where the income is sourced.
NOTE: Individuals holding
H-1B, TN, O-1 or other non-immigrant visa status must determine
their taxpayer status by applying the "substantial presence test",
See Below. Generally, if you hold one of these visa statuses above
and were in the U.S. for at least 183 days in the prior year, you
are considered a resident taxpayer. Persons who have held more than
one non-immigrant status during the year will also want to consult
IRS Publication 519 to determine whether you are “dual status” alien.
Dual Status Alien taxpayers may be considered a nonresident taxpayer
for part of the year and a resident taxpayer for the other part
of the year.
Is my immigration residency status
the same as my tax residency status?
No. Your tax residency status is completely separate from your residency
designation for immigration purposes. You may qualify as a resident
for U.S. income tax purposes while remaining a nonimmigrant alien
for immigration purposes. If you are on a temporary visa, you might
be a resident alien, a non-resident alien, a non-resident alien
who is eligible to elect to be taxed as a resident, or a dual-status
alien for tax purposes.
If I am a permanent resident of the
U.S. am I always a resident for tax purposes?
If you are a legal permanent resident and hold a green card issued
by the US Immigration and Naturalization Service (INS) you are considered
a U.S. resident for tax purposes beginning on the first day you
are present in the U.S. as a lawful permanent resident. If you were
a nonresident prior to obtaining permanent residency status, you
will be classified as a dual-status alien for tax purposes. As a
dual-status alien you must file a separate return and generally
cannot claim certain items designated for permanent residents such
as the standard deduction and dependency exemptions.
As a resident taxpayer for U.S. tax purposes you must report your
worldwide income. However, you are also eligible to claim all deductions
and credits available to U.S. citizens once you are a full-year
resident. After your first full-year of permanent resident status,
you can file Form 1040, 1040A or 1040EZ. Note: you still may be
eligible to claim certain tax treaty benefits under the U.S. tax
treaty with your home country, even after establishing permanent
resident status.
Do I need to file a U.S. Income Tax
Return?
Generally, if you are a nonresident alien and receive wages or business
income while in the United States, you are required to file a tax
return regardless of the amount of income received.
Students or scholars visiting the United States on an F, J, M or
Q visa are classified as a nonresident for U.S. taxation purposes
and are required to file a tax return if they have any income subject
to U.S. income tax. If you are an exempt individual (exempt from
the substantial presence test for determining residency status)
you are required to file Form 8843 regardless of the amount of income
received.
IRS Forms
Form 1040NR - U.S. Nonresident Alien Income Tax Return
Form 1040NR-EZ - U.S. Income Tax Return for Certain Nonresident
Aliens With No Dependents
Form 8843 - Statement for Exempt Individuals and Individuals with
a Medical Condition.
W-2 Form - If you worked in the U.S., your employer(s) should send
you a statement of the wages that you earned and the taxes that
were withheld from you (on "Form W-2" or "Form 1099" for non employee
income) no later than January 31st of the following year.
Note: If you are an "exempt individual." Form 8843 must be filed
even if you are not required to file an U.S. income tax return.
Caution “exempt individual” does not mean you are exempt from U.S.
taxation rather that the rules for determining residency status
do not apply to you. In addition to completing the 1040NREZ or 1040NR
form, you will also need to complete the Form 8843 for yourself
and one for each member of your family present in the U.S.
International Students - How do I know
whether I need to complete the 1040NREZ or the 1040NR form?
Most international students
and scholars will use the IRS form 1040NR-EZ since it’s much easier
to complete. You should use the longer form 1040NR if:
• your 2002 income was $50,000
or more, or
• you were married and you can claim an exemption for your spouse
(you can claim an exemption for your spouse only if your spouse
did not work and you are from Canada, Mexico, Japan, Korea or India)
or
• you can claim educational expenses or living expenses, or
• you had dividend or capital gains income.
What is the deadline for filing my
tax return?
If you worked and earned wages
in the U.S., you must file your federal and state tax returns (if
required) by April 15 of the following year. If you received only
scholarship income, or received no U.S. source income during the
year, you must file your federal tax return by June 15 of the following
year.
U.S. Estate & Gift Tax
In addition to income tax
there are two other taxes that foreign nationals should be aware
of the estate and gift tax. Estate taxes can be an extremely complex
area and is beyond the scope of this general tax overview. The estate
tax is a tax imposed at death, at rates up to 55%, on the value
of all assets owned by the individual worldwide. Gift tax is imposed
on all gifts in excess of certain annual limits, regardless of the
location of the property given. If you have a sizable estate or
foreign business holdings, you may want to engage the services of
a Certified Public Accountant to assist you in tax planning to minimize
the effect of these taxes.
U.S. Social Security Taxes
Generally, immigrants will
be subject to U.S. Social Security taxes if they work while in the
U.S. Blanket exemptions from social security tax are generally available
only to those on F, J, M or Q student or faculty visas, and only
if the work relates to their teaching or learning program. The exemption
extends only to the primary visa holder. Children and spouses of
the primary visa holder are NOT exempt from social security taxes.
Also, persons with E, H and L visas are generally subject to U.S.
Social Security taxes. All of these rules are subject to modification
under the treaty if one exists between the U.S. and the immigrant's
country of citizenship.
Substantial Presence
Test
You will be considered a U.S.
resident for tax purposes if you meet the substantial presence test
for the calendar year. To meet this test, you must be physically
present in the United States on at least:
• 31 days during the current
year, and
• 183 days during the 3-year period that includes the current year
and the 2 years immediately before that, counting:
• All the days you were present in the current year, and
• 1/3 of the days you were present in the first year before the
current year, and
• 1/6 of the days you were present in the second year before the
current year.
The term “United States” includes
• All 50 states and the District of Columbia.
• The territorial waters of the United States.
• The seabed and subsoil of those submarine areas that are adjacent
to U.S. territorial waters and over which the United States has
exclusive rights under international law to explore and exploit
natural resources.
The term “United States” does
NOT include U.S. possessions and territories or U.S. airspace.
You are treated as present
in the United States on any day you are physically present in the
country at any time during the day. However, there are exceptions
to this rule. Do not count the following as days of presence in
the United States for the substantial presence test.
1. Days you commute to work
in the United States from a residence in Canada or Mexico if you
regularly commute from Canada or Mexico.
2. Days you are in the United States for less than 24 hours when
you are in transit between two places outside the United States.
3. Days you are in the United States as a crew member of a foreign
vessel.
4. Days you are unable to leave the United States because of a medical
condition that develops while you are in the United States.
5. Days you are an exempt individual.
The specific rules that apply
to each of these categories are discussed next.
Regular commuters from Canada or Mexico. Do not count the days on
which you commute to work in the United States from your residence
in Canada or Mexico if you regularly commute from Canada or Mexico.
You are considered to commute regularly if you commute to work in
the United States on more than 75% of the workdays during your working
period.
For this purpose, commute
means to travel to work and return to your residence within a 24-hour
period. Workdays are the days on which you work in the United States
or Canada or Mexico. Working period means the period beginning with
the first day in the current year on which you are physically present
in the United States to work and ending on the last day in the current
year on which you are physically present in the United States to
work. If your work requires you to be present in the United States
only on a seasonal or cyclical basis, your working period begins
on the first day of the season or cycle on which you are present
in the United States to work and ends on the last day of the season
or cycle on which you are present in the United States to work.
You can have more than one working period in a calendar year, and
your working period can begin in one calendar year and end in the
following calendar year.
Days in transit. Do
not count the days you are in the United States for less than 24
hours and you are in transit between two places outside the United
States. You are considered to be in transit if you engage in activities
that are substantially related to completing travel to your foreign
destination. For example, if you travel between airports in the
United States to change planes en route to your foreign destination,
you are considered to be in transit. However, you are not considered
to be in transit if you attend a business meeting while in the United
States. This is true even if the meeting is held at the airport.
Crew members. Do not count the days you are temporarily present
in the United States as a regular crew member of a foreign vessel
engaged in transportation between the United States and a foreign
country or a U.S. possession. However, this exception does not apply
if you otherwise engage in any trade or business in the United States
on those days.
Medical condition. Do not count the days you intended to
leave, but could not leave the United States because of a medical
condition or problem that developed while you were in the United
States. Whether you intended to leave the United States on a particular
day is determined based on all the facts and circumstances. For
example, you may be able to establish that you intended to leave
if your purpose for visiting the United States could be accomplished
during a period that is not long enough to qualify you for the substantial
presence test. However, if you need an extended period of time to
accomplish the purpose of your visit and that period would qualify
you for the substantial presence test, you would not be able to
establish an intent to leave the United States before the end of
that extended period.
In the case of an individual
who is judged mentally incompetent, proof of intent to leave the
United States can be determined by analyzing the individual's pattern
of behavior before he or she was judged mentally incompetent.
If you qualify to exclude days of presence because of a medical
condition, you must file a fully completed Form 8843 with the IRS.
You cannot exclude
any days of presence in the United States under the following circumstances.
• You were initially prevented
from leaving, were then able to leave, but remained in the United
States beyond a reasonable period for making arrangements to leave.
• You returned to the United States for treatment of a medical condition
that developed during a prior stay.
• The condition existed before your arrival in the United States
and you were aware of the condition. It does not matter whether
you needed treatment for the condition when you entered the United
States.
• Exempt individual. Do not count days for which you are an exempt
individual.
The term exempt individual does not refer to someone exempt from
U.S. tax, but to anyone in the following categories.
1. An individual temporarily present in the United States as a foreign
government-related individual.
2. A teacher or trainee temporarily present in the United States
under a J or Q visa, who substantially complies with the requirements
of the visa.
3. A student temporarily present in the United States under an F,
J, M, or Q visa, who substantially complies with the requirements
of the visa.
4. A professional athlete temporarily in the United States to compete
in a charitable sports event.
I am visiting the United States on
an H-1b visa, and my spouse is visiting on an H-4 visa. What is
my residency status for tax purposes?
You are not exempt from the substantial presence test unless you
are present in the United States on an F, J, M or Q visa. Therefore,
you are a U.S. resident in the current year for tax purposes if
you meet the substantial presence test, See Above, beginning on
the first day you are present in the United States. Note: You are
not considered present in the United States while you are here on
an F, J, M or Q visa.
As a resident taxpayer for U.S. income tax purposes you must report
your worldwide income. However, you are also eligible to claim all
deductions and credits available to U.S. citizens once you are a
full-year resident. After your first full-year of permanent resident
status, you can file Form 1040, 1040A or 1040EZ. Note: you still
might be eligible to claim treaty benefits under the U.S. tax treaty
with your home country, even after establishing permanent resident
status.
If you fail the substantial presence test you are a nonresident
alien unless you qualify for and make a special election (see below).
As a nonresident alien, you are required to file a tax return each
year reporting any income subject to U.S. income tax. If you are
married, you and your spouse must file separate returns. Married
filing a joint return (MFJ) is not available to nonresident aliens.
See IRS Form 1040NR, U.S. Nonresident Alien Income Tax Return, or
Form 1040NR-EZ U.S. Income Tax Return for Certain Nonresident Aliens
With No Dependents, for more information.
Special Elections: There is a special election under Internal
Revenue Service Code Section 7701(b)(4) to be treated as a resident
alien from your arrival date if you satisfy the following tests:
• You are not otherwise a resident alien for the year,
• You were not a resident alien at any time in the immediately preceding
year,
• You are a resident alien under the substantial presence test for
the immediately following year,
• You are present in the United States during the election year
for a period of 31 consecutive days,
• Your days of U.S. presence are 75% or more of the total days between
the beginning of the earliest 31 day consecutive U.S. day period
and December 31.
If you make the special election, you will be considered a dual-status
alien and eligible to claim an exemption for your spouse. Furthermore,
the regulations include an extremely liberal rule that permits an
alien who makes the election to also make an election on behalf
of dependent children who themselves satisfy the tests. You must,
however, have an ITIN for your spouse and children to claim them.
Also, to make the election, you must pass the substantial presence
test in 2003, which means we will have to file for an automatic
extension for the time to file your tax return. The regulations
require you to pay tax by the original due date of the return as
if you were a non-resident alien. As a dual-status alien, you cannot
file a joint return with your spouse and are subject to the less
favorable married filing a separate return tax rates. Additionally,
you are not subject to U.S. tax on any non U.S. source income earned
prior to your arrival in the U.S.
Alternatively, a further election is available, when combined with
the first election, to file a joint resident return with your spouse
and be treated as a U.S. resident for the entire year [IRC Sec.
6013(g)]. Under this election, you can claim the standard deduction
and other tax benefits available to U.S. citizens and residents,
but you are subject to tax on your worldwide income for the entire
calendar year. In order to eliminate double taxation, the foreign
tax credit is generally available to offset against any foreign
taxes paid on the foreign source income.
I am an F-1 visa holder and my spouse
is an F-2 visa holder. We both worked last year and our employers
withheld social security and Medicare tax. Can we claim a refund
of this tax?
Generally, U.S. Social Security and Medicare taxes apply to payments
of wages for services performed as an employee in the United States,
regardless of the citizenship or residence of either the employee
or the employer. In limited situations, these taxes also apply to
wages for services performed outside the United States.
Services performed by a nonresident
alien visiting the U.S. on an F, J, M or Q visa, which are carried
out for the purpose of the visa, are not subject to social security
or Medicare tax. Note: You must qualify as a non-resident alien.
Once you have passed the substantial presence test you no longer
qualify for this exemption. Additionally, family members not on
an F, J, M or Q visa do not qualify for the exemption from social
security tax.
If you are a non-resident alien and qualify for the exemption from
social security taxes, you should contact your employer and explain
that you are exempt from social security and medicare taxes and
request a refund. If the employer is unwilling to give you a refund,
you can apply for one directly from the IRS by filing Form 843 Claim
for Refund and Request for Abatement and Form 8316 Information Request
for Refund of Social Security Tax Erroneously Withheld on Wages
Received by a Nonresident alien on a F or J Visa.
Source, used with
permission www.kelanroycpa.com
For more information and assistance with resident
and nonresident taxation Contact
Kelan Roy, CPA
email kelan@kelan.net
