Internal Revenue Service

Wage and Investment

Stakeholder Partnerships,Education and Communication

Spring 2011

International Students & Scholars Income Tax

Seminar #2

Note: This workshop will explain only the basic

rules of resident income tax filing.

Please Note

This workshop is for students onF-1 or J-1 visas who have been

in the U.S. for 5+ years.

It is also for scholars on J-1 visas who have beenin the U.S. for 2+ years

out of the last 6 years ANDfor employees on H-1B visas.

Internal Revenue Service

•The taxation agency of the U.S. Government to which you– File your personal Income Tax

Return

State Tax Departments

• The taxation agency of the State Government to which you may need to– File your personal Income Tax Return

• If you resided in New York State in 2010, you may need to file a NYS Income Tax Return.

• If you lived in another State, you may need to file that State’s Income Tax Return.

• If you lived in two States, you may need to file two State Income Tax Returns.

Basic Tax Vocabulary

• Alien: generally, any person who is not a U.S. citizen

• Student: person temporarily in the U.S. on an F, J, Q or M visa

• Scholar: person who is not a student & who is temporarily in the U.S. on a J or Q visa

Basic Tax Vocabulary (cont.)

• Resident or Non-resident: refers to one’s tax filing status (Nothing else!)

• IRS: Internal Revenue Service• Income Tax Return: statement

filed (submitted) by individual taxpayer to the IRS

Do I file as a Non-Resident or

Resident?

Determinationof Residency Status

Do not confuseFederal Tax Residency with

Immigration Permanent Residency

ORNew York State Residency

requirements for state tuition rates

Federal Tax Residency Rules

• For Federal Tax purposes, foreign nationals are classified as:

•Resident Aliens OR•Nonresident Aliens (anyone who is

not a resident alien)• Note: There are also “Dual Status” aliens, who are

considered as residents for part of the year and nonresidents for part of the year. This topic will not be covered in the presentation.

Resident or Nonresident?

The following determines whether you are a resident or nonresident for federal tax purposes:

1. Green Card Test2. Substantial Presence Test3. Residency Through Marriage

1) “Green Card” TestLawful Permanent Resident of the U.S.

Who is a Resident for Tax Purposes?

Green Card Test

• Your residency starting date for tax purposes is based on the date your status changed to Lawful Permanent Resident.

Remember: There is no option. If you are a Lawful Permanent Resident, you are a resident for tax purposes.

Who is a Resident for Tax Purposes?

2) “Substantial Presence” Test

Calculation that takes into consideration presence during the current year and two immediately preceding years

”Substantial Presence” Test

31 days during the current yearand

183 days based on a calculation that considers presence during

the current year and two preceding years

Residency Rules

A. Current year days in U.S. x 1 = ___days Must have at least 31 days in current year

B. 1st preceding year days in U.S. x 1/3= ___days

C. 2nd preceding year days in U.S. x 1/6= ___days

D. Total “Days in U.S.” A+B+C= ___days

If Line D equals or exceeds 183, 183-day test is passed.

Must pass both 31-day and 183-day tests.

Substantial Presence Test (2-Part Test)

Substantial Presence Test

• If Line A equals or exceeds 31 days and Line D equals or exceeds 183 days, then you are a Resident Alien for federal tax purposes.

• If not, then you are a Nonresident Alien for federal tax purposes and do not need this workshop.

Some individuals are exempt from counting days toward the Substantial Presence Test. •Days of an “EXEMPT” individual•Commuter from Canada or Mexico•Others (see Publication 519)

Residency Rules

Who are Exempt Individuals?

• F, J, M & Q students (who have been in U.S. for less than 6 years)

• J & Q Scholars (who have been in U.S. for less than 3 years out of last 6 years)

Note: Not exempt from taxation

Residency through Marriage

3) A nonresident spouse can be treated as a resident for tax purposes – You are required to file jointly with

your U.S. Citizen or U.S. Resident (for tax purposes) spouse.

– You must report world-wide income.

Establishing a Closer Connection

If you want to remain a non-resident for tax purposes by claiming a closer connection to your country, you can if you:– are present in the U.S. less than 183 days

in the current year AND– have a tax home in a foreign country AND– file Form 8840

Note: There are other criteria. Please see Form 8840 instructions.

Residency Starting Date

Residency Starting Date

Residency starting date under green card test

If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on

which you were present in the U.S. as a Lawful Permanent Resident.

Residency Starting Date

Residency starting date under substantial presence test

Your residency starting date is generally the first day you were present in the U.S. during that

calendar year.

Residency Starting Date

When both the Substantial Presence Test and Green Card Test apply, use the earlier of the two dates.

Tax Treatment of Resident Aliens

Are you required to file a U.S. Resident Tax Return?

What is Gross Income?

Basic Tax Vocabulary (cont.)

• Compensation/Earnings: wages, salaries, tips

• Income: wages, salaries, tips, interest, dividends, some scholarship/fellowship grants

Gross Income

• Wages, salaries and tips• Bank interest• Investment Income (taxable)• Taxable Scholarship/FellowshipNote: These are only a few examples.

Remember

Resident Aliens are taxed on worldwide income, just as U.S. Citizens are.

• Resident Aliens may not claim exclusions of income based on Tax Treaties (with certain exceptions stated in some tax treaties).

Wages, Salaries and Tips

• Amounts you receive from an employer

• You should receive a Form W-2 at the end of the year. It reports the annual amount of wages you received.

Taxable Scholarship and Fellowship

• Scholarship and fellowship grants are not included in taxable income if used for tuition, fees, books, supplies and equipment required for courses AND if the student is pursuing a degree.

• Any portion of scholarship or fellowship received for room & board or in exchange for teaching or research is included in taxable income.

What is a Scholarship or Fellowship?

• You call it: • Internal Revenue calls it:

Non-taxable Scholarship

(No work required)

Tuition Waiver

What is a Scholarship or Fellowship?

Room and Board Waiver

Taxable Scholarship

•You call it: •Internal Revenue calls it:

What is a Scholarship or Fellowship?

Teaching or ResearchAssistantship Stipend (recipient performs

work)Taxable Wages

•You call it: •Internal Revenue calls it:

Do you have to file?

• If your gross income is over the dollar amounts listed on the chart, you must file a U.S. Federal Income Tax Return.

• If you have overpaid taxes, you must file an income tax return in order to receive an income tax refund.

Do you have to File?

First, learn the following tax vocabulary . . .

Filing Status

• Single: not married• Married: married and file income

togetherNote: U.S. recognizes marriage from U.S. states and other countries

• Married filing Separate: married but files income alone

Filing Status (cont.)

• Head of Household: single and pays for maintenance of a home for a dependentNote: Read the rules for this status carefully before claiming it. (IRS Publication 17)

• Qualifying widow(er) with dependent child: able to claim this status for two years after the death of the spouse

2010 Filing Requirements for Resident Aliens

Income Tax Forms

What forms should I fill out?

Resident aliens can file Forms 1040, 1040A or 1040-EZ(See form instructions for any

restrictions.)

More Tax Forms

• W-2: Wage and Tax Statement• 1040 or 1040A: U.S. Resident

Alien Income Tax Return • 1040-EZ: U.S. Income Tax Return

for certain resident aliens who have no dependentsNote: See IRS Publication 17 to find the easiest form for you to file.

More Tax Vocabulary

• Withholding: – U.S. income tax automatically taken

from your paycheckNote: U.S. Social Security and Medicare are also taken from your paycheck.

Forms W-2

•You could have one W-2 or more from different employers

•The form was prepared by your employer and mailed to you.

•You do not write anything on this form.•You use this form as a reference when you prepare your income tax return.

•When finished, you attach this form to your income tax return.

SAMPLE W-2 FORM

How do I file a Resident income tax return

(Form 1040-EZ)?

First, learn the following tax vocabulary . . .

More Tax Vocabulary

• Standard Deduction: standard amount that individuals may subtract from income before calculating taxes owed

• Itemized Deductions: allowable amounts that individuals may subtract from income before calculating taxes owed– Examples: charitable contributions, state & local

taxes withheld, etc.Note: No one can have both a standard deduction and itemized deductions. You have to choose one.

Standard Deduction Amount (for most people under age 65)

• Single $ 5,700• Married Filing Joint $11,400• Married Filing Separate $ 5,700• Head of Household $ 8,350• Qualifying Widow(er) $10,900

with Dependent Child

More Tax Vocabulary (cont.)

•Personal Exemption: amount deducted from income for yourself and/or your dependents

For 2010, the amount is $3,650.

Which Residents can use Form 1040-EZ?

• Individuals– who do not claim any dependents– whose taxable income is less than $100,000– who do not claim any itemized deductions– who had only wages, taxable scholarship or

fellowship grants, and whose taxable interest was not over $1,500

– Miscellaneous other reasons (see Form 1040-EZ instructions)

Other Credits and DeductionsYou May Qualify For

(but not covered in this presentation)

• Earned Income Tax Credit• Dependents• Child and dependent care • Retirement Saver’s Credit• Education Credits

There are many more deductions and credits listed in various IRS publications.

Let’s look at the steps for

completing Form 1040-EZ

FORM W-2 Used for 1040-EZ Example

2009

Form 1040-EZ

Box 1 from all W-2(s)

Form 1040-EZ

Add all amounts in box 2 of W-2(s)

From worksheet on back of 1040-EZ

Making Work Pay Credit

Form 1040-EZ

Read instructions to see if you qualify

From Tax Table

2010 Tax Table

Form 1040-EZ

When do I file a resident

income tax return?

The Filing Deadline is April 18, 2011

Where do I file my Resident income tax return?

Refund DueDepartment of the Treasury Internal Revenue Service

Center Kansas City, MO 64999-0014

Social Security

Do I pay it or amI exempt?

That depends.

You don’t paySocial Security Tax if . . .

• You are a nonresident alien for income tax purposes

• You are present in the U.S on an F-1, J-1, M-1 or Q-1 visa, AND

• You perform services that are consistent with your U.S. visa status

You Pay Social Security Tax When . . .

• You are a Resident Alien for income tax purposes.

• You are an F-1 student who has been in the U .S. for 5+ years or a J-1 scholar who has been in the U.S. for 2+ years.

• You hold an H1-B or TN visa.Note: You will always be subject to Social Security and Medicare Taxes (FICA) from the date of arrival.

Exception to This Rule

If you are a student who would otherwise be subject to Social Security and Medicare Taxes (FICA), you will be exempt from paying it if you are working at the school as a full-time student. (This exemption may start and stop periodically due to the individual’s enrollment status )

The Exception Does Not Apply in These Cases

• Resident aliens who are participating in full-time Optional Practical Training should pay Social Security and Medicare Taxes (FICA) throughout their OPT work authorization period, and

• Students who are resident aliens and are not enrolled in 6 or more credits during summer break should pay Social Security and Medicare Taxes (FICA) during summer break.

For more information, call1-800-829-1040

orwww.irs.gov

Thank You!