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International Student Taxes - Tax for F1 Visa holders

International Student Taxes - Tax for F1 visa holders

This article addresses the tax status of the holders of the F-1 visa.

The F-1 visa is for international students. An F-1 visa-holding student is admitted to the United States for "Duration of Status" (which is noted as "D" slash "S" on their Form I-94, "Arrival-Departure Record", instead of a specific expiration date) to complete an educational program, plus any authorized practical training following completion of their studies, plus sixty day grace period to prepare for departure from the United States.

While students on F-1 visas are in the United States principally to receive an education, such students often work to help offset the expenses associated with seeking such a degree. These working students are NOT required to pay employment taxes (Social Security and Medicare), but must pay BOTH federal and state income taxes. The taxes are withheld from your pay and you must file a tax return (Form 1040NR or 1040NR-EZ) after the completion of the calendar year to reconcile your tax liability.

The F-1 visa holder is an “exempt individual”; in this context it does NOT mean he/she is exempt from taxation, but rather he/she is exempt from the Substantial Presence Test. If he/she is in the United States for the full tax year under the F-1 visa and has earned income, then he/she is considered a non-resident alien and must file either Form 1040NR or 1040NR-EZ, plus Form 8843. Even if he/she has no requirement to file a tax return, he/she must STILL file the Form 8843 annually. More on that later.

Filing as a non-resident alien allows the taxpayer to claim certain exemptions or credits authorized under the tax treaty negotiated between the country that originated the F-1 visa and the United States. They cannot, however, claim the Standard Deduction unless they are from India. If the F-1 visa holder comes from a country that has a tax treaty with the United States, this may actually wok out better than claiming the Standard Deduction.

Let’s show an example. In 2005, a Chinese student is attending a college in San Francisco and works as a graduate assistant for one of the professors. He earns approximately $20,000 by the university, plus gets paid an additional $4,000 on a Form 1099-MISC for assisting in a research project with the professor. The $20,000 earned as an employee and the $4,000 earned as an independent contractor assisting the research project is subject to both federal and California income taxes, but NOT the employment taxes (either Social Security and Medicare taxes or the self-employment taxes, normally reported on Schedule SE). The student had $2,800 withheld for federal income taxes and $1,200 withheld for California income taxes.

If the Chinese student was an Indian national, he could claim only the standard deduction of $5,000 along with the $3,200 personal exemption. The standard deduction replaces any itemized deduction (unless, of course, the itemized deductions EXCEED the $5,000 allowed for the standard deduction). This would result in $15,800 being taxed. However, as a Chinese student on a F-1 visa, he is eligible for a tax treaty exemption of $5,000 under Article 20(c). That effectively replaces the standard deduction. He can still claim the $3,200 personal exemption. Further, he can claim, as an itemized deduction, the $1,200 in California taxes withheld from his pay on the W-2. That means only $14,600 would be taxed. This would reduce his taxes by about $180 MORE than if he claimed the Standard Deduction by itself.

There are two other forms the F-1 visa holder should file. The first is Form 8843 (Statement for Exempt Individuals and Individuals with a Medical Condition). This form must be filed annually, either with your tax return (Form 1040NR/1040NR-EZ), or by itself if you do not have to file a tax return. The filing deadline is April 15th of each year.

The second form that the F-1 visa holder may need to file is Form 843. I noted above that students on a F-1 visa are not liable for Social Security and Medicare taxes. Unfortunately, not all employers are aware of this fact, and they will withhold these taxes unless the student takes steps to stop the withholding. Often, when the student proves to the employer that he is not liable for the taxes, the employer stops withholding the taxes, but refuses to refund the taxes that were already withheld. That is when the student has to file Form 843 to request a refund of these taxes. There are other supporting documents required, and you need to download and read Chapter 8 of IRS Pub 519 (page 46) for the process of requesting the refund, but the refund usually makes it well worth the effort.

I hope you have found this brief article informative. It is the first of many we will post to this forum to serve our guests. If you have any questions, ask them in the Strategies to save Taxes section of the Taxes for F1 Visa holders and those on OPT Section and let’s discuss it.

By Tax Expert    February 10th, 2020