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Tax Issues For Foreign Students – F Visa & Opt Status
By cpa | April 15, 2008
Tax issues for foreign students are often very complicate and difficult. What do you do when the first paycheck, scholarship check or loan disbursement check is received and taxes are withheld?
First of all, is the student is a “resident alien” or “non-resident alien” for
Resident Alien vs. Nonresident Alien
An individual who is not a
· lawful permanent resident test which is also known as the green card test,
· substantial presence test, if such individual is present in the
· such alien elects to be treated as a resident. An individual can make an election to be treated as a resident. To qualify for the election the individual must be a resident under the substantial presence. Most foreign students should not attempt to make this election, as it will ordinarily have adverse tax consequences. Students often prefer nonresident alien status on account of the associated exemption from employment taxes.
Resident and nonresident aliens file different types of income tax returns. Resident aliens complete Forms 1040 and are taxed on their worldwide incomes in a manner identical to that of
On the other hand, nonresident aliens need to file tax returns Forms 1040NR and is only taxed on the US connected income. In general, the
Social Security and Medicare Taxes
Generally, services performed as a nonresident alien admitted into the
Tax Treaties
The
A student, business apprentice or trainee who is or was immediately before visiting [the U.S.], a resident of the [P.R.C.] and who is present in the [U.S.] solely for the purpose of his education, training or obtaining special technical experience shall be exempt from tax in the [U.S.] with respect to:
(a) payments received from abroad for the purpose of his maintenance, education, study, research or training;
(b) grants or awards from a government, scientific, educational or other tax-exempt organization; and
(c) income from personal services performed in [the
The benefits provided under this Article shall extend only for such period of time as is reasonably necessary to complete the education or training.
Treaty provisions are not limited to simply determining whether income is taxable in one country or not. They may also provide special rules for determining whether the individual is considered a resident alien or not. Also, treaty provisions often reduce the rate at which taxes are withheld upon the payment of certain types of income. For example, the withholding rate reduces from 30% to 15% for
Students who are considered to be nonresident aliens should provide their employers with Form W-8233 or Form W-8BEN to establish that they are foreign persons. You should also provide your employers with a Form W-4. However, special rules apply to nonresidents filing out Forms W-4. All nonresident aliens should claim single status on Form W-4 even through they are actually married and claim only one allowance on line 5 except residents of Canada, Mexico, Japan or South Korea. Also you need to request your employer withhold an additional $7.60/week because non-resident are not qualify to take standard deduction.
Alien students with U.S. source income may consider consulting with a very qualified tax professional because these tax rules are unfortunately very complex.
Topics: Individuals |
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