What Is an F-1 Visa?
F-1 visa is a type of non-immigrant visa that allows foreign students to enter the US as full-time students to pursue higher education at accredited educational institutions such as universities, colleges, high schools, or seminaries. The F-1 visas are amongst the most popular category of visas awarded to foreign nationals.
What Is The Tax Situation For International Students On F-1 Visas In The United States?
As a student on F-1 visa, one of the first questions that may arise is whether you will have to pay international tax during your stay in the US.
Similar to nonresident aliens in the US, international students on F-1 Visa are taxed as per their source of income in the country. This implies that you pay taxes only if you’re working as a student in the United States. Every student on F-1 Visa is mandated to file for their income tax return if they earned a certain amount of income in the previous calendar year of their stay in the US. One will have a tax filing requirement despite not having had earned any income during their stay in the US on an F-1 Visa.
So typically, what sort of taxes are you required to pay?
Just like nonresident aliens, international students on F-1 visa need to pay the following types of taxes on various sources of income viz. salaries, scholarships or fellowship grants offered by respective universities, dividends, wages and compensation, tips, awards, prizes, and interest.
How much tax you will need to pay is something that is purely circumstantial according to your personal sources of income.
F-1 Visa Holders Are Required To File Returns On Their Taxes
Typically, students who were in employment within the present tax year receive a statement of account which is also known as Form W-2 in the month of January the following year. This statement is an indication of all your take home earnings in that tax year. The form also contains a separate section which indicates whether any of your earnings were sent automatically by your employer to the federal Government. You must probably be aware of this already if you have received your W-2 statement.
It must be noted that the F-1 Visa binds you in a legal contract that you would be required to file tax returns each year during your entire stay in the Unites States. This is one of the conditions of the F-1 Visa. Therefore, you are not exempt from any of the rules and requirements of tax filing as an international student on F-1 Visa.
You are just as accountable as any other person on a different visa to have your earned income monitored and taxed accordingly by the United States during your period of work here. This is a condition that you must have agreed to and given your consent during your F-1 Visa processing. It is important to note that you are required to fill IRS forms and file for tax returns even if you did not receive any form of income and did not work in the US as a student.
However, you do have the option of explaining your situation and being exempt from paying taxes. It is absolutely critical that the tax return form is filed correctly by you so that the auditors do not miss out on any detail. This will ensure that your future in the United States of America is safe and secure if you are precise in filing your tax return diligently. You would never want the Internal Revenue Services to think that a fraud is in the making and be held responsible for it. Keep reading on to understand what exactly you need to do to file F-1 student tax returns.
Why Do You Have To File a Tax Return In The First Place?
To make long story short, filing a tax return is the supreme legislation of the country. It is extremely essential to understand the repercussions of not filing tax returns in the United States as you can get into some imminent danger. It is just not worth taking the risk of evading taxes and committing a fraud which was exactly the grounds on which Al Capone, one of America’s most notorious names was accused and convicted of tax evasion. The comparison may sound a bit larger than life but it is to emphasize the seriousness of the matter.
Let’s take a look at some good reasons why you should be filing your tax return:
It is very much possible that someone owes money to you. Nobody would ever want to miss out on a refund. For instance, you might be eligible for a tax treaty as an international student residing in the United States.
One benefit of filing the US tax returns form is that your earnings will be safeguarded from other forms of further taxation from outside sources.
Most importantly, you would be reneging and failing to honor your word of filing a tax return once you enter the country during the time of your Visa processing, irrespective of the Visa category – F, M, Q or J visa. This not just gives you and your country a bad reputation but could also land you in jail.
How Can You Be Exempt from F-1 Visa Taxes?
The Internal Revenue Service Pub 519 states that international students on F-1 Visas and foreign exchange students on J1 visas who have lived lesser than 5 calendar years in the United States are still considered to be in the Nonresident Aliens status and are exempt from Social Security/ Medicare taxes. The aforementioned categories do not have to pay SSN or Medicare taxes for up to five years during their period as full-time students in the US.
Various categories namely nonresident alien researchers, students, trainees, physicians and other aliens who are fall under the M-1, F-1 or J-1 visa brackets of non-immigrant status and who are temporarily present in the country do not need to pay taxes for income earned for services that they perform within the country. Although the condition is that the services need to be checked legit by USCIS and are carried out on the purpose for which the non-immigrant visas like F, M and J were issues to foreign students in the first place.
Liability For Self-Employment Tax
The Internal Revenue Service of the United States exempts nonresident aliens from gains in income based on self-employment. Although there is a self-employment tax set on any earnings of a person residing in the US through self-employment, Non-resident aliens are strictly exempted from this tax. In simple words, a non-resident alien cannot be charged tax on self-employment. However, the clause is if a non-resident alien does go on to become a RESIDENT ALIEN of the country under the rules of the residency code, then all the conditions that apply to a U.S. citizen for self-employment taxes start applying to him as well.
What About F-1 Students On Optional Practical Training (OPT)? Do They Pay Taxes?
Optional Practical Training is a program that allows undergraduate and graduate students who have been pursuing accredited programs in the US for more than nine months to work in their specialized major of study in order to get practical training. The USCIS allows F-1 students to apply for OPT which is eligible for 12 months after they complete their education. They also have a STEM extension for an additional period of 24 months for STEM fields.
Students earning an income while on their OPT status are required to pay taxes. They are required by the US law to fill the W-4 form with their new employer when they start working for them in order to file for tax returns.
Curricular Practical Training (CPT) And The Type Of Taxes Students On CPT Need To Pay
The first question that comes to someone’s mind is whether F-1 students who are on CPT are exempt from federal taxes. The answer is No. CPT students are required to pay taxes just like those on OPT since they are considered nonresident aliens as well and they are also supposed to file a 1040NR which is a tax return for income from US sources.
What Is Considered Income/Earning For The Purpose Of Tax?
The federal, state and the local governments in the United States impose income taxes. For tax purposes, one only needs to pay tax on income earned in the country as a nonresident alien. The percentage of tax that gets deducted from your pay cheque is based on the amount you earn, tax rates according to each state and your prerogative to the benefits from tax treaty.
The United States is tied up with 65 countries for income tax treaties. This implies that several types of personal services and other forms of income might often be reduced or even eliminated for nonresident aliens. These might include but are not limited to royalties, pensions, dividends, interests and capital gains.
Am I Required To File A Tax Return As a Student On F-1 Visa?
The Internal Revenue Service considers most F-1 students as nonresident aliens which means that they will be assessed on their federal and state income and taxes based on filling forms 1040NR-EZ or 1040-NR.