Federal Tax Information


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Federal Tax Information

  1. 1. Federal Tax Information Session For International Students
  2. 2. DO I HAVE TO FILL OUT TAX FORMS? Aahhh! No Matter What You Have Heard… • All “tax non-residents” are legally required to file at least one federal income tax form for each year they are in the U.S. (by April 15 of following year) • Everyone should copy and keep files for 7 years or until you become a permanent resident (if applicable)
  3. 3. What happens if I don’t? • You may be overpaying your taxes (i.e., giving away your hard-earned money) • Non-filing of taxes may affect a future application for U.S. If you owe money, you could Permanent Residency (i.e., “green card”) • Be subject to substantial monetary fines • In extreme cases involving fraud, you could lose your legal immigration status in the U.S.
  4. 4. Which Taxes? • Taxes are collected from the federal (US) government and from the state governments • In some places there is also local income tax (none in NM) • If you earned money you are normally responsible for completing tax forms for ALL relevant government entities • This presentation only covers FEDERAL (US) taxes
  5. 5. 3 Important things to remember: 1)This is NOT a conspiracy against international students! (It’s just a pain for everyone!) 2)The rules are NOT logical, you just have to memorize the information. 3)YOU are responsible for doing it correctly and YOU suffer the consequences even if you were misinformed. This is true for everyone, but even more unfair for international students as very few people know non-resident tax laws.
  6. 6. Who Is This Presentation For? • International Students: Full-time students in F or J Student Status (individuals in degree programs, CELAC, some non-degree) • Dependents: Those who are here in F-2 and J- 2 status with the students above (if no SSN and can be claimed, will need to complete form W-7 to get a tax payer ID # - ITIN)
  7. 7. Other Presentation Information • Intended for international students with income sources and levels typical of students at the University. If you have income from other sources you should seek professional tax advice from a qualified accountant or attorney • Rules for students and scholars are different • Special Cases: Anyone whose total stay will be less than one year; special treaties: Canada, India, Korea, Mexico (we will discuss these at the end)
  8. 8. What happens if I have questions later? •Visit the University of Pennsylvania's OIP website www.upenn.edu/oip/iss/tax/index.html This site has detailed information for international students who are tax non- residents. Be aware that this was designed for Penn students, so some information will not apply to you (such as scholarship info and Pennsylvania state tax info)
  9. 9. Come to the Tax Volunteer Site • quot;Volunteers in Tax Assistancequot; (VITA) will be available to help you Monday - Friday, March 19-23, 2007, from 3pm to 7 pm ONLY!!! In Room 2122 Mesa Vista Hall (behind the Office of International Programs and Studies); we will send a reminder the week before
  10. 10. You Can Also Consult: •IRS: at www.irs.gov or via telephone at 800- 829-1040; ask to speak with a technical specialist regarding a foreign issue. Tax treaties are also available online •Commercial sites: www.istaxes.com, https://www.arcticintl.com/cintaxorder.htm, www.thetaxguy.com offer information and paid tax return preparation •Residents for Tax Purposes: Go to CNM to get help from the Resident tax volunteers, or seek help from paid preparers before 4/16/2007
  11. 11. Overview of Tax System: • U.S. tax system = Employer “withholding” + individual “reporting” at end of year. They take money out based on forms you fill out (W-4, 8233) • At year end YOU need to do the accounting; if the calculation was incorrect then either YOU or the GOVERNMENT will owe money • If you worked at UNM all year, completed employment forms correctly, and your situation did not change, the tax withheld will most likely be “near” correct
  12. 12. Forms From Employer/School W-2: lists wage income and tax taken for federal, state, and local governments (if applicable); must be sent to you by 1/31 1042S: lists non-service scholarship and treaty income; must be sent by 3/15 1098T: lists school tuition paid; cannot be used as deduction by tax non-residents This information is also sent to IRS
  13. 13. Other Forms You May Receive 1099-INT: Form which reports earned interest to the individual and the government (Bank sends to you if over $10) 1099-DIV: Form which reports earned dividends to the individual and the government (Financial institution sends to you) 1099-MISC: Reports honoraria or contractor income
  14. 14. Forms You Send to IRS 8843: Must be completed by all F and J students, scholars, and dependents who are “tax non-residents.” This form is also called, “Statement for Exempt Individuals and Individuals with a Medical Condition.”
  15. 15. Forms You Send to IRS (Cont’d) 1040NR: “U.S. Nonresident Alien Income Tax Return” OR 1040NREZ: “U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents” These forms must be completed by tax non-residents with U.S. income. They are also called “Tax Returns” (“Return” ≠ you get money back)
  16. 16. IRS Publications Publication 519: U.S. Tax Guide for Aliens Publication 901: U.S. Tax Treaties These publications have additional information for those with unusual situations or for whom a tax treaty exists between the U.S. and the country of permanent residence
  17. 17. Important Tax Treaty Form 8233: Must be completed and given to the payroll office every year if you want to benefit from a tax treaty in advance (i.e., you don’t want them to take extra money from each paycheck.) You can still get the benefits of any treaty at the end of the year even if you did not complete this form.
  18. 18. Am I a Resident or Non-resident for Federal Tax Purposes? • Tax residency determines your basic obligations under U.S. “federal” tax law • You CAN be a “tax resident,” even if you are not a quot;permanent residentquot; of the US (green card) • If you are a resident taxpayer you must pay federal income tax on your worldwide income. However, you do not have to file a quot;tax return,quot; unless your worldwide income exceeds a certain amount (This year: $8,450 if single and $16,900 if married)
  19. 19. Resident or Non-resident for Tax Purposes? (Cont’d) • If you are a nonresident taxpayer, you pay federal income tax only on the income you receive from U.S. sources, but you must file an annual income tax form, even if you had no income • Most F and J students at the University of New Mexico are “tax nonresidents” • If you were in a status other than F or J since your arrival, please see pp. 4-7 of IRS pub 519, U. S. Tax Guide for Aliens you may be “Dual Status”
  20. 20. Residency Test for Students STUDENTS (F-1 or J-1): How many years have you been in the U.S. in F, J, M or Q status? Less than 5 years More than 5 years (e.g., You arrived AFTER (e.g., You arrived BEFORE 12/31/2001 and you were never in 1/01/2002 or you were in the US for the US before on F,J,M,or Q status) more than 5 years total in F,J,M,or Q status since 1985) You are probably a You are probably a “resident “nonresident for tax for tax purposes” purposes”
  21. 21. Tax Residents • “Residents for tax purposes” will need to go elsewhere for tax information • Those who were single and earned less than $8,450 worldwide income in 2006 (or married and earned less than $16,900) do not have to file a federal tax return, but may want to to get a refund if taxes were taken out of your pay • You would file: 1040EZ OR Form 1040A OR Form 1040
  22. 22. Which federal forms do TAX Non-residents fill out? 8843 ALL tax non-resident students and scholars and their dependents. Those who did not have any income (other than bank interest) only need to file this form 1040NR If you received money from a U.S. Source, complete form 8843 with form 1040NR (and NOT form 1040NREZ) if one or more of the following conditions applies: a. Your 2006 income was $100,000 or more, or b. 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, Korea, or India), or c. You can claim educational expenses or living expenses*, or d. You had dividend, capital gains, or other U.S. income that is not wage or scholarship income 1040NREZ If you received money from a U.S. source, complete form 8843 with form 1040NREZ (and not form 1040NR) if NONE of the conditions for 1040NR above applies
  23. 23. Can I deduct educational expenses? • Students can deduct educational expenses only if they already worked in the field that they're studying now (before beginning studies) and if the current studies will not prepare you for a new field • For example, if you have a BS degree in Architecture, have worked as an architect, and are studying for the MS in Architecture, you may be able to deduct your educational expenses (tuition, fees and possibly living expenses) from your income (check to see if you NEED to first) • If you think you may be able to deduct your educational expenses, please see IRS Publication 970 (beginning on P. 59), “Tax Benefits for Education;quot; if you decide that you can deduct educational expenses you may need a copy of IRS Form 2106, quot;Employee Business Expenses,quot; in addition to your other tax forms
  24. 24. Can I deduct travel or living expenses? • Students can only deduct travel or living expenses if they are a federal tax nonresident and the entire educational program/stay in the U.S. lasts less than one year (365 days); in this case, you may be able to treat your stay in the U.S. as a quot;business tripquot; and deduct your airfare, rent, local transportation expenses and part of a daily allowance for food from your income. If you will be in the U.S. for a total of less than one year, go to the Upenn website and look at their instructions on: “Courses of Study of Less than One Year: Travel Expense Deductions under Private Letter Ruling 9151014”
  25. 25. Income types we WILL cover: • Non-service scholarship or fellowship grants from U.S. sources (note: amounts granted to cover tuition and fees are not taxable; these amounts do not have to be reported on your tax return); the University or other granting institution should report any portions which are not tuition or educational expenses to you on IRS Form 1042-S (e.g., Athletic scholarships at UNM) • Wages from any U.S. job, on-campus or off-campus, including a teaching assistantship or a research assistantship, (included in this category is all income that your employer(s) reported to you on Form W-2); please note that any amount reported on Form W-2 cannot be considered non-service scholarship or fellowship income • Bank interest
  26. 26. Income types we will NOT cover: •Consulting fees from work done in the U.S. •Dividends or capital gains from ownership of U.S. mutual funds or individual stocks or bonds •Any other income (such as rent, royalties, copyright earnings) from U.S. sources except interest that you earned on a savings account or certificate of deposit in a U.S. bank (Bank interest earned by nonresidents is not considered U.S. source income and therefore is nontaxable) If you had income from the types of sources listed above you will need form 1040NR and you may want to seek professional advice in preparing your return
  27. 27. General Treaty Information • Some countries have tax treaties with the U.S. which may save you money on your federal income tax. You can get the treaty benefit even if you did not complete the 8233 in 2006 • Treaty benefits depend on country of last tax residence, not citizenship • Benefits are different for each country and depend on your activity in the U.S. (e.g., student or scholar) and type of income
  28. 28. Student Treaty Information • For students, these benefits usually last for 5 years (the same amount of time you are a tax non-resident – China is an exception) • When claiming treaty benefits, be careful: some provisions do not apply if you stay longer than a certain amount of time, and you may have to pay tax retroactively (as well as interest and penalties)
  29. 29. Student Treaty Information • Chart Info: “Non-service Scholarship Exempt?” column indicates that the treaty allows students to exclude from federal taxation all stipend income from a non-service fellowship or scholarship (should be reported to you on Form 1042-S, not on Form W-2; e.g., student athletes at UNM) • A notation in the quot;Earned Income Exempt?quot; column indicates that the treaty allows students to exclude from federal taxation the noted amount of earned income (such as teaching assistantships and research assistantships)
  30. 30. Student Treaty Information • The numbers or Roman numerals in the last column identify the relevant treaty article and paragraph numbers (note these down; you'll need them for your income tax return) • Also note any special symbols next to the name of your countries; we’ll review them at the end of the chart
  31. 31. Student Tax Treaty Summary Country Non-Service Scholarship Earned Income Exempt? Exempt? Barbados May choose to be taxed as a resident taxpayer and file Form 1040EZ etc. using standard deduction; 20(2) Belgium yes; 21(1) $2,000; 21(1) Canada see Canada tax treaty handout (http://www.upenn.edu/oip/iss/tax/canatre.html) China (PR) yes; 20(b) $5,000; 20(c) CIS and Georgia* scholarship or earned income up to total of $10,000; VI(1) Cyprus yes; 21(1) $2,000; 21(1) Czech Republic yes; 21(1) $5,000; 21(1) Egypt yes; 23(1) $3,000; 23(1) Estonia yes; 20(1) $5,000; 20(1) France yes; 21(1)(b)(ii) $5,000; 21(1)(b)(iii) Germany** yes; 20(3) $5,000**; 20(4)
  32. 32. Student Tax Treaty Summary (cont’d) Hungary May choose to be taxed as a resident taxpayer and file Form 1040EZ etc. using standard deduction; 18(2) Iceland yes; 22(1) $2,000; 22(1) India See India tax treaty handout (http://www.upenn.edu/oip/iss/tax/indiatre.html) Indonesia yes; 19(1) $2,000; 19(1) Israel yes; 24(1) $3,000; 24(1) Jamaica May choose to be taxed as a resident taxpayer and file Form 1040EZ etc. using standard deduction; 21(3) Japan (only if entered prior yes; 20(1) [old treaty] $2,000; 20(1) [old treaty] to January 1, 2005) Kazakhstan yes; 19 no Korea yes; 21(1) $2,000; 21(1) Latvia yes; 20(1) $5,000; 20(1) Lithuania yes; 20(1) $5,000; 20(1) Luxembourg*** yes***; 21(1) no Morocco yes; 18 $2,000; 18 Netherlands yes; 22(2) $2,000; 22(1)
  33. 33. Student Tax Treaty Summary (cont’d) Norway yes; 16(1) $2,000; 16(1) Pakistan no $5,000; XIII(1) Philippines yes; 22(1) $3,000; 22(1) Poland yes; 18(1) $2,000; 18(1) Portugal yes; 23(1)(b)(ii) $5,000; 23(1)(b)(iii) Romania yes; 20(1) $2,000; 20(1) Russia* yes; 18 no Slovak Republic yes; 21(1) $5,000; 21(1) Slovenia yes; 20(1)(b)(ii) $5,000; 20(1)(b)(iii) Spain yes; 22(1) $5,000 minus the personal exemption (i.e. $1,950); 22(1) Thailand yes; 22(1) $3,000; 22(1) Trinidad and Tobago yes; 19(1) $2,000; $5,000 if in professional training; 19(1) Tunisia yes; 20 $4,000; 20 Ukraine yes; 20 no Venezuela yes; 21(1) $5,000; 21(1)
  34. 34. Student Tax Treaty Summary (cont’d) If you are from Russia you may no longer claim the provisions of the treaty between the U.S. and the CIS (Commonwealth of Independent States). You may claim the provisions of the CIS treaty for 2003 if you are from Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan or Uzbekistan. * If you are from Germany you may exempt earned income from federal taxation only if your stay as a student in the U.S. lasts less than four years; if it lasts longer than four years the earned income exemption is lost retroactively to your day of arrival in the U.S.; in this case only the exemption for scholarship and fellowship income remains. ** If you are from Luxembourg you are entitled to a tax treaty benefit only if your stay in the U.S. lasts less than two years.
  35. 35. Student Tax Treaty Summary (cont’d) In addition, the three countries listed below have tax treaties with the United States that include provisions that can benefit students in the year of arrival or year of departure from the U.S. The notation in the quot;Maximum Presencequot; column indicates the maximum number of days you can be in the U.S. in the calendar year and still claim the treaty benefit; the notation in the quot;Maximum Amountquot; column indicates the maximum amount that you can earn and still claim the treaty benefit. If you are from Greece, for example, you can exempt a U.S. wage from federal taxation if you were in the U.S. for no more than 183 days in 2006 and earned less than $10,000 from a U.S. employer. Country Maximum Maximum Amount Presence CIS* 183 days no limit; VI(2) Greece 183 days $10,000; X Trinidad and 183 days $3,000; 17 Tobago
  36. 36. Completing the “Tax Returns” • Always look to complete the easiest form first. If you can get all your money back, there is no reason to complete the long form • We will cover form 8843 and 1040NREZ; if time, we will do 1040NR or come to the VITA site
  37. 37. Same as 4a
  38. 38. University of New Mexico, 1 UNM, Albuquerque, NM 87131, 505-277-4032 Thomas Bogenschild, OIPS, MSC06 3850, 1UNM, 505-277-4032
  39. 39. Sign and date here only if you are filing Form 8843 by itself