Tax Guide for International Students

United States and Massachusetts
Taxation for International
Students
Mark Minassian, CPA
Minassian CPA, LLC
March 5, 2015
(c) Minassian CPA, LLC, 2015
All Rights Reserved

Disclaimer
The information contained in these slides is general in
nature and cannot be relied upon to address a specific
situation.
Pursuant to Internal Revenue Service Circular 230, we
are required to advise you that the tax advice contained
herein is not intended to be used, and cannot be used,
by any taxpayer for the purpose of avoiding penalties
that may be imposed under the Internal Revenue Code.
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2

The Internal Revenue Service
• The Internal Revenue Service (IRS) is the revenue service of the
United States government. It is responsible for collecting taxes and
enforcing the country’s tax laws.
• The IRS has special rules and tax forms for international students and
scholars.
• U.S. individual income tax returns provide information to the IRS
showing the amount of income earned during the year, the calculation
of tax liability and the amount of payments made to the IRS on your
behalf during the year.
• You are responsible for filing your own tax return and for reporting all
of your income to the IRS each year.
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The Two Tax Systems in the U.S.
1. U.S. Tax System, which applies to:
- U.S. Citizens
- U.S. permanent residents (Green Card holders)
- Resident Aliens for U.S. tax purposes
2. Nonresident Alien Tax System – Applies to individuals
classified as Nonresident Aliens for U.S. income tax purposes
THIS PRESENTATION WILL DEAL PRIMARILY
WITH THE NONRESIDENT ALIEN TAX SYSTEM
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Are You a Nonresident Alien?
• If you are not a U.S. Citizen or permanent
resident, you must determine if you are a
Resident Alien or Nonresident Alien.
• The Substantial Presence Test (SPT) is
what determines if you are a Resident
Alien or a Nonresident Alien under these
circumstances.
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Substantial Presence Test Calculation
Formula for 2014:
# of days present in the U.S. in 2014 (at least 31 days) +
(1/3) x (# of days in the U.S. in 2013) +
(1/6) x (# of days in the U.S. in 2012) =
SPT days
If SPT days = 183 or more and you were in the U.S. for at least 31 days in
2014, you are a Resident Alien for U.S. income tax purposes for 2014 unless
you are an exempt individual.
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Exempt Individuals
• The term “exempt individual” refers to an
alien who does not have to count their days
in the U.S. under the SPT.
• Being an exempt individual for SPT
purposes does not mean that your income
is exempt from U.S. taxes.
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Who are Exempt Individuals?
• Individuals in the U.S. under a F, J M or Q student visa get five (5)
calendar years in their lifetime that they are exempt from counting days
under the SPT.
• Partial years count as full years.
• After your five years have elapsed, you may never be an exempt
individual again as a student, but you may be able to claim Nonresident
Alien tax status even if you pass the SPT.
• The normal academic year (generally September – May) crosses two
calendar years. Since partial years count as full years for determining if
you are exempt from the SPT, one full academic year will count as two
(2) years under the five (5) year test described above.
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Claiming Nonresident Alien Tax
Status After Five Years
After your five years, you may claim Nonresident Alien status even
if you pass the SPT if you can demonstrate that you:
1. do not intend to permanently reside in the U.S.;
2. have not taken any steps to become a permanent resident or
U.S. Citizen;
3. have complied with the immigration laws and requirements
of your student immigrant status;
4. can show a closer connection to a foreign country than to the
U.S. (IRS Form 8840)
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Taxable Income for Nonresident Aliens
• A Nonresident Alien is taxed on his or her U.S. source income or income that
is connected with a U.S. trade or business.
• The most common types of income that Nonresident Alien students and
scholars will report are:
– Wages from any U.S. job, either on or off-campus
– Consulting fees for work done in the U.S.
– Dividends and capital gains from ownership of U.S. stocks, bonds, mutual
funds or other investments
– Scholarship and fellowship income that exceeds the amount of your
tuition and mandatory school fees
– Any other income earned in the U.S. such as rent, commissions, royalties
and gambling winnings
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Non-Taxable Income for Nonresident Aliens
• The following types of income are not taxable for
Nonresident Aliens:
– Bank account interest from personal (i.e. non-
business) accounts
– Foreign source income
– Income that is partially or totally exempt from U.S.
tax under the terms of a tax treaty
– Scholarships that cover only tuition, books and fees
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Tax Treaties
• Many countries have tax treaties with the U.S. that allow
their tax residents to earn money in the U.S. without
being subject to income tax on those earnings in both
countries.
• Under many tax treaties, scholarship and fellowship
grants, and a limited amount of compensation received
by students may be exempt from U.S. taxation.
• You must still file a U.S. tax return even if your
income is exempt under a tax treaty.
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Tax Treaty Countries for Students
All Rights Reserved
Australia Cyprus Hungary Kazakhstan Norway South
Africa
Turkey
Austria Czech
Republic
Iceland Latvia Pakistan South
Korea
Ukraine
Bangladesh Denmark India Lithuania Philippines Spain United
Kingdom
Barbados Egypt Indonesia Luxembourg Poland Sri Lanka Venezuela
Belgium Estonia Ireland Malta Portugal Sweden
Bulgaria Finland Israel Mexico Romania Switzerland
Canada France Italy Morocco Russia Thailand
China Germany Jamaica Netherlands Slovak Republic Trinidad &
Tobago
C.I.S. Greece Japan New
Zealand
Slovenia Tunisia
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Social Security and Medicare
• Social Security is a federal retirement insurance program funded by
contributions to the Social Security Trust Fund through payroll taxes paid by
individuals and businesses in the U.S.
• Medicare is a national social health insurance program that guarantees access
to health insurance to legal U.S. residents age 65 and older. Like Social
Security, Medicare is also funded by payroll taxes paid by individuals and
businesses.
• F-1, J-1 and M-1 visa holders are exempt from paying Social Security and
Medicare payroll taxes if their work is allowed by the U.S. Citizenship and
Immigration Services (USCIS).
• The exemption from Social Security and Medicare taxes does not apply to
spouses or children with F-2, J-2 or M-2 visas.
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Filing the Correct Tax Forms
• The tax forms that a Nonresident Alien must file
depends on whether you have U.S. source income and
if you are covered under a tax treaty.
• Those who received U.S. source income in 2014
and/or who were covered by a tax treaty must submit
Form 8843 and Form 1040NR (or Form 1040NR-EZ)
by April 15, 2015.
• Those who did not have any U.S. source income must
only submit Form 8843 by June 15, 2015.
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Form 1040NR and Form 1040NR-EZ
• Nonresident Aliens who receive taxable income in the U.S. must file either
form 1040NR or 1040NR-EZ.
• Form 1040NR-EZ is a simplified version of Form 1040NR, but certain
requirements must bet met to file Form 1040NR-EZ.
• Most Nonresident Alien students will be eligible to file Form 1040NR-EZ
• The Windstar tax system will help you determine which form to file.
• If you file either Form 1040NR or Form 1040NR-EZ, you must also File
Form 8843.
• You must have either a Social Security Number (SSN) or an Individual
Taxpayer Identification Number (ITIN) to file Form 1040NR or Form
1040NR-EZ.
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Claiming Exemptions for Your
Spouse and Dependents
• You cannot claim exemptions for your spouse or dependents on Form 1040NR-EZ
• You may claim exemptions for your spouse and dependents on Form 1040NR if one of the following
situations apply:
1. Residents of Mexico and Canada – You may claim an exemption for your spouse if he or she had
no gross income for U.S. tax purposes, lived with you and cannot be claimed as a dependent on
another U.S. tax return. You may claim exemptions for your dependents if they qualify based on
the same dependency tests for U.S Citizens and Resident Aliens.
2. Residents of South Korea – You may claim exemptions for spouses and dependents if they lived
with you in the U.S. at some time during the tax year. You must pro-rate the exemption amounts
based on the ratio of your U.S. source income to your worldwide income
3. Students and business apprentices from India - You may claim an exemption for your spouse if
he or she had no gross income for U.S. tax purposes, lived with you and cannot be claimed as a
dependent on another U.S. tax return. You may claim exemptions for your children if they are U.S.
Citizens or Permanent Residents.
• All spouses and dependents claimed must have a Social Security Number (SSN) or Individual Taxpayer
Identification Number (ITIN) to receive an exemption.
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Form 8843
• Form 8843 (Statement for Exempt Individuals and Individuals With a Medical
Condition) MUST be filed by any Nonresident Alien present in the U.S. under a
F, J or M visa.
• The form must be filed even if you received no taxable income during 2014.
• Form 8843 is not an income tax return. It is an informational statement required
by the U.S government. The purpose of the form is to explain why the SPT does
not apply to you.
• You do not need a Social Security Number or ITIN to file Form 8843, but if you
already have a SSN or ITIN, you need to enter that number on the form.
• If you are not required to file a 2014 tax return, Form 8843 must be filed with the
IRS by June 15, 2015.
• If you are filing a 2014 tax return, Form 8843 should be attached to the tax
return.
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Social Security Number (SSN)
• A Social Security Number (SSN) is issued by the Social
Security Administration and can be obtained if your
immigration status allows you to be employed in the
U.S. Most foreign students and scholars on F, J and M
visas are eligible for a Social Security Number.
• Use Form SS-5 from the Social Security Administration
to apply for a Social Security Number.
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Individual Taxpayer Identification
Number (ITIN)
• An Individual Taxpayer Identification
Number (ITIN) is issued by the Internal
Revenue Service and can be obtained by
individuals who wish to work in the U.S.
and are not eligible for a SSN.
• Use IRS Form W-7 to apply for an ITIN
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Tax Documents You May Receive
• W-2: All employees who have taxable income in the U.S. will receive a W-2
which shows the amount of money you earned and the amount of taxes you
had withheld during the year.
• 1042-S: Sent to Nonresident Aliens who receive various types of payments
during the year (see next slide).
• 1099-INT: Bank interest received during the year. Bank interest earned from
personal accounts is not reportable for Nonresident Aliens.
• 1099-DIV: Dividends earned on investments.
• 1099-MISC: Shows money earned from working other than as an employee.
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Form 1042-S
Form 1042-S is used to report various types of payments to Nonresident Alien
students.
• The most common types of income that will be reported to Nonresident Alien
students on Form 1042-S are graduate financial aid stipends, taxable room and board,
prizes and awards for achievements, consulting fees, honorarium payments, wages
exempt from tax due to a tax treaty and per diem expenses.
• Wages earned in the U.S. that are not exempt from tax due to a tax treaty will be
reported on Form W-2.
• It is possible that you will receive Form 1042-S and Form W-2. You may also receive
multiple 1042-S forms for different types of income being reported to you.
• Form 1042-S will be mailed out by March 15, 2015.
• You can receive Form 1042-S even if you do not have a SSN or ITIN. If this is the
case, you will need to submit Form W-7 with your tax return to obtain a ITIN
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Massachusetts Tax Returns
• Massachusetts imposes its own income tax separate
from the U.S. federal income tax.
• Your MA residency status is not based on your
immigration status or your residency status for U.S.
income tax purposes.
• Massachusetts qualifications for resident and
nonresident status are different than the U.S. federal
income tax qualifications.
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Massachusetts Nonresidents
• You are a MA Nonresident if:
– You lived in Massachusetts for less than 183 days during the year; AND
– You do not maintain a permanent place of abode in MA
OR
– Your legal residence (domicile) is not in MA
• Being domiciled in MA requires both a physical residence in MA and an intention to
make MA your permanent place of residence.
• In general, if you are a university student and return to your domicile after the school
year, you are considered a Nonresident for MA tax purposes.
• A dormitory room or university-owned student housing is not considered a permanent
place of abode in MA.
• Even if you have a job in MA during the year, you can still be a Nonresident based on
the above criteria.
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Massachusetts Nonresidents
• As a MA Nonresident, you are only taxed on your MA source income.
• MA source income includes:
– Compensation for personal services, including wages, salaries, tips, bonuses,
commissions, fees or other compensation relating to a trade or business
conducted in MA
– Any lottery winnings in Massachusetts
– MA unemployment compensation
– Rental and royalty income earned from property located in MA
– Capital gains on the sale of property located in MA
– Interest and dividends connected with a business activity in MA
• Interest and dividends earned from personal bank or investment
accounts is not MA source income.
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Massachusetts Tax Forms
• MA Nonresidents must file Form 1-NR/PY each year
to report their MA source income.
• The 2014 Form 1-NR/PY is due by April 15, 2015.
• As a MA Nonresident, Form 1-NR/PY generally only
has to be filed if your MA source income exceeds
$4,400 for 2014.
• The Massachusetts Department of Revenue (DOR)
collects MA taxes and enforces the MA tax laws.
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Windstar Online Tax System
• Windstar Foreign National Tax Resource (FNTR) is a free,
online tax preparation system that allows U.S. Nonresident
Aliens to prepare their U.S. and Massachusetts tax returns.
• Nonresident aliens are not allowed to file their U.S. returns
electronically. You must print out your tax return from Windstar
and mail it to the IRS.
• Windstar provides assistance with filing your tax return and will
help you determine your residency status under the SPT.
• Website: https://trr.windstar.com/
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Documents You Will Need to Prepare Your
Tax Return With Windstar
• Passport
• Immigration Documents (I-20 or DS-2019)
• SSN or ITIN (if you have been assigned one)
• Address information (U.S. and foreign)
• U.S. entry and exit dates (current and past)
• Academic institution information
• Forms W-2, 1042-S and/or 1099
• A copy of your 2013 federal tax return (if you filed one)
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Useful Resources & Publications
• www.irs.gov – Internal Revenue Service
• IRS Pub 17: Federal Income Tax Guide for Individuals
• IRS Pub 519: U.S. Tax Guide for Aliens
• IRS Pub 901: U.S. Tax Treaties
• IRS Pub 970: Tax Benefits for Education
• www.mass.gov/dor – Massachusetts Department of Revenue
• www.ssa.gov – U.S. Social Security Administration
• www.uscis.gov – U.S. Citizenship and Immigration Services
• www.hio.harvard.edu – Harvard International Office
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Obtaining IRS Forms Online or in Person
• www.irs.gov/Forms-&-Pubs - Section of the IRS website where you can
search for current and prior year tax forms as well as IRS publications.
• Google – If you know the number of the form or publication you are
looking for, the top results in a Google search will almost always return a
direct link to the PDF version of the form or publication from the IRS
website. Be sure to include the year of the form in your search criteria (i.e.
search for “2014 IRS Form 1040NR”).
• Obtaining tax forms in person:
– Post Office
– Local library or university library
– IRS office (the closest IRS office to the Kennedy School is in the JFK
Federal Building at 15 New Sudbury Street in Boston)
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