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The International Office is working to help make the filing of the proper
tax forms as easy as possible for international students, scholars and faculty
at Dartmouth. For liability reasons, however, the International Office is
unable to provide advice about an individual's specific tax situation. We are
able to provide tax forms and general guidance in form completion, filing
dates, and treaty benefits.
Overview of U.S. Income Tax System
The rules of U.S. income taxation are confusing and complicated; therefore,
it is important to define some basic concepts and terms associated with the U.S
tax system, which is based on a dual system of withholding and reporting. When
you receive a wage or salary payment, your employer is required to calculate
and withhold U.S. income tax at a graduated rate based on the expected amount
you will receive from that employment during the tax year. In a similar manner,
payments to F or J visa holders of non qualified scholarships and fellowships
are taxed at 14% at the time the payment is made, and prizes and awards and all
other payments are typically taxed at 30% at the time of payment.
After the end of the year, you are required to combine the income payments
that you received from all sources during the year in order to calculate your
U.S. tax liability for that year. This requires the preparation of a federal
income tax return. Once the tax return is prepared, if you find that you had
more income taxes withheld during the year than you actually owed, you can
apply for a refund. And if you have had too little income tax withheld
during the year, you must pay additional income tax due.
Tax Filing Requirements
Nonresident F and J visa holders in the U.S. must file an annual tax return
(IRS Form 1040NR-EZ or Form 1040NR) and/or statement (Form
8843) to substantiate nonresident status with the Internal Revenue
Service. This includes F-2 and J-2 spouses and children.
Generally, non resident aliens whose only income during the tax year was
from wages and who earned less than the personal exemption ($3,400 for 2007)
are not required to file a tax return. However, if any taxes were withheld,
they must file a return to claim a tax refund. The $3,400 threshold only
applies to wage income. Non resident aliens are required to file a tax return
if they receive any taxable scholarship/fellowship grant, income partially or
totally exempt from tax under the terms of a tax treaty, and/or any other
income, which is taxable under the Internal Revenue Code. Forms 1040NR or
1040NR-EZ must be filed by April 15, 2008. In addition, nonresident students
and scholars who are filing a tax return must file a Form 8843, which is a
Statement of Exempt Individuals. The Form 8843 is a one-page document that is
returned with the 1040NR or 1040NR-EZ. The purpose of the form is to verify
nonresident alien tax status.
Nonresident students and scholars who are not required to file a tax return
must still file Form 8843 and the due date for submitting the Form 8843 is June
15, 2008. F-2 and J-2 spouses and children who earned no U.S. source income
during the tax year only file a Form 8843.
Resident Aliens and Nonresident Aliens
In order to do your tax return, you must first determine whether you are a
Resident or Nonresident for income tax purposes. Generally resident aliens are
taxed in the same manner as U.S. citizens while nonresident aliens are taxed
according to special rules contained in the U.S. tax code. An individual can
also be considered a Dual Status Alien if he or she is both a resident alien
and a nonresident alien during the same tax year; different rules apply for the
part of the year you are a resident alien and the part of the year you are a
nonresident alien.
Tax residency rules are based on immigration law, which classifies all
aliens (any person who is not a citizen of the United States) into three basic
categories: immigrants, non immigrants and illegal aliens. Aliens, for tax
purposes, are either residents or nonresidents. You are a resident alien for
tax purposes if you meet either the green card test or the substantial presence
test for the calendar year (January 1 - December 31) for which you are filing a
tax return.
The "green card" test is fairly simple. If you are a lawful permanent
resident of the U.S. at any time during the calendar year, you are a resident
for tax purposes. You generally have this status if the U.S. Citizenship and
Immigration Service issued you an alien registration card, which is known as a
green card. The "substantial presence test" is more complicated. It is a test
that is made each year and, in general, is a calculation of the number of days
you have been physically present during the current year, and the two calendar
years immediately before the current year. To meet this test and be considered
a Resident Alien (for tax purposes) you must be physically present in the U.S.
on a least:
- 31 days during the current year, and
- 183 days during the 3 year period that includes the current year and the 2
years immediately before that, counting:
a.) all the days you were present in the current year, and
b.) 1/3 of the days you were present in the first year before the current
year, and
c.) 1/6 of the days present the second year before the current year.
You do not count any day you were present in the U.S. as an "exempt"
individual.
Exempt Individuals
This term does not refer to someone exempt from U.S. tax. An "exempt
individual" would be any person who is temporarily exempt from the substantial
presence test. You do not count days in the U.S. during which you are an exempt
individual. Being in one of the following categories will temporarily exempt a
person from the substantial presence test:
- Students A student is any individual who is temporarily in the U.S. on an
F, J, M or Q visa and substantially complies with the requirements of that
visa. Immediate family members of a student are also counted as students for
this purpose - including spouses and unmarried children under age 21 who reside
with the student. Students are exempt from the "substantial presence" test for
5 years. Any part of a calendar year in which the student is present in the
U.S. counts as a full year.
- Teachers and trainees A teacher or trainee is an individual , other than a
student, who is temporarily in the U.S. under a J or Q visa and substantially
complies with the requirements of that visa. Teachers and trainees are exempt
from the "substantial presence" test only if they have been in the U.S. no more
than 2 out of the last 6 years. Any part of the calendar year in which the
teacher or trainee is present in the U.S. counts as a full year.
For more information about the substantial presence test, see IRS
Publication 519, U.S. Tax Guide for Aliens.
Nonresident Tax Rules
Nonresidents for tax purposes are subject to different tax rules than U.S.
citizens or residents.
The first general rule is that nonresidents are taxed only on their U.S.
source income. They do not have to report any income that is not considered
U.S. source. One exception would be bank interest.
Interest received from deposits held in the "banking business" does not have
to be reported on a nonresident tax return. The "banking business" includes
commercial banks, mutual savings banks, cooperative banks, credit unions and
other savings institutions chartered under federal or state laws. Many banks
erroneously report this income on a Form 1099-INT because they do not know the
student or scholar is a nonresident. Also, while scholarship/fellowship grant
received for room and board is normally taxable, the portion of a scholarship
that is received for tuition, fees, books and supplies is not
taxable.
Second, income that is excludable under an income tax treaty is not subject
to U.S. tax. Treaty exempted income must be reported on a tax return, but it
won't be taxed if it properly falls under the terms of the treaty. Nonresidents
can receive the benefits of the tax treaty when they prepare their tax return
even if U.S. income tax was withheld by the payer.
Nonresidents are generally limited in how they can file their tax returns.
They can claim one of only two types of filing status: Single nonresident and
married nonresident. All unmarried nonresidents must use the "Single"
filing status. Married nonresidents must use a married filing status even if
their spouse is not present in the U.S. Generally, nonresidents can claim only
one personal exemption on their tax return. Nonresidents from Canada, Mexico,
Korea and India may be able to claim an exemption for their spouse. Different
rules apply to each of the four countries.
Most nonresidents cannot take a deduction for their dependents. The term
dependent is reserved for family members other than your spouse. Even if the
dependents are U.S. citizens, usually they cannot be claimed on a nonresident
tax return. Nonresidents from Canada, Mexico, Korea and India may be able to
claim dependents. Generally, nonresidents do not qualify for either the Child
and Dependent Care credit or the Child Tax Credit.
There are two types of deductions under U.S. tax rules. First, there is what
is known as the standard deduction. The other type of deduction is what is
referred to as an itemized deduction. With the exception of students from
India, nonresident aliens can not take the standard deduction. They may,
however, claim certain itemized deductions, not related to U.S. business
activities. Here are several deductions that may be claimed and would be common
to nonresidents at the College:
- State or local taxes - these taxes are fully deductible in the year paid
and it doesn't matter to which state they were paid.
- Charitable contributions to U.S. charities and nonprofit organizations. If
the contribution exceeds $250, the student or scholar must have a receipt.
- Student loan interest. If you paid interest on a student loan in 2007, you
may be able to deduct up to $2,500 of the interest you paid. There are various
requirements that must be met before student loan interest may be
deducted.
Payment Forms
Nonresidents must combine all their U.S. source income payments received
during the tax year in order to determine their U.S. federal tax liability.
They will receive statements from their employers and other payer of income
summarizing the income they were paid and the taxes withheld. These
statements are used to prepare the tax return.
The most common payment form sent to nonresidents is the Form W-2 (Wage and
Tax Statement). This form is provided by your employer and it will list all
wage and salary payments made to you which is subject to U.S. income tax. If
you received wages through the Payroll system which were exempted from tax
withholding based on an income tax treaty, this income will not be listed on
the W-2.
A second commonly issued statement is the Form 1042S which lists non wage
income payments such as scholarship and fellowship grants, prizes and awards.
The 1042-S form will also list wage and salary income which was exempted from
federal income tax because of a tax treaty.
Many students and scholars receive both forms, particularly if they are from
tax treaty countries. For example, a student from China who worked at the
College could receive a 1042-S showing $5,000 in income which was exempted by
the U.S. - China tax treaty and a W-2 showing the wages they were paid and
which were subject to tax. The total income reported on both forms would
equal the total of the payments they received from their campus job during the
tax year.
The Form 1099 may also be sent to a non resident. There are several types of
1099 forms, for example, a 1099DIV which shows reportable income earned on
investments, the 1099INT which shows interest earned on Bank checking and
savings accounts, and the 1099MISC which shows income earned from various
sources other than as an employee.
Tax Treaties
A tax treaty is an agreement between two governments under which each agrees
to limit or modify its domestic tax laws in an attempt to prevent double
taxation of income. The US currently has tax treaties in effect with over 60
countries under which residents (not necessarily citizens) of foreign countries
are taxed at a reduced rate, or are exempt from U.S. income tax, depending on
the type of income they receive. Not all tax treaties are relevant to
international students and scholars.
Since there are restrictions that may limit who is eligible to receive a
treaty benefit or the amount of money that may be exempt from taxation, it is
important to carefully review the provisions of the treaty to determine
eligibility. For example, most treaty articles require that the individual
be a resident of the treaty country immediately prior to coming to the U.S.
Residency under the tax treaties is determined primarily by one's "residency"
and not by one's citizenship or nationality. Also, generally only a nonresident
for tax purposes may use the terms of a tax treaty. However, a few treaties
allow exemption from tax to continue for certain types of income even if the
recipient has become a resident for tax purposes.
Almost all tax treaties contain provisions (referred to as Articles) that
are intended to promote cross-cultural education and exchange. These articles
generally provide for a partial or complete tax exemption for scholarship or
fellowship grants and for compensation payments received by students, teachers,
and researchers.
For more information about the terms and conditions of a particular tax
treaty, see IRS Publication 901 U.S. Tax Treaties. This publication contains a
summary of the treaty articles related to international students and scholars,
however, it should not be relied upon to determine if an individual qualifies
for the benefits of a tax treaty. The actual text of the tax treaty should be
reviewed to determine if the provisions of a tax treaty apply.
Social Security Number or Individual Taxpayer Identification Number
(ITIN)
The Internal Revenue Service requires that a taxpayer identification number
(either a social security number or an individual taxpayer identification
number) be furnished on all tax returns, statements, and other tax related
documents. Non residents who are allowed to work in the US according to
their immigration status are eligible to apply for a social security
number. J-1 individuals may apply for a social security card as
employment in the US is a benefit of their immigration status. F-1
students may apply if they have evidence of a job on campus. Individuals
in J-2 status may apply if they have received an Employment Authorization
Document. Individuals in F-2 status and F-1 students who are not working on or
off campus can not receive social security numbers. These individuals must
apply for an Individual Taxpayer Identification Number (ITIN).
To apply for an ITIN, an individual files IRS Form W-7, Application for IRS
Individual Taxpayer Identification Number. An original, completed tax return(s)
for which the ITIN is needed must be attached to the W-7, unless the applicant
qualifies for an exception, and the W-7 must be filed with original or
certified proof of identity documents.
The Dual-Status Return
Dual-status results if an individual holds both nonresident and resident
alien status for tax purposes during the same tax year. This usually occurs in
the year you arrive in or depart from the U.S. In determining your U.S. income
tax liability for a dual-status tax year, different rules apply for the part of
the year you are a resident of the U.S. and the part of the year you are a
nonresident. Dual status individuals must file form 1040NR or 1040NR-EZ and a
Form 1040, 1040A or 1040EZ. Information concerning dual-status tax year filing
can be found in IRS publication 519. Follow this link:
http://www.irs.gov/publications/p519/ch06.html.
IRS Mailing Address
All IRS forms should be copied for your records, then completed, signed and
mailed to:
Internal Revenue Service Center
Austin, TX 73301-0215
The deadline for filing these forms for the tax year 2007 is April 15,
2008
International Office Disclaimer
The staff members of the International Office are not licensed
taxation experts. We will answer questions from Dartmouth community
members relating only to general filing requirements for F and J visa or status
holders, however, you should first attempt to file your tax forms using the
CINTAX program before contacting us for information.
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