TAX INFORMATION
*IMPORTANT
Please, review the Tax Preparation Workshop Power Point Presentation
CINTAX Complete International Tax Preparation Software is now available for 2007!
OIPS has once again obtained a license for the use of CINTAX, a tax preparation software designed for certain foreign nationals in preparation of their Federal Tax Return. The software is similar to products such as Turbo Tax or Tax Cut in that tax returns are prepared based on the answers to a series of questions.
The license is to be used only by those in F-1 and J-1 status who are here at George Mason University.
You will be getting an OIPS-NEWS e-mail that contains links to basic instructions for the usage of CINTAX and a link to information for those individuals with NO income who must file the form 8843 with the IRS. Please read these instructions slowly and carefully. Keep in mind that OIPS staff cannot answer any questions you may have regarding the use of the software. All questions should be directed to CINTAX via email at support@cintax.us.
General Tax Introduction
In making payments of any type to our international visitors, George Mason University (GMU) is required to comply with federal and state reporting and withholding requirements. We also need to be sure that the payments made to our visitors are allowable from an immigration perspective. These rules are extremely complex, and OIPS has an International Tax Coordinator devoted exclusively to these matters to assist our visitors in understanding their U.S. tax obligations and to keep GMU in compliance with tax and immigration laws.
All nonimmigrant visaholders (including visa waiver visitors and walkovers from Canada) who will receive a payment or financial benefit of any type from GMU (including an athletic scholarship) are required to complete the online Foreign National Information Form and meet with the Tax Coordinator for tax analysis and to complete tax forms. Please note that no payments will be processed until the interview has occurred and all required tax forms are on file at OIPS. The interview serves two purposes. First, it allows GMU to ensure that we are processing payments correctly. Information provided on the forms in the tax packet and during the interview helps us to determine an individual's tax status; whether or not an individual is eligible for tax treaty benefits, exemption from Social Security tax, or reduced tax withholding; and whether a payment is even considered to be reportable income. Second, it gives our visitors a brief orientation to the U.S. tax structure and their tax obligations. (Tax workshops given in the spring each year provide this information in much more detail. Please note, however, that neither the Tax Coordinator nor GMU can provide assistance with individual tax returns.)
The Tax Coordinator operates on an appointments-only basis, and does not have walk-in hours like the rest of the OIPS staff. Appointments can be arranged by calling OIPS at 703-993-2970. The online Foreign National Information Form must be completed prior to the appointment date. Individuals should bring the following original documentation to their appointment: passport, I-94 Departure Card, all current and prior I-20s and/or IAP-66s or DS-2019s, Social Security Card or Tax Payer ID Number (ITIN), and any departmental documentation (i.e., assistantship offer letter, fellowship award letter) describing the payment they are to receive. A list of all prior visits to the U.S., including immigration status and dates of entry and exit, would also be helpful.
For purposes other than setting up appointments, the Tax Coordinator can be reached directly at 703-993-2952. General federal tax information for nonimmigrants can be found in IRS Publication 519 on the IRS website: www.irs.gov State tax links can be found at www.taxadmin.org/fta/.html
Determining Tax Status For Nonimmigrants in the U.S.
For tax purposes, the very first thing that a nonimmigrant visitor to the U.S. needs to determine is their tax status. Nonimmigrant individuals will generally fall into one of two categories: nonresident alien or resident alien for tax purposes. This distinction is crucial, because tax laws, including how to determine which tax return to file and what income is taxed, are vastly different for the two groups. (A third group of individuals, called dual-status individuals, also exists. However, this is a relatively rare status and therefore not addressed here. If the Tax Coordinator determines that you are a dual-status individual, you will be given additional information during your interview.) Because an individual's tax status can change from year to year, they should re-evaluate their status on an annual basis and any time there is a significant change in their life (marriage, change of immigration status, etc.). The Tax Coordinator should also be advised of any such significant changes as soon as they occur.
Although a nonimmigrant individual’s tax status is determined based on their U.S. immigration history, it is not the same as their immigration status. “Nonresident alien” for tax purposes is NOT the same as “nonimmigrant” for immigration purposes. To make things more confusing, an individual’s federal tax status is rarely the same as their status for state tax purposes. Keep in mind that this topic covers federal tax issues only.
Nonresident aliens for tax purposes are individuals who do NOT meet either the "green card test" or the "substantial presence test" (SPT) for the tax year in question. Under the "green card test" an individual is a resident alien for tax purposes if they were a lawful permanent resident of the U.S. at any point during the calendar year. (See the Internal Revenue Service's (IRS) Publication 519, however, for more information about this.) An individual meets the "substantial presence test" (SPT) if their countable days in the U.S., based on a formula including the year in question plus the two prior years, equal or exceed 183 days.
In general, this formula takes all the countable days in the current year, one-third of the countable days from the year before, and one-six of the countable days from the year before that. If the total equals or exceeds 183 days, the individual is a resident alien for the tax year in question.
Individuals who are exempt from counting days in the U.S. toward the SPT for a given tax year are nonresident aliens for that year. They are called exempt individuals, but this only means they are exempt from counting days in the U.S., NOT that they are exempt from paying taxes. Below is a discussion of different categories of exempt individuals:
Individuals in F, J, M or Q student status are exempt from counting days in the U.S. toward the SPT for the first five tax years (or part of a tax year) that they are in the U.S. in an "exempt" status. Therefore, an individual who was never in the U.S. before, who entered the U.S. in F-1 status in 2001, would not start counting days until 2006, assuming they remained in F-1 status through that time. Since they would not count days toward the SPT, they would remain a nonresident alien for federal tax purposes for 2001 through 2005.
Prior visits to the U.S. play an important part in determining an individual's tax status. If the individual in the above example had been in the U.S. as an F-1 student in 1990 and 1991, then returned to the U.S. as an F-1 student again in 2001, they would only have 3 exempt years left (2001, 2002 and 2003) because they already used 2 years in 1990 and 1991. This individual would probably meet the SPT sometime in July of 2004 and become a resident alien for that tax year.
Individuals in F, J, M or Q derivative student status (i.e., F-2 dependents) calculate their SPT results in the same way the primary visaholder does. If, however, an F, J, M or Q dependent enters the U.S. in a later year than the primary visaholder, their five exempt years will start with their own arrival date, not with the primary visaholder's arrival date. It is therefore possible for a primary visaholder to meet the SPT before their visa-dependent spouse (or child) does so.
Individuals in J non-student status, such as professors, research scholars, trainees, etc., and their visa dependents, are more complicated because they are only entitled to two exempt years out of seven. Put another way, an individual who has not been exempt as a student, J non-student or trainee for any two of the prior six years - not including the current year - is exempt for the current year. If a J-1 researcher enters the U.S. for the first time in 2001, then 2001 and 2002 are his exempt years. 2003 is NOT an exempt year, and if he is in the U.S. for 183 or more days that year, he will be a resident alien for tax purposes. Unlike student visaholders, though, J non-students can re-gain exempt years as time goes on due to the "two of the prior six years" rule. In the above researcher example, if the researcher leaves the U.S. in 2003 and doesn't return again until he makes a new J-1 researcher entry in 2008, 2008 is again an exempt year. That is because, as he looks back over the prior six years (2002 through 2007), only one year - 2002 - was an exempt year for him. 2003 was not an exempt year, even though he was in the U.S. in J-1 status.
Other individuals who are exempt from counting days in the U.S. toward the SPT are primary A and G visaholders, and their immediate family members (spouses and unmarried children only) who are in the U.S. as visa dependents. Primary A and G visaholders and their spouses are perpetually exempt from counting days toward the SPT regardless of the duration of their stay in the U.S. in that status. Their unmarried children, however, are only exempt as long as they are less than 21 years old, reside regularly in their parents' household, and are not members of another household.
Resident aliens for tax purposes are, as stated above, individuals who meet either the "green card test" or the "substantial presence test" (SPT) for the tax year in question. Individuals who, on their own, are nonresident aliens for federal tax purposes, may be able to elect to be file their tax return as a resident alien if they meet certain criteria. Some examples are nonresident aliens who are married to a U.S. citizen, permanent resident or resident for tax purposes; and, under certain circumstances, a nonresident alien who will meet the "substantial presence test" in the following tax year.
Individuals who are tax residents of Hungary, Jamaica and Barbados at the time they enter the U.S. primarily to be students may, under the terms of the tax treaties between the U.S. and those countries, elect to be treated as U.S. residents for income tax purposes. See IRS Publication 519 for more information about these and other possible elections.
The Tax Coordinator is able to determine an individual's tax status based on the information provided in the tax packet and during the interview that are required of all nonimmigrant payees.
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Who Gets Taxed On What Income?
Nonresident aliens (see the topic “Determining Tax Status for Nonimmigrants in the U.S.”) are generally taxed only on income from U.S. sources. Their income is sourced differently depending on the nature of the income. Compensation (income paid for services performed, like wages from an assistantship) is sourced to the country where the work takes place. Scholarships and fellowships (non-compensatory grants) are sourced based on a combination of the location of the payor and the location of the academic activity. Income of this type is sourced to the U.S. only if the payor is based in the U.S. and the academic activity takes place in the U.S. Bank interest earned on simple deposits like checking and savings accounts is not reportable or taxable on a nonresident alien’s federal income tax return. There are charts and discussions in IRS Publication 519 that explain the sourcing of these and other types of income.
Nonresident aliens receiving wage income (and other income from U.S. sources that is considered to be effectively connected with a U.S. trade or business as defined in IRS Publication 519) are taxed at the same graduated rates as U.S. citizens or permanent residents when they complete their income tax returns. When wages are paid out, however, nonresident aliens are subject to restrictions in terms of how many personal exemptions they can claim on their withholding documents, and in most cases they are subject to withholding on a higher amount of their income. For individuals receiving non-compensatory income, the tax rate they pay may be the same (depending on the type of income) as U.S. citizens or permanent residents pay. Again, however, there is a difference at the time the money is paid out. The standard withholding rate for nonresident aliens on such payments is 30%. That amount can be reduced in certain circumstances for individuals in who meet certain criteria.
Nonresident aliens file IRS Form 1040NR-EZ or 1040NR as their federal income tax return if they had any U.S.-source income during the tax year (January 1 through December 31). If they are exempt individuals in F, J, M or Q status for the year in question (see “Determining Tax Status for Nonimmigrants in the U.S.), they must also file IRS Form 8843 with their tax return to justify their exempt status claim. Exempt individuals in F, J, M or Q visa status who had no U.S.-source income to report should complete and file IRS Form 8843 by itself to justify their exempt status claim.
Unlike U.S. citizens, permanent residents, or resident aliens, nonresident aliens historically have not been subject to any “de minimis” tax return filing criteria at the federal level. If a nonresident alien had even a dollar’s worth of U.S.-source income during a calendar year, they have been required to file a federal (and possibly state) income tax return unless all the income already had 30% withholding done. Beginning with tax year 2006, however, if a nonresident alien’s ONLY income from U.S. sources is employment income, and their total employment income for the year is less than the “personal exemption amount” for the year in question ($3,300 for 2006), no 1040NR-EZ or 1040NR will be required. This will not change the requirement for exempt individuals to file Form 8843, however.
Nonresident aliens are subject to many restrictions when filing their tax returns. They cannot file a joint tax return with a spouse, are not eligible to claim the standard deduction (with the exception of one group of individuals), generally cannot claim exemptions for their children or spouse (there are several exceptions), are not eligible for certain education credits like the Hope or Lifetime Learning Credits, etc. This is one of the reasons that it is so important to correctly determine an individual’s tax status. A nonresident alien is required to file one of the 1040NR series of federal tax returns – 1040NR-EZ or 1040NR. If they file one of the regular 1040 series returns instead, they will most likely be underpaying their taxes and serious problems could result.
Resident aliens are taxed on their income just as U.S. citizens and permanent residents are. This generally means that their worldwide income (including bank interest) is subject to U.S. tax, regardless of the type of income, who paid it to them, and where they were in the world at the time they received the money. They are not subject to the restrictions described above for nonresident aliens, and the tax return they file is either a 1040EZ, 1040A, or 1040.
A nonimmigrant individual cannot pick which tax status they want to use when determining what tax return they should file. Their status is what it is based on either the “green card test” or “substantial presence test”. Just because filing as a resident alien might be more financially beneficial, a nonresident alien cannot choose to file that way. Tax status must be determined based on facts and circumstances, not financial expediency. Knowingly filing the incorrect type of tax return could be construed as fraud by the IRS, with extremely serious consequences.
OIPS has obtained a license for the use of CINTAX, a tax preparation software that was designed specifically to guide foreign nationals through the preparation of their Federal Tax Return. This license is for those persons who are or have been at George Mason University on an F-1 or J-1 visa ONLY.
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