Foreign Student Introduction

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Goal: Foreign Student training for Link & Learn certification

Resource: Publication 4011 (Rev. 10-2023)

BRK & RD

1/12/2023

What We’ll Cover

• Residency Status
• Filing Status
• Income
• Deductions
• Credits
• Filing Requirements
• Tax Treaties
• Tax Forms

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Residency Status

• Foreign students, teachers, scholars temporarily in the US are nonresidents
• Student with F, J, M, Q visa – nonresident for 5 years
• Teacher or scholar with J, Q visa – nonresident for 2 years
• Part year counts as full year
• Days in US not counted for substantial presence test
• See Pub. 4011 p. 7-9

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Test Your Knowledge

• How many years would a foreign student (with F, J, M, or Q visa) be considered a nonresident for tax purposes?

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• Answer: 5 years (Pub 4011 p. 7)

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Test Your Knowledge

• Bac is F-1 student
• Entered U.S. on July 30, 2019
• Never been in the U.S. before
• No change in immigration status in 2023.
• Is Bac a resident or nonresident alien for 2023?

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Answer: Nonresident Alien

(Pub 4011 p. 7)

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Test Your Knowledge

• Ba Tu is a visiting professor
• He was a graduate student from June 2019 to May 2021 in F-1 immigration status
• Reentered U.S. on December 20, 2021 as a teacher in J-1 immigration status
• Is Ba Tu a resident or nonresident for 2023?

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• Answer: Resident Alien

(Pub 4011 p. 7)

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Filing Status

• Single
• Married Filing Separate(MFS)
• Qualifying Surviving Spouse (Canada, Mexico, South Korea and India)
• No MFJ
• No Head of Household
• See Pub 4011 p. 28

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Test Your Knowledge

• Can a married foreign student file a joint return?

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• Answer: No (Pub 4011 p. 28)

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Nonresident Income

• Taxed only on US source income
• Effectively connected (EC) with a US trade or business (example, wages)
• Not effectively connected (NEC) with a US trade or business (example, dividend income and capital gains)

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Wages

• Taxed at US rates
• Some treaties allow limited exemption from tax for students studying or training(example, Germany $9,000; Poland $2,000)
• See Pub 4011 P. 9

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Wages

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• Exempt income often reported on Form 1042-S with no withholding (Pub 4011 p. 23-27)

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Scholarships or Fellowship Grants�(Income Code 16)

• For tuition, fees, books, supplies – not subject to U.S. Tax
• For room & board, living expenses – subject to U.S. Tax unless exempt by treaty (example, Norway-no limit; Spain-no limit)
• See Pub 4011 p. 13

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Dividends

• NEC with taxpayer’s trade or business (studying, teaching, research)
• Taxed at 30% unless lower treaty rate (example, China 10%; Egypt 15%)
• Dividends often have lower treaty rate
• Report dividend income on Schedule NEC of Form 1040NR
• See Pub 4011 p. 18-19

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Capital Gains

• In scope only for sale of U.S. stocks, generally considered NEC with U.S. trade or business
• Taxed at 30% unless lower treaty rate (example, Austria 0%; Greece 30%)
• NR Aliens in U.S. for less than 183 days in the tax year-
• generally are exempt from tax on capital gains on U.S. stock (footnote p. 17)
• Report capital gains on Schedule NEC of Form 1040NR
• Don’t report capital gains on Schedule D and Form 8949
• See Pub 4011 p. 16-17

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Interest

• Bank interest is not taxable!
• U.S. Banks
• Savings and Loan Associations
• Credit Unions
• U.S. insurance companies (certain deposits)
• Don’t include on Form 1040 NR line 2b
• See Pub 4011 p. 4 & 32
• Interest-NEC to a U. S. trade or business is subject to tax
• Include the interest income on Schedule NEC
• See Pub 4011 p. 4 & 32

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Nonresident Deductions

• Can’t take standard deduction (generally, unless student or apprentice from India for single or MFS) (see Pub 4011 p. 14)
• Itemized deductions (rare) -- only for
• State/local income taxes up to $10,000 ($5,000 married separate)
• Charitable contributions to U.S. charities only
• Casualty losses for federally declared disaster (OOS)

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Credits

• Generally not available
• Earned Income Tax Credit
• Advance Premium Tax Credit
• Educations Credits
• Child and Dependent Care Credit
• See Pub 4011 p. 29-30

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Filing Requirements

• Form 1040NR
• To report income subject to tax or treaty benefit
• Due date is April 18, 2023
• See Pub 4011 p. 6 & 30-31
• Form 8843
• To document days excluded from substantial presence test
• Filed by itself if no income
• Five Parts
• Due date is June 17, 2024, if Form 1040-NR is not required (no income)
• See Pub 4011 p. 6 & 30-31

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Tax Treaties

• Pub 901 US Tax Treaties
• Search “tax treaties” on irs.gov
• Pub 4011- Foreign Student and Scholar Volunteer Resource Guide

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Tax Treaties - Scholarships

• Income Code 16 – Scholarship or Fellowship
• For tuition, fees, books, supplies – not taxable
• For room & board, living expenses – taxable
• Unless exempt by treaty – then not taxable
• Pub 4011, P. 13

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Tax Treaties – Wages, Teacher

• Income Code 19 – Compensation for Teaching or Research – Can be complex!
• Professor’s or teacher’s pay may be exempt from taxes 2 or 3 years (example, India 2 years; China 3 years)
• Some countries (India, Netherlands, Thailand, UK) – if maximum years exceeded, entire treaty benefit is lost retroactively
• Some countries (Czech Rep, France, Indonesia, Israel, Jamaica, Netherlands, Philippines, Portugal, Slovak Rep, Thailand) – can’t claim benefit if benefit claimed in past (as student or teacher)
• Pub 4011, P. 14

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Tax Treaties – Wages, Student

• Income Code 20 – Compensation during Study or Training
• Generally can’t work off campus in first year
• Wages in excess of treaty benefit are taxable
• Any treaty benefit must be reported
• Pub 4011, P. 15

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Tax Treaties - Dividends

• Income Code 6 – Dividends from U.S. Companies
• Not effectively connected
• Taxed at 30% or lower treaty rate
• See Pub p. 18-19

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Unique Treaty Provisions�India

• India
• Student or apprentice may use standard deduction (S and MFS but not MFJ)
• Scholar or teacher may not use standard deduction
• See Pub 4011, P. 12

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Unique Treaty Provisions�China �

• China – For both resident and NR aliens
• Students get $5,000 exemption each year for income earned while studying or training
• Probably file as Resident Alien in 6^th year but still exempt $5,000

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• Teacher or scholar
• All earned income exempt for 3 years
• Becomes resident alien after 2 years, but still gets 1 year exemption
• Pub 4011, Page 12

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Unique Treaty Provisions�Canada�

• Canada
• Earned income exempt up to $10,000 in tax year
• All income taxed if earned income >$10,000
• Pub 4011, Page 12

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Test Your Knowledge

• A foreign student from which country may claim the standard deduction?

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• Answer: India

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Tax Forms

• Form 1040 NR
• Form 1040 NR-Schedule OI (Other Information)
• Form 1040 NR-Schedule NEC (Not Effectively Connected)
• Form 1040 NR-Schedule A
• Form 13614 NR-Nonresident Intake and Interview Sheet

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Other Issues

• NR alien should apply for social security card if eligible (see Pub 4011 p. 35)
• If Social Security and Medicare taxes withheld
• Ask if employer will refund the amount withheld
• If not, file Form 843 to recover the taxes paid
• See Pub 4011 p. 30
• Payment options if NR alien owes taxes
• Pay the balance
• Pay with credit card
• File an installment agreement
• See Pub 4011 p. 32
• Exemptions $0 thru 2025 (see Pub 4011 p. 28)

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Recap

• You learned who is a foreign student or teacher
• You learned how the income is treated differently for tax purposes
• You were introduced to tax treaties

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Thanks for attending!

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