Tax Consequences For Foreign Students…Think F, J Visas

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My husband and I chartered a course ourselves long ago in the stormy waters of visas, tax treaties and tax consequences. Considering taxes have just got even more complicated, so its no surprise that I field quite a lot of questions from various visa holders especially foreign students on F-1 visas. Suffice to say that the range of information for foreign students is too much to cover in one blog post, so I will focus on the main points. If you need any more information, you know where to reach me!

If you are a foreign student, you already know from your university that you are one of those who are subject to special rules with respect to the taxation of your income. Usually a foreign student is on an F, J, M, or Q visa.

The Substantial Presence Test (SPT):

Most US residents, citizens or not, have to follow the substantial presence test in order to determine how they will file their taxes.

• To fulfill the SPT, one must pass both the 31-day & the 183-day test.
• However, if you are a foreign student on any of the above visas, you are considered an “exempt” individual.
• You cannot be exempt for more than 5 calender years.
• Unless (don’t you love an exception to an exception?)- you can prove to the IRS that you were more closely connected to your home country.

Tax Payer Identification Numbers (TIN)/ Social Security Numbers (SSN):

Most foreign students and scholars in F-1, J-1, M-1, Q-1, and Q-2 non-immigrant status are eligible to be employed in the United States, and are therefore eligible to apply for an SSN if they are actually employed in the United States

Social Security/ Medicare Tax:

Generally nonresident Alien students present in the United States in F-1,J-1,M-1, or Q-1/Q-2 non-immigrant status are exempt on social security tax on wages paid to them,

• For services performed within the United States as long as such services are allowed by USCIS for their status,
• And such services are performed to carry out the purposes for which the visa was issued to them.

Exempt Employment may include:

1. On-campus student employment up to 20 hours a week (40 hrs during summer vacations).
2. Off-campus student employment allowed by USCIS.
3. Practical Training student employment on or off campus.
4. Employment as professor, teacher or researcher.
5. Employment as a physician, au pair, or summer camp worker.

Limitations on exemption are:

1. The exemption does not apply to spouses and children in F-2, J-2, M-2, or Q-3 non-immigrant status.
2. The exemption does not apply to employment not allowed by USCIS or to employment not closely connected to the purpose for which the visa was issued.
3. The exemption does not apply to F-1,J-1,M-1, or Q-1/Q-2 non-immigrants who change to an immigration status which is not exempt or to a special protected status.
4. The exemption does not apply to F-1,J-1,M-1, or Q-1/Q-2 non-immigrants who become resident aliens.

Scholarships, Fellowships and Grants:

Generally scholarships, fellowships and grants paid to foreign students is not reportable nor are they taxable. However, the following must be kept in mind:

1. All amounts paid to NONRESIDENT ALIENS in the form of scholarships, fellowships, grants, and financial aid, which are not excludible from gross income as a “qualified scholarship” under Internal Revenue Code section 117 must be reported to IRS on Forms 1042 and 1042-S.
2. Foreign students are subject to a reduced 14% withholding rate (rather than the regular 30%) on the taxable portion of a scholarship/ fellowship/ grant because such individuals are considered to be engaged in a U.S. trade or business under Internal Revenue Code section 871(c). This is not applicable if the foreign student is a non-degree candidate.
3. If the foreign student wants to claim that part or all of his scholarship or fellowship is exempt from taxation because of a tax treaty must file Form W-8BEN with the university office charged with receiving and processing such forms. Or he may claim a treaty exemption on Form 8233.

Tax Treaty With Home Country:

If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, withholding for certain items of income, you should notify the payer of the income (the withholding agent) of your foreign status to claim the benefits of the treaty. You cannot do this however, if you have made an election with your U.S. citizen or resident spouse to be treated as a U.S. resident for income tax purposes.

However, the exceptions to the saving clause in some treaties allow a resident of the United States to claim a tax treaty exemption on U.S. source income.

Like I always say, there are many nuances and exceptions to all of the above, that I cannot possibly cover in a single blog post. Please contact a tax professional to address your unique situation if you are a foreign student.

Bibliography: Pub 519; Form W-8BEN; Form 8233; Form 8833;; § 6114; § 7701; Tax Treaties

Original Post By:  Manasa Nadig


I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.

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