The F-1 student visa status is important in many facets of an international student’s life in America. From legitimising your presence in the country to deciding what type of employment you’re allowed to take on, the visa status oversees your entire study abroad experience in the US.
There’s another area F-1 students should be aware of when it comes to visa status: taxes.
Writing in Law360.com, Beate Erwin and Neha Rastogi of law firm Ruchelman PLLC stressed the importance of knowing one’s residency status and its impact on their income tax requirements in the US.
If you’re an international student in the US you might not be too familiar with the local tax system. You have questions about your tax obligations and what you’re entitled to?
Check out our handy guide to US tax for international students: https://t.co/gyc9iHk2Vs pic.twitter.com/ycwGQURh6B
— Sprintax (@Sprintax_USA) 11 June 2018
These are the main points you should know as an international student on an F-1 visa and the special tax provisions associated with it:
International students are non-resident aliens in the US
Under this visa category (and meeting other conditions such as substantially complying with the visa requirements), an international student is “taxed in the same manner as a nonresident alien for US federal income tax purposes”.
Taxation only on US-source income
An international student will be taxed only on US-source FDAP income (ie.fixed or determinable, annual or periodic income that is not connected with a US trade or business) and ECI (ie. income that is effectively connected with a US trade or business).
According to Erwin, FDAP income includes “US-source dividends, certain interest, passive rents and royalties, non-qualified scholarships, compensation for services and other “fixed or determinable, annual or periodical income”. The flat rate on this is 30 percent on gross income.
ECI refers to income connected to a US trade or business. For example, the income generated from an international student providing services in the US.
“Such income is taxed on net basis (ie. after deduction of business expenses) at ordinary rates applicable to a US-resident individual (ranging from 10 percent to 37 percent under current law),” Erwin wrote.
Exemption from Social Security and Medicare taxes
This exemption applies if the work international students performed in the US are in line with the F-1 visa requirements. For example, income generated from the following are exempt from Social Security and Medicare taxes:
- On-campus student employment up to 20-hours per week (40 during summer vacations – eg. working as a research assistant of a professor at the school);
- Optional Practical Training allowed by the United States Citizenship and Immigration Services.
Seek help from an international student adviser or from tax professionals
US tax laws can be a complicated maze to navigate. The rules and exemptions above are subject to compliance to many other conditions, eg. maintenance of your non-resident status. These legal jargons and administrative policies aren’t the easiest to decipher, especially for overseas students.
It is best to seek help from your university’s international office upon arriving in the US or engage a US tax professional if you are having troubles with your tax needs. Some institutions, like Amherst College, have teamed up with online tool Sprintax to help international students file their tax returns in less than 20 minutes.