r****1
发帖数: 8 | 1 http://www.millerjohnson.com/
International Student FICA Exemption
June 15, 2006
Most foreign students living or working in the U.S. are generally admitted
to the country under F-1 Student status or J-1 Exchange Visitor status and
are deemed to be “non-resident” aliens for tax purposes. The foreign
student’s F-1 or J-1 status renders him as “exempt individual” for
purposes of counting days toward meeting the Substantial Presence Test used
by the Internal Revenue Service (IRS) to determine whether an individual is
a “resident alien” for tax purposes. Throughout this document, reference
to “resident” or “non-resident” aliens means for tax purposes only.
As a “non-resident” alien, the foreign student must report income and pay
tax according to a bifurcated system which classifies income into two
separate categories: (1) income “effectively connected” with a trade or
business within the U.S. and (2) income that it is not effectively connected
with a trade or business within the U.S., the “30 percent tax.” By law,
foreign students in the U.S. are considered to be engaged in a trade or
business and must, therefore, pay tax at the usual, progressive tax rate
applicable to U.S. residents and citizens on “U.S.-source income.”
However, Congress has provided for favorable tax treatment of foreign
students to provide additional incentive for them to pursue their studies
and training in the United States. For example, students in F-1 or J-1
status are authorized to accept employment in the U.S. and their employers
are exempt from FICA withholding.
Moreover, all U.S. income tax treaties include provisions exempting income
of international students from tax. Treaties may eliminate U.S. tax on (1)
payments from abroad for maintenance, education, and training; (2) U.S. or
foreign scholarship and fellowship grants, or both; and (3) a limited amount
of earned income. However, because tax treaties are negotiated separately
with each foreign country, and many times vary among the various nations,
non-resident international students may receive disparate tax treatment.
Exemptions from taxation may be claimed by these foreign students in two
different ways: (1) by requesting an exemption from withholding from the
student’s employer in Form 8233[1], W-8BEN, or W-9 and Form 1040[2]; or (2
) by claiming a refund of withheld taxes on a tax return. A foreign student
claiming exemption from withholding on compensation must have a social
security number (SSN) or proof of application for the SSN. In some
instances, an Individual Taxpayer Identification Number (ITIN) may also be
used[3].
F-1 and J-1 students may also be exempt from tax on foreign-source income.
Spouses and unmarried children under the age of 21 who live in the same
household are also exempt. The exemption of foreign-source income is
limited in time though. Students in F-1 and J-1 status are insulated from
the tax consequences of U.S. residence only up to five years, unless they
can establish to the satisfaction of the IRS that they do not intend to
reside permanently in the United States.
In some instances, however, U.S. tax residence might be advantageous for
foreign students in the U.S. As a “tax resident,” a student in
Occupational Practical Training (OPT) status is taxed at graduated rates
that may yield a much lower tax. Also, as “tax residents,” foreign
students with dependants can take advantage of a full range of deductions.
The decision to become a tax resident should take into consideration the
possible loss of the FICA withholding exemption, discussed above. However,
that exemption does not depend on whether the student or scholar is a tax
resident. A student in OPT status may be a tax resident (e.g., by virtue of
remaining in F-1 status for more than five years), but is still exempt from
FICA withholding.
Effective since 1992, foreign students in F-1 and J-1 status must file a
federal and state tax return statement and Form 1040NR each year during tax
season even if they have no U.S. source of income or have not worked in the
U.S. under IRS publication 519. Filing a tax return does not necessarily
mean that the student has to pay taxes, just that the foreign student is
meeting the tax requirements of living in the United States. Treaty exempt
income is reported on Form 1042-S (not on Form W-2 or 1099).
[1] Tax Form 8233 is used to claim a tax treaty withholding exemption. It
must be accompanied by a statement certifying to the facts and circumstances
supporting the treaty claim. A new Form 8233 must be submitted by the
foreign student to the U.S. employer every year. Instruction on proper
completion of Form 8233 are found in IRS Publication 901, U.S. Tax Treaties.
[2] Tax Form 8233 is used to claim exemption from FICA. Tax Form W-8BEN is
to be used by non-resident students to claim withholding on taxable non-
service scholarship income. And, Form W-9 and Form 1040 are used by
resident alien students to claim treaty benefits.
[3] The IRS requires that treaty claims requiring an ITIN be sent with a
Form W-7 ITIN application to the ITIN Unit with evidence supporting treaty
claim. | f**********s
发帖数: 1415 | 2 这里是IRS的解释：
Section 3121(a-c)(19) of the Internal Revenue Code defines and discusses “
wages”, “employment” and “employee” and Section 3121 (b)(19)
specifically explains how F and J visa holders are exempt, stating that the
term “employment” for FICA (Social Security) tax purposes will not include:
…service which is performed by a nonresident alien individual for the
period he is temporarily present in the U.S. as a nonimmigrant under
subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration
and Nationality Act, as amended, and which is performed to carry out the
purposes specified in subparagraph (F), (J), (M), or (Q), as the case may be.
To qualify for the tax exemption of Section 3121(b)(19), an individual must:
•Be a nonresident alien for income tax purposes |
|
