Back to basics: U.S. taxes for international students

Learn more about the tax rules for international nonresident students on different visas.

By: Brittany Benson  /  April 15, 2019

While many international students visit the U.S. on an F1 visa, tax exemptions can apply to all students on visas F, J, M, or Q and their spouses and children.

How long they stay in the U.S., their country of origin, and what else they do while they’re studying can affect their tax situation.

Special tax rules aren’t just for F1 visa students - all international students follow the same tax rules

The tax form international students file depends on whether they are a U.S. resident or not. An individual is a U.S. resident if they meet the green card test or the substantial presence test. Usually, international students won’t meet the green card test, so the important test is the substantial presence test. International students on F, J, M, or Q visas are exempt from the substantial presence test for a certain amount of time, if they meet the requirements of their visa.

The substantial presence test is met when a nonresident is present in the U.S. for a total of 31 days during a tax year and 183 days during the three-year period, with other requirements.

International students are exempt from counting days for five years from the first date they enter the U.S.

When a nonresident comes to the U.S. they will begin counting the days they are present in the U.S. for the substantial presence test. International students can exclude the days they are present for any part of five calendar years after the first date they enter the U.S. as long as they are in school and meet the requirements of their F, J, M, or Q visa. This means that they won’t meet the substantial presence test as a student for five calendar years and will file Form 1040NR.

Example: Hans comes to the U.S. for the first time as an international student from Germany on Jan. 24, 2019 on an F visa. He is exempt from counting days for the substantial presence test until Dec. 31, 2023, if he continues to study in the U.S. and meets the requirements of his visa. He will be exempt from counting days for part of 2019 and all of 2020, 2021, 2022, and 2023. He is a nonresident alien for those years, assuming he doesn’t meet the green card test during that time. He will begin counting days for the substantial presence test on Jan 1, 2024.

It’s important to note that Hans cannot be exempt for any part of more than five calendar years as a teacher, trainee, or student unless he establishes a closer connection to a foreign country.

Other kinds of individuals on certain visas are exempt from counting days for the substantial presence test including teachers and trainees, diplomats, and professional athletes.

J visa students and changing to a teacher or trainee designation

One area of tax confusion for international students on J visas arises when a J visa holder is a university student and also a professor, assistant professor, or a trainee in a specific profession. A teacher or trainee is defined as anyone with a J or Q visa, other than a student, who substantially complies with the requirements of their visa. The distinction between the two is important because teachers and trainees are exempt from the substantial presence test for only two calendar years. They are not exempt if they have been exempt as a student, teacher, or trainee for any part of two of the last six calendar years.

This determination is extremely important, especially for students who start graduate assistant programs that include student teaching or apprenticeships where their visa status changes from student to teacher or trainee. If they’re in the U.S. for more than two years, they might be a resident alien and will file Form 1040 instead of Form 1040NR, as described below.

International students usually file a tax return reporting annual income

If an international student is a resident alien for U.S. tax purposes, then they will file Form 1040 using the same rules for U.S. citizens and resident aliens.

Nonresident alien students file Form 1040NR, with exceptions

If the international student is a nonresident alien for U.S. tax purpose, they are required to file Form 1040NR if they have any taxable income during the year, with exceptions.

Nonresident alien students and scholars should be aware that they must file a return even if their only income is from a taxable scholarship, fellowship, or other education benefit. Nonresident students must also file if they have income that is wholly or partially exempt under a tax treaty.

Nonresident alien international students and scholars do not need to file a tax return if they have income only from foreign sources, interest income, tax-free scholarships, or any other income that is nontaxable.

Sometimes F, J, M, or Q visa holders do not owe tax, but still have tax withheld from their income. If international students’ income is not high enough to create a tax liability, or if they can claim exemptions or credits, they may be able to get a refund of some or all of the withholding. Note that the 2017 Tax Cuts and Jobs Act (TCJA) suspended personal, spousal, and dependent exemptions for tax years 2018 through 2025. Exemptions will be allowed again in tax year 2026.

Nonresident alien students might also have to file other forms, depending on their circumstances

The forms nonresident alien students need to file may vary due to specific circumstances.

  • If a nonresident alien international student didn’t have any U.S. sourced income (other than bank interest):
    • Form 8843Statement for Exempt Individuals and Individuals with a Medical Condition
  • If a nonresident alien international student had U.S. sourced income (other than bank interest):

Certain international student income is taxable, unless a treaty applies

Some international students are exempt from U.S. tax for certain kinds of income under a tax treaty with their home country. The U.S. has income tax treaties with many (not all) countries, each containing its own benefits for residents of a foreign country who temporarily visit the U.S. for the purpose of education or training. It is vital to read each treaty’s specific article because each treaty is different.

Example:  Hans receives a $5,000 (USD) scholarship from an organization in Germany for his educational expenses while he is in the U.S. on an F visa. Under the U.S.-Germany Tax Treaty, Article 20(2), payments from outside for a student who is a resident of Germany are exempt from U.S. tax. And, because the savings clause (paragraph 1(b)(bb) of the 1989 Protocol) doesn’t apply to Article 20(2), as long as Hans isn’t a U.S. citizen or green card holder, he qualifies for the exemption in Article 20(2).

Some treaties only allow U.S. tax exemption for certain kinds of international student income. Whether an international student’s income is taxable for U.S. purposes depends on the treaty. For example, the U.S.-Austria treaty only exempts income paid to international students from outside the U.S. or payments to business trainees and apprentices from U.S. tax. On the other hand, under the U.S.-Belgium treaty, international students are exempt from U.S. tax on payments from abroad and up to $9,000 in personal services income for students and business trainees.

Example:  Hans receives $2,500 for working in a lab as a research assistant in his third year of school. Under Article 20(4) of the U.S.-Germany Tax Treaty, these payments are exempt from U.S. tax as long as he receives less than $9,000 per year and isn’t present in the U.S. for more than four years.

Special treaty rules for international students from Canada, China, and India

The U.S.-Canada Tax Treaty is unique because it exempts all earned income for nonresident students if they don’t earn more than $10,000 in the tax year but allows the U.S. to tax all income if the nonresident earns more than $10,000 in the year. Also, Canadian students who become resident aliens lose this benefit.

Under the U.S.-China Tax Treaty, students who are residents of China for treaty purposes are exempt from certain payments including payments from abroad, grants, and up to $5,000 per year in personal services income. Nearly all U.S. tax treaties limit benefits to a specific number of years and sometimes benefits are lost when a taxpayer becomes a resident alien. Unlike other treaties, the provisions of the U.S.-China Tax Treaty are not limited by a number of years.

Example:  Mei is enrolled in medical school in the U.S. where she first arrived as a student on Mar. 13, 2018. Mei will remain in the U.S. for school until August of 2024 when she finishes her studies. Although Mei will likely be a resident alien for U.S. tax purposes in the sixth year (2023), she would still qualify to claim the treaty benefits allowed to students under the treaty, assuming she still meets the definition of a student and the requirements of her visa.

Under the U.S.-India Tax Treaty, Indian students are allowed a standard deduction on Form 1040NR equal to the amount allowed on Form 1040. They are also allowed a personal exemption for a nonworking spouse and U.S.-born children. While the TCJA suspends personal exemptions for tax years 2018 through 2025, Indian students can still claim the standard deduction. However, they can only use the standard deduction for Single and Married Filing Separate taxpayers ($12,000 for 2018) because nonresidents can’t file a joint return on Form 1040NR.

The rules for residency don’t apply to state return filing

Depending on the nonresident alien students’ state, they may also be required to file state tax documents. The rules that apply to international students for U.S. federal income tax purposes don’t apply to state-level residency determinations. Some states allow international students to exclude days for state residency purposes while others do not. Each state’s residency rules must be consulted to determine whether the international student must file a resident or a nonresident state return.

Also, some states allow treaty benefits on the state return. Depending on where the payment to the international student originates, income may be taxable on a state return and cannot be excluded by treaty.

 

Assisting an international, nonresident student can be tricky but a careful reading of the tax treaty, protocols, and other resources can help shed light on valuable benefits.

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Brittany Benson

Brittany Benson, JD, is a tax research analyst at The Tax Institute. Brittany specializes in the issues that affect Native American, international, and ministerial taxpayers.

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