The U.S. Tax System
The U.S. tax system may seem confusing to international visitors. Many people in the U.S. pay licensed tax preparers or attorneys to interpret the laws, forms and tax filing requirements. The ISSS Office is not legally allowed to give individuals tax advice, we hope this general information will answer some of your basic questions.
Income Tax Filing Requirement
International students and scholars who have been in the U.S. for any portion of a previous filing calendar year must file an annual "tax return" by the following year's tax filing deadline; generally April 15th of the next calendar year. Nonresidents, for tax purposes, are taxed only on their U.S. income. With a few exceptions, this means that any income received from outside the United States is not considered taxable in the United States. Residents, for tax purposes, are taxed by the United States on their income from anywhere in the world. Sources of U.S. income may include on-campus employment, scholarships, fellowships, graduate assistantships, practical or academic training, and any compensation received for labor. Individuals who are nonresidents for tax purposes are not required to pay taxes on interest paid to them by U.S. banks. The most common type of income is wages; the money withheld from each paycheck is an estimated payment of the federal and state income tax obligation. Taxable scholarship payments may have some amount withheld just like wages.
The Internal Revenue Service or "IRS" is the U.S. federal agency for collection of income tax. Publication 519 is the "U.S. Tax Guide for Aliens" and contains most of the information you might need about payment of federal taxes. If you have spent time in other states, you will need to obtain their state tax information.
Determining Tax Residency
The Substantial Presence Test (SPT) is the way the IRS determines when nonresident aliens for immigration purposes have been in the United States long enough to be considered residents for tax purposes. To pass the SPT, one must be present in the United States for a total of 183 days or more, counted over a period of three years as detailed more fully in IRS Publication 519.
Some countries have tax treaty agreements with the U.S. in which certain types of income may be exempted from federal tax. General information on tax treaty benefits can be found in IRS publication 901. The actual tax treaty text may also be found on the IRS website. Persons intending to take advantage of a tax treaty should provide IRS form 8233 and a tax treaty statement to their U.S. income provider in order to reduce or avoid tax withholding on income.
Social Security and Medicare Taxes
Anyone who works in the U.S. is required to have a Social Security number to be hired by an employer and for use in completing the tax return form. Social Security (FICA) and Medicare are U.S. government programs that provide benefits for U.S. citizens and U.S permanent residents, usually for retirement. It is financed by taxes withheld from the paychecks of working people. F-1 or J-1 students and scholars who are "non-residents for tax purposes" are not required to pay these taxes (see the chart in IRS publication 519). Those in J-2 status and those in F-1 and J-1 status who have become a "resident for tax purposes", do pay Social Security and Medicare taxes. If Social Security and Medicare taxes are withheld in error, you can obtain a refund by following the instructions in IRS Publication 519.
Sales tax is a state tax added to any item sold, except for certain food items. In the Louisville area, the sales tax is approximately 6%. Sales tax varies by city, county, and state. There is no way to get a refund of sales tax.
Internal Revenue Service: http://www.irs.gov
IRS Forms: http://www.irs.gov/formspubs/index.html
Social Security Administration: http://www.ssa.gov
- 515: Withholding of Tax on Nonresident Aliens and Foreign Corporations
Detailed instructions on withholding amounts and processes. Includes tax treaty tables. This is a resource more for institutions making payments to nonresidents than for individual taxpayers. http://www.irs.gov/publications/p515/index.html
- 519: U.S. Tax Guide for Aliens
Explanation of the difference between ― Resident and Non-Resident Alien status and other topics affecting international visitors. Provides information both for nonresidents and institutions providing income to nonresidents. http://www.irs.gov/publications/p519/index.html
- 901: U.S. Tax Treaties
Tables and texts that outline each current tax treaty and any retroactive clauses with older agreements. This is valuable for both nonresident aliens and institutions making payments to them. In cases that are ambiguous, the tax treaty text should be used. http://www.irs.gov/pub/irs-pdf/p901.pdf