Internal Revenue Service Wage and Investment Stakeholder Partnerships, Education and Communication Spring 2010 International Students & Scholars Income Tax Seminar #2 Note: This workshop will explain only the basic rules of resident income tax filing. Please Note This workshop is for students on F-1 or J-1 visas who have been in the U.S. for 5+ years. It is also for scholars on J-1 visas who have been in the U.S. for 2+ years out of the last 6 years AND for employees on H-1B visas. Internal Revenue Service • The taxation agency of the U.S. Government to which you – File your personal Income Tax Return State Tax Departments • The taxation agency of the State Government to which you may need to – File your personal Income Tax Return • If you resided in New York State in 2009, you may need to file a NYS Income Tax Return. • If you lived in another State, you may need to file that State’s Income Tax Return. • If you lived in two States, you may need to file two State Income Tax Returns. Basic Tax Vocabulary • Alien: generally, any person who is not a U.S. citizen • Student: person temporarily in the U.S. on an F, J, Q or M visa • Scholar: person who is not a student & who is temporarily in the U.S. on a J or Q visa Basic Tax Vocabulary (cont.) • Resident or Non-resident: refers to one’s tax filing status (Nothing else!) • IRS: Internal Revenue Service • Income Tax Return: statement filed (submitted) by individual taxpayer to the IRS Do I file my income tax return as a Non-Resident or Resident? Determination of Residency Status Do not confuse Federal Tax Residency with Immigration Permanent Residency OR New York State Residency requirements for in-state tuition rates Federal Tax Residency Rules • For Federal Tax purposes, foreign nationals are classified as: • Resident Aliens OR • Nonresident Aliens (anyone who is not a resident alien) • Note: There are also “Dual Status” aliens who are considered as residents for part of the year and nonresidents for part of the year. This topic will not be covered in this presentation. Resident or Nonresident? The following determines whether you are a resident or nonresident for federal tax purposes: 1. Green Card Test 2. Substantial Presence Test 3. Residency through Marriage Who is a Resident for Tax Purposes? “Green Card” Test Lawful Permanent Resident of the U.S. 1) Green Card Test • Your residency starting date for tax purposes is based on the date your status changed to Lawful Permanent Resident. Remember: There is no option. If you are a Lawful Permanent Resident, you are a resident for tax purposes. Who is a Resident for Tax Purposes? 2) “Substantial Presence” Test Calculation that takes into consideration your presence in the U.S. during the current year and two immediately preceding years ”Substantial Presence” Test 31 days during the current year AND 183 days based on a calculation that considers presence during the current year and two preceding years Residency Rules Substantial Presence Test (2-Part Test) A. Current year (2009) days in U.S. x 1 = ___days Must have at least 31 days in current year B. 1st preceding year (2008) days in U.S. x 1/3 = ___days C. 2nd preceding year (2007) days in U.S. x 1/6 = ___days D. Total “Days in U.S.” A+B+C = ___days If Line D equals or exceeds 183, 183-day test is passed. Must pass both 31-day and 183-day tests. Substantial Presence Test • If Line A equals or exceeds 31 days and Line D equals or exceeds 183 days, then you are a Resident Alien for federal tax purposes. • If not, then you are a Nonresident Alien for federal income tax purposes and do not need this workshop. Residency Rules Some individuals are exempt from counting days toward the Substantial Presence Test. • Days of an “EXEMPT” individual • Commuter from Canada or Mexico • Others (see Publication 519) Who are Exempt Individuals? • F, J, M & Q students (who have been in U.S. for less than 6 years) • J & Q Scholars (who have been in U.S. for less than 3 years out of last 6 years) Note: Not exempt from taxation Residency through Marriage 3) A nonresident spouse can be treated as a resident for tax purposes – You are required to file your income tax return jointly with your U.S. Citizen or U.S. Resident (for tax purposes) spouse. – You must report world-wide income. Establishing a Closer Connection If you want to remain a non-resident for income tax purposes by claiming a closer connection to your country, you can if you: – are present in the U.S. less than 183 days in the current year AND – have a tax home in a foreign country AND – file Form 8840. Note: There are other criteria. Please see Form 8840 instructions. Residency Starting Date Residency Starting Date Residency starting date under green card test If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on which you were present in the U.S. as a Lawful Permanent Resident. Residency Starting Date Residency starting date under substantial presence test Your residency starting date is generally the first day you were present in the U.S. during that calendar year. Residency Starting Date When both the Substantial Presence Test and Green Card Test apply, use the earlier of the two dates. Tax Treatment of Resident Aliens Are you required to file a U.S. Resident Tax Return? What is Gross Income? Basic Tax Vocabulary (cont.) • Compensation/Earnings: wages, salaries, tips • Income: wages, salaries, tips, interest, dividends, some scholarship/fellowship grants Gross Income • • • • Wages, salaries and tips Bank interest Investment Income (taxable) Taxable Scholarship/Fellowship Note: These are only a few examples. Remember • Resident Aliens are taxed on worldwide income, just as U.S. Citizens are. • Resident Aliens may not claim exclusions of income based on Tax Treaties (with certain exceptions stated in some tax treaties). Wages, Salaries and Tips • Amounts you receive from an employer • You should receive a Form W-2 at the end of the year reporting the annual amount of wages you received. Taxable Scholarship and Fellowship • Scholarship and fellowship grants are not included in taxable income if used for tuition, fees, books, supplies and equipment required for courses AND if the student is pursuing a degree. • Any portion of scholarship or fellowship received for room & board or in exchange for teaching or research is included in taxable income. What is a Scholarship or Fellowship? • You call it: Tuition Waiver • Internal Revenue calls it: Non-taxable Scholarship (No work required) What is a Scholarship or Fellowship? •You call it: Room and Board Waiver •Internal Revenue calls it: Taxable Scholarship What is a Scholarship or Fellowship? •You call it: •Internal Revenue calls it: Teaching or Research Assistantship Stipend (recipient performs work) Taxable Wages Do you have to file an income tax return? • If your gross income is over the dollar amounts listed on the chart, you must file a federal (IRS) Income Tax Return. • If you have overpaid taxes, you must file an income tax return in order to receive an income tax refund. What do I need to do to file an income tax return? First, learn the following tax vocabulary . . . Filing Status • Single: not married • Married: married and file income together Note: U.S. recognizes marriage from U.S. states and other countries • Married filing Separate: married but files income alone Filing Status (cont.) • Head of Household: single and pays for maintenance of a home for a dependent Note: Read the rules for this status carefully before claiming it. (IRS Publication 17) • Qualifying widow(er) with dependent child: Able to claim this status for two years after the death of the spouse 2009 Filing Requirements for Resident Aliens Income Tax Forms What forms should I fill out? Resident aliens can file Forms 1040, 1040A or 1040-EZ. (See form instructions for any restrictions) More Tax Forms • W-2: Wage and Tax Statement • 1040 or 1040A: U.S. Resident Alien Income Tax Return • 1040-EZ: U.S. Income Tax Return for certain resident aliens who have no dependents Note: See IRS Publication 17 to find the easiest form for you to file. More Tax Vocabulary • Withholding: – U.S. income tax automatically taken from your paycheck Note: U.S. Social Security and Medicare are also taken from your paycheck. Forms W-2 •You could have one W-2 or more from different employers •The form was prepared by your employer and mailed to you. •You do not write anything on this form. •You use this form as a reference when you prepare your income tax return. •When finished, you attach this form to your income tax return. SAMPLE W-2 FORM How do I file a Resident income tax return (Form 1040-EZ)? First, learn the following tax vocabulary . . . More Tax Vocabulary • Standard Deduction: standard amount that individuals may subtract from income before calculating taxes owed • Itemized Deductions: allowable amounts that individuals may subtract from income before calculating taxes owed – Examples: charitable contributions, state & local taxes withheld, etc. Note: No one can have both a standard deduction and itemized deductions. You have to choose one. Standard Deduction Amount (for most people under age 65) • • • • • Single Married Filing Joint Married Filing Separate Head of Household Qualifying Widow(er) with Dependent Child $ 5,700 $11,400 $ 5,700 $ 8,350 $10,900 More Tax Vocabulary (cont.) • Personal Exemption: amount deducted from income for yourself and/or your dependents For 2009, the amount is $3,650. Which Residents can use Form 1040-EZ? • Individuals – who do not claim any dependents – whose taxable income is less than $100,000 – who do not claim any itemized deductions – who had only wages, taxable scholarship or fellowship grants, and whose taxable interest was not over $1,500 – Miscellaneous other reasons (see Form 1040-EZ instructions) Other Credits and Deductions You May Qualify For (but not covered in this presentation) • • • • • Earned Income Tax Credit Dependents Child and dependent care Retirement Saver’s Credit Education Credits There are many more deductions and credits listed in various IRS publications. Let’s look at the steps for completing Form 1040-EZ FORM W-2 Used for 1040-EZ Example 2009 Form 1040-EZ Box 1 from All W-2(s) Form 1040-EZ Add all amounts in Box 2 of W-2(s) From worksheet on back of 1040-EZ Making Work Pay Credit Form 1040-EZ Read instructions to see if you qualify From Tax Table 2009 Tax Table Form 1040-EZ When do I file a resident income tax return? The Filing Deadline is April 15, 2010 Where do I file my Resident income tax return? Department of the Treasury Internal Revenue Service Center Kansas City, MO 64999-0014 Social Security Do I pay it or am I exempt? That depends. You don’t pay Social Security Tax if . . . • You are a nonresident alien for income tax purposes • You are present in the U.S on an F-1, J-1, M-1 or Q-1 visa, AND • You perform services that are consistent with your U.S. visa status You Pay Social Security Tax When . . . • You are a Resident Alien for income tax purposes. • You are an F-1 student who has been in the U .S. for 5+ years or a J-1 scholar who has been in the U.S. for 2+ years. • You hold an H1-B or TN visa. Note: You will always be subject to Social Security and Medicare Taxes (FICA) from the date of arrival. Exception to This Rule If you are a student who would otherwise be subject to Social Security and Medicare Taxes (FICA), you will be exempt from paying it if you are working at the school as a full-time student. (This exemption may start and stop periodically due to the individual’s enrollment status ) The Exception Does Not Apply in These Cases • • Resident aliens who are participating in full-time Optional Practical Training should pay Social Security and Medicare Taxes (FICA) throughout their OPT work authorization period, and Students who are resident aliens and are not enrolled in 6 or more credits during summer break should pay Social Security and Medicare Taxes (FICA) during summer break. For more information, call 1-800-829-1040 or www.irs.gov Thank You!