International Studentsand Scholars Tax Seminar

#2

Note: This workshop will explain only the basic rules of resident income tax filing.

Income Tax Workshop for“Resident Aliens”

These guidelines are for students onF-1 or J-1 visas who have been in the U.S. for 5+ years

These are also for scholars on J-1 visas who have been in the U.S. for 2 +- years out of the last 6 years .

These are also for employees on H-1B visas.

Please Note:

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The taxation agency of the U.S. Government to which you

- File your personal Income Tax Return

Internal Revenue Service?

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• 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 2011, 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.

State Tax Departments

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Alien: generally, any person who is not a U.S. citizenStudent: 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.Resident or Non-Resident: refers only to one’s filing status.

Basic Tax Vocabulary

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Income: wages, salaries, tips, interest, dividends, some scholarship/fellowship grants.IRS: Internal Revenue Service.Income Tax Return: statement filed (submitted) by individual taxpayer to the IRS.

Basic Tax Vocabulary (contd.)

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Do I file as a Non-ResidentOr Resident?

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Determination of Residency Status

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Do not confuse Federal Tax Residency with

Immigration Permanent ResidencyorNew York State Residency requirements for state tuition rates.

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It is possible for an alien to have an immigration residency status that is not the same as his/her federal income tax residency status. It is also possible for the alien to have a state income tax residency that is different than his/her federal income tax residency.

This lesson covers the determination of residency status for federal income tax purposes.

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 the presentation.

Federal Tax Residency Rules

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The following determines whether you are aresident or nonresident for federal tax purposes:

1. Green Card Test2. Substantial Presence Test3. Residency Through Marriage

Resident or Non-Resident?

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1. Green Card Test• Lawful permanent resident of the U.S.

Who is a Resident?

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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.

1. Green Card Test

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Calculation that takes into consideration presence during the current year and two immediately preceding years.

31 days during the current yearand 183 days based on a calculation that considers presence during the current year and two preceding years.

2. “Substantial Presence” Test

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A. Current year days in U.S. x 1 = ___days Must have at least 31 days in current year

B. 1st preceding year days in U.S. x 1/3 = ___days

C. 2nd preceding year 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.

Residency Rules SPT (2-part test)

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• 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 tax purposes and do not need this workshop.

Residency Rules SPT (2-part test)

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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)

Residency Rules SPT (2-part test)

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• 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

Who are exempt individuals?

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A nonresident spouse can be treated as a resident for tax purposes • You are required to file jointly with your U.S.

Citizen or U.S. Resident (for tax purposes) spouse.• You must report world-wide income.

3. Residency through marriage

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If you want to remain a non-resident for 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• You have a tax home in a foreign country AND• You file Form 8840

Note: There are other criteria. Please see Form 8840 instructions.

Establishing a closer connection

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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

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Residency starting date under SPT

Your residency starting date is generally the first day you were present in the U.S. during that calendar year.

Residency Starting Date

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When both the Substantial Presence Test and Green Card Test apply, use the earlier of the two dates.

Residency Starting Date

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Tax Treatment of Resident Aliens

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Are you required to file a U.S. Resident Tax Return?

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Remember

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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

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• Amounts you receive from an employer.• You should receive a Form W-2 at the end of the year. It reports the annual amount of wages you received.

Taxable Scholarship and Fellowship

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• 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 Taxable Scholarship and Fellowship

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You call it: Internal Revenue calls it:

Non-taxable Scholarship(No work required)

Tuition Waiver

What is Taxable Scholarship and Fellowship

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You call it: Internal Revenue calls it:

Taxable Scholarship

Room &BoardWaiver

What is Taxable Scholarship and Fellowship

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You call it: Internal Revenue calls it:

Taxable wagesTeaching Research asst.Stipend

Do you have to file?

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• If your gross income is over the dollar amounts listed on the chart, you must file a U.S. Federal Income Tax Return.

• If you have overpaid taxes, you must file an income tax return in order to receive an income tax refund.

Filing Vocabulary

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Single: not married

Married: married and file income togetherNote: U.S. recognizes marriage from U.S. states and other countries

Married filing Separate: married but files income alone

Filing Vocabulary

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Head of Household: single and pays for maintenance of a home for a dependentNote: 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

2011 Filing Requirements

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Income Tax Forms

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Resident aliens can file Forms 1040, 1040A or 1040-EZ(See form instructions for any restrictions.)

More Tax Forms

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W-2: Wage and Tax Statement1040 or 1040A: U.S. Resident Alien Income Tax Return 1040-EZ: U.S. Income Tax Return for certain resident aliens who have no dependentsNote: See IRS Publication 17 to find the easiest form for you to file.

More Tax Vocabulary

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Withholding:U.S. income tax automatically taken from your paycheckNote: U.S. Social Security and Medicare are also taken from your paycheck.

Forms W-2

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• 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.

More Tax Vocabulary

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• 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 owedExamples: 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 AmountFor most people under age 65

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• Single $ 5,800• Married Filing Joint $11,600• Married Filing Separate $ 5,800• Head of Household $ 8,500• Qualifying Widow(er) $11,600 with Dependent Child

More Tax Vocabulary (cont.)

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Personal Exemption: amount deducted from income for yourself and/or your dependents

For 2011, the amount is $3,700.

Which residents can use Form 1040-EZ

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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)

Let’s look at the steps for completing Form 1040-EZ

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Form W2011-00-0110

16-6000000 10,000 964

State University345 University StCollegetown, NY 00000

KUMAR DALI123 UNIVERSITY LANECOLLEGETOWN, NY 00000

16-6000000NY 10,000 240

Form 1040-EZ

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Box 1 from all W-2(s)

Form 1040-EZ

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Add all amounts in box 2 of W-2(s)

Form 1040-EZ

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Read instructions to see if you qualify (http://www.irs.gov/pub/irs-pdf/i1040ez.pdf)

From Tax Table(See next page)

2011 tax table

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Form 1040-EZ

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When do I file a resident income tax return?The filing deadline is

April 17, 2012

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Where do I file a Resident income tax return?Refund DueDepartment of the TreasuryInternal Revenue Service Center Kansas City, MO 64999-0014

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Social Security. Do I pay or am I exempt?

It depends.

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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

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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.

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Exceptions to this ruleIf 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 )

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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.

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For more information,call 1-800-829-1040 OR www.irs.gov

For help in person, visit an IRS officeThe closest one to Pratt is:

625 Fulton St. http://www.irs.gov/localcontacts/article/0,,id=98318,00.html

Web links, Forms and Publications

New York State Department of taxation and finance: http://www.tax.ny.gov/ NY State form IT 203: http://www.tax.ny.gov/pdf/current_forms/it/it203_fill_in.pdfInstructions: http://www.tax.ny.gov/pdf/2011/inc/it203i_2011.pdf

New Jersey State Department of Treasury: http://www.state.nj.us/treasury/taxation/NJ State form 1040: http://www.state.nj.us/treasury/taxation/pdf/current/1040.pdfInstructions: http://www.state.nj.us/treasury/taxation/pdf/other_forms/tgi-ee/2011/10_1040.pdf

Connecticut State department of Revenue Services: http://www.ct.gov/drs/taxonomy/drs_taxonomy.asp Connecticut State form CT 1040:http://www.ct.gov/drs/lib/drs/forms/2011forms/incometax/ct-1040.pdf Instructions:http://www.ct.gov/drs/lib/drs/forms/2011forms/incometax/ct-1040booklet.pdf

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Thank You