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U.S. Income Tax Seminar

for Foreign Students

Rice University OISS Presents:

Andrew Lai attorney certified public accountant

February 26, 2009

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Audience

Are you a F or J visa student?

In U.S., 1 – 2 years? Over 2 years?

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Introduction

Handout and Forms Outline Active Participation Ask Questions as we go Presentation – 1.5 hour

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Why Pay Tax ？

It’s the Law Break the law; it is a criminal

offense Adverse impact on future

immigration application

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Goals

Correct withholding Fill 1040NR-EZ by yourself Understand your tax return Know your treaty It’s YOUR responsibility

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Due Date

April 15th (Wed) One Extension to

October 15th - Form 4868

Extend to file, NOT pay

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Mail to:

Forms 1040, 1040EZ, 8843, 8840, 1040NR and 1040NR-EZ: Department of the Treasury Internal Revenue Service

Center Austin TX 73301 - 0215

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Resident/Non-Resident Taxpayer

Tax Law Resident alien or Nonresident alien

Immigration Law Permanent resident

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图表

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Exception A - Exempt Individual

F and J Visas Follow Visa’s requirements No need to count days for which

you are an exempt individual

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Follow Visa’s Requirements

Did not participate in activities Not allowed under the immigration laws Lead to loss of visa

F － 1 students Nature of work Meet the minimum credit hours per semester Do not break any law Have not intention to immigrate

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Follow Visa’s requirements

What’s expect of a student

Must file Form 8843 with Form 1040NR or 1040NR-EZ

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Exception B to Exception A

An exempt individual for 5 years for F-1, 2 years for J-1 (see Pub 519 App B)

No more exemption Resident Taxpayer

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Exception to Exception B

No intention to stay in U.S., and No violation of the visa’s

requirements Non-resident Taxpayer

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No Intention to Stay in U.S.

Keep close connection with foreign country

In U.S. < 183 days Tax home in foreign country

Did not file any of the following immigration forms:

Form I-508 Form I-485 Form I-130 Form I-140 Form ETA-750 Form DS-230

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No Intention to Stay in U.S.

File Form 8840 File with Form 1040NR or Form

1040NR-EZ

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Resident/Non-resident

File the right form Different tax amounts

Non-resident cannot claim spouse as a dependent

Cannot use standard deduction

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FORMS

To your employer W-4 Employee’s Withholding Allowance Certificate 8233 Exemption from Withholding on Compensation for

Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual

Social Security Number/Taxpayer ID Social Security Administration: Form SS-5 IRS: W-7 Application for IRS Individual Taxpayer ID

Number From your employer before January 31st

W-2 1042-S

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FORMS – file with the IRS

8843 Statement for Exempt Individuals 8840 Closer Connection Exception

Statement for Aliens, if necessary

1040NR U.S. Nonresident Alien Income Tax Return, or

1040NR-EZ U.S. Income Tax Return for Certain Nonresident Aliens with no Dependents

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Two Major Steps

1. Withholding Process Pay As You Earn

2. Filing Process Calculate the final tax amount Refund/Pay more

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1. Withholding

Pay as you earn W-2, 1099 or 1042S Attach W-2 to tax return

Your employer prepares the above based on your Form W-4 Form 8233

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Form W-4

All worker Non-resident, do NOT follow

instructions Only one exemption Can’t use standard deduction. Item 3 - “single” Item 5 - allowance “1” Item 7 - Don’t fill in “Exempt”

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Form 8233

Part I – Identification Part II – 11a: description of personal

services, e.g. “laboratory assistant, research assistant, …”

11b: total compensation, e.g. “$30,000” 12a: “U.S. Tax Treaty with People’s

Republic of China, Article 20(c)” 12b: “$5,000” 12c: People’s Republic of China

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Form 8233 – Item 13a

Noncompensatory Scholarship or fellowship income includes: Tuition Fees Books Supplies, and Equipment required by Rice

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Form 8233 Item 13 b&c

Item 13b: “U.S. Tax Treaty with _______, Article __(_)”

Item 13c: State the same income in Item 13a, i.e. scholarships are exempt up to $_____.

See Pages 32-37 of Handout.

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Form 8233 Item 14

See Pages 30-31 of Handout for examples

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2. Filing Process

Forms 1040, 1040NR and 1040NR-EZ

Worldwide + U.S. Income Dependents Exemption Standard deduction

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Basic Terms

Total Effectively Connected Income (TECI)

Exclusions Adjusted Gross Income. TECI – Exclusions = AGI.

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Itemized deductions

State tax Charitable contribution Accident and theft losses Job and tax expenses Others

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Basic Terms

Exemption AGI – Itemized Deductions –

Exemption =Taxable Income (TI) TI < $8,025, 10% tax rate TI $8,026 - $32,550, 15% TI $32,551 - $78,850, 25%

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Common Items for Non-resident Taxpayer

To You: Tuition Waiver Room and Board

Waiver Teaching or

Research Assistant Stipend (recipient performs work)

To IRS: Non-Taxable

Scholarship Taxable Scholarship

Taxable Wages

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Wages

Do not include non-U.S. wages Form W-2 Box 1 Tax Treaty Form 8233 Reduced by the exempt amount -

$5,000 Incorrect, ask for a revised Form Explain to IRS

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Scholarship - Fellowship

Tax treaties Up to all scholarship/fellowship

exempt File Form 8843 with tax return

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Interest

Tax Law: Interest earned by Non-resident taxpayer is non-U.S. source

No tax is due Investment income – not covered

here

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Form 1040NR or Form 1040NR-EZ

Non-resident taxpayers

Form 8843 2008 income < $3,500

no need to file

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Form 1040NR & 1040NR-EZ Important notes

Cannot claim dependents No exemption for spouse Cannot be claimed as dependent Cannot use standard deduction

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1040NR-EZ

All U.S. income is from wages, tips and scholarship/fellowship

Income < $100,000 Only exclusion – student loan

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Special Note #1

Indian students are eligible for a Standard Deduction and a Personal Exemption.

Unless you are an Indian student, you are only eligible for some Itemized Deductions and a Personal Exemption.

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Special Note #2: Exemption

Spousal Exemptions available for some Non-Residents

Married individuals from Canada, Mexico, Japan or the Republic of South Korea

Married individuals who are students and are from India

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Special Note #3 on Exemption

Dependent Exemptions For some Non-Residents

Only individuals from Canada, Mexico, Japan or the Republic of South Korea can claim children who live with them as dependents.

Individuals from Canada and Mexico can also claim children who don’t live with them as dependents.

Students from India may be able to claim exemptions for children. Please call the IRS International Hotline for further information.

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Form 1040NR-EZ Example

Box 3 ： reduced by $5,000 Box 5 ： always zero Box 6 ： total scholarship/fellowship Box 8 ： always zero Box 13 ： always $3,500 (2008)

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Example

Box 15 ： use IRS table ONLY Box 18 ：

W-2 Box 2 1042-S Box 7 both

Box 24 ： bank account information Box 25 ： Owe tax, make check

payable to “U.S. Treasury”

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Example

Sign! Attach Form W-2 to tax return Page 2

If say “yes” to B, F, K – find a CPA, tax lawyer

Item J， put in name of country and details$xxx scholarship under Article xx of Treaty$yyy wages under Article yy of Treaty

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Social Security Taxes

7.65% No employer should withhold SST from

you If withhold erroneously

Talk to employer File Form 843 , Claim for Refund and Request

for Abatement, Form 8316 ， Information Regarding Request

for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type

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Q & A

U.S. Income Tax Seminarfor Foreign Students

Andrew Lai Esq CPA MBA

atty.andrew.lai@gmail.com