Should International Students Pay US Taxes?
Did you know that international students are liable to pay taxes in the United States? If you’re considering the USA as your study abroad destination, understanding the United States income tax is important. Most international students that plan or consider this country for higher education are often confused about whether they should adhere to the tax system in the USA.
There are different kinds of taxes in USA; however, there is a separate process of tax for international students in US. As a foreign aspirant, you will have multiple queries related to tax filing for international students in USA. Thus, to help you understand this topic better, we have answered common queries related to tax for students in USA.
Overview of the American Taxation
Any individual that earns income from a USA organization or source is required to pay the country’s tax. Here are four factors you should remember about American taxation:
- Any individual, including local residents or international students who earn money from this country, must pay a percentage of this income in the form of taxes.
- Taxes should be paid to the federal government and state government (state as per where the individual resides).
- Once you file your tax returns, the USA revenue department will settle the amount of taxes paid by you in a year against the tax amount owed by you. If you have paid an additional tax amount, the same will be refunded. However, you should clear the exhibited difference if the tax amount is less.
If you plan to pursue another degree or apply for permanent residency in the USA, ensure you file all your taxes on time since this action will be a contributing factor towards helping you process your US visas or consider you for a green card.
What is Considered a US Income?
Any income that is generated in the USA is considered US income. Payment of taxes in the USA varies between two individuals. A US citizen will have to pay taxes worldwide irrespective of where their source of income is generated. However, non-US citizens, such as an international student, are only eligible to pay taxes based on the income generated from the USA alone.
Are International Students Liable to Pay US Taxes?
Yes, any international student that has an F1 visa is eligible to pay US taxes. As a foreign aspirant living in this country, you will apply for a part-time job or internship opportunities to cater to your daily expenses. Since the income generated is from the USA, you will fall under the bracket of paying taxes here.
Which United States Income Tax is Applied To International Students?
International students holding the F1 visa are termed ‘non-resident aliens’ for tax purposes. This means only income generated from the USA will be taxable. This income includes,
- Any awards or prizes won
- Certain scholarship or fellowship grants
There are two types of taxes which international students should pay, which are:
- Federal Tax: The Federal Tax are taxes that the International Revenue Services (IRS) imposes yearly on the income of individuals, trusts, corporations and other legal organization. An international student has to pay this form of tax since their income is generated under the employment category. Thus, the latter is entitled to pay a corporate tax rate in the USA of 30% (on the gross amount of a specific income).
- State Tax: International students should pay a state tax per the state their residing in. The state tax can vary from one location to another. Based on your state, students will have to file their taxes accordingly. The tax forms will also vary; thus, students should consider this information before filing them. However, there are 9 states where no United States income tax is required, such as Alaska, Florida, Nevada, Texas, Washington, Wyoming, South Dakota, New Hampshire (taxes applied only on income generated from investments), and Tennessee (taxes applied only on income generated from investments).
Note: Filing taxes can be tedious, especially when your income isn’t catering to your current financial needs. Due to this, your chances of dealing with tax debts remain high. But this can be eliminated by seeking the assistance of Community Tax. This tax-based company is dedicated to helping individuals who are struggling with federal and state tax debts.
As an international student, moving forward with tax debt can hold you behind. Thus, with the help of a Community tax, students can let the former analyze their tax debt situation, find a solution to this problem and cater to and submit all required paperwork needed to the IRS or your state government agency.
Can International Students File a Tax Return?
Yes, international students should file a tax return when staying in the USA. Study abroad aspirants with F or J visas should apply for a tax return. This is a mandatory requirement even if students don’t generate any source of income from the USA. As per IRS, this is an important process, and failure of this could lead to student visa processing delays or any documentation hassles.
Process of Filing a Tax Return For International Students
To file a tax return, international students are required to submit certain documents and follow a list of steps. Ensure all of the below are checked:
- Students should first exhibit their resident status
- Students should then exhibit proof that they have received a US income
- If students receive a US income, they should exhibit either an SSN (Social Security Number) or an Individual Taxpayer Identification Number (ITIN). Students should meet the eligibility criteria to apply to any one of the above. Students that generate no US income do not require an SSN or ITIN number and should instead submit Form 8843.
- Submit all required documents by uploading them to the IRS website (W2 form, SSN or ITIN, 1042s form (taxable scholarship), 1099 form (income generated from rent or other investments), a valid passport, Form 1-20 (visa status details and dates related to your US exits and entry as of last year and the current year)
- Submit proof that exhibits where your income is generated from
- Fill out the tax return form well. Avoid any errors or silly mishaps
- Analyze whether you owe any additional taxes and attach a cheque to clear the same
- Print out the filled forms, submit all listed documents, and send them to IRS via mail only at ‘Internal Revenue Service Center, Austin, TX 73301-0215, USA’
When can International Students Receive their Tax Return?
If a student is eligible to seek a tax refund, the same will be processed to them within three weeks. It is suggested that students file their taxes at the earliest and not wait till the deadline date.
What Happens When International Students Fail to File a Tax Return?
It is important that international students file their tax returns on time to avoid any visa-related hassles. However, if a student fails to file their tax return before the deadline stated, they will be required to fill out Form 4868 to seek a 6-month extension on filing their taxes. Apart from this, students may have to pay additional fines if stated.
Should International Students Pay US Taxes On Any Income Received from their Home Country?
No, international students are not required to pay US taxes on any income they receive from their home country. This is acceptable only if the student has filed all the legal paperwork required during tax filing in this country and exhibited a legal status to reside in the USA with their F1 visa.
Are Scholarships Received by International Students Taxable in the USA?
Any scholarship amount that international students receive falls under two categories, tax-free and taxable. Here is what you should know in order to distinguish between the two:
- When is a scholarship tax-free: Students should be enrolled at a recognized academic institution in the USA where the scholarship amount received will be used to pay tuition fees, enrollment fees, books and equipment or other academic fees required to pursue a study program at that institute.
- When is a scholarship taxable: Students will use the scholarship amount to cater to room, board, travel, non-compulsory equipment, or any other incidental expenses. Any student receiving a scholarship amount in the form of payments (teaching, research or equivalent) is also taxable.
What is the Cost of Tax Filing for International Students in USA?
Students can file their taxes for free in the USA if they do it by themselves. If you wish to seek assistance from other sources, such as tax advisor firms, the cost can go up to $70 or more, based on your requirements.
Are International Students Liable for a Tax Treaty?
International students can seek a tax refund with the help of a tax treaty. In a tax treaty, two countries form an agreement to avoid double taxation. There are a few countries that are on a tax treaty with the USA, such as India, Australia, Canada, China, Finland, France, Germany, Ireland, Japan, Korea and a few more.
To be eligible for tax treaty benefits, a student should:
- Be on a H1-B, J-1 or F1 visa
- Prove that you were a resident of the country that is in agreement with the USA for the tax treaty
- Prove that you receive an income from the USA in the form of scholarships or salaries
- You are a nonresident for tax purposes
Which Tax Form Should International Students Fill?
In order to file US taxes, international students should fill in the right forms. Based on your tax requirement, there is a list of forms which foreign students should consider. The details are listed below:
- Form 8843: Should be filed by students who are on F1 visas and generate no US income.
- Form W-4: Should be filed by students who are on F1 visas and generate income from the USA.
- Form 1099: Should be filed by students who receive a US income from dividends, contractors, prizes, rents, royalties or equivalent.
- Form 1040-NR: Should be filed by students who receive income from a US university, business organization or by an individual.
- Form 1040-S: Should be filed by students who have received a scholarship.
- Form W-7: Should be filed by students who require an ITIN number or need to renew or extend their ITIN.
- Form W8-BEN: Should be filed by students who can benefit from tax treaty. (Should be shared with the employer).
- Form 8233: Should be filed by students who wish to claim the tax treaty benefits. Apart from this, this form can also be used to help students receive an exemption from any compensation being retained due to their independent and personal services.
When Should International Students File US Taxes?
All taxes are filed in April every year. The tax filing for 2023 was completed on April 18th, 2023. The tax deadline for 2024 is yet to be updated on the IRS official website.
Are There Any United States of America Tax Exemptions for International Students?
Yes, as an international student holding an F1 visa, you will be exempted from paying any social security or Medicare taxes.
USA has become one of the prominent study-abroad destinations amongst international students globally. Like how you learnt about American taxation, being aware of other information related to the USA, such as the academic opportunities, student visa process or equivalent, is also important. Thus, the best way to access all this information in one place is via Collegepond. Book a 1-1 free counselling session today with our expert counsellors to make the right academic choice when considering the USA as your top study destination.