What should I know about US tax?

The US continues to be a top destination for Indian students. According to reports, 55% of the 185,000 Indian students enrolled in higher education institutions abroad are in the US. With finances being a major concern for students aspiring to study abroad, here are some things to keep in mind in the spring leading up to April 15th when taxes are due.

If you are earning a stipend or wages: US Tax information for Indian students

You are considered a non-resident for the first 5 years that you are in the US on an F1 visa (if you change visas, the number of years may go back to zero). If you are on a J visa, this period is 2 years. As a non-resident of the US, you will have to pay taxes in the US only on your income from the US.

Any income that you earn is taxable. You are allowed to have a paid job anywhere on campus, but must get permits to work off-campus if you are being paid.

In order to claim the status of non-resident in the US, the student must file Form 8843 by April 15th for each of the 5 tax years. If s/he fails to file this form, s/he will be treated as a resident and any global income that he may have will be taxed in the US.

Remember that you are considered as a resident of India if you have been in India for 182 days or more during the financial year (April to March), or you have been in India for 60 days in the financial year and 365 days or more in the last 4 years. You are considered an NRI only if you do not meet these conditions. As an NRI, you do not have to pay tax on your foreign wages or a stipend in India.

If you are not considered to be an NRI, take a look at the Double Taxation Avoidance Agreement between India and the US to know your rights and how much tax to pay.

Scholarships

If you are a candidate for a degree, the portion of the scholarship used for tuition fees, books, and supplies required for your course would not be taxable. Any portion used for other purposes such as accommodation and living expenses will be taxable. Scholarships are not taxed in India so you will not need to pay taxes on them here.

As an Indian Student

You can avail of a standard deduction ($5,800 in 2011) which is not allowed for other non-residents. Indian students can also claim one personal exemption ($3,700 in 2011) for themselves and another for their spouse, provided the spouse is in the US during the year.

Before you get employed, your employer will ask for a W4 form to understand the exemptions and benefits you will be availing of so that he can deduct tax accordingly. As a student from India, don’t forget to claim the standard deduction benefit while pursuing your higher studies in abroad. Typically, the International Students Office at your college will help you with this form.

Have any other questions about taxation policies in the US? Ask us in the comments section.

For more information on higher education abroad visit Collegepond.