Types of taxes that F-1 students pay

Filing Taxes for OPT status can be perplexing for many F-1 students. Many F-1 students are surprised by the sales taxes imposed in the U.S., which fluctuate depending on the location and state. Unlike in Europe and many other countries, these taxes are not included in the advertised prices of items. Instead, they are added at the register when making a purchase.

For instance, if you visit a restaurant and purchase a sandwich listed at $4.50, you’ll need to pay that amount plus an additional sum to cover the sales tax. While other countries also levy sales taxes, many include them as part of a value-added tax that is already included in the advertised price of an item.

If you work through the OPT program, there are several other taxes that you might have to pay, including local, state, and federal taxes. Some taxes will be deducted from your income. You can see these deductions on your paystubs from your job. Even though the amounts might be withheld, you will still be required to file a federal tax return. If you live in a state that has a state income tax, you will also need to file a state income tax return. The types of taxes that you will have to pay will depend on your tax status and where you live in the U.S.

What is your tax status?

Your tax residency status in the U.S. holds significance as it dictates the tax documentation you must fill out and the taxation method applicable to you. Typically, according to the IRS, F-1 students are classified as nonresident aliens during their initial five years of residency in the U.S. However, there are certain exemptions to this standard rule.

Although F-1 students are typically exempt from being classified as resident aliens for tax purposes during their initial five calendar years in the U.S., you have the option to seek an exception to this regulation. To qualify, you must demonstrate to the satisfaction of the IRS that you maintain a stronger connection to your home country than to the U.S. and have not taken any affirmative steps to adjust your status to become a lawful permanent resident.

Conversely, if you have resided in the U.S. as an F-1 student for more than five years, you will be deemed a resident alien for tax purposes. Until that time, you will be considered a nonresident alien for tax purposes. Given the potential reclassification of your tax residency status, it’s crucial to be aware of it in order to file the appropriate forms with the IRS.

Understanding the Implications of ‘Resident’ Status for Resident Aliens

While the majority of F-1 students are categorized as nonresident aliens, some fall under the classification of resident aliens. For instance, if you are an F-1 student who completed your Bachelor’s degree in the U.S. and subsequently enrolled in graduate school with an F-1 visa, you may be classified as a resident alien during your graduate studies, despite being considered a nonresident alien during your undergraduate years.

It’s important to recognize that the term “resident” in resident alien solely refers to a tax-filing status. It does not imply that you are regarded as a lawful permanent resident or eligible for in-state tuition at your educational institution.

Nonresident aliens and FICA

Under the Federal Insurance Contributions Act (FICA), taxes are deducted from the salaries of U.S. tax residents to contribute to Social Security and Medicare funds. These funds aim to provide retirement benefits to retired U.S. workers and disability benefits to those who have earned sufficient work credits and become disabled. While all U.S. tax residents, including resident aliens, must pay FICA taxes on their job earnings, F-1 students classified as nonresident aliens for tax purposes are exempt. If you’re participating in the OPT program and have been in the U.S. for fewer than five years, review your paystubs for FICA tax withholdings. If deductions were made, you can seek a refund of these FICA taxes on your income tax return.

Resident aliens and FICA taxes

Contrary to nonresident aliens, resident aliens are obligated by the IRS to pay FICA taxes. Therefore, if you’ve established your tax filing status as a resident alien, your employer should deduct FICA taxes from your paycheck, and you won’t qualify for refunds on these payments. The overall Social Security withholding rate stands at 12.4%, with your employer covering half or 6.2%. The remaining 6.2% is what will be deducted from your paychecks.

How to Filing Taxes for OPT Status?

Alongside FICA taxes, your paystub will reflect various other types of taxes withheld from your salary. These encompass federal income taxes and, in the majority of states, state income taxes as well. Additionally, certain localities levy local income taxes. Notably, there are only seven states that do not impose any state income taxes, which include the following:

• Alaska
• Nevada
• Florida
• Texas
• South Dakota
• Washington
• Wyoming

Two other states, namely New Hampshire and Tennessee, abstain from levying state income taxes on your earned income but do tax dividends garnered from your investments. Should your school and OPT employer be situated in one of these states, the absence of state income tax withholdings should not be a cause for concern. Conversely, if your school and OPT employer are situated in any of the remaining states, you should anticipate both state and federal withholdings on your paystubs.

Moreover, certain cities and counties impose local income taxes, which vary across the U.S. If your city or county enforces local income taxes, you will observe these taxes being withheld on your paystub and detailed on the W-2 form you receive at the conclusion of the tax year.

What tax forms are required?

Although taxes might have been deducted from your paychecks, it remains mandatory to submit tax forms in the U.S. If the amount withheld from your paychecks falls short of meeting your tax obligations, you might owe additional payments. Conversely, if an excess amount was withheld, you may be eligible for a refund. Every F-1 student classified as a nonresident alien must file Form 8843. Additionally, if you earned income, you must also submit Form 1040NR. As a resident alien, you are required to file Form 1040.

Form 8843

If your tax status as an F-1 student is determined to be a nonresident alien, you must submit Form 8843. This form, although not related to income tax, is required by the IRS for all F-1 students, even if they did not earn any income during the tax year. Essentially, Form 8843 is necessary if you were in the U.S. during the tax year, classified as a nonresident alien, and held an F-1, F-2, J-1, or J-2 status, regardless of age or federal income tax filing requirements.

As mentioned earlier, Form 8843 is not a tax return but rather a document mandated by the government for certain nonresident aliens in the U.S. to submit annually. If you have obtained an individual taxpayer identification number or a Social Security number, you must include it on Form 8843.

If you earned income and are required to file Form 1040-NR, you will attach Form 8843 to your tax return. Conversely, if you did not earn income and are not required to file Form 1040-NR, you must submit Form 8843 to the IRS in a separate envelope. If multiple family members are obligated to file Form 8843, each form must be sent in its own envelope.

For instance, if you are studying in the U.S. on an F-1 visa accompanied by your spouse on an F-2 visa, both you and your spouse must file Form 8843. If you earned income through OPT, you will file Form 1040NR and attach Form 8843. Your spouse must separately submit Form 8843 in a separate envelope. Form 8843 must be completed and mailed before the tax filing deadline. In the U.S., the tax filing deadline typically falls on April 15 of the year following the tax year, but it may vary by a few days in certain years. For example, for the 2019 tax year, the deadline will be April 15, 2020. Filing Form 8843 is a mandatory requirement for maintaining your F-1 visa status.

The W-2 form

U.S. employers must issue W-2 forms to every employee who worked during the tax year. These forms detail your gross income and any withheld taxes. Your employer is required to provide you with this form by Jan. 31 following the tax year. If you do not receive your W-2 form, reach out to your employer to obtain a copy. Additionally, employers send duplicate copies of these forms to the IRS, ensuring that the agency anticipates income tax returns from employees.

Form 1040NR

serves as the income tax return that nonresident aliens must submit if they earned income in the U.S. This encompasses income earned through the OPT program. When completing this form, you will be required to provide your personal details such as name, address, and the names of any dependents, along with other pertinent information. Additionally, you will need to report the total income earned from employment as indicated on your W-2 form, along with any other U.S. income sources.

Upon determining your adjusted gross income, consult the tax tables to ascertain the corresponding taxes. You will then deduct the federal income taxes already paid to determine if you are entitled to a refund or if you owe taxes. Should you owe more than the amount withheld, you must remit a payment along with your tax return. Conversely, if you are due a refund, the IRS typically issues it within six to eight weeks.

State income tax return for nonresident aliens

If you reside and work in a state that imposes state income taxes, you must file a state income tax return. You can verify the required tax return by contacting your state’s department of revenue. The data you provide will resemble the information entered on your federal tax return. Additionally, you will report any state income taxes withheld and determine whether you owe additional payments or are eligible for a state refund.

Form 1040 for resident aliens

If you are a resident alien holding an F-1 visa, you must submit Form 1040, which is the same income tax form used by U.S. taxpayers for their federal income taxes annually. However, as a resident alien, you cannot claim a refund for the FICA taxes deducted from your paychecks.

How to file your tax returns

You have the option to either personally fill out and submit the necessary tax forms or seek assistance from professional tax preparers. Should you opt to handle the filings independently, you will need to complete all required paperwork and mail the documents to the appropriate IRS and state department of revenue addresses. The correct mailing address will vary based on your residence and whether you need to include a payment with your returns.

Given the intricacies of federal and state income tax filings, numerous F-1 students prefer to enlist the services of professional tax preparers for assistance with their forms. This approach could be advantageous in reducing the likelihood of errors.

Are OPT students eligible for deductions and credits?

As an OPT student categorized as a nonresident alien, you may qualify for specific deductions and credits while being ineligible for others. Deductions involve subtracting amounts from your gross income to compute your adjusted gross income, whereas credits are amounts offset against your tax liability. Nonresident aliens earning income might meet the criteria to claim deductions for IRA contributions, SEP IRA contributions, SIMPLE IRA contributions, Archer contributions, and other eligible expenses. However, nonresident aliens typically cannot avail themselves of the standard deduction. Nonetheless, certain Indian students may be eligible to claim the standard deduction under a tax treaty between the U.S. and India.

As a nonresident alien, you might be able to claim the following credits if you qualify for them:

• Child tax credit
• Child and dependent care tax credit
• Foreign tax credit
• Retirement savings contribution credit
• Credit for other dependents
• Adoption credit

Nonresident aliens are not allowed to claim the earned income tax credit.

Conclusion

If you’re an F-1 student engaged in OPT employment, annual tax return filings are mandatory. Even if you have no income, filing Form 8843 remains obligatory. Given the complexity of the U.S. tax system, utilizing the services of a professional tax preparer can help ensure accurate filing.

Obtaining an F-1 visa for entry into the U.S. presents various opportunities, including participation in the OPT program for work-based training. Upon F-1 visa approval, preparations for life in the U.S. should commence.

Notably, your credit score from your home country doesn’t automatically transfer to the U.S., posing potential challenges with banks, lenders, and landlords who typically assess creditworthiness. Nova Credit addresses this obstacle by offering a global credit passport, translating your credit history into a score recognized by major U.S. creditors and lenders for credit-related decisions.

Armed with your score, you’re equipped to embark on your journey as an F-1 student in the U.S.

Related Post: Types of Employment Available During OPT Period