Sprintax Tax Workshop for International students: Non-resident taxes explained

International student doing their US tax return

Preparing your non-resident tax returns can seem like a daunting task!

Sprintax has helped many international students and scholars through the process and is always striving to make their experience as stress-free as possible.

Check out our Tax Workshop playlist below – we explain the most important things you need to know about US taxes and using Sprintax. We’ve added a video recap below each video if you prefer to read.

Here is a list of topics we cover:

The tax deadline this year was extended to  July 15th, 2020, so don’t delay and create an account!


1. Overview of using Sprintax for Federal and State tax preparation

Sprintax has been around for a number of years and last year alone we helped almost 60,000 international students and scholars.

As you go through Sprintax, we will ask you various questions about your residency, your income and then we will use all of that information to prepare your tax return for you.

A very brief overview of Sprintax

If you are an international student, your school will probably share a link with you and that will bring you to a Sprintax landing page. If you haven’t already done so, please create an account using a username and password. Most likely you should be using your school email address.

As you go through Sprintax we will ask you all of the questions that the IRS needs to know and that we need to know to prepare your tax return.

Residency status

So we will start off by looking at your residency and determining that you are in fact a non-resident for tax purposes. This will be looking at your visa and the number of days that you physically spent in the US and also your country of origin.

Income

We will then start to talk to you about the income that you’ve had and we will be asking you about W-2s or your 1042-S or your 1099s and what we will be asking you to do is replicate the information that is on the page in front of you with the boxes that we have in the Sprintax software.
We’ve designed it so that the data you’ll be entering and the screen you’re viewing should look very similar to the paper document that you have beside your laptop.

State filing obligations

Once we’ve taken account of all of your income, we will then figure out whether you have any state filing obligations. We will carry all of your federal information over so that we can start preparing your state taxes.
Again, we will need to know how long you’ve been in each state so that we can figure out whether you’re a resident, a full-year resident or part-year resident for that state.
If it’s required we will then prepare a state tax return for you.

Checkout and Payment

Finally, when you come to the checkout page, if there are any additional services you need to pay those, we can take payment by credit card.

Download your tax returns

You will then have the opportunity to download your tax returns. Your tax return is going to be a PDF document that will have a number of pages of instructions and then we’ll have to complete it – 1040NR-EZ or 1040NR or perhaps your state forms.

Again, we will give instructions on where each of those forms need to be signed.

We will give you instructions on what needs to accompany those forms when you’re submitting them to the IRS. You then find those forms. Like we said earlier, I would photocopy them or scan them and then mail them to the IRS. And then your tax filing obligation completes.

Live Chat

Sprintax also has a Live chat facility within the system, so whenever you have any questions either about Sprintax or perhaps about your own tax position, please don’t be shy about using our live chat assistance.

What we found last year was that 2 out of every 3 users were able to get through the system without asking us for any help, but for those that did need help, we had our live chat. It is available 24/7 from now through to the end of the filing season.

So if you do have any questions when you’re using Sprintax, please don’t be shy about using the team.

Tune in to our other videos for further information.

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2. Tax Overview

We would like to go through the basic information on the tax filing obligations for non-residents here in the US.

Make sure the tax return you prepare is unique to your own situation

It’s very important that everyone does their own tax return. What your friends do and what might apply to you is very different from your own personal tax situation. So it’s very important that you all get your own advice and make sure if the tax return you prepare is unique to your own situation.

The good news is the tax is the same almost anywhere across the world. When you earn income (an income can be in the form of wages, salary, compensation, a stipend, scholarship, an award, or a grant), then taxes are generally withheld on income.

Your tax return is your opportunity at the end of the year to declare all of your income to the IRS and make sure that they have a full picture of all of the tax payments that you have made. Essentially it’s an end of your balance statement to make sure that they know about all of your income and all about the tax payments and possibly any other deductions that they didn’t know about.

Tax filing deadline

It’s also important to remember the tax filing deadline is usually around 15th April (for 2019 tax returns, due to COVID-19 outbreak, the tax deadline was extended to 15 July, 2020).

Please don’t leave filing tax returns to the last minute, because you will be very stressed as it comes to the last couple of days before filing season and everyone that is trying to help you will be quite stressed as well.

Taxable income

So in terms of who must file for 2016 – if you earned over $4050 in wages, scholarship, stipend or grant, or if your income was over $4050, you have an obligation to file a tax return.*

*After the GOP reform in November 2017, the $4050 taxable income was reduced from $4,050 in 2017 to $0 in 2018 for all individuals (residents and non-residents). This means all your US sourced income is taxable and you should file a tax return.

This could be from a job that you might have had on campus and from a stipend, a grant, an award or it could have been a different type of income that you might have had – perhaps rental income, royalties, or investment income.

How to find if you’re due a refund

If you have overpaid taxes during the tax year and you’re due a refund, the only way to find this out is by filing a tax return.

If you have underpaid your taxes, the only way to realize that and to balance the books properly is by doing a tax return.

If you had no US-sourced income

If you did not have any income here in the US, you do need to file a Form 8843.

So the bottom line for international students and scholars who are non-residents for tax purposes is that everybody needs to do something.

In terms of then of the form 8843, some of you might be thinking: “I don’t have any income, I don’t need to file a tax return at all“. You don’t need to file a full 1040NR, you do need to file form 8843. This is basically a declaration to the IRS that you’ve been in the US, but that you did not have any income for the calendar year. Form 8843 is quite a simple two-page form and it’s a confirmation to the IRS that you’ve done everything you need to do in order to be tax compliant.

Non-taxable income

Other types of income that do not trigger a tax filing requirement would be a scholarship that relates to tuition or education-related expenses. So for instance if it was something to do with your college fees or maybe lab equipment or conference fee, that scholarship and that income is exempt from taxes.

If you received a scholarship from a body outside of the US (perhaps a government authority or a charitable organization outside of the US), as the income originates outside of the US it is not liable to U.S. taxes.

If you’ve had money transferred from a relative, a parent, a friend overseas, the money that is transferred from overseas is not liable to U.S. income tax.

If you’ve earned money in your home country (this might have been from a job you had before moving to the US, it could have been investment income that you had (for example a property that you’re still renting), you may have a filing obligation in your home country. If it’s income that is earned outside of the US, you do not have a filing requirement in the US.

Most of us would probably have a checking account, maybe a credit card and probably some sort of small regular savings account that we put an extra couple of bucks at the end of the month.

  • If you earn interest on your regular savings account, there are no tax implications on that.
  • If you’ve got a more sophisticated savings account that might be perhaps an annuity or a bond or an investment product of some description – yes, there will be taxes on the income that you’ve earned there. But for a regular savings account there are no income taxes.

The final one then is a gift of money from somebody in the US (this could be a relative and a friend) – as long as they’ve given you the money, then there are no tax implications to you. If the person who’s given you the cash has given you more than about $14,000, they may have tax implications on their side, but you as the recipient do not have any tax implications.

Resident or non-resident for tax purposes

The next thing we’ll go through is the definition of resident or non-resident for tax purposes. It’s very important to make a distinction between your residency status for tax and your residency status according to your visa.

In general most international students and scholars, most undergraduates, are considered non-residents for the first five years that they’re in the US.

If you’re on a J visa (a scholar, researcher, fellow, etc.), you are generally given two years during which you are automatically classified as a non-resident.
After that we need to go through what’s called the Substantial Presence Test – this test looks at the number of days that you’ve spent in the US over a three-year period.

What we would find in most cases is that international students and scholars, undergrads on their J or F visas will be considered non-residents.  For post-grads, after a two-year period you may well find that you’re considered a resident for tax purposes.

In our Sprintax software we’ll ask you about your visa, about your entry and exit dates in and out of the US, and the reason we do that is to try and establish whether you’re a resident or non-resident for tax purposes. This is completely independent and separate from your status according to your visa. So it could be the case that you’ll be a non-resident according to your visa, but after a certain period of time in the States you might actually become a resident for tax purposes.

Please do tune in to our other videos for further information.

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3. Tax Forms and Definitions

Income Forms

If you have earned income in the US, you will probably have received one of the following three documents or possibly a number of these:

W-2 form

If you’ve had wages, salary or other types of employment income, it is generally reported on a Form W-2.

Form 1042-S

If you’ve had any scholarship stipend, a royalty payment, or other types of award that is paid to a non-resident, this is generally paid in a form called a 1042-S.
If you have a job on campus, maybe employment through OPT, it’s possible that you have received multiple copies of each of these forms.

1099 series

This covers other types of income such as rental income, investment income and other fees, services or commissions that you might have been paid for.

From the IRS point of view it’s very important to declare all of the income that you have earned. Whoever has paid you that income has probably given you one of these forms. If you received income that was not reported underneath these documents, you do still have an obligation to report that income to the IRS.

Within the Sprintax system we will give you the opportunity to enter Miscellaneous income that is not reported somewhere else so that you do have an opportunity to declare your full income to the IRS for the tax year.

Forms you need to complete

For the 2019 tax year as a non-resident you will file:

  • 1040NR: “U.S. Nonresident Alien Income Tax Return”, or
  • 1040NR EZ: “U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents”

As a non-resident you simply use the 1040NR version (where NR stands for non-resident).

State tax

Every single state has their own filing obligations, their own thresholds, rules, and regulations and they have a separate form for each state.
As you go through the Sprintax system, we will determine based on your individual circumstances whether the 1040NR or the 1040NR EZ is most appropriate for you. Also if you we see that you have paid state taxes, we will determine whether you might have a filing obligation and what the appropriate form to complete is.

What is FICA?

FICA, or Federal Insurance Contributions Act, is a tax deducted from wages to fund the Social Security and Medicare programs.

In general non-residents are exempt from paying FICA taxes. The theory is that you’re here for your education at the early stage of your life and you will not still be in the US when you become 65 when you might actually get the benefit of Social Security and Medicare. So if you’re not going to be here to obtain the benefit, then, in theory, is you shouldn’t need to pay these at the moment.

However, on certain types of visas and employment, for instance the H-1B or J-2 you do actually start paying FICA taxes on your first day of employment. You also pay FICA taxes whenever you become a resident for tax purposes and these are non-refundable.

We would find every year that a small percentage of international students and scholars, non-residents, have actually paid FICA. The good news is in most instances you will be entitled to a refund of that payment.

  • Non-resident aliens on F-1 and J-1 visas are exempt from paying FICA taxes until they become tax residents.
  • Students also fall under the student FICA exemption, so generally students do not pay FICA taxes even after they become residents for tax purposes.
  • J-1 researchers/scholars generally maintain non-resident status for their first 2 calendar years in the U.S. On January 1st of the third calendar year of presence, they begin to pay FICA taxes.
  • All other non-residents, including H-1B, J-2 and TN visa holders, are subject to FICA taxes from their first day of employment.

ITIN (Individual Taxpayer Identification Number)

If you are submitting a tax return with the IRS, you will need either a Social Security Number (SSN) or an ITIN.

The good news is that if the only form you need to complete is form 8843 (when you’ve had no US income), you do not need an ITIN or a SSN. If you do have it, you can include it on the form.

ITIN is required for students/scholars who receive taxable income but are ineligible for a SSN (Social Security Number), such as stipend recipients that do not have a job (on or off campus).
The ITIN is most commonly seen where we have for example an athlete, a musician or an artist – somebody that was in receipt of a taxable scholarship, but not permitted to work. Then they need to apply for an ITIN in order to submit their tax return.

As you go through Sprintax, we will be able to assist you with the preparation of your ITIN application.

1098-T (Tuition Statement)

It’s a summary of all of the fees that you have paid to the university during the tax year.

In general it is used by US residents to claim educational tax credits based on the fees that they have paid for their education in the previous year.

As a non-resident you are not entitled to the educational tax credit, so therefore the 1098-T, which is most commonly used to claim the educational tax credit, is a useless document for international students and scholars. As a non-resident you cannot use it on your non-resident tax return.

If for instance some of your friends have used a 1098-T on their tax return, it means that they have been filed as a resident for tax. It may be correct under their circumstances, but what we would see for most international students and scholars is that they are non-residents and therefore not permitted to use the 1098-T to claim the educational tax credits.

1095 series

The 1095 series of documents are essentially proof of having health care insurance in place during the filing season.

  • Form 1095-A (Health Insurance Marketplace Statement) – A 1095-A is issued where you had purchased your health care through the health insurance marketplace or what most of us would know as Obamacare.
  • Forms 1095-B and 1095-C – Where your health care has been purchased either through your school or through a third-party insurance company, you will probably receive a 1095-B OR a 1095-C.

In very limited circumstances, mostly for residents, 1095-A can be used to claim a tax credit in your tax return.
However, for non-resident (international students and scholars) you do not need the 1095 A, B, or C for your tax return.

So a bit like the 1098-T – you can file them somewhere safe, but you do not need these documents for your tax return.

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4. Spouse / Child tax form

Non-resident Spouses

If you are here with your non-resident spouse who is on the J-2 visa or an F-2 visa, even though you’re married you both have separate filing obligations.

If you’re a resident for tax purposes you’re are allowed to file a joint tax return.
If you’re a non-resident for tax purposes you’re not allowed to file jointly. This means that your spouse has the exact same filing obligations that you will have.

If spouse is working

So if your spouse has been in employment, and they have a job, have received income, and are over the threshold, then they will need to file their own 1040NR or 1040NR EZ.

If spouse is not working

If your spouse has not worked, then your spouse will need to file the 8843.

Children

If you have children here in the U.S. irrespective of the age, you still need to file a Form 8843 for each of your children as well.

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5. State taxes

*New York state thresholds mentioned in the video are up to date for 2016. For current year, check tax.ny.gov or file a stress-free state tax return with Sprintax.

Within a state you can be a resident, a part-resident, or a non-resident and each state will have different rules to determine what would classify you as each.

How this is relevant to international students and scholars

You might be studying in one state but you might have an internship, OPT or CPT in another state. So if you’ve earned in multiple states, you may have a filing obligation in multiple states. The forms will vary from state to state, also the rules will vary from state to state.

Similar to what we would find on the federal tax, if you are an international student or scholar and you have paid state taxes, in most cases you will be entitled to a state refund.

What we recommend is that you go through Sprintax and once you tell us what states you’ve worked in and what taxes you have paid there, we will be able to determine whether you have a filing obligation in that state and an estimate of what your refund might be.

Resident vs Non-resident for New York State tax

The resident and non-resident rules in New York are particularly unusual. Most undergraduate students and typically on an F or J visa will be considered non-resident for New York state purposes.

If you are a graduate student, a professor, a researcher, or a scholar, there are additional tests that we need to apply to figure out whether you’re a resident or non-resident for New York State. These include looking at the type of accommodation that you had, the duration of time that you’ve spent in New York, the duration of the lease on your accommodation, and other factors and all of these combined will determine whether you are a resident or non-resident.

The general rule is that an undergrad in most cases will be automatically a non-resident, however, if you’re a graduate or a post-grad researcher, scholar, etc., then we need to do additional tests to establish whether you’re a resident or non-resident.

Summary

  • Resident, part-year resident, and non-resident status
  • If you have to file a Federal tax return, you most likely will be filing a State tax return too;
  • Forms vary from state to state;
  • Submit a copy of your Federal return with your state;
  • The only opportunity for a refund is if you file.

Still confused? Prepare your State taxes easily with Sprintax!

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6. Items Needed to Prepare Your Tax Returns

The Items that you need to prepare your tax returns are:

  • Passport or other valid photo ID
  • US Entry and Exit Dates for current and all past visits to the US – I94 – we recommend that you download I94. It might not always be a complete record, but you have this and your passport, you should be able to establish ALL of your entry and exit dates.
  • All of your income documents – including Forms W-2, 1042-S and/or 1099 – if you received them.
  • Visa/Immigration Status information, including Form DS-2019 (for J visa holders) or Form I-20 (for F visa holders)
  • Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).

 

We see that most people will get through Sprintax in anywhere from 30 to 45 minutes, so you would also need:

  • A comfortable chair
  • Clear desk/table space to lay out all your documents in front of you
  • A strong cup of coffee
  • Chocolate bar!

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7. Timelines for a Refund

Most students and scholars will start to receive a refund anywhere from 6 to 8 weeks after the IRS have received their tax return.

However, the IRS will permit themselves up to 6 months and it depends very much on the nature of your tax return and the time when you submitted.

We would see the returns that are submitted in early February through to the middle of March tend to have a response within a 3 to 4 week period.

Whereas if you leave it to the end of March or the busy period during the first 3 weeks in April, then you might most likely be waiting 6 to 8 weeks.

If your tax return includes 1042-S income, the IRS allows themselves additional time for processing that. Hopefully it won’t be too much too much of a delay.

If you haven’t heard anything from the IRS for 3 or 4 weeks after you’ve submitted your tax return, we would recommend you to go on to the IRS website (Where’s my refund page). You will enter in some basic information and it’ll give you an update on your status.

We recommend doing this after a few weeks to at least make sure that the IRS have received your tax return and then maybe check again a few weeks later to see if they started processing it.
If it came to about 8 or 10 weeks and nothing has happened, at that stage you should probably be picking up the phone to see if you can get further details on the status.

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8. Tax Myths and Scams

There are a couple of other misconceptions about taxes among international students.

Tax Myths

“I didn’t have a job, I don’t need to file any tax forms”.

That is absolutely not true. Everyone needs to file at least the form 8843, so everyone has some obligation.

“I’m not from the US, I don’t need to file any tax forms”

That is not true. Just because you might not be a U.S. resident according to your visa status, this doesn’t mean that you do not have any tax filing obligations.

“My country is a tax treaty with the US I don’t need to file”

The tax treaty is there to try and reduce the amount of tax that you have to pay while you’re in the US, but it doesn’t mean that you don’t have an obligation to file a tax return. It’s definitely for your benefit, but it does not necessarily mean that you don’t have to file a tax return.

“If I don’t bother doing anything, the IRS will never find out”

“I’m an international student or scholar and the IRS won’t go chasing me to see if I filed and they’re too busy with all the other residents”.
As a non-resident citizen you do have a filing obligation and the IRS definitely do audits and checks. The implications could be very serious down the road.

Tax Scams

There are a number of tax scams targeting international students and scholars. They will take the format of an email or a phone call to say that you owe the IRS money and you need to pay the money within a very very short time frame, otherwise your visa status could be in jeopardy. They may also request a check payment, a cash payment, or perhaps a prepaid card payments.

These are scams. The IRS is a very fair organization – if ever there’s a problem with your tax returns they will write to you, they will blame the problem with your tax return and they will give you an opportunity to discuss it with them. At no stage will they ever issue a threatening letter like that to say that you owe them X amount of money and unless you pay, your visa will be revoked.

If you do hear of a scam like that, you could share it with your international office and with the IRS, so that they can investigate further.

Other tips

Keep copies of everything you send

When you go through Sprintax, you will receive a PDF pack that will have your completed tax documents. We will tell you what other documents need to be accompanying the tax return and what else needs to go in the envelope.
Take a photocopy and a scan of everything that you send.

It means that in three or four weeks’ time if there are any questions from the IRS about what you submitted to them, you will be able to see exactly what they’re looking at as well.

Use a tracked mail service

We had one student who ended up submitting the tax return three times before the IRS acknowledge that they had received it. At least if you use something like the US Postal Service’s tracked mail service, you’ll be guaranteed that it actually reached the IRS. So it’s worth the $3-4 that it might cost.

Don’t copy what your friend did

We’ve seen too many examples of students from the same country, studying the same course, perhaps even in the same on-campus employment. But they’re treated completely differently from tax perspective.

So again, your tax situation is unique to you no matter how similar you think it is to some of your friends or classmates. It’s very individual.
So it’s important that you go through a system like Sprintax and determine what are your filing obligations and we can help you do all of that.

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9. What Happens If I Don’t File

What happens if I don’t file my US tax forms?

You may be overpaying your taxes, giving away your hard-earned money

The IRS are actually a very fair organization – their objective is that everyone pays the right amount of tax and everyone pays the right amount of tax on time.
If you’ve overpaid your taxes, the IRS are more than happy to give you a refund.

If you have underpaid your taxes, the IRS would be very pleased to get the balance that is due to them and then everything is going to be absolutely fine.

Non-filing of taxes may affect a future application for U.S. Permanent Residency (Green card)

If you don’t pay your taxes, that’s when things can become troublesome. If you haven’t filed there’s definitely a chance that this could have an implication on a future application for a Green card. So for instance if you’re applying for the Green card or another type of visa in perhaps 3, 5, or 10 years’ time, they may very well ask for copies of tax returns that you submitted while you were here in the U.S. studying. Not having filed taxes could put that in jeopardy.

If you owe money, you could be subject to substantial monetary penalties and fines

If you do not pay the IRS the right amount of tax and don’t pay it on time, then you will be subjected to penalties and fines. If this is the situation, you’d better get those penalties and fines cleared so that you can move on and they don’t accumulate and cause additional problems in the future.

In extreme cases involving fraud, you could lose your legal immigration status in the U.S.

In extreme cases (and we’ve only seen small numbers of these thankfully), where somebody deliberately
misfiled or filed incorrectly or deliberately decided not to file, it could be seen as a fraud and there could be very serious implications and on your visa status.

Key messages

  • There’s no incentive for not filing
  • There’s definitely an incentive to file (both a moral and a legal obligation)
  • If you don’t file, you can miss getting a refund that you might otherwise be due to receive.

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10. What To Do If You Missed a Year or Misfiled

If you missed a year or missed filing for a year or filed as a resident by mistake, we do have some advice.

Don’t panic

You’re not the first person to make this mistake and you probably won’t be the last. But you should take some steps immediately to get the records straight and to clarify the situation.

If you misfiled

If you have misfiled, there’s a simple form called the 1040X (Amended U.S. Individual Income Tax Return). It follows the same structures as form 1040, but there are three columns.

In the first column you should enter the details of the tax return that you submitted.
In the second column you will enter the details of what it should have been.
The third column is the difference between the two.

You submit 1040X to the IRS, you pay them any outstanding money at the bottom and then you’ve now updated your tax record and your tax record is clean again.

If you never filed

If you have never filed and you’ve been here in the US for a number of years, you should take this opportunity to catch up for any years that you’ve missed.

You can use a system like Sprintax to go back over three years and if you contact us we can also help you with years before that. and

It could be the case that all you needed to file is the form 8843.

In other circumstances maybe you missed filing a 1040NR or 1040NR EZ – either way, take this opportunity to catch up. There might be an opportunity to claim a refund but even if there isn’t and you owe the IRS money, the sooner you can sort that out, the better and those fees and penalties will stop accumulating.

 

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If you still have questions, Sprintax offers 24-hour support to students via our Live Chat facility here.

Have a question? Ask our virtual assistant Stacy.

 

(Last updated: 24 Apr 2020)

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Stacy
Hey I'm Stacy! I'm dealing with US taxes and can't wait to help you prepare your tax return! I've been working with taxes for like forever, so you can totally trust my expertise. Sprintax can make things much easier for you. Check out my blog posts and feel free to ask me any questions.

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