Taxation in the United States can be a complex process. As an international student, the need to understand your U.S. tax obligations probably hasn’t been the first thing on your mind. But, whether you earned income or not, every international student has tax obligations.
Depending on your circumstances however, you may be entitled to deduct from your taxable income and reduce your overall liability.
Read on as we outline the situations where deductions or credits might apply, walk you through what tax deductions may be available for international students, and clarify what qualified education expenses are.
Can international students claim tax deductions in the U.S.?
The short answer? It depends on your tax residency status.
Students on F, J, M, or Q visas are usually classed as nonresident aliens for tax purposes for the first 5 years of their stay in the U.S..
As nonresident aliens, the majority of international students are subject to different tax rules than U.S. citizens or residents. This generally means that they have limited access to tax deductions or education credits.
However, if you pass the Substantial Presence Test or are married to a U.S. citizen, you may be considered a resident alien and could become eligible for certain deductions or credits.
Read more:
Tax deductions and credits: what’s available to international students?
While the U.S. tax system offers a few education-related tax deductions, most of them are only available to U.S. citizens and resident aliens.
Here’s a look at the typical tax breaks that might apply:
Tuition and Fees deduction
Although no longer available, this deduction allowed eligible taxpayers to deduct up to $4,000 in tuition and fees, before its expiry in 2020.
Lifetime Learning Credit
This credit (worth up to $2,000) relates to qualified education expenses. But there’s a catch. It is only available to U.S. citizens or resident aliens.
If you’re a nonresident international student, unless you elect to be treated as a resident alien, you don’t qualify.
American Opportunity Tax Credit (AOTC)
This credit provides up to $2,500 per year for the first four years of post-secondary education for qualified education expenses. Like the Lifetime Learning Credit, it’s not available to nonresident aliens.
Resident aliens may qualify if they meet all the requirements and have the right filing status.
Scholarship and fellowship exclusions
While it’s not technically a deduction or credit, it’s important to note that scholarship or fellowship income may be excluded from taxable income, but only if it is used for qualified education expenses.
Funds used for non-qualified purposes, like room and board, may be taxable.
This applies to all nonresident aliens who are candidates for a degree or at least half-time students.
Standard deduction
Typically, nonresident aliens cannot claim the standard deduction. However, there is a special rule, described below, for certain nonresident aliens from India, who can claim it under Article 21 of the U.S.-India Income Tax Treaty.
A special rule applies to students and business apprentices who are eligible for the benefits of Article 21(2) of the United States–India Income Tax Treaty. They can claim the standard deduction provided they do not claim itemized deductions.
What are qualified education expenses?
This is one of the most common points of confusion. So, what exactly are qualified education expenses?
Well, according to the IRS, these are education-related costs that are necessary for enrollment or attendance at an eligible educational institution.
Common qualified education expenses include:
- Tuition
- Enrollment or registration fees
- Required course materials, such as books, supplies, and equipment (only if mandated by the school for your course)
However, not all educational costs qualify.
The following are not considered qualified education expenses:
- Room and board
- Insurance (including student health plans)
- Transportation
- Living expenses or personal costs
Understanding this distinction is crucial; only specific costs count, and those are the ones tied directly to your coursework and enrollment.
Why use Sprintax?
Whether you’re eligible for a tax deduction or not, Sprintax Returns can still help you to file your U.S. tax return and claim your maximum tax refund!
Sprintax Returns is the only online federal and state self-prep tax software for nonresidents in the U.S.. By creating a Sprintax account you can easily prepare a fully compliant 1040NR (nonresident tax return) and form 8843 tax documents.
With Sprintax you can:
- Save time and stress!
- Determine your residency status
- E-file your Federal tax return
- Prepare a fully compliant U.S. State tax return
- Claim your maximum U.S. tax refund
- Discuss your U.S. tax questions anytime 24/7 with or Live Chat team
Complete your international student tax return with Sprintax
