but i am not a tax expert! tax basics for assisting international students and scholars
DESCRIPTION
But I am not a tax expert! Tax Basics for Assisting International Students and Scholars. Mary Upton Theo Wu. Intended beneficiaries. If you’re responsible for providing education to foreign students and scholars, AND That person receives income from your organization, THEN - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/1.jpg)
But I am not a tax expert! Tax Basics for Assisting International Students
and ScholarsMary Upton
Theo Wu
![Page 2: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/2.jpg)
Intended beneficiaries
• If you’re responsible for providing education to foreign students and scholars, AND
• That person receives income from your organization, THEN
• We hope this presentation will help you demystify US tax law expectation and give you confidence to know where help can be found.
![Page 3: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/3.jpg)
![Page 4: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/4.jpg)
Overheard
I’m a foreign person. I don’t have to pay any money to
your government.
Don’t you know that I’m a foreign student?
But my department’s offer letter says this fellowship is
not taxable.
![Page 5: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/5.jpg)
Wrong Expectations
• US Tax Law– Tax treatment of US persons DOES NOT equal tax
treatment of non-US persons– Without doing anything, a foreign person’s
income must have taxes withheld– AND the IRS holds you accountable to make sure
the taxes are withheld and remitted
![Page 6: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/6.jpg)
Four terms
• US person for tax purposes– US citizen, Legal Permanent Resident, Resident
Alien (is a foreign national)– Meets the Substantial Presence Test
• Non-US person for tax purposes– Nonresident Alien (is a foreign national)– Does not meet the Substantial Presence Test
![Page 7: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/7.jpg)
Substantial Presence Test
![Page 8: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/8.jpg)
Substantial Presence Test (SPT)
• 31 days during the current year, and • 183 days during the 3-year period that
includes the current year and the 2 years immediately before that, counting: – All the days you were present in the current year,
and – 1/3 of the days you were present in the first year
before the current year, and – 1/6 of the days you were present in the second
year before the current year.
![Page 9: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/9.jpg)
Substantial Presence Test (SPT)
• Exempt from counting days:– Does not mean exempt from paying US taxes– F-1 and J-1 students (5 years)– J-1 non-students (2 of last 6)
• In current year, count all days the person is available to be present in the US– Resident aliens from day 1– Retroactive withholding to day 1
![Page 10: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/10.jpg)
IRS Publication 4011
• Pub 4011, IRS Publication 4011, Publication 4011
• Determination tree for SPT
![Page 11: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/11.jpg)
Review
• A foreign person in the US is considered:– Resident alien for tax purposes– Nonresident alien for tax purposes– Determined by the SPT on his physical presence– Publication 4011 is a helpful decision tree
![Page 12: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/12.jpg)
US person
• IRS Form 1040 or 1040-EZ OK• TurboTax, TaxCut, etc OK• W-9
![Page 13: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/13.jpg)
Non-US person
• Is the payment considered taxable income?• If yes, how much tax?• Institution has an obligation to withhold AND
report
![Page 14: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/14.jpg)
IRS Form W-8Ben
![Page 15: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/15.jpg)
Defining Income
![Page 16: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/16.jpg)
Defining Income
• Fellowship/scholarships– Qualified Expenses– Room and Board
• Salary/wages– Service component
• Prize/award– Public competition
• Gifts– No strings attached
![Page 17: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/17.jpg)
What is subject to withholding?
NRA RA
Scholarship/Fellowship
Subject to reporting by your org? Yes Yes
Taxable? Maybe Maybe
Subject to withholding? Yes No
Salary/Wages
Subject to reporting by your org? Yes Yes
Taxable? Yes Yes
Subject to withholding? Yes Yes
Prize/Awards
Subject to reporting by your org? Yes $600 or above
Taxable? Yes Yes
Subject to withholding? Yes No
![Page 18: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/18.jpg)
Withholding Rate
![Page 19: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/19.jpg)
Withholding Rate
• 30% federal income tax rate• Scholarship/fellowship federal tax rate
reduced to 14%– F, J, M, Q visa status
• Payroll is at graduated rates but does not include the standard deduction because that’s for US persons
• ? % state income tax rate
![Page 20: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/20.jpg)
Tax Treaty Benefits, FICA
![Page 21: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/21.jpg)
Tax Treaty Benefits
• Avoid double taxation• Not granted automatically• Must be a non-US person in the current year• Must address this type of income• Each tax treaty is different• Requires a US based tax identifying number• Reduces the tax rate• Based on tax residence
![Page 22: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/22.jpg)
Tax Treaty Benefits
• If you are ever concerned about the person’s qualifications to get a tax treaty benefit, you should withhold now and let the person make a claim for the benefit when the person files a tax return at the end of the year.
![Page 23: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/23.jpg)
FICA Taxes
• NRA FICA exemption (IRC Section 3121(b)(19))– Non-US person in the current year– F, J, M, or Q visa type– Performed to carry out the purpose specified in
subparagraph (F), (J), (M), or (Q) (i.e. F-1 student is studying full-time and not working full-time)
![Page 24: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/24.jpg)
End of the Year
![Page 25: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/25.jpg)
End of Year
I’m still not a US person. I don’t pay taxes to your
government.
I claimed the tax treaty and didn’t have any taxes taken
from my pay.
The government must understand this is very hard
and I don’t understand English well
Last year I did my tax refund and didn’t owe. This year, why do I owe?
![Page 26: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/26.jpg)
End of Year
• The IRS expects your foreign visitors to complete a tax return if she was present in the US during the year– US person: 1040 or 1040EZ (like any US person)– Non-US person: 1040NR or 1040NR-EZ
• At the end of the year, a non-US person may also receive the 1042-S form instead of or in addition to the W-2
• You use these reporting forms to complete your tax filing for the year
![Page 27: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/27.jpg)
IRS Form 1042-S
• Claim tax treaty benefit on incomes• Reporting of taxable income provided to the
individual except salary/wage income (W-2)– May include the tax amount withheld– May include special situations in which taxes are
not withheld but the income is taxable
![Page 28: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/28.jpg)
In review
![Page 29: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/29.jpg)
In review
Substantial Presence Test = (1 x Current Year Days) + (1/3 x Last Year Days) + (1/6 x 2 Years Ago Days)
• Substantial Presence Test helps determine Resident alien or nonresident alien
• IRS Publication 4011
![Page 30: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/30.jpg)
In review
![Page 31: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/31.jpg)
In reviewNRA RA
Fellowship/Scholarship
Subject to reporting by IU? Yes Yes
Taxable? Maybe Maybe
Subject to withholding? Yes No
Salary/Wages
Subject to reporting by IU? Yes Yes
Taxable? Yes Yes
Subject to withholding? Yes Yes
NRA require tax withholding on taxable income
![Page 32: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/32.jpg)
In review
• 30% federal income tax rate• Scholarship/fellowship federal tax rate
reduced to 14%– F, J, M, Q visa status
• ? state income tax rate
![Page 33: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/33.jpg)
In review
• Tax treaties:– Must be a NRA in the current year– Requires a US based tax identifying number– Based on tax residence
• NRA FICA exemption– Must be a NRA in the current year– F, J, M, or Q visa type– Performed to carry out the purpose specified in
subparagraph (F), (J), (M), or (Q)
![Page 34: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/34.jpg)
In conclusion
• 1042-S must be postmarked by March 15• 1040NR (individual tax return) due April 15• 1042 due March 15• Submitting Form 7004 for the 1042
automatically grants a 6 month extension
![Page 35: But I am not a tax expert! Tax Basics for Assisting International Students and Scholars](https://reader036.vdocument.in/reader036/viewer/2022062804/568149c0550346895db6f441/html5/thumbnails/35.jpg)
Questions?