Rice University OISS Presents U S Income Tax

Rice University OISS Presents: U. S. Income Tax Seminar for Foreign Students v Andrew Lai attorney certified public accountant February 26, 2009 1

Audience w Are you a F or J visa student? w In U. S. , n n 1 – 2 years? Over 2 years? 2

Introduction w Handout and Forms w Outline w Active Participation w Ask Questions as we go w Presentation – 1. 5 hour 3

Why Pay Tax ？ w It’s the Law w Break the law; it is a criminal offense w Adverse impact on future immigration application 4

Goals w Correct withholding w Fill 1040 NR-EZ by yourself w Understand your tax return w Know your treaty w It’s YOUR responsibility 5

Due Date w April 15 th (Wed) w One Extension to October 15 th - Form 4868 w Extend to file, NOT pay 6

Mail to: w Forms 1040, 1040 EZ, 8843, 8840, 1040 NR and 1040 NREZ: n n Department of the Treasury Internal Revenue Service Center Austin TX 73301 - 0215 7

Resident/Non-Resident Taxpayer w Tax Law n n Resident alien or Nonresident alien w Immigration Law n Permanent resident 8

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Exception A - Exempt Individual w F and J Visas w Follow Visa’s requirements w No need to count days for which you are an exempt individual 10

Follow Visa’s Requirements w Did not participate in activities n n Not allowed under the immigration laws Lead to loss of visa w F－1 students n n Nature of work Meet the minimum credit hours per semester Do not break any law Have not intention to immigrate 11

Follow Visa’s requirements w What’s expect of a student w Must file Form 8843 with Form 1040 NR or 1040 NR-EZ 12

Exception B to Exception A w An exempt individual for 5 years for F-1, 2 years for J-1 (see Pub 519 App B) w No more exemption w Resident Taxpayer 13

Exception to Exception B w No intention to stay in U. S. , and w No violation of the visa’s requirements w Non-resident Taxpayer 14

No Intention to Stay in U. S. w Keep close connection with foreign country n n In U. S. < 183 days Tax home in foreign country w Did not file any of the following immigration forms: n n n Form I-508 Form I-485 Form I-130 Form I-140 Form ETA-750 Form DS-230 15

No Intention to Stay in U. S. w File Form 8840 w File with Form 1040 NR or Form 1040 NR-EZ 16

Resident/Non-resident w File the right form w Different tax amounts n n Non-resident cannot claim spouse as a dependent Cannot use standard deduction 17

FORMS w To your employer n n W-4 Employee’s Withholding Allowance Certificate 8233 Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual w Social Security Number/Taxpayer ID n n Social Security Administration: Form SS-5 IRS: W-7 Application for IRS Individual Taxpayer ID Number w From your employer before January 31 st n n W-2 1042 -S 18

FORMS – file with the IRS w 8843 Statement for Exempt Individuals w 8840 Closer Connection Exception Statement for Aliens, if necessary w 1040 NR U. S. Nonresident Alien Income Tax Return, or w 1040 NR-EZ U. S. Income Tax Return for Certain Nonresident Aliens with no Dependents 19

Two Major Steps w 1. Withholding Process n Pay As You Earn w 2. Filing Process n n Calculate the final tax amount Refund/Pay more 20

1. Withholding w Pay as you earn n n W-2, 1099 or 1042 S Attach W-2 to tax return w Your employer prepares the above based on your n n Form W-4 Form 8233 21

Form W-4 w All worker w Non-resident, do NOT follow instructions w Only one exemption w Can’t use standard deduction. w Item 3 - “single” w Item 5 - allowance “ 1” w Item 7 - Don’t fill in “Exempt” 22

Form 8233 w Part I – Identification w Part II – 11 a: description of personal services, e. g. “laboratory assistant, research assistant, …” w 11 b: total compensation, e. g. “$30, 000” w 12 a: “U. S. Tax Treaty with People’s Republic of China, Article 20(c)” w 12 b: “$5, 000” w 12 c: People’s Republic of China 23

Form 8233 – Item 13 a w Noncompensatory Scholarship or fellowship income includes: n n n Tuition Fees Books Supplies, and Equipment required by Rice 24

Form 8233 Item 13 b&c w Item 13 b: “U. S. Tax Treaty with _______, Article __(_)” w Item 13 c: State the same income in Item 13 a, i. e. scholarships are exempt up to $_____. w See Pages 32 -37 of Handout. 25

Form 8233 Item 14 w See Pages 30 -31 of Handout for examples 26

2. Filing Process w Forms 1040, 1040 NR and 1040 NR-EZ w Worldwide + U. S. Income w Dependents w Exemption w Standard deduction 27

Basic Terms w Total Effectively Connected Income (TECI) w Exclusions w Adjusted Gross Income. w TECI – Exclusions = AGI. 28

Itemized deductions w State tax w Charitable contribution w Accident and theft losses w Job and tax expenses w Others 29

Basic Terms w Exemption w AGI – Itemized Deductions – Exemption w =Taxable Income (TI) w TI < $8, 025, 10% tax rate w TI $8, 026 - $32, 550, 15% w TI $32, 551 - $78, 850, 25% 30

Common Items for Non-resident Taxpayer To You: w Tuition Waiver w Room and Board Waiver w Teaching or Research Assistant Stipend (recipient performs work) To IRS: w Non-Taxable Scholarship w Taxable Wages 31

Wages w Do not include non-U. S. wages w Form W-2 Box 1 w Tax Treaty w Form 8233 w Reduced by the exempt amount - $5, 000 w Incorrect, ask for a revised Form w Explain to IRS 32

Scholarship - Fellowship w Tax treaties w Up to all scholarship/fellowship exempt w File Form 8843 with tax return 33

Interest w Tax Law: Interest earned by Non-resident taxpayer is non-U. S. source w No tax is due w Investment income – not covered here 34

Form 1040 NR or Form 1040 NR-EZ w Non-resident taxpayers w Form 8843 w 2008 income < $3, 500 no need to file 35

Form 1040 NR & 1040 NR-EZ Important notes w Cannot claim dependents w No exemption for spouse w Cannot be claimed as dependent w Cannot use standard deduction 36

1040 NR-EZ w All U. S. income is from wages, tips and scholarship/fellowship w Income < $100, 000 w Only exclusion – student loan 37

Special Note #1 w Indian students are eligible for a Standard Deduction and a Personal Exemption. w Unless you are an Indian student, you are only eligible for some Itemized Deductions and a Personal Exemption. 38

Special Note #2: Exemption Spousal Exemptions available for some Non. Residents w Married individuals from Canada, Mexico, Japan or the Republic of South Korea w Married individuals who are students and are from India 39

Special Note #3 on Exemption Dependent Exemptions For some Non. Residents w Only individuals from Canada, Mexico, Japan or the Republic of South Korea can claim children who live with them as dependents. w Individuals from Canada and Mexico can also claim children who don’t live with them as dependents. w Students from India may be able to claim exemptions for children. Please call the IRS International Hotline for further information. 40

Form 1040 NR-EZ Example w Box 3：reduced by $5, 000 w Box 5：always zero w Box 6：total scholarship/fellowship w Box 8：always zero w Box 13：always $3, 500 (2008) 41

Example w Box 15：use IRS table ONLY w Box 18： n n n W-2 Box 2 1042 -S Box 7 both w Box 24：bank account information w Box 25：Owe tax, make check payable to “U. S. Treasury” 42

Example w Sign! w Attach Form W-2 to tax return w Page 2 n n If say “yes” to B, F, K – find a CPA, tax lawyer Item J，put in name of country and details $xxx scholarship under Article xx of Treaty l $yyy wages under Article yy of Treaty l 43

Social Security Taxes w 7. 65% w No employer should withhold SST from you w If withhold erroneously n Talk to employer File Form 843 , Claim for Refund and Request for n Form 8316，Information Regarding Request for n Abatement, Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type 44

U. S. Income Tax Seminar for Foreign Students Q&A Andrew Lai Esq CPA MBA atty. andrew. lai@gmail. com 45