2. 1 U.S. Income Tax Seminar for Foreign Students Rice University OISS Presents:  Andrew Lai attorney certified public accountant February 26, 2009

3. 2 Audience  Are you a F or J visa student?  In U.S., 1 – 2 years? Over 2 years?

4. 3 Introduction  Handout and Forms  Outline  Active Participation  Ask Questions as we go  Presentation – 1.5 hour

5. 4 Why Pay Tax ？  It’s the Law  Break the law; it is a criminal offense  Adverse impact on future immigration application

6. 5 Goals  Correct withholding  Fill 1040NR-EZ by yourself  Understand your tax return  Know your treaty  It ’ s YOUR responsibility

7. 6 Due Date  April 15 th (Wed)  One Extension to October 15 th - Form 4868  Extend to file, NOT pay

8. 7 Mail to:  Forms 1040, 1040EZ, 8843, 8840, 1040NR and 1040NR-EZ: Department of the Treasury Internal Revenue Service Center Austin TX 73301 - 0215

9. 8 Resident/Non-Resident Taxpayer  Tax Law Resident alien or Nonresident alien  Immigration Law Permanent resident

10. 9 图表

11. 10 Exception A - Exempt Individual  F and J Visas  Follow Visa’s requirements  No need to count days for which you are an exempt individual

12. 11 Follow Visa’s Requirements  Did not participate in activities Not allowed under the immigration laws Lead to loss of visa  F－1 students Nature of work Meet the minimum credit hours per semester Do not break any law Have not intention to immigrate

13. 12 Follow Visa’s requirements  What’s expect of a student  Must file Form 8843 with Form 1040NR or 1040NR-EZ

14. 13 Exception B to Exception A  An exempt individual for 5 years for F-1, 2 years for J-1 (see Pub 519 App B)  No more exemption  Resident Taxpayer

15. 14 Exception to Exception B  No intention to stay in U.S., and  No violation of the visa’s requirements  Non-resident Taxpayer

16. 15 No Intention to Stay in U.S.  Keep close connection with foreign country In U.S. < 183 days Tax home in foreign country  Did not file any of the following immigration forms: Form I-508 Form I-485 Form I-130 Form I-140 Form ETA-750 Form DS-230

17. 16 No Intention to Stay in U.S.  File Form 8840  File with Form 1040NR or Form 1040NR-EZ

18. 17 Resident/Non-resident  File the right form  Different tax amounts Non-resident cannot claim spouse as a dependent Cannot use standard deduction

19. 18 FORMS  To your employer 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  Social Security Number/Taxpayer ID Social Security Administration: Form SS-5 IRS: W-7 Application for IRS Individual Taxpayer ID Number  From your employer before January 31 st W-2 1042-S

20. 19 FORMS – file with the IRS  8843 Statement for Exempt Individuals  8840 Closer Connection Exception Statement for Aliens, if necessary  1040NR U.S. Nonresident Alien Income Tax Return, or  1040NR-EZ U.S. Income Tax Return for Certain Nonresident Aliens with no Dependents

21. 20 Two Major Steps  1. Withholding Process Pay As You Earn  2. Filing Process Calculate the final tax amount Refund/Pay more

22. 21 1. Withholding  Pay as you earn W-2, 1099 or 1042S Attach W-2 to tax return  Your employer prepares the above based on your Form W-4 Form 8233

23. 22 Form W-4  All worker  Non-resident, do NOT follow instructions  Only one exemption  Can’t use standard deduction.  Item 3 - “single”  Item 5 - allowance “1”  Item 7 - Don’t fill in “Exempt”

24. 23 Form 8233  Part I – Identification  Part II – 11a: description of personal services, e.g. “laboratory assistant, research assistant, …”  11b: total compensation, e.g. “$30,000”  12a: “U.S. Tax Treaty with People’s Republic of China, Article 20(c)”  12b: “$5,000”  12c: People’s Republic of China

25. 24 Form 8233 – Item 13a  Noncompensatory Scholarship or fellowship income includes: Tuition Fees Books Supplies, and Equipment required by Rice

26. 25 Form 8233 Item 13 b&c  Item 13b: “U.S. Tax Treaty with _______, Article __(_)”  Item 13c: State the same income in Item 13a, i.e. scholarships are exempt up to $_____.  See Pages 32-37 of Handout.

27. 26 Form 8233 Item 14  See Pages 30-31 of Handout for examples

28. 27 2. Filing Process  Forms 1040, 1040NR and 1040NR-EZ  Worldwide + U.S. Income  Dependents  Exemption  Standard deduction

29. 28 Basic Terms  Total Effectively Connected Income (TECI)  Exclusions  Adjusted Gross Income.  TECI – Exclusions = AGI.

30. 29 Itemized deductions  State tax  Charitable contribution  Accident and theft losses  Job and tax expenses  Others

31. 30 Basic Terms  Exemption  AGI – Itemized Deductions – Exemption  =Taxable Income (TI)  TI < $8,025, 10% tax rate  TI $8,026 - $32,550, 15%  TI $32,551 - $78,850, 25%

32. 31 Common Items for Non-resident Taxpayer To You:  Tuition Waiver  Room and Board Waiver  Teaching or Research Assistant Stipend (recipient performs work) To IRS:  Non-Taxable Scholarship  Taxable Scholarship  Taxable Wages

33. 32 Wages  Do not include non-U.S. wages  Form W-2 Box 1  Tax Treaty  Form 8233  Reduced by the exempt amount - $5,000  Incorrect, ask for a revised Form  Explain to IRS

34. 33 Scholarship - Fellowship  Tax treaties  Up to all scholarship/fellowship exempt  File Form 8843 with tax return

35. 34 Interest  Tax Law: Interest earned by Non- resident taxpayer is non-U.S. source  No tax is due  Investment income – not covered here

36. 35 Form 1040NR or Form 1040NR-EZ  Non-resident taxpayers  Form 8843  2008 income < $3,500 no need to file

37. 36 Form 1040NR & 1040NR-EZ Important notes  Cannot claim dependents  No exemption for spouse  Cannot be claimed as dependent  Cannot use standard deduction

38. 37 1040NR-EZ  All U.S. income is from wages, tips and scholarship/fellowship  Income < $100,000  Only exclusion – student loan

39. 38 Special Note #1  Indian students are eligible for a Standard Deduction and a Personal Exemption.  Unless you are an Indian student, you are only eligible for some Itemized Deductions and a Personal Exemption.

40. 39 Special Note #2: Exemption Spousal Exemptions available for some Non- Residents  Married individuals from Canada, Mexico, Japan or the Republic of South Korea  Married individuals who are students and are from India

41. 40 Special Note #3 on Exemption Dependent Exemptions For some Non- Residents  Only individuals from Canada, Mexico, Japan or the Republic of South Korea can claim children who live with them as dependents.  Individuals from Canada and Mexico can also claim children who don’t live with them as dependents.  Students from India may be able to claim exemptions for children. Please call the IRS International Hotline for further information.

42. 41 Form 1040NR-EZ Example  Box 3：reduced by $5,000  Box 5：always zero  Box 6：total scholarship/fellowship  Box 8：always zero  Box 13：always $3,500 (2008)

43. 42 Example  Box 15：use IRS table ONLY  Box 18： W-2 Box 2 1042-S Box 7 both  Box 24：bank account information  Box 25：Owe tax, make check payable to “U.S. Treasury”

44. 43 Example  Sign!  Attach Form W-2 to tax return  Page 2 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 $yyy wages under Article yy of Treaty

45. 44 Social Security Taxes  7.65%  No employer should withhold SST from you  If withhold erroneously Talk to employer File Form 843, Claim for Refund and Request for Abatement, Form 8316，Information Regarding Request for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type

46. 45 Q & A U.S. Income Tax Seminar for Foreign Students Andrew Lai Esq CPA MBA atty.andrew.lai@gmail.com