Foreign students who are temporarily in the United States on an F, J, M, or Q visa for the primary purpose of studying at an academic institution or vocational school have special privileges. These visa types provide the holder with an exemption from the substantial presence test, so the individual can remain a nonresident alien for an extended period (in some situations, up to five years). Each visa has specific requirements with which the student is required to comply in order to retain his or her nonresident status. Even though the student is classified as a nonresident alien, he or she may still be required to file U.S. tax forms and pay U.S. tax on income from U.S. sources. The following is a common situation:
A student from a foreign country entered the United States in August 2010 on an F-1 visa to study engineering. He completed an undergraduate degree in May 2014 and was accepted into graduate school beginning in August 2014. His graduate studies continued until May 2016. Upon graduation, he accepted a job offer in the United States and applied for a U.S. green card. During the time he was a student, he held an investment account in his home country that generated interest and dividend income he was using to pay for his studies. He received a fellowship grant for services as a teaching assistant during his graduate studies.
During the student’s undergraduate studies, he did not receive any income from U.S. sources. Therefore, he was only required to file Form 8843 each year to substantiate his exempt status and to report his visa information, citizenship, passport number, and days in the United States. He would also report on the 8843 the name, address, and telephone number of the academic institution attended and director of the academic or specialized program in which he participated. When he began graduate school, since his fellowship was payment for services, he was required to report the portion of the fellowship income representing payment for services on a 2014 1040NR (U.S. Nonresident Alien income tax return) and pay U.S. tax on the income.
Beginning in 2015, even though he was still a student on a non-immigrant visa, he had used up all of his exemption period (any part of five calendar years), so beginning January 1, 2015, he would be required to file as a U.S. resident, reporting and paying tax on his worldwide income. He would also be required to file FinCen 114 to report his foreign bank and investment accounts and Form 8938 to report specified foreign financial assets. At this point, his interest and dividend income from his home country became taxable in the United States.
Our International Tax Group can assist foreign students in ensuring they are complying with all U.S. reporting requirements. Through our network of international accounting firms, we can also refer clients to reputable accountants in their home country to ensure they are meeting their filing obligations abroad as well.
Next week we will learn about income that foreign professors, scholars, and researchers can exclude.