A Quick Primer to U.S. Tax Law
There are many misunderstandings about taxes among international students. Below is a list of facts that many students and U.S. citizens do not know about the tax obligations of non-U.S. citizens:
- International students are not automatically exempt from paying income tax
- All students paid on assistantships must pay taxes
- Most scholarships and fellowships are taxable
- It is the students' responsibility to report their tax residency status and their country's tax treaties to determine the taxable portion of their earnings (i.e. income, scholarships)
- Beginning in tax year 1992, federal law requires all F, J, M, and Q visa holders, even those who earn no money in the U.S., file income tax forms at the end of the tax year. This means that even F-2, M-2, and J-2 dependents, regardless of age, are expected to file tax returns annually in the United States, even if they have no income from a U.S. source. In the case of F-2 and M-2 dependents (who cannot work in the United States), the completion of a tax form is simple. A J-2 dependent, which may get permission to work in the United States, is taxed on his or her earnings.
In the U.S., every person who earns income must pay income tax. Every person regardless of earnings must file a U.S. Income Tax Return.
The individual earner usually has their payroll department deduct monthly withholding from paychecks throughout the year. The W-4 form as completed by you at hiring determines the amount withheld. You should update your W-4 form whenever there is a change in your specific circumstances.
The U.S. tax year runs on a calendar basis from January 1 to December 31. At the end of the tax year, employers/organizations are required to create a summary statement of how much money each employee earned or was given (i.e. scholarship, grant, fellowship), and how much tax was withheld during the tax year.
The most common types of summary statements are:
- W-2: for earned income,
- 1042 forms: for scholarships and other types of income,
- 1099 forms: for interest earned in investment accounts.
The W-2 and 1099 forms must be issued by your employer, bank or other funding organization by January 31 and you will begin receiving them in February, although they may arrive earlier. By law the 1042 forms must be issued by March 15 and you should begin receiving this form shortly thereafter. It is then your responsibility to complete and file the correct income tax return forms.
Tax return forms act as a balance sheet, comparing how much you earned, how much was withheld, and determining how much tax is owed. The result may be that an individual owes additional tax or, as is the case of most international students, the international student is owed a refund for having too much tax withheld.
Completed income tax returns are mailed to the U.S. Internal Revenue Service (IRS), the government agency charged with overseeing taxation, no later than April 15. In the event this date falls on a weekend or holiday, the deadline is the following business day.
If and only if the only source of your income is reported on a 1042 and you have no wages reported on another document your filing deadline is June 15.
There are two types of income taxes:
Every person who earns income in U.S. must file federal income tax. State tax is specific to the state, it is applied to the earnings in that state and it is filed in addition to the federal tax. The State of Texas does not have a state income tax; meaning you will only file federal income tax returns each year as long as you only work in Texas. If you work in another state, check the state website or talk to your employer regarding the state tax.