F1 Visa Tax Exemption

F1 Visa Tax Exemption is the reduction of a requirement to make a payment imposed on F-1 students by the US government. F1 Visa Tax Exemption does not cover Form 8843, Form 843, Form 8233, and Form W-8BEN which are required to be paid to the Internal Revenue Service (IRS). F-1 Visa holders are exempt from Medicare and the Federal Insurance Contributions Act (FICA) taxes. F 1 Visa students who plan to stay for more than 183 days in the US are liable to the 30% capital gains tax.

The F 1 Visa is intended for international students who wish to live temporarily in the US while finishing a course of study at a US university. An F1 Visa student is considered an “Exempt Individual” during their first 5 years in the US.  An “Exempt Individual” status simply that the individual does not count days of actual presence in the U.S. for the purposes of satisfying the Substantial Presence Test. The Substantial Presence Test confirms whether a foreign national is considered a resident or nonresident for the purpose of USA taxation. F1 students are considered nonresident aliens for tax purposes in the United States.

What is F1 Visa Tax Exemption?

F1 Visa Tax Exemption is the rule that the US government applies to F-1 students who have been present in the United States for less than 5 calendar years that exempt them from Social Security and Medicare Taxes on wages paid to them while working in the US. F1 Visa Tax Exemption covers on-campus employment, off-campus employment authorized by the U.S. Citizenship and Immigration Services (USCIS), and practical training employment on or off campus. 

The US F-1 Visa is a nonimmigrant classification for international students in academic programs in the United States. Foreign students on F1 Visa USA must be enrolled full-time in approved educational institutions in the United States such as universities, colleges, conservatories, or seminaries, and have enough financial capability to sustain their studies in the US.

What is Tax?

Tax is a mandatory payment placed on a taxpayer (an individual or legal entity) by an administrative body to pay for certain public expenditures and administrative costs (national, regional, or local.) 

What is Tax Exemption?

Tax exemption is the reduction of a requirement to make a payment imposed on individuals, income, properties, or transactions by the government. Tax-exempt status may offer full tax exemption, tax on only a few items, reduced rates, or things. Some examples include veterans, charitable organizations exempt from real estate taxes and income taxes, and specific cross-border or multi-jurisdictional situations.

What is the IRS?

The Internal Revenue Service (IRS) is a department of the United States government in charge of tax collection and law enforcement. The Internal Revenue Service is a division of the Treasury Department and is run by the Commissioner of Internal Revenue. The US President assigns the head of the Internal Revenue Service (IRS). Among the responsibilities of the IRS are helping taxpayers with their taxes, pursuing and resolving cases of incorrect or fraudulent tax files, and managing a number of benefit programs. Individual income taxes and employment taxes are mostly collected by the Department of the Treasury. Corporate, gift, excise, and inheritance taxes are also handled by the Internal Revenue Service.

What is the F1 Tax?

F1 Visa students who intend to stay in the US for more than 1 year are subject to the 30% capital gains tax during any tax year in which they are present in the country for 183 days or more.

What are the Types of Tax F1 Visa Holders are Paying?

These are the types of taxes in the US F1 Visa Holders are paying.

 Form 8843. The U.S. government requires all foreign students and their spouses and dependents to submit Form 8843. Form 8843 is an informational statement. Form 8843 is not an income tax return. All nonresident foreigners in the country on F-1 Visa are required to submit Form 8843 (Statement for Exempt Individuals and Individuals With a Medical Condition) regardless of whether they had an income in 2019. 

These are the qualifications of nonresident foreigners who should file Form 8843.

• A foreign national with F 1 Visa.
• Present in the United States in 2019 with F-1 Visa.

You must indicate your Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) if you already have these details when filing Form 8843.

 Form 843. Form 843 (Claim for Refund and Request for Abatement) is multifunctional. Form 843 is used to request a reduction in interest or penalties that the IRS has incorrectly assessed or to demand a refund of some assessed taxes. The 843 Form must be submitted no later than 2 years following the payment of taxes or 3 years following the filing of the return, whichever comes first. 

 Form 843 is used to request an exemption from the IRS for certain taxes other than income, such as the following.

• Estate or gift taxes.
• Interest or penalties brought on by IRS delays, mistakes, or inaccurate IRS written guidance.

The 843 Form is used to appeal for a refund of any Medicare or Social Security taxes that were improperly withheld from your paycheck. The reason for the appeal is your employer would not make any adjustments to the excess amount collected

Form-W8BEN is used and is prescribed by the Internal Revenue Service to gather accurate Nonresident Alien (NRA) taxpayer information for persons and to document their status for tax reporting reasons.

The W-8BEN form is necessary when sending non-US source income payments to a nonresident foreigner. The payments made to a Nonresident Alien (NRA) are for performed services rendered by a nonresident foreigner and carried out outside of the US.

The W-8BEN is used to prove that the contractor is a foreign citizen and qualifies for a lower rate of withholding tax and income taxes due to their status as a foreign resident. Form W-8BEN is also used to confirm the individual’s status to avoid paying taxes on income obtained from specific sources, such as rents, dividends, and compensation for services performed.

Federal Tax Forms are forms used to record financial information to the IRS. The Federal Tax Forms are used to disclose other information as needed by the Internal Revenue Code, such as income, and compute taxes to be paid to the federal government. Over 800 different forms and schedules are available. In the US, state and local governments receive filings of additional tax forms.

What are the Taxes F1 Visa Holders are Exempt From?

F-1 Visa holders are exempt from Medicare and the Federal Insurance Contributions Act (FICA) taxes. 

Medicare Tax

Medicare tax or hospital insurance tax pays a portion of the Medicare Insurance program. Medicare tax is deducted from an employee’s paycheck or paid as a self-employment tax, similar to the Social Security tax.

Federal Insurance Contributions Act (FICA) Tax

The Federal Insurance Contributions Act (FICA) is a US federal payroll tax that is taken out of every paycheck. Your 9-digit number enables Social Security to precisely record your self-employment or insured wages. You accumulate credits for Social Security benefits as you work and pay FICA taxes. The FICA tax consists of the Medicare tax (hospital insurance tax), and the Social Security taxes (survivors, old-age, and disability insurance tax).   

Foreign nationals who work in the US are often obligated to pay FICA taxes. F1 Visa holders are free from paying FICA taxes because they anticipate returning to their home country after completing their course in the US.

IRS regulations confirm that F 1 Visa holders are exempt from FICA taxes on wages paid to them for services performed within the United States. The United State Citizenship and Immigration Services (USCIS) must approve those services for F1 Visa holders that are carried out to fulfill the purposes for which those visas were issued.

The following employment is not subject to FICA taxes.

• Student employment of 20 hours/week on-campus (or 40 hours/week during summer vacations).
• Off-campus employment approved by the United State Citizenship and Immigration Services (USCIS).
• Student employment for practical training (on or off campus). 
• Researcher, teacher, or professor job positions.
• Doctor, camp counselor, or caregiver jobs.

F1 Visa holders are one of the Types of Visa Holders Exempt To Paying Taxes. F-1 Visa Holders are exempt from the Medicare and FICA taxes for 5 years starting from their entry date into the US. 

What is a Substantial Presence Test?

The Substantial Presence Test confirms whether a foreign national is considered a resident or nonresident for the purpose of US taxation. The Substantial Presence Test must be completed every year. 

An F1 Visa student is considered an “Exempt Individual” during the first 5 years in the U.S. This status simply means that the individual does not count days of actual presence in the U.S. for the purposes of satisfying the Substantial Presence Test. As a result, for the first 5 calendar years of an F-1 student’s residence in the country, assuming they have never visited before, the F 1 student will be considered a nonresident alien for tax purposes in the United States.

What is a Nonresident Tax?

A Nonresident Tax is for individuals who are not US residents but receive certain forms of income. The sources of income of nonresidents are underlined below.

• Dividends.
• Interest (if appropriate) (if applicable).
• Trust or estate revenue.
• Cash advance from a Resource Specialist Program (RSP) or Retirement Income Fund (RIF).

Resource Specialist Program (RSP) teachers provide services to students by providing individualized instruction. Retirement Income Fund (RIF) is a mutual fund with a well-diversified portfolio of major and mid-cap equities and bonds.  

What is a Tax Return?

A tax return is one or more forms submitted to a taxing body that include earnings, expenditures, and other important tax data. Tax returns give taxpayers the option to determine their tax liability, plan out their tax payments, or ask for refunds for any taxes they have paid in excess of what is required. Individuals or businesses with reportable income, such as wages, dividends, interest, capital gains, or other earnings should file tax returns annually.

Is there a Tax Return Deadline? 

Yes, there is a tax return deadline. The due date is often April 15 if you file your taxes for the calendar year. Most people submit taxes within the calendar year. Form 4868 is the form you use to ask for a filing deadline extension.

Where Can I Send My Tax Return?

Filing a tax return is an easy procedure. Send your tax return to the IRS address once you have filled out the tax return form. Visit the IRS website and search by state and form number to get the mailing address where to send your tax return. 

What Happens if I Don’t File a Tax Return?

The IRS has a number of ways to get you to comply to file a tax return. These include levying fines, penalties, and interest; enforcing tax liens, or taking harsher actions for any taxes you may owe that are being avoided.

You will probably incur a Failure to File Penalty if you do not submit your taxes on time. There is a 5% penalty on your outstanding tax liability, up to a maximum of 25% of your total unpaid taxes.

There are no penalties for failing to file if you are entitled to a refund. You do, however, forfeit the potential to receive that reimbursement. You just have a short time to request that refund.

Can an F1 Visa Attorney Help with F1 Visa Tax?

Yes, an F1 Visa Attorney specializes in all F 1 Visa-related matters including tax returns and exemptions. An F-1 Visa Attorney is an immigration lawyer that helps foreign students obtain their USA F 1 Visa and assists in all related processes such as renewal, extension, tax filing, and changing of status. Engaging the services of an F1 Visa Attorney ensures that you abide by the rules and regulations governing your F-1 status from application up until you finish your study program.

Can I File Taxes Online?

Yes, you can file taxes online via the IRS Free File. IRS Free File enables you to complete and submit your federal income tax return online utilizing Free File Fillable Forms, IRS Partner Sites, or assisted tax preparation. It’s secure, simple, and free for you to file a federal return.

These 5 steps describe how the free IRS File operates.

1. Start the filing process at IRS.gov. Visit a company’s website directly to prevent you from taking use of the advantages presented here.
2. Select from the IRS Free File fillable forms, guided tax preparation, or IRS Free File options.
3. Register for a new account or, log in (if you have already an account) once you are directed to the IRS partner website.
4. Create and submit your federal tax return electronically.
5. Wait for an email notification from the IRS.

Do F1 Visa Holders Pay Taxes on OPT?

Yes, F1 Visa students who receive income from Optional Practical Training (OPT) must pay taxes. Optional Practical Training (OPT) is a short-term job that is directly related to the primary field of study for an F-1 student. Additionally, students on F-1 OPT must complete the W-4 Form (Employee’s Withholding Certificate.) The W-4 form allows the employer to deduct the correct federal income tax from the employee’s paycheck. 

Do F1 Visa Holders Pay Taxes on CPT?

Yes, F1 Visa students on Curricular Practical Training (CPT) must pay taxes. F 1 Visa students must submit a US tax return (Form 1040-NR) for any income derived from US sources. Curricular Practical Training (CPT) allows international students to participate in paid internships and receive employment training. Students on F1 CPT are however exempt from paying Social Security and Medicare taxes on their wages earned in the US. 

Can I Deduct F1 Student Loan Interest From My US Taxes?

Yes, you can deduct your F1 Student Loan interest from taxes you pay in the US as long as you meet the eligibility criteria. An F-1 Visa Student Loan is a type of loan taken by international students in the USA to help sustain their educational and living expenses in the US. Tax deduction for F1 Visa Student Loan interests is applicable even for overseas loans upon meeting the following requirements.

• During the tax year, you paid interest on a student loan that was “qualified” and not just any student loan. A qualified student loan must be used exclusively for higher education expenses and taken during an official academic period. 
• The qualified student loan has an interest charge that you are required by law to pay and the F1 Student Loan which should be in your name.
• You must not be “married filing separately” in order to be eligible for the F-1 tax deduction.
• Your modified adjusted gross income (MAGI) is below a predetermined ceiling that is annually fixed which is determined by IRS each year.
• You must not be listed as a dependent on another person’s US tax return in order to be eligible for the F1 Visa Student Loan tax deduction.
• Your F1 Student Loan must not be a personal loan from a family member and should ideally come from a business, bank, or organization.

FAQs about F1 Visa Tax Exemption