U.S. Income and Social Security Taxation of Foreign Teachers and Students: Taxation of F1 and J1 Visa Holders

Description

A severe shortage of qualified teaching professionals has led to an influx of aliens from abroad. A J-1 visa allows a teacher to reside in the U.S. for three years, or longer if an extension is granted. An international student wishing to study in the U.S. can apply for an F-1 visa.

The substantial presence test determines whether a non-permanent resident visa holder is a resident for U.S. tax purposes. Individuals present in the U.S. for U.S. 31 days in the current year and 183 days during the three-year period including the current and two preceding years (with greater weight given to the more current years), may be considered a U.S. tax resident and subject to U.S. income tax on their worldwide income. Certain teachers, trainees, and students are considered “exempt individuals”, and their days of presence in the U.S. are not counted for purposes of determining substantial presence which means that they are only subject to U.S. income taxation on their U.S. source income. In addition, certain payments received by teachers, trainees, and students may be exempt from U.S. income tax depending on the source of the payments.

Generally speaking, individuals receiving wages for performing services in the U.S. are liable for Social Security and Medicare taxes regardless of residency status. However, nonresident teachers and researchers working in the U.S. who have been in the U.S. for less than two years can qualify for exemption from these taxes due to the interplay between IRC Sections 7701(b) and 3121(b). Additionally, students on F-1 visas are generally not subject to Social Security or Medicare withholdings during their educational period. If necessary, taxpayers can file Form 843, Claim for Refund and Request for Abatement, to request a refund of amounts erroneously withheld.

These are unique tax considerations for teachers and students residing in the U.S. Tax practitioners working with multinational taxpayers need to grasp the income and Social Security tax requirements of these individuals.

Listen as our panel of distinguished international tax professionals explains the specifics of U.S. income and employment tax liability for F-1 and J-1 visa holders.