Glossary of U.S. Tax terms for Internationals

Calendar Year:

Internationals in the U.S. for even only one day between January 1 and December 31 of any given year are considered to be in the U.S. for a “calendar year.” Example: internationals arriving in the U.S. on December 30, 2015, although in the U.S. for only two days in 2015, for U.S. tax purposes were in the U.S. for one calendar year.

Compensation:

This is any payment made in exchange for services performed. Payment might include cash, reduced tuition or rent, partial board, or another method of payment. Among other categories, compensation can be earned by anyone who is an employee, an intern, or a contractor.

Deduction or Exemption:

This is an amount of money you may be permitted to deduct from your total taxable income when calculating how much tax you must pay.

FICA Tax:

Also known as the “Social Security tax,” FICA is the composite of a retirement pension and medical benefits tax on employers and employees.

Foreign-Source Income:

Income from sources outside the U.S. For nonresident aliens for tax purposes, this income type is not taxable; only U.S.-source income is taxable. See Publication 519, Table 2-1 to determine whether income is foreign- or U.S.-source.

Form 1040NR:

Nonresident aliens for tax purposes are required to use this form if claiming dependents, tax treaty, or other exemptions or deductions, or if U.S.-source annual income was over $100,000.

Form 1040NR-EZ:

Nonresident aliens for tax purposes who meet the qualifications may use this "easy" form.

Form 1042-S:

A form is issued to researchers, teachers, and students to report amounts, whether or not exempt from tax under an income tax treaty, that were paid to internationals even if no amount was withheld. Usually, these amounts are the result of income earned from scholarships, fellowships, or grants, but they may also be compensation for personal services.

Form 1095-A, -B, or -C:

These are Health Care Information Forms for Individuals relevant to the Affordable Care Act (ACA). Nonresident Aliens for tax purposes do not need to meet ACA requirements, whereas resident aliens for tax purposes must.

Form 1098-T:

Form 1098-T is an official statement from an institution of higher education documenting how much was paid on a student’s behalf for tuition and fees.

Form 1099-Int:

Form 1099-Int is a bank statement listing the amount of interest earned.

Form 8833:

Form 8833 is an official document used to claim tax treaty benefits.

Form 8843:

All IRS-defined nonresident aliens for tax purposes must complete this form. It declares that—

• An international is exempt from having to take the substantial presence test, or
• An international falls below the minimum number of days needed to establish a substantial presence.

In either case, without substantial presence, an international must file tax documents as a nonresident alien for tax purposes. Form 8843 does NOT declare exemption from having to file tax returns or pay taxes. (See IRS Publication 519 for details.)

Form I-94:

Form I-94 is the Arrival/Departure Record (previously paper card stapled into passports; now mostly automated). The date indicated on this form is the date on which authorization to stay in the U.S. expires. Most internationals in F-1 or J-1 statuses have “D/S” indicated rather than a specific end date. “D/S” means “duration of status” or that stay in the U.S. is authorized indefinitely if the international continues to comply with U.S. immigration law.

Form W-2:

Issued by employers in January of the current year stating the amount of wages earned during the prior tax year.

Form W-4:

Employees complete this form upon accepting employment to tell employers how much tax to withhold. Unlike U.S. citizens and permanent residents, international filing as nonresident aliens cannot decide how much to have withheld. They must follow special rules for completing Form W‑4 found in IRS Publication 519, page 40.

Form W‑8BEN:

Form W‑8BEN notifies U.S. institutions that persons are IRS-defined nonresident aliens, or that they are claiming U.S. tax treaty benefits on scholarships, fellowships, and other types of income.

Grant:

Used to describe fellowships or scholarships. An amount to support study, training, or research, but does not represent compensation for any required service (such as teaching or research).

I‑94 Status:

This is the nonimmigrant classification indicated on Form I‑94 (it usually but not always echoes the classification of the visa stamp used to enter the U.S.). This is “your status”—e.g., H-1B, J‑1, etc.

Interest Income:

Interest from a bank account or certain other US sources (for details, see IRS Publication 519: U.S. Tax Guide for Aliens ). Bank interest is not taxable, and IRS-defined nonresident aliens should not report it.

Internal Revenue Service (IRS):

The U.S. federal government authority charged with enforcing tax laws.

Itemized Deductions:

If you file the 1040NR, you may list specific expenses within the guidelines of IRS Publication 519 and deduct these expenses from your taxable income.

Medicare Deductions:

A significant part of what is known as the FICA tax. Medicare Deductions are imposed on wages and salaries and credited to a combination of a retirement pension and medical benefits. Those filing as nonresident aliens do not have to pay Medicare Deductions.

Original Date of Entry:

This is the first date you arrived in the U.S.—just before beginning your education or appointment. It is not the date that you last entered the U.S. after returning from a vacation or other trip.

Nonresident Alien:

U.S. tax residency status of non-US citizens temporarily in the U.S. F‑1 Students and J‑1 Exchange Visitors are usually nonresident aliens when they first arrive in the U.S. H-1B Specialty Workers may be nonresident aliens, but usually only for their first year and if they entered the U.S. toward the end of the calendar year. Unlike US citizens and resident aliens, who are required to pay taxes on their worldwide income, nonresident aliens are required to pay taxes only on income from US sources. In addition, if a tax treaty exists between the nonresident alien’s home country and the USA, all or a portion of US-source income may be exempt from taxes. (See Publication 901: U.S. Tax Treaties .)

Permanent Resident Alien:

This is a lawful permanent resident, also known as a “green-card holder.” This is an individual who has been accorded the privilege of residing permanently in the U.S. These persons are taxed in the same manner as US citizens—on worldwide income.

Resident Alien:

An alien who is either a lawful permanent resident, an H-1B or O-1 holder, or an F-1 or J-1 holder who has spent enough time in the U.S. to pass the substantial presence test (see below). Resident aliens are taxed in the same manner as U.S. citizens—on income worldwide.

Social Security Deductions:

As part of what is known as the FICA tax, Social Security Deductions are imposed on wages and salaries and credited to a combination of a retirement pension and medical benefits.

Substantial Presence Test:

Determines “IRS residency status” (not the same as I‑94 status) for tax purposes. It calculates the number of days that an individual has been in the U.S. and determines whether that person is a “resident alien” or a “nonresident alien.” Internationals in F-1 or J-1 status are exempt from having to take the Substantial Presence Test—

• For students, for the first five calendar years, and
• For scholars, for the first two calendar years

This exemption deems them to be nonresident aliens for the tax year in question. To claim this exemption, students and scholars must file Form 8843.

Tax Return:

An official statement is filed with the IRS to report taxable income during a calendar year. All internationals in the U.S. who have taxable income must file tax returns—a version of 1040. Form 8843 alone is NOT a tax return.

Tax Year:

For almost all internationals, this is the period of time from January 1 through December 31.

U.S.-Source Income:

Income from sources within the U.S. For nonresident aliens, this type of income is taxable (as opposed to “foreign-source income,” which is not). See Publication 519, Table 2-1 on page 12 to determine whether income is foreign- or U.S.-source.

U.S. Department of Homeland Security (“DHS”):

The U.S. government entity is charged with administering and enforcing U.S. laws concerning internationals, including laws and regulations governing H1B and O1 statuses.

U.S. Tax Residency Status:

Non-U.S. citizens’ tax liability depends on this. All non-U.S. citizens are classified as either “resident aliens” or “nonresident aliens.” U.S. Tax Residency Status is independent of I‑94 status.

Withholding:

Employers withhold a percentage of each paycheck and pay an estimated tax liability to the IRS, and state, and local authorities. In this way, employees are not stuck with a very large tax bill to pay by April 15. In most cases, the estimated tax liability is too high, and employees must file a tax return to get a refund of the money owed to them.