Many universities take an extremely conservative approach to the taxability of scholarships, fellowships, and assistantships for international students, withholding as much as 30% of the award for tax purposes.
Some international students may benefit from specific tax treaties between the USA and their country. Some tax treaties exempt student awards from taxes, depending on the visa type, type of award, and length of time in the USA. Information about these treaties may be found in IRS Publication 901, USA Tax Treaties. Other IRS Publications that may be of interest include: 513 Tax Information for Visitors to the USA, 515 Withholding of Tax on Nonresident Aliens and …, and 519 USA Tax Guide for Aliens. Current publications and forms can be obtained from the IRS web site or by calling 1-800-TAX-FORM (1-800-829-3676).
Many international students do not realize that they are entitled to a refund of all or part of the money withheld. To do so, you must file a nonresident tax return (1040NRA) and attach a cover letter explaining that you are requesting a refund of the tax withheld under the conditions of the tax treaty with your hold country.
If the tax treaty with your country exempts your award from tax, you may be able to get your school to stop withholding the money from your paycheck. Note that many tax treaties discuss both educational awards and funds received for personal services, with more favorable conditions attached to educational awards. You will need to convince your school that your scholarship or fellowship should be classified as an educational award and not as funds received for personal services. You will also need to explain that the university is only required to withhold 30% of the scholarship, fellowship, or assistantship if the award is not covered by the provisions of a tax treaty.
Note that tax status is different from immigration status. You might be considered as a resident for tax purposes even if you are a nonresident for immigration purposes. To be considered a non-resident alien for tax purposes, you must have been in the USA for less than 5 years.
It is important to file USA income tax returns annually. Failing to file tax forms can affect your ability to re-enter the USA or the success of an application to change visa status (e.g., from F-1 to H-1B). If your only USA income was bank interest or you had no USA income, you will need to file Form 8843. Otherwise you will need to file a non-resident income tax return, either Form 1040NR or Form 1040NR EZ. You can file the EZ form if your only USA income came from wages, salaries, tips, taxable refunds of state and local income taxes, and scholarship or fellowship grants; you do not claim any dependents and cannot be claimed as a dependent on someone else’s USA income tax return; your taxable income was less than $50,000; and you do not itemize deductions. If you had dividend income from stocks, bonds, or mutual funds, you must use the non-EZ form. Your dependents must also file either Form 8843, Form 1040NR, or Form 1040NR EZ. You must file the forms even if you were in the USA for only a day in the previous calendar year. You are also required to file the forms even if your country has a tax treaty with the US. The deadline for filing USA income tax returns is April 15.
Additional information about USA income taxes can be found at the US Tax Guide for International Students, Professors, Teachers, and Researchers. The TaxSites Tax and Accounting Sites Directory may also be helpful.
You can ask questions of the IRS by calling 1-800-829-1040.
The Social Security Administration’s Office of International Programs provides information about the USA social security taxes and bilateral Social Security agreements with other countries.
In particular, F-1 and J-1 students are exempt from the social security payroll tax (FICA) while they are non-resident aliens if their employment is directly related to their purpose for being in the USA (e.g., practical training or academic training). F-1 and J-1 students are considered non-resident aliens for tax purposes if they’ve been in the USA for less than 5 years. Income earned by a J-2 dependent, on the other hand, is subject to FICA.
If you will be earning income from USA sources, such as an assistantship, on-campus job, or off-campus job for practical training, you will need a social security number. Please note that a Social Security Number isn’t the same as the number your school may have assigned to you on your student ID, even though it often has the same number of digits as a Social Security Number. To apply for a social security number, bring your passport, Form I-94, Form I-20 or Form IAP-66, and a letter from the International Student Advisor at your school to the nearest Social Security office. You can also obtain the Application for a Social Security Card (SS-5) from the Social Security Administration’s web site. Ask for a receipt from the Social Security office if you intend to start work before the number is granted, so that you can present your employer with proof that you’ve applied for a Social Security Number. (If you are required to file only Form 8843, you do not need a Social Security Number or Taxpayer Identification Number. You will need one, however, to file a Form 1040NR or Form 1040NR EZ.) The Social Security Number is also useful for other purposes, such as those discussed in the FAFSA section.