Common Misconceptions Regarding Payments of US Taxes
Q1. The government will automatically take the appropriate amount of taxes from my salary, so I don’t need to take any further action after completing Form W-4 right?
A. Wrong. The U.S. tax system is based on self-reporting of income. The W-4 instructs your employer to withhold a certain amount each pay period toward your tax liability. However, this may not end up being the exact amount you owe. At the end of the tax year, you must file an income tax return to determine if you will get a refund of some or all of what was withheld from your paycheck, or if you owe additional money.
Q2. I am a graduate student with a research or teaching assistantship which pays my tuition, fees and living expenses. Since this is part of my studies, it is not really employment and therefore, not taxable right?
A. Wrong again. Graduate Assistantships are fully taxable as income received in return for services performed. Graduate assistants may not exclude tuition and fees that are considered payment for services. However, service-free tuition awards may be excluded from taxation. For more information, consult IRS Publication 519.
Q3. My country has a tax treaty with the U.S. so I don’t have to pay any taxes.
A. False. A treaty does not generally exempt an individual totally from taxation. Usually only a portion of income, or income from certain activities, is exempt. It is important to read IRS Publication 901 and/or the treaty itself to obtain full details on your exemption.
Q4. F-1 and J-1 students and J-1 scholars are “exempt individuals” so we don’t have to pay taxes do we?
A. False. “Exempt individual” means you are exempt from counting days toward the “substantial presence” test – generally for five years if you are a student and two years if you are a scholar. It does NOT mean you have no tax obligations.
Q5. All of my funding (either as a student or scholar) comes from my home country. Since I have no U.S. source income, does this mean I owe no U.S. taxes and therefore do not need to file an income tax return?
A. No. Everyone in F, J, and M status who is a nonresident for tax purposes is required to file an income tax report each year even if they have no U.S. source income. An additional statement must also be filed with the form.
Q6. I am in the U.S. in non-immigrant status. Therefore, should I file as a nonresident alien?
A. Not necessarily. Individuals who are in non-immigrant immigration status may be resident aliens for tax purposes if they meet the “substantial presence” test. Resident and nonresident status for immigration and taxation purposes are not necessarily the same.
Q7. All my friends are filing income tax Form 1040EZ, which is much easier than from 1040NR. I’d much rather use this form. Can I?
A. Only if you are a resident for tax purposes. Form 1040EZ can only be used by those who are U.S. citizens, permanent resident aliens or residents for tax purposes. Non-residents must use form 1040NR or the new 1040NR EZ.
Non-resident tax forms are available from the IRS. They are also available from Payroll Services.