Many students know that, as F1 international students in the United States, they generally must file taxes as a Non-Resident Alien ("NRA") during their first 5 years. But what happens after those 5 years? We gave a brief introduction in Overview and Tax Residency Status; in this article, we’ll take a closer look at the options students have after year 5.

How Is the 5-Year Period Counted?

One common question we see is: how exactly are these 5 years counted? Is it based on 365 (or 366) days? Actually, no. The calculation is much simpler than that. The years are counted by calendar year, and only years in which you entered the US in F, J, M, or Q status count. Time spent in the US in other visa statuses, such as B1/B2 visitor or business visas, does not count.

The rule is: for any given calendar year, such as 2015, if you were physically present in the United States at any point while in F, J, M, or Q status, then that entire year counts as one year. For example, if you entered the US on December 31, 2011 in F1 status and then studied in the US every year afterward, then each year from 2011 through 2015 counts as one year. By the 2016 tax year, you would already be beyond the 5-year period.

Here’s another example. Suppose you came to the US in J1 status for an exchange program in the summer of 2010, then returned to the US in December 2012 to begin studying. Because you were outside the US for all of 2011, that year does not count. So 2010, 2012, 2013, 2014, and 2015 each count as one year. Again, in tax year 2016, you would be beyond 5 years.

If, under the above calculation, you had still been in the US for fewer than 5 years, or exactly 5 years, for the tax year in question, then you must file as a Non-Resident Alien, regardless of whether you are still a student or are on OPT or CPT.

After 5 Years, How Can I File My Taxes?

Under IRS rules, students in their first 5 years are automatically treated as "Exempt Individuals." However, even after 5 years, you are not necessarily excluded from that treatment, because the IRS has a second rule: the "The Closer Connection Exception to the Substantial Presence Test for Foreign Students." You can click here for details.

Bottom line: if you qualify under this rule, then even after 5 years, you may still file as a Non-Resident Alien. To qualify, you must meet all of the following conditions:

  1. you do not intend to reside permanently in the United States;
  2. you have substantially complied with the immigration laws and requirements relating to your student nonimmigrant status;
  3. you have not taken any steps to change your nonimmigrant status in the United States toward becoming a permanent resident of the United States; and
  4. you have a closer connection to a foreign country than to the United States, as evidenced by the factors listed in Treasury Regulation 301.7701 (b) -2 (d) (1).

If you want to use this exception, you still need to file Form 8843 just as you did during the first 5 years (see our guide to Form 8843). The difference is that you must also attach a separate statement to the IRS showing that all 4 of the above conditions are satisfied. We’ll discuss what supporting information to submit in the last section.

Which Tax Status Should I Use?

Although the answer depends on your personal situation, in general, filing as a Resident Alien is usually more advantageous. Here are some of the differences.

Advantages of Filing as a Resident Alien

  1. You can file jointly with your spouse, which may reduce your tax bill if one spouse does not work;
  2. You can claim the Standard Deduction. Even if you itemize, there are more types of deductions available, such as vehicle property tax and real estate tax;
  3. If you have children, you may be able to receive additional tax benefits;
  4. If you are still in school, you may be eligible for the American opportunity tax credit(AOTC) or the Lifetime Learning Credit;
  5. If you trade stocks, long-term capital gains tax (for stocks held more than 1 year) is only 15%, while short-term gains are taxed together with ordinary wage income. Overall, this can be lower than the 30% rate for Non-Resident Aliens, regardless of how long the investment was held; and
  6. There are also many other less common tax benefits.

Advantages of Filing as a Non-Resident Alien

  1. You cannot file jointly with your spouse. But if both spouses earn similar incomes, filing separately may actually result in less tax than filing jointly;
  2. Interest earned on bank deposits in the US is generally not taxable;
  3. If you are no longer a student and are on OPT, you do not need to pay FICA taxes (Social Security and Medicare taxes) ;
  4. Even if you do not have Obamacare qualifying coverage, there is no penalty; and
  5. You do not need to report foreign assets under FATCA, and you do not need to pay US tax on income earned outside the US. By contrast, Resident Aliens are taxed on worldwide income, which makes filing much more complicated.

As you can see, filing as a Resident Alien is generally the better deal overall. Only in a small number of situations would filing as a Non-Resident Alien be more beneficial. As an aside, no matter which status you use to file, the China-US tax treaty exclusion for the first $5,000 of income is not affected.

How Do I File as a Non-Resident Alien?

If, based on the calculation above, you still decide to file as a Non-Resident Alien, here is how to do it. Just like an F1 student in the first 5 years, you would file Form 1040NR (or 1040NR-EZ) and attach Form 8843. For students who have already exceeded 5 years, Form 8843 requires you to attach a separate statement explaining why you meet the 4 requirements described above.

We recommend organizing that statement like this:

  1. First explain where your home, family members, and valuable assets are located. If they are in your home country, emphasize that;
  2. State that you lived in your home country before coming to the US and that you do not plan to remain in the US permanently after graduation;
  3. Explain how frequently you return to your home country;
  4. Include any other evidence you can think of showing ties to your foreign country, such as continuing to hold a Chinese driver’s license;
  5. State that you have consistently complied with immigration law and the conditions of your visa; and
  6. State that you have not taken any steps toward becoming a permanent resident. For example, filing for PERM labor certification, I-130 family-based immigration, I-140 employment-based immigration, or I-485 adjustment of status would all count as steps showing immigrant intent.

After that, you can file the same way as any other Non-Resident Alien. Of course, because the IRS must review whether the evidence you provide is sufficient to prove your closer connection to another country, it may take a little longer to receive your refund. However, if the IRS has a significant delay, it may pay you interest on the refund, though that interest is itself taxable. Feel free to ask any questions.