"Tax Filing Guide" 6: 1040NR for Nonresident Aliens, Common for OPT

Introduction

Form 1040NR is the tax return most commonly used by F1 students and people working on OPT. If you landed on this article directly, we recommend first reading Overview and Tax Residency Status and Choosing the Right Tax Form to make sure you are eligible to use this form, so you do not end up reading the wrong article. If you are not sure whether you should use 1040NR or 1040NR-EZ, use Form 1040NR.

[Disclaimer] This article is intended to provide general guidance. It does not constitute, and cannot be used as a substitute for, professional legal or financial advice. If you have an actual tax issue, or need legal representation before the IRS or the United States Tax Court, please consult a qualified CPA or attorney.

Index

Unlike 1040NR-EZ, Form 1040NR is very long, so we are listing an index of common questions here first.

Stock Investing

If you were present in the tax year for fewer than 183 days, then your gains are tax-exempt and you can skip this section. Otherwise, if you invested in stocks, you must include gains realized during the tax year in that year's income. “Realized” means the stock has already been sold. The tax rate is 30%. If you have an overall loss, nonresidents cannot use the loss to offset tax on wages. Report stock gains on Schedule NEC of this form.

Rental Property

You may choose to hold the property through a company and rent it out that way, which can provide limited liability protection. Note, however, that operating a company involves many relatively complex legal issues, so if you choose to do this, it is best to seek professional legal advice. Here we assume the property is held directly by you. You may choose to report rental income as Effectively Connected Income (ECI) or Non-Effectively Connected Income (NECI). Under the former, rental income is treated like wages and taxed at the graduated rates calculated on the return (reported on line 18). However, you may deduct certain rental expenses, such as repairs, advertising for the rental, and legal expenses. Under the latter, the income is taxed at a flat 30% investment-income rate (reported on Schedule NEC, line 6), and no expenses may be deducted. For most people, treating it as ECI is the better choice, unless your wage income is already very high.

The Form

We will explain some common questions line by line. To save space, sections not explained here may simply be ones where the official instructions are already very clear; you can refer to the relevant lines in the guides linked below. Here are the links: 1040NR and the official 1040NR instructions. If anything is still unclear, the official instructions will usually clear it up.

General Instructions

If a line does not apply to you, such as a question about scholarship income when you had no scholarship, you may either enter 0.00 or leave it blank, unless there is a specific instruction saying otherwise.

Personal Information

There is not much to say here: enter your name and your most recent U.S. residential address. For Identifying Number, enter your SSN. If you do not have an SSN but still need to file a tax return, enter your ITIN. If you do not have an ITIN either, you must also file W-7 together with your other tax forms according to the W-7 instructions. Also, choose "Individual" for personal filing. Form 1040NR does not allow married filing jointly; spouses must file separately.
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Lines 1-6

Check the box based on your marital status as of December 31, 2016. Most people should choose either "Other single nonresident alien" (single) or "Other married nonresident alien" (married). If your marital situation is complicated, such as if you are separated, please refer to the official instructions.
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Line 7a

Generally, you should check this box. If you had no income and another person's return, usually your spouse's, listed you as an exemption, then you cannot check this box.

Line 7b

If you are a Chinese citizen, you can skip this line. Otherwise, refer to the official instructions.

Line 7c

This covers each person supported by your own income, including your children and qualifying relatives living with you, as defined in detail in the official instructions. In general, this section is where you enter information about your children. Identifying Number means Social Security number. For Qualifying child credit, check the box if the child is a U.S. citizen, U.S. national, or RA (Resident Alien); otherwise skip it.

Line 7d

Based on the instructions above, calculate the total number of exemptions below. If you are single, just enter 1.
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Line 8: Wages

Add up the amounts on line 1 of all your W-2 forms. If your 1042-S also reflects wage income, meaning you received money in exchange for work, such as TA or RA work, include that as well. Also include income amounts from 1099-B (short-term stock gains), 1099-MISC (miscellaneous income), and 1099-R (pension distributions). If you are in F1/J1 status, you may subtract $5,000.
If you are an F1/J1 student, you may subtract $5,000. If the year was one in which you changed between F1/J1 and another status, you may subtract up to $5,000 only from the income earned during the F1/J1 period; the income from the other status is not eligible for the reduction. If the amount is less than $5,000, subtract the actual amount instead. Enter this number on line 8. If you are a J1 teacher or researcher, mainly postdocs and visiting scholars, then during the first two years this income is fully exempt from federal income tax, so you may subtract all wages earned as a postdoc or visiting scholar on line 8. Note:

• In principle, income from unauthorized work must still be reported even if you did not receive any tax forms for it.
• Any 1099-MISC you received for bank account opening bonuses must be reported. F1 holders can legally receive this type of income, so there is no need to worry that it will be treated as unauthorized work. On the other hand, if you received a 1099-MISC and do not include it in your income, the IRS can easily detect that.

Line 9a: Taxable Interest

Generally speaking, most interest people receive is tax-exempt, except interest from private or corporate bonds. Most people can simply leave this line blank. If you received interest from corporate bonds, follow the official instructions to report it. Because it is relatively uncommon and somewhat complex, we will not go into detail here.

Line 9b: Tax-Exempt Interest

If you invested in state or local government bonds, you will receive Form 1099-INT, and line 8 of that form will show the interest income. Add up all amounts from line 8 of your 1099-INT forms and enter the total here. Note: do not include line 1, "Interest Income." If you received a standard 1099-INT from a bank, line 8 should usually be blank, so you can ignore it.

Line 10a: Ordinary Dividends

For most people, if you invest in stocks and receive dividend income, it generally does not count as “income effectively connected with a U.S. trade or business” here. That type of income should be reported on line 54 and in Schedule NEC instead. You may enter dividends here only if they came from a company in which you materially participate in the actual operation. If you received Form 1099-DIV, simply add up the amounts in box 1a from all your 1099-DIV forms and enter the total here.

Line 10b: Qualified Dividends

Same as above, most people should not enter anything here. If you received Form 1099-DIV from a company that you personally operate, add up the amounts in box 1b from all such forms and enter the total here.

Line 11: State and Local Tax Refunds

If you received a state tax refund last year and itemized your state taxes as a deduction (which you likely did if you completed this form correctly last year), you most likely received Form 1099-G. Add together boxes 1 and 2 on Form 1099-G and enter the total here.

Line 12: Scholarship and Fellowship

If you received a scholarship or fellowship (excluding one provided by the Chinese government), enter the amount here. If the school did not issue Form 1042-S for this income, you must also attach a Non-Service Scholarship/Fellowship Grant Statement (an example will be provided later).

Line 13: Business Income or Loss

If you do not run a business, just ignore this line. In fact, as an NRA, you can legally run a business in some cases. For example, an F1 student who buys a house can set up an LLC (Limited Liability Company) specifically to rent out the property. If you have a business or operate as a sole proprietorship, you need to complete 1040 Schedule C or 1040 Schedule C-EZ to report business expenses, then enter the resulting net profit here.

Line 14: Capital Gain or Loss

Generally speaking, if you run a business or have investment gains or losses, and the investment activity is effectively connected with a U.S. trade or business, you must complete Form 8949 and 1040 Schedule D, unless an exception applies. Follow the instructions for 1040 Schedule D and enter the resulting amount on this line. Note: simply investing in stocks or real estate is not considered effectively connected with a U.S. trade or business, so you cannot use Schedule D and 8989, and you cannot enter the amount on this line. Please report it in Schedule NEC later instead.

Line 15: Other Gain or Loss

This line also applies to businesses. If you do not run a business, you can ignore it.

Line 16: IRA Distributions

IRA and 401(k) are two different types of retirement accounts. If you had an IRA and took money out, you will receive Form 1099-R. Enter the amount from box 1 on line 16b. If you did an IRA rollover or have a less common account such as a Roth IRA or SEP IRA, refer to the official instructions for how to complete this section.

Line 17: Pensions and Annuities

If your employer is generous, it may offer a pension fund. Most other people will have one of these three retirement accounts instead: 401(k), 403(b) (mainly for employees of educational institutions and nonprofit organizations), or 457(b). No matter which type of retirement account it is, withdrawals are taxable. If you took money from a retirement account, you will receive either Form 1042-S or Form 1099-R. If it is Form 1099-R, enter the amount from box 1; if it is Form 1042-S, enter the amount from box 2 here.

Line 18: Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts, etc.

By default, rental income is reported as “income not effectively connected with a U.S. trade or business” (NECI), meaning it goes in Schedule NEC later, not on this line. However, you may also elect to treat your U.S. real estate income as effectively connected income (ECI) by filing a statement under Pub. 519. The benefit of ECI treatment is that it is taxed together with your ordinary income at progressive rates, and you can deduct expenses incurred for the rental activity. NECI, by contrast, is taxed at a flat 30% rate. You can run the numbers to see which reporting method is more favorable and choose accordingly. If you have royalties from books or music, partnership income (such as from a law firm partner or an independently practicing doctor), or trust income, then complete 1040 Schedule E and follow its instructions for this line.

Line 19: Farm Income or Loss

This probably has nothing to do with most readers, so you can leave it blank. There are probably not many NRAs out there farming anyway.

Line 20: Unemployment Compensation

If you received unemployment benefits, you should receive Form 1099-G from the government. Enter the amount from box 1 here.

Line 21: Other Income

Most people can ignore this line.

Line 22: Treaty-Exempt Income

Enter on line 22 the total amount excluded from W2 wages on line 8 under a tax treaty. If you are a student from China, also add fellowship income. If none applies, you can leave this line blank.
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Line 24: Educator Expenses

If you are not an elementary school, middle school, or kindergarten teacher, you can ignore this line. Otherwise, refer to the official instructions to determine the deductible amount.

Line 25: Health Saving Account (HSA) Deduction

If you are already working, your employer may offer health insurance options. If you chose a High-Deductible Health Plan (HDHP), you can open an HSA. Contributions of a certain amount each year are tax-deductible. You need to complete Form 8889 and attach the required supporting materials. Then complete this line as instructed on the form.

Line 26: Moving Expenses

Moving expenses are an important topic, and we will cover them in a separate article. Briefly, if you moved more than 50 miles for work, your moving expenses may be deductible. You need to complete Form 3903 to claim this deduction.

Line 27: Deductible Part of Self-Employment Tax

In theory, OPT participants can be self-employed, but most people are employees of a company, so this line can usually be left blank. If you are self-employed, complete 1040 Schedule SE and follow the instructions for this line.

Line 28: Self-Employed SEP, SIMPLE, and Qualified Plans

Same as above: if you are self-employed, refer to Pub. 560. If you are a member of the clergy, follow Pub. 517.

Line 29: Self-Employed Health Insurance Deduction

Again, refer to the official instructions to determine how much you may deduct.

Line 30: Penalty on Early Withdrawal of Savings

Most people can ignore this line. If you have a 1099-INT or 1099-OID, add the amount from line 2 of 1099-INT and line 3 of 1099-OID, and enter the total on this line.

Line 31: Tax-exempt portion of scholarships and Fellowship

Enter only the amount of non-service scholarships here. Do not include TA or RA, since those are service-based. Fellowship income has already been deducted on line 22, so you do not need to enter it again here. Note: the amount deducted here cannot exceed your tuition and education expenses, such as books and supplies. In general, scholarships rarely exceed this amount, so you can usually just enter the scholarship amount. But if it really does exceed that amount, you can add the excess to line 22, because non-service scholarships are tax-exempt under Treaty Article 20(b).

Line 32: IRA deduction

If you contributed to your own IRA retirement account, that contribution may be deductible. You can refer to the official instructions for how to complete this line. The rules are complicated, so we will not go into them here.

Line 33: Student loan

If you have student loans, the interest portion of the loan may be tax-deductible. If needed, please refer to the official instructions.

Line 34: Domestic production activities deduction

This does not apply to most people. If you work in construction or manufacturing, or earned income from selling or licensing software, you can refer to the official instructions to calculate this deduction.
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At this point, you can skip to page 3 and complete Schedule A, then enter the amount from line 15 of Schedule A here. See the Schedule A instructions below. If you filed Form 4972 or Form 8814, check the appropriate box.

Line 43: Alternative Minimum Tax

For higher-income taxpayers, the IRS created another way to calculate tax in order to prevent upper-middle-income taxpayers from aggressively using deductions to reduce taxes. The tax calculated under this method is called the Alternative Minimum Tax, or "AMT." Your actual tax due is the higher of the regular tax calculated on line 42 and the AMT amount. You can check the filing instructions for how this line is calculated to decide whether you need to complete the AMT forms.

Line 44: Premium Tax Credit

This line also does not matter much for most people, because most people get health insurance through an employer or school. If you purchased 2016 health insurance through healthcare.gov (the federal health insurance marketplace) or a state marketplace, you may need to file Form 8962 and complete this line as instructed.

Line 46: Foreign tax credit

If part of your income is taxed by a foreign country, the taxes you already paid to that foreign country may be used to reduce your US tax, to avoid double taxation. If you paid taxes abroad, you may need to file Form 1116 to claim this tax credit.

Line 47: Child and dependent care expenses

If you paid someone to care for a child under age 13 or a disabled family member, you may qualify for a tax credit. You will need to file Form 2441 to claim it.

Line 48: Retirement savings contributions credit

Most people do not qualify. You can claim this credit only if you

• have income of $30,500 or less (the amount on line 37); and
• were born before January 1, 1998; and
• are not claimed as a dependent on someone else’s tax return; and
• are not a student (being enrolled in any full-time school counts)

If you meet all of these requirements, you can file Form 8880 and then complete this line as instructed.

Line 49: Child Tax Credit

If you have children, you should check the Child Tax Credit Worksheet in the official instructions to determine whether you qualify. You may also need to file Form 8812.

Line 50: Residential energy credit

If you installed solar electric equipment, solar water heating, fuel cells, wind energy equipment, or a geothermal heat pump in your main home, you can file Form 5695 to claim a credit. Otherwise, leave this blank.

Line 51: Other credits

There are some other, less commonly used tax credits. Here are a couple of more common examples:

• If you paid Alternative Minimum Tax last year, you can file Form 8801 to claim a credit; or
• If you purchased a fully electric vehicle, you can file Form 8936 to claim a credit.

There are also credits for things like adoption, but most readers will not need them.
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Line 54: Income not effectively connected with a US trade or business

Now go to Schedule NEC on page 4 of this form. After completing it, enter the amount from line 15 here.

Line 55: Self-employment tax

If you are self-employed, complete 1040 Schedule SE and complete this line according to the rules above.

Line 56: Unreported Social Security and Medicare tax

For most people, you can leave this line blank. If you received tips from unauthorized work, such as working as a restaurant server, check the box for 4137 and complete Form 4137. Likewise, wages from unauthorized work should be reported on Form 8919.

Line 57: Additional tax on IRA and other qualified accounts

This line is used in certain special situations involving accounts such as IRA, HSA (Health Saving Account), Coverdell ESA, and ABLE accounts to adjust your tax amount. If you contributed more than the annual limit to one of these accounts, you need to make the appropriate adjustment here. Please refer to the official instructions.

Line 58: Transportation tax

This applies to income from operating transportation vehicles and does not apply to most people.

Line 59a: Household employment taxes

If you employed a household worker in your home, including a house cleaner or postpartum nanny, you need to pay tax on that employment. You will need to file 1040 Schedule H to calculate the tax.

Line 59b: Repayment of the first-time homebuyer credit

If you sold a home after buying it, you may need to repay part of the tax credit you received for purchasing the home. Please refer to the official instructions.

Line 60: Other taxes

You can enter other taxes here that were not reported elsewhere. Most people can leave this blank.
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Line 62: Federal income tax withheld

Enter on line 62a all tax withheld from Box 2 of every W-2 and any withholding reported on 1099 forms. If none, leave it blank. On line 62d, enter the total of all amounts from Box 10 of every 1042-S. Lines 62b and 62c are much less common and are omitted here.

Line 63: Other federal tax payments

If you used 1040-ES (NR) to pay federal income tax directly to the IRS, or if you chose last year to apply your refund to this year, enter those previously paid federal tax amounts on this line.

Line 64: Additional Child Tax Credit

If you have at least one qualifying child on line 7c, you may be eligible for an additional credit. Check the official instructions again and use the Child Tax Credit Worksheet to see whether you qualify. If eligible, calculate this amount based on Form 8812 already completed for line 49.

Line 66: Amount paid with extension request

If you paid tax when you requested an extension, enter here the payment amount shown on Form 4868.

Line 67: Excess social security tax withheld and excess RRTA tax withheld

If your wages were more than $118,500, you may have had excess withholding because you exceeded the Social Security tax limit. If you had multiple employers, you can enter the portion of Social Security tax over $7,347 here. If you had only one employer, you need to contact the employer or file separately with the IRS for a refund.

Line 68: Credit for federal tax on fuels

Federal excise tax is included when you buy fuel. If the fuel was ultimately used for a tax-exempt purpose, you may be able to claim that excise tax back. Exempt uses include off-highway use, such as for power generation or cleaning. You will need to file Form 4136.

Line 69: Other payments

If you have Form 2439 (undistributed long-term capital gains) or qualify for Form 8885 (Health Coverage Tax Credit), attach those forms and check the box. Also, if you paid tax to the IRS that is not reflected on any of the earlier lines, enter it here.

Line 70: Federal tax paid with Form 1040-C

Most people can leave this blank. If you filed 1040-C in 2016, enter the federal tax you paid at that time here.

Line 73: Refund

If line 72 is blank, skip this line. Otherwise, it is generally best to enter the amount from line 72 on line 73a for a full refund. Then enter your bank account information on lines 73b-73d so the IRS can send the money by ACH direct deposit. If you want a paper check instead, leave lines 73b-73d blank and enter the mailing address for the check on line 73e.

Line 74: Amount of line 73 you want applied to your next year’s estimated tax

If you already chose on line 73 to have the full amount refunded, just leave this line blank.
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Line 76: Penalty

If line 75 is:

• greater than or equal to $1,000; and
• more than 10% of the amount on line 15; and
• you did not pay estimated tax by the deadline

you may need to file Form 2210 and pay a penalty. Please follow the instructions for that form.

Signature

Sign on the "Sign Here" line, enter the date, and write your occupation next to it, such as "Student."
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Line 1: State and local income taxes

Add up all state and local income taxes already withheld, including amounts shown on your W-2, 1099, and 1042-S, and enter the total here.

Line 2: Cash contributions to charity

First, make sure when you donate that the organization is a qualified organization; otherwise the donation is not deductible. Enter cash donations here, including donations made by check.

Line 3: Other-than-cash contributions to charity

For example, donated property or out-of-pocket costs you paid while doing volunteer work, such as gasoline calculated at $0.14/mile. Any reimbursed amounts cannot be included.

Line 4: Carryover from prior year

If donations from last year could not be deducted because you exceeded the limit, you may be able to carry them over to this year. See Pub.526.

Line 6: Casualty and theft losses

Generally, only losses exceeding 10% of line 37 (taxable income) are deductible. So unless your loss was large, you usually do not need to calculate this. If you had a significant loss, you can use Form 4684 to figure this amount.

Line 7: Job expenses and certain miscellaneous deductions

Only the portion of the total on lines 7-9 that exceeds 2% of income is deductible. If these expenses are small and under 2%, you can skip them. Otherwise, enter unreimbursed job-related expenses here, such as job hunting, professional education, union dues, or required work-only gear like uniforms. You must also attach Form 2106 or Form 2106-EZ.

Line 8: Tax preparation fees

You can include tax preparation costs here, such as CPA fees or tax software. If you paid your tax by credit card or debit card, the processing fee also counts.

Line 9: Other expenses

Very few people use this line. It mainly includes legal and accounting expenses incurred to produce income.

Line 14: Other deductions

Most employees can ignore this. If you are self-employed or a partner in a partnership, you may need to review the official instructions.
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The table on this page is used to report income that was not earned from carrying on a trade or business in the United States. For example, stock trading or trading other securities by an F1 student falls into this category. Profits from investing in other assets are also generally treated here as capital gains. This page also covers certain other foreign-source transactions.

Line 1: Dividends

Enter dividends from U.S. companies on line 1a and dividends from foreign companies on line 1b. Use the amounts shown on Form 1099-DIV. In general, dividends paid by U.S. companies are taxed at 30%, so that income goes in column (c). Dividends from foreign corporations, or from certain U.S. corporations with substantial foreign business, may be exempt from this tax, so they go in column (d) with a 0% tax rate clearly shown. For details, see the "Dividend Income" section of Pub. 519.

Line 2: Interest

The interest here does not include interest earned from banks in the United States. So most people can leave these three lines blank. This section is mainly for interest you earned from lending money to others and from foreign corporations. If applicable, refer to the "Interest" section of Pub. 519.

Lines 3-7: Income from patents, trademark royalties, film and television rights, copyrights, real property, and natural resources

Most people will not have anything here, so you can skip it. If you choose to treat rental income as NECI, enter it on line 6. Be careful not to report the same rent twice, both on line 18 of the main form and here.

Line 8: Social security benefits

Enter 85% of the amount from line 5 of the SSA-1042S you received here. If you are a railroad worker (really?), also include 85% of the amount shown on any RRB-1099 or RRB-1042S you received.

Line 9: Capital gains

First complete the table below, then copy the amount from line 18 here.

Line 10: Gambling winnings (Canadian residents)

Line 10 is for Canadian residents only.

Line 11: Gambling winnings (non-Canadian residents)

You can report gambling winnings on line 11, but losses cannot be deducted. Note that this mainly includes lottery winnings; traditional casino gambling is instead not included. Blackjack, baccarat, craps, roulette, and Big-6 Wheel are all tax-exempt and do not need to be entered here. If a casino incorrectly withheld tax on a 1042-S, you can enter the amount here, but write a 0% tax rate in column (d) to claim a refund.

Line 12: Other

Use this line for other U.S.-source income that is not related to a U.S. trade or business. Most people probably will not have anything else to enter here.

Line 16: Capital gains income

If you were physically present in the United States for at least 183 days (this is unrelated to the Substantial Presence Test; only actual days in the U.S. count here, with no F1 exemption), enter your transactions here. The tax rate is 30%. If you were in the U.S. for fewer than 183 days, this income is tax-exempt and does not need to be reported. Report transactions during the tax year; if there is not enough space, you can attach another sheet. If you received a 1099-B from your broker, include that as well.
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Lines A-B

Chinese students generally need to enter "China, People's Republic of".

Lines C-D

Answer truthfully. Usually the answer is "No".

Line E

Enter your status as of December 31, 2016, such as "F1 Student" or "H1B".

Line F

Answer truthfully. If you have never changed status, enter "No". If you have, enter the date and reason for the status change.

Line G

Enter your records of entering and leaving the United States during 2016.

Line H

Enter the dates you were actually present in the United States for each year. Count by calendar day: if you were in the U.S. for any part of a day in local time, it counts as one day even if it was less than a full day.

Line I

Answer truthfully. For example, if you filed Form 1040NR-EZ last year, write "2014 1040NR-EZ". If you have never filed a tax return, select "No".

Line J

Just enter "No".

Line K

If your worldwide income exceeds $250,000 and some of it was earned outside the United States, such as consulting work performed abroad, you need to follow the instructions to calculate U.S.-connected and non-U.S.-connected income. Otherwise, just enter "No".

Line L(1)

If you used the $5,000 treaty exemption, enter "China, People's Republic of". The treaty article is "Article 20 (c) ", the number of months is the time you were in the United States in F1 status, and the amount is the amount you actually used, up to $5,000.
If you included Fellowship income or a non-service scholarship on line 6, you need to add another entry with the country listed as "China, People's Republic of" and the treaty article listed as "Article 20 (b) ". The number of months is the number of months you received the Fellowship, and the amount is the amount of the Fellowship. If you are a scholar in J1 status and all of your income is exempt from federal tax, the treaty article is "Article 19".
Finally, in (e), calculate the total of all amounts in column (d).

Line L(2)

The result of this item does not really affect anything. In principle, Chinese nationals are also taxed on foreign-source income, so in general you should enter "Yes".

Line L(3)

If you do not know what this is, just enter "No".
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Summary

That wraps up this guide to filing Form 1040NR. If you are an F1 student, do not forget that you also need to file Form 8843. Have any questions? Feel free to ask.