Introduction

Now we come to a very important question: you need to choose the correct tax form to file. Choosing the wrong form may simply increase your workload, but it may also cause you to underclaim or overclaim deductions/exemptions, which could result in underpaying taxes or paying more tax than necessary. Neither outcome is something we want to see.

irs-forms

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

Tax Deduction and Tax Credit

Before we begin, we need to introduce two important concepts: Tax Deduction and Tax Credit. Many people do not clearly understand the difference between the two, so I think it is necessary to explain them first. In general, the IRS calculates tax by first determining all taxable income for the tax year, then subtracting all applicable Tax Deductions from that income to arrive at Adjusted Gross Income ("AGI"). You then use the progressive tax brackets to determine the tax owed based on your AGI, and finally subtract all applicable Tax Credits. The result is the amount of tax you should pay for that year.

Tax Residency Status

If you are still not sure what your tax residency status is with the IRS, please refer to Overview and Tax Residency Status. We will repeat the categories here:

  • U.S. citizen or U.S. national
  • Resident Alien ("RA")
  • Non-Resident Alien ("NRA")

Multiple Options: Choosing a Status

If, according to Overview and Tax Residency Status, you have more than one possible status, then you need to think about which tax filing status to choose for your return (generally choosing among RA, NRA, or Dual-Status). Ideally, you would calculate your taxes under each available option and then file in the way that gives you the largest refund. However, that can be a lot of work, so it is not always practical. Because everyone’s situation is different—income, marital status, and so on—we cannot give a simple rule for choosing RA versus NRA. But we can offer some suggestions to help you decide:

RA has higher deductions than NRA

If you file as an RA, you can claim the Standard Deduction, while an NRA generally cannot. As a result, if you file as an RA, your taxable wages will likely be lower.

RA may qualify for tuition deductions and tax credits

When filing as an RA, annual tuition and education-related expenses may be deductible from your income, meaning that portion of your income is not taxed. However, the amount you can deduct each year is capped. In addition, if you are a student, an RA may also qualify for the American Opportunity Tax Credit (AOTC), which can further reduce the amount of tax you owe. Note, however, that these benefits are available only to RAs or U.S. citizens/nationals. Some people online (for example, this article) have claimed that an NRA can get a tuition-related tax refund. That is very wrong. However, even if you are on F1 status, if you meet the requirements to be treated as an RA, you may still qualify for both of the benefits described above.

NRA does not allow married filing status

If you are already married, but both spouses are NRAs, then there is really no choice: you must file as an NRA. If at least one spouse is an RA or a U.S. citizen/national, then you may choose to file separately or file jointly as residents. If the two spouses have very different incomes, filing jointly may reduce the couple’s average taxable income and potentially lower the tax rate, saving a substantial amount in taxes.

FICA tax issues for F1 students

FICA (Federal Insurance Contributions Act) mainly includes two taxes: Social Security Tax and Medicare Tax, which together add up to nearly 8% (Uncle Sam is pretty harsh...). Most people’s income is subject to FICA tax. Fortunately, if you are an F1 student, there are two possible exemptions that may help you avoid FICA tax. Because this is related to your tax residency status, we will explain them here.
  • If you are in F1/J1/M1/Q1/Q2 status and you are an NRA, then regardless of the nature of your work, you do not have to pay FICA tax. Note that this does not cover F2/J2/M2.
  • Student FICA Exemption: if you are a student, then income you earn from working for your school is exempt from FICA tax regardless of your tax residency status (see Treasury Decision 9167).

So what conclusion can we draw from this? If you are an F1 student, then your school-related income (such as income earned during a PhD program) is not subject to FICA tax regardless of your tax residency status. If you are an F1 student, whether your off-campus income (such as OPT employment) is subject to FICA depends on your tax residency status. If you are an NRA, then you do not need to pay FICA tax. If you are an RA, then because you do not meet either exemption above, you do need to pay FICA tax. Since FICA tax is quite high, in general, if your OPT wage income is relatively high, filing as an NRA will likely be more advantageous than filing as an RA. If you are on OPT and can choose between RA and NRA, it is best to calculate carefully before making a decision.

U.S. Citizens, U.S. Nationals, and RAs (Resident Aliens)

From the IRS’s perspective, there is not much difference among these three categories. All of them file taxes in the same way as U.S. residents. The available tax forms are as follows, ordered from simplest to most complex:

Each form has different requirements. The good news is that if you fall into this category, you can use most commercially available tax software programs, such as TurboTax, to file your taxes. These programs usually walk you through the process step by step. In fact, the process is largely the same as following the official instructions line by line, because most software is built directly around those instructions. If you need to buy TurboTax, don’t forget to use this Southwest Rapid Rewards Shopping link. You can earn an extra 1,000 Rapid Rewards Miles—might as well take them, since they may come in handy someday.

NRA (Nonresident Alien)

Because many of our readers are students, we will focus more on this section. NRA filers have two possible tax forms:

Of the two, 1040NR-EZ is simpler (EZ means Easy). If your tax situation is straightforward, you may be able to use this form. If your situation is more complicated, you must use Form 1040NR instead. For the exact requirements, see the checklist titled “Can I Use Form
1040NR-EZ?” on the left side of the first page of the official instructions for Form 1040NR-EZ. Here are some of the key requirements. If you fail any one of the following, you must use Form 1040NR:

  • You cannot be a dependent on someone else’s tax return; and
  • Your income must come entirely from wages, tips, state and local income tax refunds, scholarships, fellowships, tax-exempt interest, and dividends; and
  • Your taxable income must be less than $100,000; and
  • You cannot claim any Tax Deduction or Tax Credit other than state and local income taxes. Common examples you might otherwise qualify for include the moving expense deduction, the Health Saving Account (HSA) deduction, the IRA deduction, and casualty or theft loss deductions.

Note: With the exception of citizens of a few countries, NRA filers generally cannot claim a spouse as a dependent. As a result, Chinese citizens can usually satisfy the condition “You do not claim any dependents.” If you meet all of the requirements above, you will most likely be able to use 1040NR-EZ. Still, we recommend checking the first page of the official 1040NR-EZ instructions again to confirm your eligibility. On the other hand, if you do not meet even one of these requirements, you must file Form 1040NR. We will explain the actual filing process in later articles.

Students or Teachers: Additional Requirement for Exempt Individuals

If you are an Exempt Individual, you must also file Form 8843 every year, whether or not you otherwise need to file a tax return.

Chinese Students or Trainees: U.S.-China Tax Treaty Exemption

You may also have heard about the $5,000 exemption under the tax treaty between the United States and China. If you are a Chinese student or trainee, you may qualify for an additional $5,000 exemption regardless of whether your status is RA or NRA. If you are an NRA, you do not need to file an extra form for this; this exemption can be included with the 8843 discussed above. If you are an RA, you need to file an additional Form 8833 to claim this exemption.

Typical Examples

Now that we have covered the basics, let’s look at some common examples. The following examples all assume that your tax status has already been determined. If you do not know whether you are RA, NRA, or Dual Status, please first read Overview and Tax Residency to determine your status.

F1 student, NRA status, must file

You need to file 1040NR or 1040NR-EZ (depending on your situation), along with any required schedules, plus 8843. Most students fall into this category.

F1 student, RA status, must file

You need to file 1040 or 1040A (depending on your situation), along with any required schedules. Note that 1040EZ cannot be used to claim the U.S.-China $5,000 treaty exemption, so it is excluded. In addition, you must also file Form 8833.

F1 student, NRA status, no filing requirement

Even if you do not otherwise need to file because you had no income, you still need to file 8843 to maintain your NRA status. Most students with no income fall into this category.

First year changing from F1 to H1, Dual-Status

If you choose to file under this status, you need to submit 1040 and the related schedules. You also need to submit 8843.

First year changing from F1 to H1, NRA status

If you choose to file as an NRA, you need to use 1040NR or 1040NR-EZ (depending on your situation), along with the related schedules and 8843.

First year changing from F1 to H1, RA status

If you choose to file under this status, you may be able to claim the tuition deduction and the AOTC tax credit for income earned during your student period. At the same time, that student-period income may also qualify for the $5,000 treaty deduction. You need to file 1040, the related schedules, and 8833.

First year in the U.S. on a work visa, NRA status

If you came directly to the United States and are considered an NRA under Overview and Tax Residency, you need to file 1040NR and the related schedules. Since 1040NR-EZ cannot be used to claim the moving expense deduction, we do not recommend it.

First year in the U.S. on a work visa, Dual-Status

You only need to file 1040 and the related schedules.

Second year and later on a work visa, permanent residents, U.S. citizens, and U.S. nationals

You may choose to file 1040, 1040A, or 1040EZ (depending on your situation), along with the related schedules.

Quick Guide: 1040NR vs. 1040NR-EZ

Many of the situations above require you to choose between 1040NR and 1040NR-EZ. If you are in that category, here are some simple rules of thumb:

  • If you invested in stocks and had gains, file 1040NR.
  • If your wages are over $100,000, file 1040NR.
  • If you have any 1099 forms other than 1099-INT and 1099-G, file 1040NR.
  • If you have children, file Form 1040NR.

If none of the situations above applies to you, you can most likely use 1040NR-EZ to file your taxes.

Summary

Choosing the right form is an important first step. Next, we’ll provide a guide to filling it out. See you next time. Have any questions? Ask away!