Foreign Student Liability for Social Security and Medicare Taxes

Many international students, working in the U.S. during Optional Practical Training (“O.P.T.”) are not informed that their immigration status gives them tax breaks. I recently learned that as a foreign student temporarily residing in the U.S., I may be exempted from specific tax liabilities. Therefore, I decided to briefly share my experience in this post.

In addition to the income tax, U.S. taxpayers pay Social Security (“SS”) and Medicare amounts to the federal government. Social Security Act of 1935 created a federal program that involves retirement and disability benefits, while the Medicare program was established to provide health insurance for people 65 years of age or older.?S.S. and Medicare taxes are withheld from the wages and are reported at year-end on an employee's Form W-2, Wage, and Tax Statement. Detailed withholding is also listed on every paycheck received from an employer.

Foreign students that come to the U.S. can fall under the residency status and become U.S. taxpayers. It gets very confusing to establish whether a foreign student is a resident or nonresident for U.S. tax purposes. Generally, under immigration law, a “nonresident alien individual” is an individual whose residence is not within the U.S. and who is not a citizen of the U.S., While a “resident alien individual” is a “green card” holder—a non-U.S. citizen who has been authorized to live and work in the U.S. indefinitely.

But the definition is a little different under the U.S. Tax Code (the “Code”), a resident alien is an individual who meets either the “green card” test or the Substantial Presence Test (“S.P.T.”) - a numerical formula that measures days of presence in the U.S. Therefore, even a foreign student temporarily residing in the U.S. can be treated as a resident and consequently be taxed in the U.S. Thus, students and scholars who are not citizens of the U.S. should first determine whether they are resident or nonresident aliens for tax purposes. Only then will they know how their income is taxed and which income tax return form to file.

Nonresident aliens that meet the S.P.T. have the same tax liability as U.S. citizens, but the Code provides exceptions to certain individuals and treats them as nonresident aliens. One of the exceptions is for international students/scholars/trainees/researchers holding F or J visas. These individuals are exempt from S.S. and Medicare amounts on wages paid to them for services performed within the U.S., only if such services are directly related to the student's major, as it is required by the United States Citizenship and Immigration Services?(“USCIS”). The exception does not apply to nonimmigrants in F and J status who change nonimmigrant status to a status that is not exempt or to a special protected status.

Students holding F and J visas are generally considered nonresidents during their first five (5) calendar years in the U.S., while non-student J visa holders (researchers, scholars, trainees, etc.) are generally considered nonresidents during their first two (2) calendar years in the U.S. Other types of visa holders are considered nonresidents unless they meet the S.P.T.

If you determine that your legal status is a nonresident alien individual that is treated as a resident for U.S. tax purposes, but you hold one of the student/scholar visas, you might want to take a look at your paycheck and make sure you are not charged for S.S. and Medicare taxes. Let your employer know about the exemption status. In case you were not informed about the exception, or your employer refuses to reimburse the taxes that have already been charged from your salary, you can claim the reimbursement for S.S. and Medicare taxes by filing Form 843, Claim for Refund and Request for Abatement, together with your tax returns.

As a foreign student in the U.S., you will need to file tax forms every year, it does not matter if you were employed during the taxable year or not. Most of the new students find it to be a complicated procedure as it is significantly different from the tax filing procedures back in their own countries. The International Student Offices at U.S. universities, usually provide assistance to international students. Also, the Internal Revenue Service offers free help to prepare and file the tax return through the Volunteer Income Tax Assistance (“VITA”) program, to qualify for the program, an individual cannot make above a certain threshold.

This post only aims to draw international students’ attention to the possible tax exemptions provided under the Code. It does not cover all the particular circumstances that might affect students’ status in the U.S. Therefore, foreign students should analyze their status?and the period spent in the U.S. to learn whether they qualify for the tax breaks provided under the Code.?