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Filing taxes in US for non-resident aliens

March 23, 2017

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According US tax return policy, every citizen filing tax returns as single gets a standard deduction of $6,300 and a personal exemption of $4,000. Standard deduction is a non-itemized fixed amount that is deducted from the net income. Personal exemption is an amount that a taxpayer can claim as tax deduction against personal income. These values reduce the taxable amount for all the taxpayers. India and USA shares a tax treaty that makes it easier for Indians to file taxes in US. According to this treaty, Indians gets a standard deduction of $10,300 ($6,300+$4,00). This makes tax return process similar to US citizens for Indians. Similar tax treaties for different countries are also available. However, process for Chinese citizens is bit different and requires complex tax return calculations. It is very easy is get confused when it comes to remembering form names for tax purposes. I learnt it in a harder way, so I’ll try to simply things for people.

Forms to know:

W4: W4 is an IRS form provided by your employer to declare the amount that will be withheld from employee’s pay for federal income tax (A snapshot of W4 is shown adjacent to text). More you withheld more you get back from tax returns. For a F1 student, graduate school or payroll will help you in filling W4. After filling the form, ask the officer about the amount that will be withheld. It is important to see that you are left with sufficient money for monthly expenditure.
W2: W2 is a form that is provided by your employer at the start of the year. A sample copy is pasted along with the text. This form declares your wages and the tax withheld by IRS. It generally comes as a 4-copies (there are other versions of it, but none of them concerns us). A copy has to be sent to IRS for federal tax return, another copy goes to state and/or city tax department. Finally, the last copy is for employee’s record. Each copy of W2 will mention where it has to be sent (see the black box at the bottom left corner). W2 is the only way of your communication with IRS. Hence, it is necessary that all the information on the W2 form be verified before filing tax returns. Employer’s and employee’s name and address (blue arrows) and employee’s SSN (green arrow) needs to be verified. The green box on the right shows all your income from a particular employer (you will receive multiple W2 if have more than 1 employer) while blue box highlights the amount withheld by IRS.
1040-NR/1040NR-EZ:US tax return form is popularly known as 1040. Being a non-resident alien your tax return form will bear a NR designation making it 1040-NR. To further simplify things, an easier version of the same form is available known as 1040-NR EZ (1040-NR easy). However, you will have to make sure which form is the best for you. Depending on your situation, 1040-NR EZ may not be applicable for you. To put it in simple terms, if you are a student or post-doctoral scholar who is filing tax as single (no dependents) you can use 1040-NR EZ. Following links will be helpful in deciding which form to use.

How to file your taxes:

Many universities provide access codes to certain sites for filing tax return for free. However, this is not universal. Some universities or institutions have no such programs. In that case, one can go to professional tax filing institutions such as H&R block. They will charge you around $10-$50. International students can also use websites such as sprintax (sprintax.com). This is an international student version of turbotax (www.turbotax.com). Turbo tax provides form 1040 and 1040-EZ, which are applicable only for green card holders and US citizens. The best option, according to me, is to look for VITA (Voluntary Income Tax Assistance) centers. They file tax returns for free for people earning less than $54,000 p.a. IRS website provides details about VITA centers and also have a tool to locate VITA centers near you. Some catholic charities also help to prepare free tax returns (This is mainly for NY). Following is the link for VITA center locator. https://irs.treasury.gov/freetaxprep/

Make sure to ask the VITA center if they can file tax for international students. It is possible that not all VITA centers have authorized personnel for international students. If they cannot file your tax, it is likely that they will provide you with the details for nearest VITA centers for international students. You can also call 2-1-1 to fix appointment with VITA centers. ALWAYS MAKE SURE TO ASK WHETHER THEY CAN FILE TAX RETURN FOR INTERNATIONAL STUDENTS.
This is applicable exclusively for 1^st year graduate students: A new graduate student is likely to make less than $14,000 in their first year. Filing a 1040/1040-EZ instead of 1040-NR/1040-NR-EZ will make them eligible for “Earned income credit”. This results in extra $400-$500 in their tax return, which appears tempting. You will get suggestions from your friends as to go forward with it, as IRS will not grant you that money if you are not eligible. Since, they are using 1040 instead of its NR version, IRS will consider them as US citizens, and it is highly likely that they will receive that amount. Earned income credit is exclusively for US citizens, and if you are getting that option during tax return then you are doing something wrong. If you are thinking of staying in US and applying for green card, then background check at that time will bring this on top and you will not only have to return the money but also pay interest on it.
This is applicable for everyone: If you have filed 1040 instead of its NR version, then don’t panic. Remember the India-US tax treaty I talked about in the first paragraph. This treaty has saved you. You will just have to file an amendment and that process will transfer your information for that tax year from 1040 to 1040-NR. As our standard deductions are same as US citizens, your tax was still calculated accurately and you owe nothing to IRS. Amendments can be filed anytime of the year.
For J1 visa holders, a 2-year tax exemption treaty is present. There is point to remember for this situation. For tax purposes, US count even a 1-day stay in tax year as 1-year stay. For instance, if you arrived in US on 30^th December 2016 you should be eligible for tax benefits for year 2017 and 2018. But according to IRS, you were in US in 2016. This will make a change in calculation making 2016 and 2017 as your two-tax benefit year. So, if possible, try to extend the start or change your trip plans by a week.
Even if you take help from any VITA officers, H&R block and websites, you and only you will be held responsible for any discrepancies in the form. MAKE SURE TO VERIFY ALL THE INFORMATION BEFORE SIGNING THE DOCUMENTS.