The following is general information offered as a resource to nonresident
individuals at MTU. It is not to be considered tax advice. You
particular situation may be not covered in the text below. See specific IRS publications for additional information. The tax department may not provide you with individual tax matters.
Resident Alien vs. Nonresident Alien Filing Status
- There are two tests to determine if you are a resident alien of the United States (for tax purposes).
- Green card test-must be a permanent resident granted and/or approved by the Bureau of Citizenship and Immigration Services (formerly the Immigration and Naturalization Service - INS) for alien registration card.
- Substantial Presence Test-must be physically present in the U.S. on at least 31 days during the current year, and 183 days during the 3 year period than includes the current year and the two preceding years calculated as follows:
- Count all days present in the current year
- Count 1/3 of all days present in the year prior to current year
- Count 1/6 of all days present in the second year prior to the current year
- Students present in the U.S. with an F, J, M, or Q visa status are exempt individuals (do not apply the substantial presence test) for 5 calendar years.
- Researchers and scholars with a J visa status are exempt individuals for 2 calendar years.
- Other visa holders (H-1, B-1, etc) must apply the substantial presence test immediately.
- Resident aliens for tax purposes are taxed on their worldwide income. They will be taxed like U.S. citizens. They must file Form 1040EZ, Form 1040A, or Form 1040.
- Nonresident aliens are taxed only on U.S. source income. They must file Form 1040NR-EZ or Form 1040NR, along with Form 8843.
- Resident aliens for tax purposes must file Form W-9.
- See IRS Publication 515 and IRS Publication 519 for additional information.
- Michigan tax forms are the same for residents and nonresidents: MI1040 and Schedule W.
- The United States has entered in tax treaties with over 50 countries.
- These treaties vary greatly with the type and amount of benefits provided for students and scholars. They may or may not give tax exemption for U.S. source income.
- Refer to the tax treaty or Publication 901 for additional information.
- Each calendar year, Form 8233 must be completed in order to use the tax treaty.
- Tax treaty exemption amounts are reported on Form 1042-S to individuals by March 15.
Scholarships and Fellowships
- Part of your scholarship or fellowship may be taxable.
- Tuition, required fees, books, equipment, and supplies are considered qualified educational expenses and are not subject to tax.
- Form 1042-S will not be issued for scholarship/fellowship amounts, including tuition waivers/reductions, used for tuition and related fees.
- Room and board, living expenses, and incidental expenses are usually taxable. Exceptions are if required for employment or tax treaty exemption.
- The amounts are taxed at a flat 14 % for F, J, M, and Q visa holders.
- A Form W-4 and the attachment are required each calendar year to authorize the withholding of federal income tax on taxable scholarships and fellowships. Note that State of Michigan tax is not withheld, and this tax will be paid upon filing annual tax return or quarterly estimated payments.
- If the living expense portion of the fellowship or scholarship is exempt per a tax treaty, Form W-8BEN must be completed.
- These amounts are reported on Form 1042-S to individuals by March 15.
- See IRS Publication 970 for additional information.
Independent Contractors and Visiting Scholars
- Only certain visa types may be compensated for services and/or honorariums. It is imperative to check with the tax department PRIOR to engaging the individual.
- Form W-8BEN must be completed for verify foreign status.
- No FICA tax or State of Michigan tax is withheld from payments to independent contractors.
- Federal income tax is withheld at 30 %, unless there is a tax treaty between the U.S. and the nonresident’s country of residence.
- If the compensation is exempt from tax per the tax treaty, Form 8233 must also be completed.
- Form 1042-S will be mailed to nonresident independent contractor by March 15.
- Reimbursement for travel expenses will not be subject to tax if payments are made under the accountable plan rules. These expenses must use the travel expense voucher. See the Travel Department under Accounting Services for additional information.
Grants Received from Outside the U.S.
- Fellowship and scholarship grants that are from foreign countries and paid to nonresident individuals are not subject to federal or state tax and withholding. These payments will not be reported on Form 1042-S.
Services Performed Outside the U.S.
- Payments that are made to a nonresident individual performing services outside of the U.S is not subject to federal or state tax and withholding.
- Employees will have these amounts reported on their W-2 or 1042-S forms. They will need to attach a statement with their tax return indicating the nontaxability of the wages, prorated based on number of days outside the U.S.
- Independent contractors will not receive a 1042-S.
- The exclusion only applies to the services performed in a foreign country by individuals who are not citizens or resident aliens of the U.S.
Social Security Numbers and FICA Taxes
- Every employee must have an U.S. social security number in order to receive wages.
- Fellowship/scholarship recipients and independent contractors must have an U.S. social security number or an individual taxpayer identification number (ITIN).
- For a social security number, Form SS-5 must be completed and then presented at the local social security office at 902 Razorback Drive-Suite 3-Houghton, Michigan. The phone number is 482-9656.
- For an ITIN, Form W-7 must be completed. It may take 6 weeks or longer to receive the number. This application must accompany nonresident's tax return, unless an exception applies.
- Social security tax (FICA and Medicare) tax is required on payroll earnings at 7.65 %.
- Nonresident individuals may be exempt from this tax. Generally, F-1 and J-1 visaholders are exempt from social security taxes for the period they are considered nonresident aliens for tax purposes if the employment is directly related to their purpose for being in the U.S.
- Nonresident students legally may only be employed at the educational institution in which they are studying, or be approved for internship or co-op job training/experience through the International Programs and Services office.
- Authorized F-1 and J-1 employment, including practical or academic training, is exempt from social security taxes provided you are still considered a nonresident alien for tax purposes. Notify the employer about this exemption so the tax is not withheld.
- It is possible to receive the FICA tax refund, but it is a cumbersome and lengthy process. The forms to be completed and submitted are Form 843 and Form 8316 .
- F-2, J-2, and H-1 visaholders are not exempt from the FICA tax.