1. Taxes for Non-U.S. Citizens
Presented by:
Edward Shore, Tax Specialist
University Accounting Services
Cal Poly Pomona
March 16, 2007
Changes from 2005 Speeches:
Included information regarding California tax law
Eliminated Glacier slides – not everyone will be on Glacier and I wanted to gear the tax towards general tax law
Now the workshop is interactive in one part, the participants will take a “simplified” SPT during the presentation
NOW HERE IS WHAT WE NEED TO DO:
W-7 Application if the student needs a tax ID to file a return
Simplify the Form 8843, get it down to a science
Clarify the scholarship issue: provide examples
Determine which dates to give the presentation

2. DISCLAIMER
I am allowed to provide only general advice based on publications from the IRS and Franchise Tax Board. 
The information presented today is general in nature and accurate as of the date of this presentation.
So my job is not to prepare 1040 forms for everyone. I am Cal Poly Pomona’s tax preparer.

3. Where I Am Located

4. Introduction Federal: State: What is your tax residency?
What is the tax structure?
What are the tax filing requirements?
State:
How is State different from Federal?

5. Tax Compliance: Two Tax Agencies
1. Federal Income Tax: Internal Revenue Service (IRS)
2. California Income Tax: Franchise Tax Board (FTB)
The goal here is to present to you some of the basics of International Tax law.

6. Federal Income Tax: Internal Revenue Service (IRS)

7. Federal Income Tax:
Pay as you go: tax liability is paid every time income is made
Example: Tax withholding from your paycheck every time you get paid.
We use tax returns (i.e. Form 1040) to ultimately answer this question: What is the true tax liability?

8. How is tax residency determined?

9. Residence Tests (Federal)
Green Card Test
Legal Permanent Residence Card or
USCIS I-551 Stamp in the Passport
Substantial Presence Test (SPT)
31 Day Test
183 Day Test

10. SPT – 183 Day Test Add: All days present in the U.S. this year plus
All days present in the U.S. last year, multiplied by 1/3, plus
All days present in the U.S. two years ago, multiplied by 1/6
If the sum is 183 days or greater, you are considered a resident alien for the entire year.
If the sum is 182 days or less, you are considered a nonresident alien.
Generally, if are become a resident alien at some point during the year, the IRS would consider you a resident alien for the entire year. F-1 SPT Worksheet (let’s do this on 3/14/2007)

11. Count “Zero” days when
You are a student with F, J, Q, or M immigration status and had been in the United States for no more than for five calendar years (lifetime limit)
You are a teacher or researcher with J or Q immigration status and had been in the United States for no more than two of the current and past six years.
This is known as an “exempt” calendar year.

12. Example: F-1 Student
Tran entered the United States as an F-1 Student on 9/9/ He, now a graduate student, has remained in the United States since.
Tran has also taken an on campus job.
Since Tran is an F-1 student, he gets up to five calendar to “count zero” towards the SPT. After 2004, he must count all days towards SPT.
Taking the test as of December 31, 2006, we have:
YEAR
DAYS PRESENT
DAYS COUNTED
FACTOR
FINAL COUNT
2004
365
1/6
2005
1/3
121
2006 1
TOTALS
486
After this slide, we do an exercise? I am going to assume everyone in the room is a student (don’t even have to be an F-1).
Tran is a resident alien for His residency began January 1, 2005.

13. Nonresident vs. U.S Resident
NONRESIDENT ALIEN TAX SYSTEM
Nonresident Aliens
U.S. RESIDENT TAX SYSTEM
U.S. Citizens
Legal Permanent Residents
Resident Aliens
Quickly describe dual status…
Dual-status Residency has both
Other residency choices, see IRS Publication 519

14. Married Nonresident Aliens can be Treated as Resident Aliens
You must meet the following:
The nonresident alien must be married to a resident alien, permanent resident, or U.S. citizen
Effects:
The IRS will consider the worldwide income for both spouses
The couple must file a joint return
Both spouses must sign a statement making a declaration (refer to IRS Publication 519 for details)

15. What is the tax structure?
Tax System
Nonresident Alien
U.S. Resident (including Resident Alien)
Sources of income taxed
Only U.S.
All
Income tax return form filed
1040NR
1040
Withholding Allowances
Strict, often Single-1
No Specific Rules

16. Federal Tax Systems: Deductions
Nonresident Alien
U.S. Resident (including Resident Alien)
Standard Deduction
No, except students from India (tax treaty)
Yes
State and Local Taxes Paid
Charitable Contributions
Yes, over $250 must have statement from charity
Loss from Theft of Property
Yes, but limited
Job Expenses
Yes, with limits

17. Nonresident Alien Filing Requirements
In general, at least $1 in income
Exceptions:
You have no gross income
Your only income is from wages, totally less than $3,300 in 2006 (Notice )
Your only income is from interest from bank, S&L, or credit union, which is interest income.
Deductions are allowed only if they count against effectively connected income
This slide gets cleaned up a little bit.

18. What is effectively connected income?
Generally ECI consists of the following types of income:
Taxable Scholarships (F, J, M, Q non-immigration status)
Income from performing services (independent contractor and employment)
Gains and losses from sales of U.S. real property

19. Income Employment Independent Compensation
Scholarships, Prizes and Awards

20. 1. Employment What is required to be employed?
Social Security Number
Permission to Work – check your non-immigration status
Form W-4 – Employee’s Withholding Allowance Certificate
Form I-9 – Employment Eligibility Verification

21. Form W-4 Rules NONRESIDENT ALIENS
General, must file as Single + 1 Allowance
Certain countries allow more than 1 allowance
U.S. RESIDENTS
File W-4 as the taxpayer sees fit
PLEASE NOTE: If you work for Cal Poly Pomona or any other California State University, the EAR (Employment Action Request) serves as a substitute for the W-4.

22. Allowances (W-4): Resident Aliens Only
The more allowances claimed, the less tax withheld, but may result in a tax liability come April 15
Base the number allowances on:
Whether you are claimed as a dependent on the tax return
If you are married, have children, or other dependents (i.e. parents, siblings)
If you or your spouse have two or more jobs
This is a commonly asked question

23. You may just want to throw in the fact that if you work for the University, you will have to file a record in Glacier, the tax compliance software we use.
Form W-4

24. 2. Independent Compensation
The payer does not exercise control over you, unlike the employer-employee relationship.
Nonresident Aliens
U.S. Residents or Resident Alien
Generally, 30% tax rate of the gross amount -
In general, there is no withholding
Reported on the IRS Form 1042-S
Reported on the IRS Form 1099
Can be eliminated by tax treaty.
Some can benefit from income tax treaty benefits (limited to non-citizens only)

25. 3. Scholarships and Fellowships
Scholarships and fellowships are payments to further a taxpayer’s education and research.
The taxpayer is NOT required to perform services in order to receive the payment.
Scholarships and cash prizes are NOT the same!

26. Qualified Expenses under IRC §117
Tuition
CSU Fees
Books and supplies required as a condition for enrollment (hard to prove)
These scholarships are not taxed or reported.
Tuition Fee Waiver pays qualified expenses.

27. Non-qualified expenses
Room and Board
Travel
Miscellaneous
These scholarships are reported and may be subject to withholding.

28. Withholding for Taxable Scholarships
NONRESIDENT ALIENS (Taxable Portion in excess of one personal exemption)
Immigration Status F-1, Q-1, M-1, and J-1 Students: 14%
Everyone Else: 30%
U.S. RESIDENTS
Generally, no withholding is required

29. Ways to Reduce Withholding
Foreign Source Income
Internal Revenue Code (IRC) by legislation passed into law.
Income Tax Treaty

30. Tax Treaties, Part 1
Agreements that the U.S. has with many countries in the world.
The treaties include articles regarding a wide range of payees, such as students, teachers, employees, prize winners, and royalty holders.
All tax treaty forms require the beneficiary a tax ID to claim its benefits.

31. Tax Treaties, Part 2 Effects Federal Withholding only
Claim tax treaty benefits during the year:
Form 8233 – Employees, sent to IRS
Form W-8BEN – Independent Contractors and Scholarship Recipients
Form W-9 – some Resident Aliens
Regardless of method, tax treaty benefits are ultimately claimed on the 1040NR.
On the standard 1040NR, complete Item M on page 5.

32. The Golden Rule of Tax Treaties…
Every tax treaty is different!
Some are more beneficial for students than others.

33. End of Year Tax Responsibilities – Federal Tax
Mention that we will show forms CPP is responsible for
First we will talk about the University’s responsibilities, then we will talk about your tax responsibilities.

34. University’s Filing Responsibilities

35. Form W-2 –reconciliation of wages for 2006
Form W-2 –reconciliation of wages for Furnished to employees no later than January 31, 2007.

36. Form 1042-S: Payment summary to nonresident aliens no later than March 15, Typical payments include: payments covered by tax treaties, income from independent service, and taxable scholarships

37. Form 1099-MISC (1099): Payment summary for U. S
Form 1099-MISC (1099): Payment summary for U.S. residents, including resident aliens for almost any type of earnings except wages and salaries. Nonresident aliens should never get this form.

38. Form 1098-T – Tuition Statement: Summary of qualified tuition and scholarships for our students. Most students will receive one. Cal Poly Pomona is required to deliver the form by January 31, 2007.
By law, we are not required to issue a statement to nonresident aliens (since most education credits and deductions are not available anyway).

39. Educational Expenses
Credits generally available to U.S. residents (including resident aliens) only:
Hope Credit
Lifetime Learning Credit
Tuition and Fees Deduction
Deductions generally available to both resident and nonresident aliens:
Student Loan Interest Deduction

40. Your Tax Responsibilities

41. What the Taxpayer Files
Nonresident Aliens: 1040NR or 1040NR-EZ, possibly Form 8843, possibly Form W-7
U.S. Residents: 1040, 1040A, or 1040-EZ, possibly Form W-7
If you do not have a tax ID, you must file a Form W-7 with your tax return.

42. Form 8843
Who files:
Students under the non-immigration status F, J, M, or Q; and you are counting 0 days towards the substantial test
Teachers under the non-immigration status J or M; and you are counting 0 days towards the substantial presence test
Professional athletes (O or P non-immigration status)
Those who couldn’t leave the country because of medical problems
Students: Complete parts I and III only
Note:
The years do not have to be consecutive.
The 8843 must be filed for the year “to count”.

43. Tax Identification Numbers
For tax reporting purposes, everyone must have a tax ID, which can be:
Individual Taxpayer Identification Number (ITIN) in the form of 9xx-7x-xxxx or 9xx-8x-xxxx (individuals only)
Social Security Number (SSN) in the form xxx-xx-xxxx (individuals only)
Employer Identification Number (EIN), xx-xxxxxxx (companies only)
There are others, but these are the common three

44. Form W-7
Give a reason why you are filing this form (most likely reason “f”: “Filing an income tax return”)
Complete all the sections, including Box 6
You must prove identity and your immigration status. The passport does both.
Obtain and send notarized or certified copies, because we don’t suggest sending originals.
File with your 1040(NR) and 8843 – but file only if you need a tax ID.

45. Filing W-7 Early You can file Form W-7 early when:
You want to claim tax treaty benefits during the year but you do not have a tax ID number
You are a student and earning a scholarship or grant
You receive an honorarium, and you want to claim tax treaty benefits
You open an interest-baring bank account, and you have bank documentation to prove you will be receiving interest

46. Form W-7

47. Resident Aliens, Permanent Residents, U.S. Citizens
Deadlines for 2006 Returns
Nonresident Aliens
Resident Aliens, Permanent Residents, U.S. Citizens
If you have no income: file Form 8843 by April 17, 2007
If you have no wage income, file Form 1040NR with 8843 and W-7 (if required) by June 15, 2007
If you have wage income, file Form 1040NR with 8843 and W-7 (if required) by April 17, 2007
IRS Form 1040 with W-7 (if required): April 17, 2007
* 1040NR Filers: people who did not earn wages have until June 15, 2007

48. Federal Excise Tax Refund (Telephone)
Affects periods March 1, 2003 to July 31, 2006
Allows federal refund on excise tax charged on your telephone services
You can claim either the standard amount ($30 for 1 exemption) or actual expenses on Form 8913
File for a refund either:
On the 1040NR
If you are not filing a tax return, use Form 1040NR EZ-T
All applicable forms are found on

49. California Income Taxes: Franchise Tax Board (FTB)

50. California Tax Law
In general, California tax law usually conforms to Federal tax law, but NOT for tax treaties
Use income from all sources to determine if you are required to file. You will have to consider your income from sources outside U.S.
Minimum filing requirements (Single, younger than 65, no dependents – for the 2006 year):
California Gross Income: $13,713
California Adjusted Gross Income: $10,970
Now how is residency determined?

51. Residency for California Tax Purposes
Nonresidents are taxed on California income, while residents are taxed on all income.
Residency is tested, but not dependent on your residency for federal income tax purposes.
If you are paying non-resident tuition fees, most likely, you are a non-resident for California purposes.
Nonresidents are generally entitled to all deductions as residents under California law.
Generally, if you file a 1040NR this year (or would have filed a 1040NR), you would most likely file a 540NR this year.

52. California Residency
Nonresident: 540NR – taxed only on California income
Resident: 540 – taxed on all income
Both forms are due April 17, 2007; with no specific exception for non-wage earners

53. On the Internet… IRS Website (1040NR): http://www.irs.gov/
Franchise Tax Board (California – 540NR):

54. Is our tax system similar to yours?

55. Thank You
Any Questions?