General U.S. Tax Information
As a nonresident, you are required to pay income taxes to the Internal Revenue Service (IRS), the U.S. tax authorities on the income you received from U.S. sources unless you are exempt under a tax treaty. U.S. source income includes but is not limited to:
- Wages paid by U.S. employers should you engage in employment during your U.S. stay.
Scholarship grants are taxable in the U.S. and your sponsor (the United States Department of State), acting on your behalf, pays the 14% required tax on your IIE scholarship to the IRS. This is done instead of deducting your tax obligation from your grant or asking you to make the tax payment directly.
Required Information for Those Who Receive Money Directly from IIE
GRANTAX is the tax management service at IIE in New York. An outside tax service will prepare and IIE GRANTAX will submit your annual United States income tax return to the IRS at no cost to you. Most IIE grantees are eligible to use the GRANTAX service; however if you receive your funding directly from IIE's Fulbright Student, LASPAU or HHH programs, you are required to use the GRANTAX service to file your tax return and cannot file by yourself or through another tax service.
Steps to Use The GRANTAX Service
- Each year in late January, you will receive various tax-related documents such as Form 1099, Form 1042-S or Form W-2 summarizing your U.S. source income from the previous year. If applicable, universities, banks and employers will send these documents to you. For those who receive funding directly from IIE, your Form 1042-S summarizing your IIE scholarship income will be kept at GRANTAX. Various tax forms and tax terms you may encounter will be explained later.
- Each year in late January, your IIE program advisors will send information on how to complete the online questionnaire and submit it electronically to GRANTAX by the end of March. After completing the online questionnaire, you are required to upload to the Self Service Portal, email or mail any other tax documents that you may have received summarizing your U.S. source income that is not your IIE Scholarship, a copy of your social security card/individual taxpayer identification letter and completed Power of Attorney, Forms 2848 and 231, should be sent to GRANTAX. A checklist of the necessary documents will be provided on the online questionnaire as well.
GRANTAX will submit your tax return to the IRS during the summer months. The IRS will send the refund checks to IIE and Grantax will process and send them to you during the fall. If your U.S. source income is solely from your IIE scholarship, then the entire refund amount will be kept by IIE and returned to your sponsor.
In the event that you earned wages during your stay in the United States in addition to your IIE scholarship and you are eligible to receive a refund on the taxes overpaid on those wages, GRANTAX will send you a refund check in the fall. If insufficient tax was withheld from your employment or school income, and the tax refund due to your sponsor on your IIE award is reduced, you will be required to pay IIE the difference as determined by GRANTAX.
For those students who received NO income from IIE, but opted to use GRANTAX, if your employer failed to withhold enough tax from your wages, you may be faced with making a tax payment directly to the IRS.
- Nonresidents are not eligible to submit a “joint tax return” (tax terminology) with a J-2 of F-2 spouse who accompanied them to the U.S and also earned wages.
Tax Terms and Tax Forms You May Encounter
- 1042-S (Foreign Person's U.S. Source Income Subject to Withholding): This form is used to report U.S. source income paid to a nonresident alien. Income reported on this form includes:
- Scholarship and fellowship grants that are not an exchange for services. Qualified educational expenses (such as tuition, books, required fees and supplies) are exempt from taxes and are not included in the taxable amount recorded on this form.
- Compensation payments made to employees when an exemption from tax withholding is claimed based on a tax treaty.
- All non-employee compensation payments made to nonresident aliens such as bank interest, dividends, awards, etc. However, many U.S. financial institutions may instead issue Form 1099 to report non-compensation income such as bank interest and dividends.
- 1098E (Student Loan Interest): This form shows interest paid on a qualified student loan.
- 1098T (Tuition Statement): This form shows the tuition and fees billed by your University, and the amount paid by you and/or a third party.
- 1099 (Miscellaneous Income): This form is used to report income that is not reported in forms 1042S or W-2. It reports compensation as an independent contractor, bank interest, dividends, etc. If you are working as an independent contractor, please contact GRANTAX immediately and inquire about paying quarterly estimated taxes so that you don't have a large tax bill and penalties when you file your annual tax return.
- 8233 (Exemption from Withholding on Compensation for independent (Certain Dependent) Personal services of a Nonresident Alien Individual): If you are planning to engage in U.S. employment during your U.S. stay and if you are from a tax treaty country and want to claim a tax treaty exemption on your compensation, you must complete this form and submit it to your employer who will file this form with the IRS on your behalf. You must complete this form for each tax year that you are employed in the U.S.
- 8843 (Statement for Exempt Individuals and Individuals with a Medical Condition): This form must be filed in order to ensure your exempt status from U.S. residency for tax purposes as a J-1 or F-1 visa holder. Form 8843 is usually attached to your U.S. income tax return. Even if you are not subject to U.S. taxes because you did not receive any U.S. source income and are not required to file a tax return, you must complete this form and submit it to the IRS.
- W-2 (Wage and Tax Statement): This form is used by your employer to report your U.S. income from employment with them regardless of your U.S. residency status. Your employer reports gross income you earned during the year as well as income taxes they withheld from your wages and submitted to the IRS.
- W-4 (Employee's Withholding Allowance Certificate): If you work while you are in the U.S., your employer will ask you to complete this form prior to the commencement of your employment. This form will determine the withholding tax amount from your wages. A more detailed explanation on completing this form is provided in the Foreign Grantees That Received IIE Income And Other U.S. Income link.
- W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding): If you receive a scholarship/fellowship grant and you are from a tax treaty country and want to claim a tax treaty exemption, please complete this form and submit it to your withholding agent (IIE, University or other non IIE payers). You can check the availability of the tax treaty benefits for your country in the IRS publication 901.
- FICA Tax (Social Security & Medicare Tax): This tax is imposed on all earned wages in the U.S. This tax (7.65% of your gross income) is to finance the old age/survivors/disability insurance and the medical insurance for such eligible individuals provided under the Social Security Act of the U.S.A.
Please see the requirements below to be exempt from social security and medicare (FICA) taxes.
Section 3121(b)(19) of the IRS code provides an exception from FICA tax for services performed by nonresidents temporarily in the USA with F, J, M or Q visas for employment performed to carry out the purpose specified by the individual's immigration status. To qualify for this exception, foreign students must meet the following three conditions:
- You must be in valid foreign student status
- You must be a nonresident (students are eligible for five calendar years and are not subject to the 183 day residency rule)
- You must be engaged in authorized employment
If you are not a U.S. citizen, you are considered a nonresident alien unless you meet the Green Card test or the Substantial Presence test. However, for Fulbright students, LASPAU and HHH grantees that came into the U.S. with a J or F visa, you will be considered a nonresident alien for the first five tax years that you are in the U.S. You will become a resident for tax purposes on your 6th tax year in the United States.
Terms of Appointment
This is the letter from IIE that details your scholarship or fellowship.