Category Archives: FICA

First Visit /No Visit to the U.S.: Changing Status, Visa, U.S. Tax Obligation, by Jean Mammen, EA

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Changing Status, Changing Visa, Changing U.S. Tax Obligation

Part I of III

For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S.

If you have changed visa status, or if this is your second visit, more possibilities exist, and more analysis is needed.

FIRST VISIT/NO VISIT: If you have US source income to report, choosing between form 1040 and form 1040NR is relatively simple. Determine if any days you were physically in the US may be counted towards meeting the substantial presence test (SPT).

If you have no visa, or any visa except F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you usually immediately begin to count all days where you spent any time at all in the US.

A common exception to counting days is for people who live in Mexico or Canada and cross the border regularly to work in the US during some period of the tax year. These “commuters” do not count as days present in the U.S. any day they commuted to or from their U.S. workplace, no matter what their visa type. IRC 7701(b)(7)(B); 301.7701(b)(3)

If you are not in the U.S., there are no days to count.

And A1, A2, and G1, G2, G3, and G4 visa holders are never going to count days.

Counting: Count the days that may be counted to see if they add up to 183 days in the tax year and meet the SPT.

Filing requirement if SPT is not met: If you have any US source income at all you will file form 1040NR. If you were not in the U.S. or this is your first visit to the US and you spent fewer than 183 countable days in the U.S., then 0+ is the threshold even if the income is not taxable. An exception is if the only US source income is from wages, and the wages are less than the amount of one personal exemption. ($4,000 for 2015)

Filing requirement if SPT is met: You will file on form 1040 as a tax resident if you meet the SPT by December 31st, and your income exceeds the form 1040 filing threshold. If you began counting days July 2, you could meet the SPT in your first year in the US.

Taxable income for form 1040 is total worldwide income from any source derived that is not specifically exempt from US income tax.  The threshold for filing is when taxable income exceeds the sum of the personal exemption and the standard deduction appropriate to your filing status (single, married filing jointly, married filing separately, etc.).  You will also pay FICA tax (Medicare and social security) on wage income if your employer and job are part of the US economy, unless you are a student in an on-campus job.

FIRST VISIT, second year: If you have any visa other than F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you could meet the SPT in your second year in the US and change from tax non-resident to tax resident.

FIRST VISIT, third and sixth year: In the third year of your first visit to the US, J visa exchange visitors usually start counting days for the SPT on their first day in the US after January 1st.  Students usually do so in their sixth year in the US. You could meet the SPT by December 31st and become a tax resident for the year if you spend most of your days in the U.S.

Substantial Presence Test (SPT):

When day counting is allowed, and you spent at least 31 countable days in the U.S. in the tax year, then:

Count all countable days present in the U.S. in the tax year, and add:

1/3 of all countable days present in the first prior year, plus

1/6 of all countable days present in the second prior year.

Add any fractions to the whole numbers.

If the total reaches 183 by December 31st, you have met the SPT. You are a U.S. tax resident.

 

LET ME COUNT!

G or A, No Way!

F, J, M, or Q, There’s a Delay Waiting for you!

All the rest, Count your best!*

*includes A3, G5

 

This Series

FIRST VISIT/NO VISIT: If you have U.S. source income, how do you choose between form 1040NR and Form 1040? What are the tax and tax residency effects?

See above

VISA TYPE CHANGE:  What are the tax and tax residency effects when you change visa types?

See Part II

SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?

See Part III

 

 

Which visa holders should put in new withholding forms now?

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Visa holders may need to submit new withholding forms to adjust for treaty income exclusions or changes in tax status. Tax residency will affect how payors should withhold for income tax and FICA taxes (social security and Medicare). A visa holder should alert payors to these situations.

International students and exchange visitors (F, J, M, Q visa holders) may need to submit updated withholding documents for 2014 to their sponsors or employers. The payor needs a signed withholding form from the payee to start or change special withholding even if it is aware of every change in the situations of all its payees,

Treaty Exclusions: People who claim bilateral income tax treaty exclusions submit Form 8233 to the payor. They should submit new forms each year they claim the exclusion. If the treaty-based income exclusion will end this year, before the income does, the payor may find this information helpful.

If the treaty excludes only part, and not all, of the income from U.S. taxation, submit both a W-4 and a Form 8233 to the payor.

Residency change: Some visa holders will become tax residents during the year by meeting the substantial presence test. Some will be married to a U.S. citizen or resident and the couple will elect to file jointly as residents on Form 1040. Either change will make certain compensation subject to FICA – social security and Medicare tax – from the beginning of the year. And, changing tax filing from form1040NR to 1040 may change the taxable income and the withholding needed.

FICA – Federal Insurance Contribution Act: Provides for collecting social security tax and Medicare tax. There is no form for starting or stopping FICA withholding. If your payor is erroneously collecting FICA when you are exempt from paying it, or not collecting FICA when you are not exempt from paying it, you should so notify your employer in person and in writing. You may need to cite government regulations or publications to make your case.  These situations are presented in a single IRS article which can be found by going to the IRS website, www.irs.gov, and entering into the search box ‘J visa and FICA’.  Looking in Publication 519, or the Internal Revenue Code,  requires synthesizing information from three different locations. This is more confusing than the IRS article for those who are not tax nerds.

F,J,M,Q visa holders are exempt from paying FICA income earned in compliance with their visa while they are considered to be temporarily in the U.S. This ends when they are no longer exempt from counting days towards substantial presence and have qualified as tax residents by the substantial presence test.

All students who are at least half-time students at the school, college, or university that pays them, and are not career employees, are exempt from paying FICA on that income. This ‘student FICA exemption’ has many twists and turns, known as ‘facts and circumstances’. Rev. Proc. 2005-11 is meant to clarify who qualifies, even when at first glance they might not, for instance, might seem to be career employees

(Note: Visa – based FICA exemptions apply only to the primary visa holder, as, J1. Spouses or dependents on secondary visas, as, J2, would generally pay FICA tax as well as income tax on compensation).

Citations

INA (Immigration and Naturalization Act) 101 (a)(15) – Definitions of types of visas

IRC (Internal Revenue Code) 3121(b)(19) – F,J,M,Q visa holders temporarily present in U.S. do not pay FICA taxes – social security and Medicare

IRC 7701(b) – Defines how visa holders determine (tax) resident alien or non-resident alien status

IRC 3121(b)(10) – Students employed by their school, college, or university do not pay FICA on those wages. (The ‘student FICA exemption’)

    Rev. Proc. 2005-11 elaborates on how facts and circumstances determine     eligibility for the student FICA exemption.

 

Social Security Handbook Citations

    Section 939 – Foreign Students, Exchange Visitors, and International Cultural     Visitors

IRS Publications

    Publication 519 – U.S. Tax Guide for Aliens

    Publication 515 – Withholding of Tax on Nonresident Aliens and Foreign Entities

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email: jean@1040nror1040.com