Tax Responsibilities of Foreign Nationals

U.S. Tax Responsibilities of Foreign Nationals

A foreign national's tax responsibilities are complex. This site is intended to aide departments and foreign nationals about the tax reporting and withholding responsibilities associated with their tax classification.

Significant differences exist between how residents and non-residents in the U.S. are taxed. The basic characteristics of non-resident alien taxation follow:

• Tax is generally levied on U.S. source income only.
• Tax treaty provisions may exempt some income from tax.
• Interest income may be tax free.
• A nonresident alien for tax purposes cannot file jointly with his or her spouse.
• Generally only one personal exemption is allowed regardless of family status.
• No standard deduction is permitted except by India.
• Itemized deductions are limited to:
  • State and local taxes withheld
  • Contributions to charity
  • Casualty/theft losses
  • Miscellaneous business deductions
• Investment income is generally taxed at a flat 30%.
• No child or dependent care credit is permitted.

A number of special rules regarding the standard deduction and spousal exemptions are in effect for residents of certain countries including India, Canada, Mexico, Japan, and Korea. Residents of these countries should contact the UW Payroll Office for additional information on these rules.

Tax Identification Number (SSN or ITIN)

A foreign national must obtain a Social Security Number (SSN) to be paid as a UW employee. To claim only a tax treaty benefit or file for a tax return, an Individual Tax Identification Number (ITIN) is necessary.

See the section, Tax Identification Number (SSN or ITIN), for details about applying for a SSN or ITIN.

Filing an Income Tax Return with the IRS

There are specific rules about filing an income tax return with the IRS that nonresident and resident aliens must follow.

• A nonresident alien must file IRS Form 8843 every year to document residency for tax purposes.
• In addition to Form 8843, nonresident aliens must file an annual tax return if they earned any U.S. source income during the previous tax year. A nonresident alien files a tax return on Form 1040NR or 1040NR-EZ, U.S. Nonresident Alien Income Tax Return.
• An individual who has had too much tax withheld from her/his wages should file in order to claim a refund.

Claiming an Exemption from Tax Due to a Tax Treaty

Foreign nationals from certain countries may be entitled to a reduced rate for income tax withholding or to claim a tax exemption under an applicable tax treaty between their country and the U.S. At present, the U.S. has treaties with 56 countries and each one is different.

Check the list of current income tax treaties for the specific activity below to see if a tax treaty benefit is available.

• Scholarship and fellowship grant benefit
• Independent contractor services benefit
• Employee wages benefit
• Teaching or research benefit
• Studying and training benefit
• Awards and prizes benefit
• Royalty payments

NOTE: Citizens of Hong Kong and Macao are not covered by the People's Republic of China tax treaty.

If you do qualify for a tax treaty benefit, ask your sponsoring department to give you the necessary paperwork to apply for the benefit.

Certificate of Compliance or "Sailing Permit"

Before leaving the U.S., almost all aliens must obtain a "Certificate of Compliance" that demonstrates the individual has paid all applicable U.S. tax. This certificate is also called a "sailing" or "departure" permit. The requirement applies to:

• Permanent residents (i.e., green card holders)
• Nonresident aliens for immigration purposes in H-1, O-1 or TN status

Holders of F-1 and J-1 visas are not required to obtain the Certificate of Compliance if they had no U.S. source income other than allowances or payments to cover study expenses (including travel, maintenance and tuition) or wages from authorized work (including practical training).

The departing alien must complete one of the following forms depending on whether or not tax is owed:

• IRS Form 2063, U.S. Departing Alien Income Tax Statement, is required if the foreign national owes no U.S. tax at the time of departure.
• IRS Form 1040C, Profit or Loss from Business, is required if the foreign national does owe U.S. tax at the time of departure. If the departing visitor intends to return to the U.S., the tax does not have to be paid before leaving. However, if the foreign national is permanently leaving the U.S., all taxes must be paid.

The appropriate form should be filed with the IRS at least 14 days before departure but no more than 30 days before leaving the U.S. More information is available in Publication 519, U.S. Tax Guide for Aliens.

Penalties and Sanctions

Failure of a foreign national to comply with the U.S. tax law can lead to the imposition of fines and penalties to be assessed by the IRS. Failure to file the appropriate tax returns or making intentionally false or misleading statements on these returns can lead to criminal penalties.