These FAQs are intended to help you obtain a general understanding of your tax obligations as you study in the United States. They may be viewed in conjunction with information made available by the UConn Payroll Department at payroll.uconn.edu/PY/faqs/nrafaqs.html and by International Student & Scholar Services at isss.uconn.edu/tax-preparation-resources/ (applicable to students with F-1 and J-1 visas).
The taxation of foreign individuals is a complicated subject and involves many factors that vary from person to person. Accordingly, the University is not able to provide you with individual tax guidance, and strongly urges you to retain your own accountant or tax advisor for assistance with these issues. However, the School of Business sponsors a Volunteer Income Tax Assistance (“VITA”) program each year that offers free personalized income tax guidance for international students and faculty. The volunteers assist UConn’s international community with their tax return filing obligations. More information about the VITA program is communicated to the UConn community in January or February each year and may also be found at http://accounting.business.uconn.edu/undergraduate/vita-program/
Frequently Asked Questions
Do I have to file a United States income tax return?
The answer to this question depends on many factors, including your country of origin, your immigration status or visa type and whether you earned income in the United States.
The manner in which you are taxed or not taxed in the United States depends on your tax residency status. The United States classifies international individuals as either resident aliens or nonresident aliens for income tax purposes.
Resident Alien means that you are not a U.S. citizen but you meet the definition of a U.S. tax resident for income tax purposes. Resident Aliens are treated like U.S. citizens when calculating tax liabilities and they will be taxed on their worldwide income.
Nonresident Alien means that you are not a U.S. citizen and you are not a tax resident for income tax purposes. Nonresident Aliens are taxed only on the income they earn or receive from U.S sources. Furthermore, there are strict income tax withholding and tax reporting rules that must be adhered to when making a payment of income to a nonresident alien. Generally speaking, payments of U.S. sourced income to nonresident aliens are subject to income tax withholding. As such, a percentage of tax is withheld from the payment and sent to the government as a prepayment of your personal income tax liability with respect to that income.
Your residency status for tax purposes is not always the same as your country of citizenship. Rather, your residence for tax purposes is affected by a number of variables like whether you have a United States green card, what kind of visa you have, and how much time you have spent in the United States or in another country prior to coming to the United States. The rules to determine tax residency status are very complicated and cannot be explained fully here. However, the general rules are that you will be treated as a Resident Alien (i.e. U.S. tax resident) if you either obtain an alien registration card (also known as a “green card”) or satisfy the “substantial presence test”. The substantial presence test says that if you have been physically present in the U.S. for at least 31 days in the current year and a total of 183 days counting the current year and the two preceding years, then you may meet the definition of a resident for income tax purposes unless you meet an exception. However, there are several exceptions to these rules and, furthermore, many countries have tax treaties with the United States that alter these rules to some degree. This is why this question is so hard to answer. Two important exceptions worth mentioning are:
- If the individual is a teacher or trainee in the U.S. under a J or Q Visa, the individual is generally exempt from income tax for two calendar years.
- If the individual is a student who is the U.S. under an F, J, M, or Q visa, the individual is generally exempt from having to count days of presence [towards the substantial presence test] in the U.S. for five calendar years.
If you meet the definition of a resident alien for U.S. tax purposes, then you may be required to file federal and state tax returns depending on your total gross income for the tax year and your filing status. Please refer to the Student Tax FAQs available at [LINK], as most of the issues addressed by those FAQs will apply to you since you will be taxed like a U.S. citizen.
If you are a nonresident alien, then more information about whether you have to file a tax return is available from the UConn Payroll Department at payroll.uconn.edu/PY/faqs/nrafaqs.html and from the IRS at https://www.irs.gov/individuals/international-taxpayers/taxation-of-nonresident-aliens
Even if you are not required to file a federal or state income tax return because your income does not exceed the income threshold for your designated filing status, you may want to consider filing a tax return if you had tax withheld from your income and you want to get this money refunded to you because you do not owe any tax.
More information on this subject is also available from the Internal Revenue Service (or “IRS”) at https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens
What is nonresident withholding tax?
In many situations where the University makes payments of income to international students, the University is legally required to retain a portion of the payment and send it to the Internal Revenue Service (“IRS”). The portion of the payment that the University retains and sends to the IRS is called a “withholding tax”. The withholding tax is actually a prepayment of your federal income tax liability on the income you are receiving. Part of the reason the nonresident withholding laws were enacted was to compel you to file a United States income tax return. The U.S. government wants to ensure that you are appropriately paying taxes on your U.S. sourced income. When you file your federal income tax return for the year, the amount of tax withheld from payments you received is credited against your actual income tax liability for the year which is determined based on your total taxable income for the year. If the amount of tax withheld exceeds your computed federal income tax liability, then you will get the excess refunded to you.
The University is legally required to collect and remit nonresident withholding tax to the IRS in a variety of situations. If you receive a paycheck from the University pursuant to an employment arrangement, the University may be automatically withholding income taxes from your paycheck each pay period. If you receive a taxable fellowship or scholarship through the University, the University may be withholding tax on that income and reporting it to you on your fee bill. If you chose to participate in the student health or dental insurance plan and receive a subsidy for your insurance premiums, then the University’s subsidy is considered a taxable scholarship. The value of the subsidy will be considered when determining how much nonresident withholding tax is required. Any nonresident withholding tax collected on health insurance subsidies will be reflected on your fee bill. If taxes are withheld on a taxable fellowship or scholarship you received, you will see a charge labeled “NRA Tax” on your bill which stands for Nonresident Alien Tax withholding.
Does the University earn any money from nonresident withholding tax?
No. The University only collects nonresident withholding tax in situations where it is legally required to do so. The University remits all of the tax that it collects to the Internal Revenue Service. The University does not keep any portion of the tax.
Are all international students subject to nonresident withholding tax?
No. Some international students have dual citizenship or may be considered U.S. residents (i.e. Resident Aliens) for tax purposes. In both instances, nonresident withholding would not be required. Additionally, many international students are residents of countries that have income tax treaties with the United States. Depending on the terms of each tax treaty, certain types of payments may be partially or totally exempt from tax and, therefore, nonresident tax withholding may not be required. Every tax treaty is different. Some treaties do not allow exemptions for nonqualified scholarship income but do allow tax exemptions on compensation for personal services rendered (i.e. wages). Typically, income tax treaties limit how long a tax exemption is allowed and/or how much income can be exempt from tax.
If you are an international person at UConn who receives any type of income payment (e.g. scholarships, grants, wages, etc.) from the University, then the University must collect and retain information needed to determine your tax residency in order to fulfill its nonresident withholding and reporting obligations. When students are not U.S. residents for tax purposes, the University determines whether a tax treaty applies.
If someone from either the Accounts Payable, Payroll, or Tax & Compliance department contacts you about nonresident withholding, please return their call promptly. The person is likely looking for information and documents necessary to establish that you are not subject to nonresident withholding. The University will default to withholding tax on nonresident income in instances where it was not provided enough information from the recipient to make a determination on whether or not withholding was required.
Why is NRA Tax being posted to my fee bill, when I am not receiving any money back from the Bursar’s Office?
Even though no money was actually paid to you, you still received a taxable scholarship, such as a waiver of room, board, or health or dental premiums.
As discussed in greater detail in Student Tax FAQs available at https://tax.uconn.edu/student-tax-faqs/, grants, fellowships, scholarships and fee waivers (here, collectively referred to as “scholarships”) may be considered taxable income, subject to nonresident withholding tax. When scholarships are used to pay required tuition and fees, they are not considered taxable income and are not subject to withholding tax. However, the IRS maintains that personal expenses, such as room and board, and medical and insurance costs are not required tuition and fees. A scholarship that covers any one or more of these non-required tuition items or fees is a taxable scholarship that is potentially subject to nonresident withholding tax.
For most students who are considered United States residents for tax purposes, the University is not obligated to withhold any tax, even though a waiver is considered a taxable scholarship. For students who are not considered United States tax residents and receive a waiver that is not exempt under an income tax treaty, the University is generally required by Section 1441 of the Internal Revenue Code to withhold and remit 14% of the waiver to the IRS.
By contrast, if you are a Graduate Assistant or Graduate Interns, then your health and dental insurance benefits provided through the State of Connecticut are not considered to be taxable scholarships. They are employment benefits offered under a specific type of plan that allows employees to use pre-tax wages to pay their premiums. A more detailed discussed is provided in the Student Tax FAQs referenced above.
I know another college that doesn’t collect nonresident withholding tax on student health insurance subsidies. What’s different here?
There are many factors that can affect whether health insurance costs are part of a taxable scholarship and, therefore, subject to nonresident withholding tax. It may be that other colleges are presenting the situation in a different way but essentially taxing it the same way. For example, some colleges may require international students to pay more than United States tax residents for the same health insurance, and treat the difference in cost as nonresident withholding tax. In other words, they are grossing up the cost of the insurance for nonresident aliens in order to cover the nonresident withholding tax. The University cannot comment on whether the approaches of other colleges are appropriate or correct. However, the University has researched its own position thoroughly and obtained an independent tax opinion supporting the University’s practice of withholding tax on health insurance subsidies given to nonresident aliens.
What do I do if I have more questions?
Since the University cannot advise you with regard to your personal tax situation, you should contact your accountant or personal tax advisor. However, more general information about the taxation of nonresident aliens is available from the UConn Payroll Department at payroll.uconn.edu/PY/faqs/nrafaqs.html and from International Student & Scholar Services at isss.uconn.edu/tax-preparation-resources/. You might also consult IRS Publication 970: Tax Benefits for Education (2013), and IRS information for Foreign Students and Scholars available at https://www.irs.gov/individuals/international-taxpayers/foreign-students-and-scholars.