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Everything you need to know about OPT Taxes

You must understand your tax obligations while you are an F-1 student studying and working in the U.S. so that you can make certain that you comply with the requirements.

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Studying in the U.S. with an F-1 student visa allows people from across the world to live in the U.S. while they pursue their higher education goals. One benefit offered by the F-1 visa is the ability to obtain work experience in the F-1 visa holders' major fields of study through the optional practical training program and the STEM OPT extension for certain people who complete degrees in STEM fields. When you work in the U.S. as an F-1 OPT participant, you will be required to file a tax return. Meeting your tax obligations is necessary to maintain your visa status. You must understand your tax obligations while you are an F-1 student studying and working in the U.S. so that you can make certain that you comply with the requirements.

What is the OPT program?

The optional practical training program allows eligible F-1 students to work in jobs that relate directly to their majors either before they graduate or after they do. Periods during which eligible F-1 students work off-campus through optional practical training are called pre-completion OPT while the time that F-1 students work after they graduate is called post-completion OPT.

The total amount of time that students are allowed to receive training through OPT is 12 months. This is an aggregate amount and includes all OPT periods that are completed both before and after graduation. This means that if you work for three months through pre-completion OPT, you will only be allowed to work for nine additional months in post-completion OPT.

F-1 students who want to participate in pre-completion OPT cannot do so until they have completed a full year of studies in their degree programs. They can apply up to 90 days before they finish their first full year of studies, which is defined as the fall and spring academic terms. To apply, you must meet with the designated school official at your college or university to secure his or her recommendation. Once the official agrees to recommend you for OPT, he or she will update your information in the SEVIS system and endorse your Form I-20. You must then apply for an employment authorization document by filing Form I-765, paying the filing fee, and submitting your endorsed Form I-20 and your other supporting documents. You may not begin working in pre-completion or post-completion OPT until your application has been approved, and you have received your employment authorization document.

The application process for post-completion OPT is similar. You can apply for post-completion OPT during a window from 90 days before you graduate up to no more than 60 days after you do. The DSO must recommend you for post-completion OPT, endorse your Form I-20, and enter the information into the SEVIS system. You will then need to apply for your employment authorization document by filing Form I-765, your endorsed Form I-20, the filing fee, and your other supporting documents to the USCIS. You cannot begin working until you receive your employment authorization document. If you did not work in pre-completion OPT, you will be allowed to work for up to 12 months after you graduate in post-completion OPT employment.

Some F-1 visa holders may qualify for the STEM OPT extension. This program allows you to extend your post-completion OPT by up to 24 months. However, you can only apply for the STEM OPT extension if your degree appears on the designated list of science, technology, engineering, and math degrees that is published by Immigration and Customs Enforcement.

Whether you work in pre-completion, post-completion, or the STEM OPT extension, you will be required to pay taxes on the income that you earn through your U.S. employer. Even if you do not earn an income, you will have to file information with the Internal Revenue Service each year.

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Types of taxes that F-1 students pay

Many F-1 students are surprised by the sales taxes that are charged in the U.S. These taxes vary from location to location and state to state. Unlike in Europe and many other countries, the sales taxes are not included in the advertised prices of items that you want to buy. Instead, these taxes will be added at the register when you make a purchase. For example, if you go to a restaurant and buy a sandwich that is listed at $4.50, you will have to pay that amount plus an additional sum to pay for the sales tax amount. Other countries also charge sales taxes, but many include the sales taxes as a value-added tax that is included in the advertised price of an item.

If you work through the OPT program, there are several other taxes that you might have to pay, including local, state, and federal taxes. Some taxes will be deducted from your income. You can see these deductions on your paystubs from your job. Even though the amounts might be withheld, you will still be required to file a federal tax return. If you live in a state that has a state income tax, you will also need to file a state income tax return. The types of taxes that you will have to pay will depend on your tax status and where you live in the U.S.

What is your tax status?

Your residency for tax purposes in the U.S. is important because it will determine the tax forms that you will need to complete and how you will be taxed. F-1 students are generally considered to be nonresident aliens by the IRS during the first five years that they live in the U.S. However, there are some exceptions to this general rule.

While F-1 students are considered to be exempt from being considered to be resident aliens for tax purposes for the first five calendar years that they remain in the U.S., you can try to meet an exception to this rule. To do so, you will have to prove to the satisfaction of the IRS that you have kept a closer connection to your home country than the U.S. and that you have not taken any affirmative steps to try to adjust your status to become a lawful permanent resident. Otherwise, if you have remained in the U.S. as an F-1 student for more than five years, you will be considered to be a resident alien for tax purposes. before that time, you will be considered to be a nonresident alien for tax purposes. Since your tax residency status may be reclassified, you must know what it is so that you can file the right forms with the IRS.

A note about what "resident" means for resident aliens

While most F-1 students are considered to be nonresident aliens, some are considered to be resident aliens. For example, if you are an F-1 student who completed your Bachelor's degree in the U.S. and then entered graduate school with an F-1 visa, you may be considered to be a resident alien during graduate school even though you were considered to be a nonresident alien during your undergraduate years.

You must understand that the word "resident" in resident alien only denotes a tax-filing status. It does not mean that you are considered to be a lawful permanent resident or a resident for in-state tuition at your educational institution.

Nonresident aliens and FICA

Under the Federal Insurance Contributions Act or FICA, taxes are withheld from the paychecks of U.S. tax residents to pay into the Social Security and Medicare funds. These funds are designed to provide old-age benefits to retired U.S. workers and disability benefits to workers who have earned sufficient credits from work who become disabled. While all U.S. tax residents, including resident aliens, are required to pay FICA taxes on the money that they earn from their jobs, F-1 students who are nonresident aliens for tax purposes are not required to pay them. If you are working through the OPT program and have been in the U.S. for fewer than five years, check your paystubs to see if FICA taxes have been withheld. If they have, you can apply for a refund of the FICA taxes that have been withheld on your income tax return.

Resident aliens and FICA taxes

Unlike nonresident aliens, the IRS has determined that resident aliens are responsible for paying FICA taxes. This means that if you have determined that your tax filing status is as a resident alien, your employer should withhold FICA taxes from your paycheck. You also will not be eligible to receive a refund of the amounts that you have paid. The total Social Security withholding rate is 12.4%. However, your employer will be responsible for paying half or 6.2%. The remaining 6.2% is what will be withheld from your paychecks.

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Other taxes that may be withheld from your salary

In addition to FICA taxes, you will see some other types of taxes that are withheld from your salary on your paystub. These include federal income taxes. In most states, it will also include state income taxes. Some localities likewise charge local income taxes. There are only seven states that do not charge any state income taxes, including the following:

  • Alaska

  • Nevada

  • Florida

  • Texas

  • South Dakota

  • Washington

  • Wyoming

Two other states, including New Hampshire and Tennessee, do not charge state income taxes on your earned income but do tax dividends that you earn on your investments. If your school and your OPT employer are located in one of these states, you should not be concerned by not seeing that any state income taxes have been withheld. If your school and OPT employer are located in any of the remaining states, you should expect to see state and federal withholdings on your paystubs.

Finally, some cities and counties charge local income taxes. These vary across the U.S. If your city or county charges local income taxes, you will see the taxes being withheld on your paystub and on the W-2 form that you receive at the end of the tax year.

What tax forms are required?

Even though taxes may have been withheld from your paychecks, you are still required to file tax forms in the U.S. If enough money was not withheld from your paychecks to fulfill your tax obligations, you might have to pay more. If too much money was withheld to meet your tax obligations, you may be entitled to a refund of the overage. All F-1 students who are nonresident aliens are required to file Form 8843. If you earned income, you will also need to file Form 1040NR. If you are a resident alien, you will need to file Form 1040.

Form 8843

If you have determined that your tax-filing status as an F-1 student is a nonresident alien, you must file Form 8843. This is not an income tax form. Instead, it is used for information by the IRS and is required of all F-1 students even if they do not earn any income during the tax year. In other words, you must file Form 8843 even if you are only studying and are not participating in OPT. This form must be filed if you were present in the U.S. during the tax year, are a nonresident alien, and had an F-1, F-2, J-1, or J-2 status. This form must also be filed no matter the person's age and even if you are not required to file a federal income tax return.

As previously mentioned, Form 8843 is not a tax return. Instead, it is a statement that the government requires certain nonresident aliens in the U.S. to file each year. If you have obtained an individual taxpayer identification number or a Social Security number, you will need to include it on Form 8843.

If you did earn an income and are required to file Form 1040-NR, you will attach Form 8843 to your tax return. If you did not earn an income and are not required to file Form 1040-NR, you must submit Form 8843 to the IRS in its own envelope. If you have several members of your family who are required to submit Form 8843, each form must be submitted in a separate envelope.

For example, if you are studying in the U.S. with an F-1 visa and have been accompanied by your spouse on an F-2 visa, both you and your spouse will have to submit Form 8843. If you earned an income through OPT, you will need to file Form 1040NR and attach Form 8843 to it. Your spouse will need to file Form 8843 and mail it separately in a different envelope than your tax return. Form 8843 must be completed and mailed before the tax filing deadline. In the U.S., the tax filing deadline is normally April 15 of the year that immediately follows the tax year, but it varies by a couple of days in some years. For example, for the 2019 tax year, the tax filing deadline will be April 15, 2020. Filing Form 8843 is a required condition of your F-1 visa.

The W-2 form

U.S. employers are required to send W-2 forms to each employee who worked during the tax year. This form will contain information about your gross income and any taxes that were withheld. The form must be sent to you by your employer by Jan. 31 following the tax year. If you do not receive your W-2 form, contact your employer to get a copy. Employers also send copies of these forms to the IRS so that the agency knows to expect income tax returns from the workers.

Form 1040NR

Form 1040NR is the income tax return that you must file if you earned income in the U.S. as a nonresident alien. This includes the income that you earned while you worked through the OPT program. When you fill out this form, you will need to include your name, address, the names of your dependents, and other information. You will need to list the total amount that you earned from your employment from your W-2 form and any additional sources of U.S. income.

After you have calculated your adjusted gross income, you will find it in the tax tables and see the corresponding taxes listed there. You will then subtract the federal income taxes that you have paid to see if you are owed a refund or if you owe taxes. If you owe more taxes than the amounts that were withheld, you will need to send a payment with your tax return. If you are owed a refund, it should be sent to you by the IRS within six to eight weeks.

State income tax return for nonresident aliens

If you live and work in a state that assesses state income taxes, you will have to file a state income tax return. You can check with your state's department of revenue to find the tax return that you need to file. The information that you will enter will be similar to the information that you entered on your federal tax return. You will also report the state income taxes that were withheld and calculate whether you need to pay any more or if you are owed a refund from the state.

Form 1040 for resident aliens

If you are a resident alien with an F-1 visa, you will be required to file Form 1040. This tax form is the same income tax form that U.S. taxpayers file each year for their federal income taxes. As a resident alien, you will not be eligible to claim a refund for the FICA taxes that were withheld from your paychecks.

How to file your tax returns

You can choose to complete and file the required tax forms or get the help of professional tax preparers. If you choose to file them yourself, you will need to complete everything and mail the documents to the correct IRS and state department of revenue addresses. The correct mailing address will depend on where you live and whether you are required to submit a payment with your returns.

Because of the complexity of federal and state income tax returns, many F-1 students choose to hire professional tax preparers to help them with their forms. This might be a good idea to help you to prevent errors.

Are OPT students eligible for deductions and credits?

As an OPT student who is a nonresident alien, you might be eligible for certain deductions and credits and ineligible for others. Deductions are amounts that are subtracted from your gross income to calculate your adjusted gross income. Credits are amounts that are credited against your tax bill. Nonresident aliens who earn an income might be eligible to claim deductions for IRA contributions, SEP IRA contributions, SIMPLE IRA contributions, Archer contributions, and others if they meet the qualifications. However, nonresident aliens are generally not allowed to claim the standard deduction. Certain students from India might be able to claim the standard deduction under a tax treaty that the U.S. and India have, however.

As a nonresident alien, you might be able to claim the following credits if you qualify for them:

  • Child tax credit

  • Child and dependent care tax credit

  • Foreign tax credit

  • Retirement savings contribution credit

  • Credit for other dependents

  • Adoption credit

Nonresident aliens are not allowed to claim the earned income tax credit.

Wrap-up

If you are an F-1 student who participates in OPT employment, you must file tax returns each year. Even if you do not earn an income, you will still be required to file Form 8843. Since the tax system in the U.S. is complex, it may be a good idea for you to use the services of a professional tax preparer to assist you with filing everything correctly.

Traveling to the U.S. on an F-1 visa can open the doors to many opportunities, including the ability to receive training by working in the U.S. under the OPT program. Once you have been approved for your F-1 visa, you should prepare for your life in the U.S. Your credit score from your home country will not be sent to the U.S. automatically. Since banks, lenders, and landlords check the credit scores of applicants, this can present a problem for F-1 students. Nova Credit offers a solution to this issue with the global credit passport. This is a translation of your credit history into a credit score that is used by major creditors and lenders in the U.S. to make credit decisions. Once you have your score, you will be prepared to begin your life as an F-1 student in the U.S.

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