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Saturday, February 24, 2007
Non-Resident Alien or Resident Alien?
A blog friend started a discussion on tax filing for Aliens here . Yannick and I have been filing as Non-resident alien and then Resident alien for years, and we may have to file as "Aliens" for a few more years if the Green Card waiting lines gets longer :( So we can not help sharing our experience.

I realized that my discussion on the topic with mOOm and Golbguru was a bit too fragmented. Therefore, I am recompiling my comments in the following:

F-1 and J-1 student visa holders are generally considered nonresident aliens for any part of the first five calendar years they are in the U.S. in that visa status. F-1 and J-1 students who have been in the U.S. for more than five consecutive calendar years are considered to be resident aliens for tax purposes.

To know why, first you should know that IRS is mainly concerned with the number of years you've been to US, not your immigration status defined by INS (USCIS recently).

You can get the spirit of the tax law from the IRS publication : 
"The residency rules for tax purposes are found in I.R.C. § 7701(b). Although the tax residency rules are based on the immigration laws concerning immigrants and nonimmigrants, the rules define residency for tax purposes in a way that is very different from the immigration laws. Under the residency rules of the Code, any alien who is not a RESIDENT ALIEN is a NONRESIDENT ALIEN. An alien will become a RESIDENT ALIEN in one of three ways:
(1) by being admitted to the United States as, or changing status to, a Lawful Permanent Resident under the immigration laws (the Green Card test);
(2) by passing the Substantial Presence Test (which is a numerical formula which measures days of presence in the United States);
or (3) by making what is called the "First Year Election" (a numerical formula under which an alien may pass the Substantial Presence Test one year earlier than under the normal rules).
Under these rules, even an undocumented (illegal) alien under the immigration laws who passes the Substantial Presence Test will be treated for tax purposes as a RESIDENT ALIEN."

So the Substantial Presence Test is the relevant part for most F1 or J1 holders.

In the IRS Publication 519, US Tax Guide to Aliens, it says that you don't count any day you are an F1 student towards presence in the US for the substantial presence test. However, after saying students (F1) were one of the "exempt" cases, the "exempt" status were automatically taken away after 5 years.

"You will not be an exempt individual as a student if you have been exempt as a teacher, trainee, or student for any part of more than 5 calendar years unless you establish that you do not intend to reside permanently in the United States and you have substantially complied with the requirements of your visa."

So enjoy the Resident Alien status which allows you to claim same number of deductions as a US Citizen after five years of consecutive F1 status and claim tax treaty benefit if your country has a tax treaty with the US. Even better, full-time students enrolled in a university and working part-time for the same university are exempted from FICA payroll taxes.

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posted by Jacqui @ 5:42 PM   |

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Name: Jacqui
About Me: I am a 30 something, married woman, no kid yet. My husband and I are late starters, on jobs, on personal finance, on blogging... But we believe that we will catch up!
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