A person who is in the United States on a temporary visa and who complies with the terms and conditions of that visa is considered a “student” for tax purposes. The appropriate visa for students is typically an “F” visa. An F-1 visa will be given to the student, and an F-2 visa can be used to grant derivative status to certain members of the student’s family.
It’s crucial to remember that, even though the tax implications of being classified as a student are important, the examination begins with an issue of immigration law. You must follow the conditions of your student visa to be eligible for any tax benefits that come with being a student.
One of the benefits of an FI is that students can rule out days spent in the United States. Students can also exclude days of attendance in the United States under the student visa exception for a maximum of five years, with any portion of a year counting as a full year for this purpose. After the five-year threshold is reached, a student cannot exclude days of presence in the United States unless further action is taken. The straightforward illustration of these fundamental rules is as follows:
- On November 15, 2018, you entered the United States for the first time on an F-1 visa to begin a course of study. 2018 is counted as one complete year toward the five-year mark.
- You comply with the conditions of your student visa and will remain in the United States until the end of 2022. Your fifth year as a student will be in 2021.
- For the purposes of applying the substantial presence test, your days spent in the United States from November 15, 2018, to December 31, 2022, are not “counted.”
- You decide to continue your education in the United States into 2023 and gain the needed approvals under immigration law to remain on a student visa in the United States into that year.
If further activity is missed, your status as an “understudy” will end on January 1, 2022. You should start including your long periods of presence in the U.S. If a person wants to extend their student status past the fifth year, they must prove that they do not intend to stay in the country permanently and have largely complied with their student visa requirements. The following facts and situations should be considered when determining whether a person has shown the right “intent”:
- Whether they have kept a stronger connection to a foreign country.
- Whether they have taken any steps to change their status to that of a permanent lawful resident.
The capital gains from sources within the United States are subject to a 30% tax for nonresident aliens who are physically present in the country for 183 days or more during the tax year. This rule has very little practical application because, if most people have been in the country for 183 days or longer, they are probably considered U.S. residents for income tax purposes and are subject to the standard rules that apply to all U.S. taxpayers. However, among the few groups of people to whom this rule applies are students.
Before changing your visa status in the United States, the best time to start planning how to manage your taxes is now. Schedule your FREE 15-minute call with us today to learn more.
