Save Money On Your Tax Return
by Gary W. Carter. Ph.D., MT, CPA
with William Chau and Andrew Purvis
The U.S. tax code is complex enough for Americans, but starting in 2001 it will become simpler for international students who earn interest in the U.S., and that's good news for iStudentCitizens.
Change is coming
New regulations that take effect on January 1st, 2001, make forms W-8, 1001, 1078, and 4224 obsolete (we told you it was complex!). Where residents and non-residents have been taxed under the same system in the past, the U.S. government will begin differentiating between the two groups.
Under the new regulations, residents who earn interest from U.S. finacial institutions will have to fill out form W-9 to indicate that they are a U.S. citizen or resident alien (green card holder). Other people earning interest from U.S. finacial institutions will have to fill out form W-8BEN to indicate that they are non-resident aliens.
Are you exempt?
If you are studying in the U.S. while on an F-1 or J-1 visa, you are considered a non-resident alien for five calendar years after your arrival. During those five years, you are considered to be an "exempt individual" and don't have to pay U.S. tax on interest. If you are here longer than five years, you will are subject to a "substantial presence test." If you spend more than 183 days a year in the U.S., you are considered a resident alien, for tax purposes, and you are no longer exempt.
Form W-9 will be used by U.S. residents to report their social security number and to establish that they are citizens or lawful permanent residents; non-residents will no longer fill out this form. You may be sent a W-9 if you earn interest from a U.S. financial institution. If you qualify as a non-resident alien after the new regulations take effect, you should not fill it out! Instead, fill out a W-8BEN in order to give the payor institution (bank, credit union, etc.) your Taxpayer ID Number (TIN) and to let them know that you are not a U.S. resident and are thus exempt from any backup witholdings and tax liability on interest earned on your accounts.
You should also fill out form W-8BEN if you have investments with any U.S. investment institutions such as brokerage houses. Different rules may apply to residents and non-residents in these cases, and these institutions need to know which you are so that they can process your withholdings appropriately. You should receive a 1042-S rather than a 1099 from these kinds of institutions. If you get a 1099 and you have filed a W-8BEN with the institution sending it to you, contact them to make sure that they have you listed as a non-resident alien.
If you earn any income in the U.S., you need to file a tax return, even if it is only to say that you are exempt. You are still subject to tax on money you earn while working in the U.S., and you have to pay capital gains taxes on any money any make on stock sales, real estate, and other investments. Still, not having to pay (or even compute) taxes on interest will make filing your taxes much easier.
Gary W. Carter provides tax assistance to both residents and non-residents filing in the United States. He received his Ph.D. from the University of Texas at Austin and he is the Associate Director of Graduate Tax Studies at The Carlson School of Management (University of Minnesota). For more information or more detailed help with tax issues, visit his site at www.thetaxguy.com.