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Banks are good at holding your money, but make sure they don't accidentally give too much to the government.
The Basics | U.S. Income Tax System
by Gary W. Carter. Ph.D., MT, CPA
The Tax Guy

When you come to the United States, one of the first things you will probably want to do is open a bank account in which to deposit your money. I have heard that some banks and credit unions give international students a Form W-9 to fill out, and tell them that they must have a social security number (SSN) in order to open an account. In fact, there is no legal requirement that you have a social security number to open an account with a U.S. bank, credit union, or savings and loan association when you first arrive in the United States. That's because interest on deposits in those institutions is not taxable to you as long as you are classified as a nonresident alien and the interest income is not effectively connected with the conduct of a U.S. trade or business. Such interest is not subject to income tax withholding by the institution, and is not reportable to the Internal Revenue Service (IRS).


Inform the banking institution that you are a nonresident alien and that Form W-9 is not the form you should fill out to open an account. Instead, you should file Form W-8BEN ("Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding") with the bank. The filing of Form W-8BEN exempts you from having to report a taxpayer identification number to the institution, and exempts you from withholding of federal income tax on the interest income from such institution. The Form W-8BEN is valid for 3 years, or until you become a resident for U.S. tax purposes. If a particular banking institution still refuses to let you open an account, there is not much you can do except try another bank that is up on the rules.


The tax exemption for nonresident aliens on interest only applies if the interest is from a bank, credit union, savings and loan association or insurance company. If you are a nonresident alien, the United States generally taxes you on interest, dividends and capital gains from investment accounts at a flat rate of 30 percent. If the United States has a tax treaty with your country of residence, it might reduce or eliminate the tax.

If you invest with a brokerage house or other investment institution, you should file Form W-8BEN with the company as a notice that it must report and withhold on any income you earn according to the reporting and withholding rules that apply to nonresident aliens. If a brokerage house sends you a Form W-9 to fill out, do not fill it out; send in a completed Form W-8BEN instead. If you are subject to a treaty that reduces or eliminates the U.S. tax on your investment income, you must include the treaty information on the Form W-8BEN. At the end of the year, you should not receive a Form 1099 from a brokerage firm, but rather a Form 1042-S.

You should include either your SSN or an individual taxpayer identification number (ITIN) on the Form W-8BEN. Contact a Social Security Administration office to find out if you are eligible for an SSN. If you are eligible, but do not have one, apply on Form SS-5, "Application for a Social Security Card." If you are not eligible for an SSN, you should apply for an ITIN using Form W-7, "Application for IRS Individual Taxpayer Identification Number." These forms are available on the IRS Web site.


All of the above information applies only as long as you are classified as a nonresident alien for U.S. tax purposes. If you become a resident alien before 2001, you can file Form 1078 to inform your withholding agent that you have become a resident alien and should be treated as such by the withholding agent. Form 1078 will become obsolete at the end of 2000, and should no longer be used. New regulations require that Form W-9 be used in the place of form 1078, not only to inform the withholding agent of your taxpayer identification number, but also to tell the withholding agent that you are a resident alien. The IRS will be changing Form W-9 soon to fit this new dual purpose.


Residency status for tax purposes in the United States is not the same as residency status for immigration purposes. As a nonimmigrant, you become a tax resident when you pass the "substantial presence test." For most aliens, the substantial presence test is met if :

  1. you are present in the U.S. for at least 31 days during the calendar year, and
  2. the sum of the number of days you are present in the current calendar year, plus one-third of the days present in the preceding year, plus one-sixth of the days present in the second preceding year, is at least 183 days.

However, if you are an "exempt individual," your days present in the United States are not counted for the substantial presence test, so you are automatically classified as a nonresident alien. An exempt individual includes a teacher, researcher, trainee or student who is present in the U.S. on an F, J, M or Q visa. You will generally not be exempt as a teacher or trainee if you were exempt as a teacher, trainee or student for any part of 2 of the 6 preceding calendar years. You will generally not be exempt as a student for more than 5 calendar years. Once you are no longer an exempt individual, you are subject to the substantial presence test. For a detailed and interactive test for determining your residency status, visit my web site.

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.

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