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Taxes: Residency for Tax Purposes

Learn about how federal tax residency of international visitors is determined and how it affects withholding and tax returns.

There are separate federal tax rules for those who are nonresidents for tax purposes, and those who are citizens/ permanent residents/ residents for tax purposes. 

Residency for federal tax purposes is determined by the IRS Substantial Presence Test (SPT), which is explained in IRS Publication 519 "U.S. Tax Guide for Aliens (PDF). All University of California campuses use the Glacier Online Nonresident Alien Tax Compliance System ("Glacier") to apply the SPT to each foreign visitor. Glacier generates a Tax Summary Report when you complete your Glacier record. It will show residency for tax purposes as of the day it was printed, the residency status change date, and the residency status start date.

Residency for tax purposes affects

  1. Federal tax withholding for wage/ salary and fellowship payments.
  2. FICA withholding for those on F1 or J1 status. 
  3. How UCSD will report payments to you and to the IRS. Forms W-2 and 1042-S are common reporting forms. 
  4. Which federal tax return forms are applicable to you.

Residency for tax purposes does not affect

  1. Citizenship
  2. Work authorization
  3. Immigration status
  4. Withholding or reporting of California state tax. The residency status rules for the State of California are different from the federal rules. Because the State does not differentiate tax withholding for California residents and nonresidents, UCSD does not evaluate California residency. Determining residency status for state tax purposes is an individual responsibility. See FTB Publication 1031: Guidelines for Determining Residency Status.

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1. Understand how residency for federal tax purposes is determined

 IRS Publication 519 "U.S. Tax Guide for Aliens explains how residency for tax purposes is calculated. 

Someone with a Permanent Resident Card is automatically a resident for tax purposes.

International visitors who are not permanent residents as subject to the Substantial Presence Test (SPT), which as two parts. The test considers immigration status, length of stay in the U.S., and previous visits. It can be complicated and counterintuitive, especially for those who have previous visits on other immigration statuses or J1s who have been in the U.S. for eight or more years. There are two parts to the SPT:

 Substantial Presence Test:  Counting days of presence in the U.S., and the special rules for F & J statuses.

  1. 31 days or more countable days of presence in the current calendar AND
  2. 183 countable days during the 3-year period* that includes 2020, 2019, and 2018, counting
    • All countable days of presence in the U.S. in 2020
    • 1/3 of the countable days of presence in 2019
There are special rules that allow those on F and J  to become "exempt individuals" for a number of years. You are considered an "exempt individual" when your days of presence do not count toward the SPT. This does not mean you're exempt from tax!  Exempt individuals are those exempt from counting days of presence toward the SPT. 
  • Those on F or J student status are exempt from counting days for five calendar years in their lifetime. 
  • Those on J non-student status are exempt from counting days of presence in the current calendar year if they were not an exempt individual on any status for any part of two of the previous 6 years. J is the only status that can start out as a exempt individuals become a resident, and then become a nonresident again.  The chart below illustrates the "current and six year lookback" rule. She arrived in 2013 as an F1 student.  F1s are exempt individuals five years in their lifetime, so she was an F1 exempt individual in 2013 and 2014. In 2015, she changed to J1 Research Scholar, so we have to look at 2017 and the 6 previous years.  We find she was an exempt indiviudal in two of those years (2013, 2014), so she was not an exempt individual in 2017. By the time we get to 2020, 2013 is not in the 6-year window. "You will be an exempt individual  the current year if you were not an exempt individual in at least 2 of the current and 6 previous years." She was an exempt individual in only 1 of those years, so she's an exempt individual in 2020. Those who are exempt individuals do not count their days of presence toward the SPT. With zero days of presence in 2020, so she fails the first part of the SPT: 31 days of presence in the U.S. She is a nonresident in 2020, her eighth year in the U.S.
Current Year 2020 2019 2018 2017 2016 2015 2014 2013
Lookback year 1 2019 2018 2017 2016 2015 2014 2013 2012
Lookback year 2 2018 2017 2016 2015 2014 2013 2012 2011
Lookback year 3 2017 2016 2015 2014 2013 2012 2011 2010
Lookback year 4 2016 2015 2014 2013 2012 2011 2010 2009
Lookback year 5 2015 2014 2013 2012 2011 2010 2009 2008
Lookback year 6 2014 2013 2012 2011 2010 2009 2008 2007

 

  

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Special rules for those on F or J status may make someone an "exempt individual," meaning that they are exempt from counting days of presence toward the SPT (not exempt from tax). Two examples:

A student on F or J student immigration status will be an exempt individual for five calendar years in their lifetime. If he arrived in the U.S. for the first time on any date in 2015 and stays in the U.S. through July of 2222, the student will be an exempt individual for five calendar years: 2015, 2016, 2017, 2018, and 2019. Days on which he’s an exempt individual do not count toward the SPT. Even if he was in the U.S. every day of 2018, with zero countable days, he failed the SPT and was a nonresident for tax purposes. In 2020, however, his days count. If he graduates on June 15 and leaves the U.S., she will be a fail the 2020 SPT and be a nonresident because she has fewer than 183 days in the U.S. in 2020, zero countable days in 2019 and 2018. If she stays in the U.S. until August 1, 2020 she will be a resident for tax purposes (RA), retroactive to 1/1/20 because she’ll have more than 183 days in 2020.
A student on F or J student immigration status will be an exempt individual for five calendar years in their lifetime. So a J1 or F1 student who arrives in the U.S. for the first time on September 1, 2016 and stays through 2021 will be an exempt individual for five calendar years: 2016, 2017, 2018, 2019, and 2020, and not exempt in 2021. In the first five calendar years, none of his days of presence in the U.S. in those years are counted toward the SPT. With zero countable days in 2016, he fails the first part of the SPT and is a nonresident for tax purposes because he has fewer than 31 days of presence in the current calendar year. In 2021, he will be a resident for tax purposes if he is in the U.S. 183 days or more. He will be a nonresident alien if he leaves before July 3, 2021.
A J1 Research Scholar who arrives in the U.S. for the first time in 2019 will be an exempt individual in 2019 and 2020. In 2021, her days of presence count toward the SPT. If she is present for 183 days or more in 2021, she'll be a resident for tax purposes in 2021 retroactive to 1/1/21.


*The SPT can be complicated and counterintuitive for someone with visits on multiple immigration statuses, or someone who has been in the U.S. for several years and is now on a non-student J status.

2. Use Glacier to learn your tax residency status

Every foreign visitor receiving payment from UCSD is required to complete a record in the Glacier Online Nonresident Alien Tax Compliance System. Glacier gathers the information necessary to determine residency and applies the SPT. It also determines tax treaty and FICA eligibility. The Tax Summary Report generated by Glacier includes:

  • Residency status as of the day the report is generated
  • Residency status change date
  • Residency status start date
  • FICA eligibility status and start date

3. Understand how your tax residency status affects payments from UC San Diego and how you will file your tax returns

Nonresidents for tax purposes: 

  • Nonresidents are generally limited to claiming a marital status of single with one withholding allowance on Form W-4. Exceptions: Students from India and anyone from Canada, the Republic of Korea, or Mexico may claim addition withholding allowances for eligible spouse and dependent on Form W-4. Glacier will generate Form W-4
  • Wages paid to nonresidents on F1 & J1 status are not subject to FICA withholding (Glacier's FICA eligibility determination can be found near the bottom of the Tax Summary Report Glacier generates when you complete your Glacier record. All other statuses are subject to FICA withholding regardless of residency status for tax purposes.
  • Fellowship subject to 30% federal tax withholding unless on F1 or J1 status (14%). 
  • Only U.S.-sourced income taxable in the U.S.
  • Slightly higher federal tax withholding on wage payments.
  • Taxable wages will be reported on Form W-2.
  • Wages exempt from federal tax due to a tax treaty will be reported on Form 1042-S.
  • Fellowship payments from which federal tax was withheld will be reported on Form 1042-S. Fellowship payments exempt from federal tax withholding due to a tax treaty exemption claimed at the time of payment will be reported on a separate Form 1042-S. 
  • File nonresident federal income tax return forms and/or Form 8843 by April 15 of the following year: 1040NR, 1040NR-EZ, 1040NR-A. Glacier Tax Prep (GTP) will generate the required forms.
  • Must mail federal tax returns to IRS. Forms with NR in the title may not be filed electronically
  • May use the Glacier Tax Prep (GTP) system to complete their U.S. federal tax returns. It will generate the appropriate 1040NR form and instructions. Online tax return preparation services are not designed for nonresident aliens and may incorrectly calculate taxable income and tax due.

Residents for tax purposes:

  • File the same type of income tax return forms that citizens use. Forms will not have NR in the title.
  • May file tax returns electronically
  • May use tax return preparation systems designed for citizens, but cannot use Glacier Tax Prep (GTP) to complete U.S. federal tax returns
  • May claim whatever marital status and number of withholding allowances are appropriate on Form W-4.
  • Wages subject to FICA withholding unless student enrolled in 6 units or more at UC San Diego
  • Fellowship payments:
    • No tax withholding on fellowship payments (though they may be taxable)
    • Fellowship payments will not be reported on an official tax statements - no Forms W-2, 1042-S, or 1099
    • Quarterly tax payments to the US federal and California state tax authorities (IRS and FTB, respectively) may be required. 
    • Fellowship income may be taxable and may need to be reported on individual tax returns

4. How do I get more information?

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