Internal Revenue Service Wage and Investment Stakeholder Partnerships, Education and Communication Spring 2008

1. Internal Revenue ServiceWage and InvestmentStakeholder Partnerships,Education and CommunicationSpring 2008

2. Income Tax Workshop for Resident Filers Note: This workshop will explain only the basic rules of resident income tax filing.

3. Please NoteThis workshop is for students onF-1 or J-1 visas who have beenin the U.S. for 5+ years.It is also for scholars on J-1 visas who have beenin the U.S. for 2+ yearsout of the last 6 years ANDfor employees on H-1B visas.

4. Internal Revenue Service • The taxation agency of the U.S. Government to which you • File your personal Income Tax Return

5. State Tax Departments • The taxation agency of the State Government to which you may need to • File your personal Income Tax Return • If you resided in New York State in 2007, you may need to file a NYS Income Tax Return. • If you lived in another State, you may need to file that State’s Income Tax Return. • If you lived in two States, you may need to file two State Income Tax Returns.

6. Basic Tax Vocabulary • Alien:generally, any person who is not a U.S. citizen • Student:person temporarily in the U.S. on an F, J, Q or M visa • Scholar:person who is not a student & who is temporarily in the U.S. on a J or Q visa

7. Basic Tax Vocabulary (cont.) • Resident or Non-resident:refers to one’s tax filing status (Nothing else!) • IRS:Internal Revenue Service • Income Tax Return:statement filed (submitted) by individual taxpayer to the IRS

8. Basic Tax Vocabulary(cont.) • Compensation/Earnings:wages, salaries, tips • Income:wages, salaries, tips, interest, dividends, some scholarship/fellowship grants

9. Do I file as a Non-Resident or Resident?

10. Residency Rulesfor FilingU.S. Income Tax Returns

11. Determinationof Residency Status Do not confuse Federal Tax Residency with Immigration Permanent Residency OR New York State Residency requirements for in-state tuition rates

12. Federal Tax Residency Rules • For Federal Tax purposes, foreign nationals are classified as: • Resident Aliens OR • Nonresident Aliens (anyone who is not a resident alien) • Note: There are also “Dual Status” aliens who are considered as residents for part of the year and nonresidents for part of the year.

13. Resident or Nonresident? The following determines whether you are a resident or nonresident for federal tax purposes: • Green Card Test • Substantial Presence Test • Residency Through Marriage

14. Who is a Resident for Tax Purposes? 1) “Green Card”Test • Lawful Permanent Resident of the U.S.

15. Green Card Test • Your residency starting date for tax purposes is based on the date your status changed to Lawful Permanent Resident. Remember: There is no option. If you are a Lawful Permanent Resident, you are a resident for tax purposes.

16. Who is a Resident for Tax Purposes? 2) “Substantial Presence” Test Calculation that takes into consideration presence in the U.S. during the current year and two immediately preceding years

17. ”Substantial Presence” Test How Do I Count? 31 days during the current year and 183 days based on a calculation that considers presence during the current year and two preceding years

18. Substantial Presence Test • Current year (2007) days in U.S. x 1 = ___days Must have at least 31 days in current year • 1st preceding year (2006) days in U.S. x 1/3 = ___days C. 2nd preceding year (2005) days in U.S. x 1/6 = ___days D. Total “Days in U.S.” A+B+C = ___days If Line D equals or exceeds 183, 183-day test is passed. Must pass both 31-day and 183-day tests.

19. Substantial Presence Test • If Line A equals or exceeds 31 days and Line D equals or exceeds 183 days, then you are a Resident Alien for federal tax purposes. • If not, then you are a Nonresident Alien for federal tax purposes anddo not need this workshop.

20. Substantial Presence Test Some individuals are exempt from counting days toward the Substantial Presence Test. • Days of an “EXEMPT” individual • Commuter from Canada or Mexico • Others (see Publication 519)

21. Who are Exempt Individuals? • F, J, M & Q students (who have been in U.S. for less than 6 years) • J & Q Scholars (who have been in U.S. for less than 3 years out of last 6 years) Note: Not exempt from taxation

22. Residency through Marriage 3) A nonresident spouse can be treated as a resident for tax purposes • You are required to file jointly with your U.S. Citizen or U.S. Resident (for tax purposes) spouse. • You must report world-wide income.

23. Duel-status Aliens Dual-status Aliens • Taxpayer has two residency statuses during the same tax year • Therefore, taxpayer • Must file two income tax returns AND • Split income between the two income tax returns based on residency status. Note: See Publication 519 for more information.

24. Establishing a Closer Connection If you want to remain a non-resident for tax purposes by claiming a closer connection to your country, you can if you: • are present in the U.S. less than 183 days in the current year AND • have a tax home in a foreign country AND • file Form 8840. Note: There are other criteria. Please see Form 8840 instructions.

25. Residency Starting Date

26. Residency Starting Date Residency starting date under green card test If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on which you were present in the U.S. as a Lawful Permanent Resident.

27. Residency Starting Date Residency starting date undersubstantial presence test Your residency starting date is generally the first day you were present in the U.S. during that calendar year.

28. Residency Starting Date When both the Substantial Presence Test and Green Card Test apply, use the earlier of the two dates.

29. Tax Treatment of Resident Aliens

30. Tax Treatment of Resident Aliens • Resident Aliens are taxed on worldwide income, just as U.S. Citizens are. • Dual Status Aliens are taxed as either residents or nonresidents depending on which part of the year their income was realized.

31. Tax Treatment of Resident Aliens WHICH INCOME DO I REPORT? • Are you a Resident Alien for tax purposes? • Resident Aliens report their entire worldwide income like U.S. Citizens. • Resident Aliens may not claim exclusions of income based on Tax Treaties (with some exceptions stated in some tax treaties – visit: www.irs.gov/businesses/international/article/0,,id=96739,00.html

32. WHICH INCOME TO REPORT? (cont.) • Are you a Dual Status Alien? • Dual Status Aliens report their entire worldwide income for that portion of the year during which they are Resident Aliens, and report only income that is sourced in the U.S. or that is effectively connected with a U.S. trade or business for that portion of the year in which they are Nonresident Aliens.

33. Are you required to file a U.S. Resident Tax Return?

34. Do you have to file? • If your gross income is over the dollar amounts listed on the chart, you must file a U.S. Federal Income Tax Return. • If you have overpaid taxes, you must file an income tax return in order to receive an income tax refund.

35. 2007 Filing Requirements for Resident Aliens

36. What is Gross Income?

37. Gross Income • Wages, salaries and tips • Bank interest • Investment Income (taxable) • Taxable Scholarship/Fellowship Note: These are only a few examples.

38. Wages, Salaries and Tips Amounts you receive from an employer • You should receive a Form W-2 at the end of the year reporting the annual amount of wages you received.

39. Taxable Scholarship and Fellowship • Scholarship and fellowship grants are not included in taxable income if used for tuition, fees, books, supplies and equipment required for courses AND if the student is pursuing a degree. • Any portion of scholarship or fellowship received for room & board or in exchange for teaching or research is included in taxable income.

40. You call it: Internal Revenue calls it: What is a Scholarship or Fellowship? Tuition Waiver Non-taxable Scholarship (No work required)

41. What is a Scholarship or Fellowship? • You call it: • Internal Revenue calls it: Room and Board Waiver Taxable Scholarship

42. What is a Scholarship or Fellowship? • You call it: • Internal Revenue calls it: Teaching or Research Assistantship Stipend (recipient performs work) Taxable Wages

43. Income Tax Forms

44. What forms should I fill out? • Resident aliens file Forms 1040, 1040A or 1040-EZ.

45. More Tax Forms • W-2:Wage and Tax Statement • 1040 or 1040A:U.S. Resident Alien Income Tax Return • 1040-EZ:U.S. Income Tax Return for certain resident aliens who have no dependents Note:See IRS Publication 17 to find the easiest form for you to file.

46. More Tax Vocabulary • Withholding: • U.S. income tax automatically taken from your paycheck Note: U.S. Social Security and Medicare are also taken from your paycheck.

47. Forms W-2 • You could have one W-2 or more from different employers • The form was prepared by your employer and mailed to you. • You do not write anything on this form. • You use this form as a reference when you prepare your income tax return. • When finished, you attach this form to your income tax return.

48. 010-00-0101 16-0000000 6000 540 STATE UNIVERSITY 345 UNIVERSITY ST ALBANY, NY 12700 JOY KIM 123 UNIVERSITY LANE COLLEGETOWN, NY 00000 NY 16-6000000 6000.00 240.00 SAMPLE W-2 FORM

49. How do I file a Resident income tax return (Form 1040-EZ)? First, learn the following tax vocabulary . . .

50. More Tax Vocabulary • Standard Deduction: standard amount that individuals may subtract from income before calculating taxes owed • Itemized Deductions: allowable amounts that individuals may subtract from income before calculating taxes owed • Examples: charitable contributions, state & local taxes withheld, etc. Note: No one can have both a standard deduction and itemized deductions. You have to choose one.