Nonresident Alien Taxation
Alien Taxation
and Forms
and Other Resources
U.S. Tax Information for Nonresident Aliens
All Foreign Nationals living, visiting, working, or studying in the U.S. are responsible for compliance with United States laws and regulations. The Internal Revenue Service (“IRS”), the U.S. government tax authority, has issued strict regulations regarding the taxation and reporting of payments made to non-United States citizens. As a result, San Francisco State University (“SFSU”) may be required to withhold U.S. income tax and file reports with the IRS in connection with payments made by SFSU to students, faculty, staff or guests who are not U.S. citizens or permanent resident aliens (green card holders) and who receive financial aid, scholarships, fellowships, awards, or compensation for services performed.
Federal Tax Treatment
SFSU must determine whether a foreign national will be treated as a “resident alien” or a “nonresident alien” for U.S. tax purposes. The substantial presence test is used to calculate the number of days that a foreign national is present in the U.S. and determine whether the individual is a nonresident alien or resident alien for purposes of calculating U.S. tax withholding. Students present in the U.S. on F-1 or J-1 visas are usually considered to be nonresident aliens for the first five calendar years (J-1 non-students for two years) that they are present in the U.S. SFSU is generally required to withhold taxes from all payments made to nonresident aliens. In order for SFSU to make the determination, all nonresident aliens must complete the Foreign National Information Form. SFSU is also required by law to report to the IRS all payments made to nonresident aliens, or to a third party on his or her behalf, regardless of whether the payment is subject to U.S. tax.
Taxable and Nontaxable Items
Payments to students for the following items are nontaxable:
- Tuition
- Book Allowance
- Required Registration Fees
- Mandatory Health Insurance
- Room and Board
- Fellowship Stipend (which does not require a service to be performed)
- Living Allowance
- Cash Award
- Travel Payment/Reimbursement
- Compensation (including a fellowship stipend that does require a service to be performed)
The U.S. maintains income tax treaties with over 50 different countries, and certain taxable payments made by SFSU to a foreign national may be exempt from U.S. tax based on an income tax treaty entered into between the U.S. and the foreign national's home country. The existence of a tax treaty does not automatically ensure an exemption from taxation; rather, you must satisfy the requirements for the exemption set forth in the tax treaty. In order to be considered for a tax treaty exemption, you must complete all the appropriate Federal forms.
State Tax Treatment
The state of California requires withholding agents (e.g. San Francisco State University) to withhold state personal income tax (PIT) from individuals. The amount to withhold is dependent on the California state residency status of the individual. Much as the determination of residency differs for immigration and federal tax purposes, so do the terms differ for state residency purposes.
An individual deemed to be a nonresident alien for federal tax purposes might have a California income tax-filing requirement even though they do not have a federal filing requirement. California state law does not mirror the federal law when it comes to taxing non-U.S. citizens. For example, California does not conform to federal law relating to income exempt under U.S. tax treaties. California income is taxable and subject to withholding for state purposes, irrespective of a federal exemption. The concept of resident and nonresident for California state tax purposes has a very different meaning than the rules for federal tax purposes.
California does not distinguish among U.S. citizens, U.S. residents, or nonresident aliens with respect to California state income tax withholding. Pursuant to California Revenue Taxation Code Section 17951, taxable income for nonresidents includes only the income from sources within California.
For Assistance
Campus departments, Human Resources, Office of Student Financial Aid and Internal Audit will assist nonresident aliens with the appropriate steps needed to comply with both Federal and State tax-withholding requirements. If you have additional questions about how to complete the required forms or need information concerning tax withholding requirements, please contact Internal Audit at (415) 338-2325.
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Common Nonresident Alien Tax Terms and Definitions:
Resident Alien for Tax Purposes: An individual who has met or passed the "substantial presence test" or has been granted lawful pernanent residence in the U.S. as permanent resident alien. A resident alien is taxed on his/her worldwide income and in the same manner as a U.S. citizen.
Nonresident Alien for Tax Purposes: An individual who has not met or passed the "substantial presence test" or has not been granted lawful permanent residence in the U.S. as permanent resident alien. A nonresident alien is taxed only on his/her income from U.S. sources, using special tax withholding, reporting, and filing guidelines different than those applied to U.S. citizens and resident aliens for tax purposes.
Green Card Test: A U.S. residency status test used to determine whether a non-U.S. citizen will be treated as a resident alien for U.S. tax purposes. An individual satisfies the test, if he/she is granted lawful permanent residence in the U.S. as an immigrant by the Immigration and Naturalization Service, and is issued an alien registration card (often called a "green card").
Substantial Presence Test: A mathematical calculation comprised of two parts; the 31-day test and the 183-day test. To pass the test, an alien must be physically present in the U.S. for at least 31 days during the current calendar year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
(1) All the days present in the current year, and
(2) 1/3 of the days present in the first preceding year, and
(3) 1/6 of the days present in the second preceding year.
Exempt Individual: An individual who is exempt from counting days of presence for the Substantial Presence Test. Students temporarily present in the United States under an F, J, M, or Q visa and who substantially comply with the requirements of the visa are exempt individuals for no more than five calendar years. Note: This term has nothing to do with whether the individual will be exempt from having federal income tax or Social Security and Medicare taxes withheld, or filing a U.S. tax return.
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