International students have proven to be dynamic contributors to U.S. workforces across varying industries. Aside from adding global perspectives to U.S. companies, a significant portion of international students focus on subjects such as Science, Technology, Engineering, and Mathematics (STEM). Numerous studies show that U.S. companies need a greater amount of STEM talent as companies seek ways to innovate. Generally, foreign employees in the United States must pay U.S. Medicare and Social Security taxes. Green Card holders typically have the same tax liability as U.S. citizens and non-resident aliens usually have the same liability as Green Card holders (permanent residents). Yet, there are particular categories of non-resident aliens that are exempt from paying U.S. Medicare and Social Security taxes.
One such category includes foreign students temporarily staying in the U.S. in F-1, M-1, or J-1 status. These students can be exempt from paying Medicare and Social Security taxes if they have stayed in the U.S. in F-1, M-1, or J-1 status for less than five calendar years. Exempt employment can include off-campus student employment which is permitted by the USCIS. It can also include on- or off-campus practical training. This exemption does not encompass, however, employment not authorized by the USCIS or work which is not closely related to the issued visa's purpose. The exception also does not apply to dependents in F-2, M-2, or J-2 status nor when a student changes to a different status.
Students in F-1, M-1, or J-1 status must pay Medicare and Social Security taxes if they have lived in the U.S. for over five calendar years and they satisfy the "substantial presence test" (unless they are exempt from tax liability due to the 'student FICA exemption'). To be regarded as substantially present in the U.S., an individual must be physically present in the U.S. for at least 31 days during the current year and 183 days during a three-year timeframe that includes the current year and the two years immediately before the current year. The test counts: all days an individual is present in the U.S. during the current year, a third of the days an individual was present in the first year before the current year, and a sixth of the days an individual was present in the second year before the current year. If these conditions are met, the student will be considered a residential alien for U.S. tax purposes. Off-campus jobs or working for employers that are not schools/universities where the students are enrolled for at least half-time do not qualify for the student FICA exemption.
With respect to Social Security taxes, students in F-1, M-1, or J-1 status can avoid double taxation of income if the U.S. has entered a Totalization Agreement with their home country. These agreements should be considered when deciding whether any foreign national is subject to Medicare and Social Security taxes. The list of participating countries can be found on the Social Security Administration's (SSA) website: https://www.ssa.gov/international/agreements_overview.html.
The SSA also publishes resources which describe the terms and conditions of each Totalization Agreement. Local SSA offices may be able to provide these materials. A foreign national must receive a Certificate of Coverage from the social security agency of his or her home country to obtain an exemption from U.S. Social Security and Medicare taxes due to a Totalization Agreement. The Certificate of Coverage must be presented to the employer in the U.S. The revenue procedure provides alternative ways to claim such an exception if the foreign national is not able to obtain a Certificate of Coverage. For instance, the employee or the employer could obtain a statement issued by the SSA's Office of International Programs. The statement should convey how the pertinent wages are not covered by the U.S. Social Security. The employer should store this statement because it reveals that the employee's wages are exempt from U.S. Social Security tax.
It is important to note that payments received in connection to services performed by a non-resident international student are taxable income and are subject to state and federal taxes (unless a tax treaty applies). Also, international students must file tax forms with the Internal Revenue Service (IRS) regardless of the tax obligation (even when the student owes nothing. Filing a tax return is a condition of F-1 status.
Determining one's tax obligation can be a serious challenge, especially as it varies on a case-by-case basis. Therefore, individuals with questions should contact a licensed tax attorney for guidance.
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