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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 6915
Experience:  15years with H & R Block. Divisional leader, Instructor
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We hired an individual from Japan who has an F1 Visa with an

Customer Question

We hired an individual from Japan who has an F1 Visa with an OPT (Optional Practical Training) extension. THis allows her to work in the US for 1 year. My question is Do I need to withhold Social Security and Medicare tax from her wages?
Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Hello and thank you for using Just Answer.

F-1 visa holders are exempt from paying FICA Taxes, Social Security and Medicare, for a limited time. However, they are subjected to federal taxes, and state/local taxes, if applicable. Students on F-1 filing their federal income taxes who have been in the USA for 5 years or less need to use the non-resident 1040NR or 1040NR-EZ tax forms. Some F-1 visa holders may be eligible for certain tax treaty provisions based on their country of origin.

Except for on-campus employment of 20 hours a week or less, F-1 students are generally not permitted to work in the US without prior authorization from Citizenship and Immigration Services (USCIS). However, the USCIS may grant work authorization for Curricular Practical Training (CPT) and Optional Practical Training (OPT). Students are permitted to work for a total of 40 months towards practical training (eg. internship), which can be distributed between Curricular Practical Training (CPT) and Optional Practical Training (OPT). An interim order was passed on April 8, 2008 allowing students in STEM (Science, Technology, Engineering and Mathematics) to legally work under OPT for 29 months. During the period of OPT, a F-1 student is not permitted to accrue more than 90 days of unemployment. The OPT allows the F1 student to work but does not change their status for withholding. The exemption from FICA remains the same.

I sincerely XXXXX XXXXX information is helpful,

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 6915
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
So if our employee (who has been going to school in the US from Middle school years through College) on an F1 Visa and has extended that visa after her college graduation with a one year OPT visa does not have to pay FICA taxes?
Expert:  Robin D. replied 3 years ago.

Hello again,

It is the VISA type that determines what tax is exempted from withholding. If an employer mistakenly withholds the FICA tax from an J1 or F1 OPT the student is instructed to request the withholding back from the Employer.

International Student F1 J1 OPT Tax Exemption - International Students are exempt from Social Security and Medicare taxes for a period of Five years, as long as they are a full time student. They still have to pay Federal and State Income Taxes. International Students can file IRS Form 843 and Form 8316 to Claim Social Security and Medicare Tax refund, withheld in error, on wages of a Non Resident Employee in F1, J1 visas or Optional Practical Training Taxes - OPT F1 J1 Tax Refund or F1 J1 Tax back.

 

All the above said, if the F1 OPT VISA holder becomes a Resident Alien then the rules would change regarding the FICA withholding.

Resident aliens, in general, have the same liability for Social Security/Medicare Taxes that U.S. Citizens have.

If you are a student temporarily in the United States on an F, J, M or Q visa, and you have been present in the United States during no more than five calendar years, you are an exempt individual. For example, let's say you entered the U. S. on June 4, 2004 as a student on an F visa, and have remained here until 2009. You are a nonresident alien for 2004, 2005, 2006, 2007 and 2008. If you are in the U.S. for at least 183 days in 2009, you will be a resident for tax purposes in 2009.

If the individual has not met the time frame as described above, they will need to file a tax return as a resident alien instead of the NR1040 form that is filed by NonResident Aliens. This would also change the withholding for taxes.

If the student advises that they are a NonResident Alien then you are not to withhold the FICA.

Customer: replied 3 years ago.

Hi,

Thank you so much for the above information.

Can I ask what your source was? I have looked in Publication 15 and 519 and cannot find where it states the 5 year limitation.

 

Thank you again.

 

E

Expert:  Robin D. replied 3 years ago.

Hello again,

Certainly, the 5 year refers to the student being in the US under the VISA.

Even though a foreign student may pass the substantial presence test, an exception exists in U.S. law which would allow the foreign student to continue to be treated as a nonresident alien.

The Internal Revenue Code contains two exceptions to the substantial presence test which can be used by aliens to maintain nonresident status. First, there is the general exception to the substantial presence test available to all aliens under I.R.C. § 7701(b)(3)(B) and (C) and Treas. Reg. §(NNN) NNN-NNNNb)-2 (known as the closer connection exception). Most foreign students cannot use this exception, however, because of the requirement that the alien cannot have been physically present in the United States during the current year for more than 183 days, and the requirement that the alien's tax home be located outside the United States. Most foreign students fail both of these tests.

The second exception to the substantial presence test for aliens is set forth in I.R.C. § 7701(b)(5)(D) and (E) and in Treas. Reg. §(NNN) NNN-NNNNb)-3(b)(7)(iii). The exception is available only to alien students (not teachers/researchers, etc.), and contains four requirements for its application. The student -

  1. does not intend to reside permanently in the United States;
  2. has substantially complied with the immigration laws and requirements relating to his student nonimmigrant status;
  3. has not taken any steps to change his nonimmigrant status in the United States toward becoming a permanent resident of the United States; and
  4. has a closer connection to a foreign country than to the United States as evidenced by the factors listed in Treasury Regulation(NNN) NNN-NNNNb)-2(d)(1).
Customer: replied 3 years ago.

Thank you again!

Even if our employee is no longer a student (she has graduated)the OPT extention to her F1 visa still qualifys her as student?

Expert:  Robin D. replied 3 years ago.

The OPT allows her to still be under the VISA F1. Normally these are extended so the individual has an opportunity to complete "education" in their field while they are either applying for a different VISA or anticipating going back to their country. Records indicate that there are approximately 70,000 students currently in OPT and, of those, about 23,000 are studying in Science, Technology, Engineering, or Mathematics (STEM) fields. Some of these students will be selected for an H-1B.

This rule allows F-1 students seeking initial post-completion OPT to apply during their 60-day departure preparation periods in the same way that they are allowed to apply for a change to H-1B status during their departure preparation periods.

 

F-1 academic students on post-completion OPT maintain valid F-1 status until the expiration of their OPT. Once that OPT has ended, they are authorized to remain in the United States for up to 60 days to prepare for departure.

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