Studying in the US continues to be an attractive and exciting opportunity for students globally. However, while most international students focus on choosing the right institution and preparing for campus, one important aspect is often overlooked: tax.  

Our goal is to help ensure that when you move to the US as a student, your focus stays where it belongs - on your education. In this article, we have broken down the US tax status for international students and highlighted the key exemptions you may be eligible for. 

1. Determining your US tax residency  

On the basis that you are not a US citizen or green card holder, your US tax residency is determined by the number of days you have been physically present in the US, calculated by the Substantial Presence Test. 

An individual would meet this test and be considered a US resident for tax purposes if they have been present in the US on at least 183 days during the three‐year period, including the current year. This test counts each day of presence in the current year counts as a full day. Each day of presence in the preceding year is counted as one‐third of a day, and each day of presence in the second preceding year is counted as one‐sixth of a day. Any part of a day counts as a day for these purposes. 

If you are studying in the US on a full-time course, you are likely to be a US tax resident and be subject to US tax on your worldwide income and gains. 

2. Student exception: F-1 visa 

There is, however, an exception to the Substantial Presence Test under the Internal Revenue Code and Treasury Regulations. This is for students who are admitted temporarily to the US as a non‐immigrant under an F-1 visa and who substantially comply with the requirements of being admitted. If you are unsure whether this applies to you, you should seek immigration advice or read this article for further information.   

On the basis that you are not engaging in prohibited activities, then days of US presence during the period you are in the US under an F-1 visa are excluded from the substantial presence test calculation. 

Once these days of presence are discounted, if you are not present in the US on any other visa in the rolling three-year period, you would be a Non-Resident Alien (NRA) for US tax purposes. NRAs are only subject to US tax on specific types of US income and gains. Read this article to learn more. 

3. Filing requirements 

US days of presence whilst on an F-1 visa are not automatically disregarded. A Form 8843 must be filed annually with the IRS while you are present on a F-1 visa to exempt yourself from being taxed as a resident alien. 

The filing deadline for this form is dependent upon whether you have any other US tax filing requirements for the year.  If you do, file Form 8843 with your 1040NR by 15th April of the year following the close of the tax year.  If you do not, file form 8843 by 15th June of the year following the close of the tax year. 

4. Capital Gains Tax (CGT) issue 

There is a flat tax of 30% imposed on US capital gains in the hands of an NRA physically present in the United States for 183 days or more during the taxable year. Gain or loss from the sale or exchange of worldwide personal property is generally treated as a US source of taxable income if the ‘alien’ has a tax home in the United States.  

Under the "tax home" rules, if a person is away (or who intends to be) from their usual place of residence for longer than a year, their tax home is considered to have shifted to the new location as of their arrival.  Based on this rule, most foreign students have shifted their tax homes to the United States on the day of their arrival in the United States on a student visa. 

This could, therefore, mean that although subject to US income tax as an NRA, a student could have their worldwide capital gains subject to a flat US tax of 30%. 

Care should be taken to manage the level of capital gains realised whilst present in the US on the F-1 visa. This includes not only the sale of any personally held assets or investments but also those that could be deemed to be distributed to you if you are a beneficiary of a trust. 

Other considerations 

Length of visa 

There is a limit to how many years you can claim the student exception and in your fifth year, you cease to be able to claim the exemption by default. If you are approaching your fifth year of US residency on a F-1 visa, you should seek advice regarding your tax position in future years. 

Receiving US source income or stipend 

NRAs using the student exception may still be liable to US income tax if they receive a US source income. You should always seek advice regarding your US tax position if you are receiving a stipend from your university or any other US source income. 

State tax considerations 

This article considers the federal tax implications of being present in the US on an F-1 visa. US tax, however, is not limited to federal tax and each state has its own additional tax laws. Some states may not recognise the federal exemption for tax residence, so it is important to also check the state tax law for where you are residing. 

Other visas eligible for a residency exception 

Other visa types allow you to claim a similar exception to US tax residency. These include visas for certain teachers, trainees, professional athletes and even individuals who find themselves present in the US due to a medical problem.