Glossary of Terms
Alien:
A term used by the Internal Revenue Service to denote an individual who is
not a U.S. citizen.
City, County, and State Taxes on Personal Property:
You may be required to list and pay personal property taxes on motor vehicles
(cars, motorcycles, boats, etc.) and on real estate (house, land, etc.) which
you own. Contact your local Tax Assessor for forms and information.
City, County, and State Taxes on Purchases:
These are the taxes you are least likely to notice, but they will add up over
the time that you are in the United States. The price you see on an item in
the stores is less than the actual cost of the item. Each time you make a purchase
of many consumer goods a sales tax will be added. This could be a few cents
on a cola and a slice of pizza or several hundred dollars on a car or a lap
top computer. There is no escape and no refund.
Exempt Individual:
A person not subject to the Substantial Presence Test (see below), which determines
whether an individual files as a resident or nonresident. Many students incorrectly
construe the term to mean that they are not required to file a tax and/or pay
taxes.
Internal Revenue Service:
Also known as the IRS, this is the federal agency responsible for collecting
federal income taxes and enforcing tax reporting and collection laws. It is
an agency of the U.S. Treasury Department.
Non-immigrant:
An individual with a permanent residence abroad and in the United States temporarily,
as in the case of a foreign student.
Nonresident:
An individual in the United States temporarily (usually less than six years).
Although required to file an annual federal income-tax return, nonresident
aliens pay tax only on income from U.S. sources.
Non-Resident Aliens:
Students who are employed in the United States (including TAs and RAs) and
are partially or fully exempt by treaty from U.S. taxation must file Form 8233
plus the appropriate attachment with the employer to claim exemption from withholding
each year. Students who receive a service-free scholarship or fellowship must
file Form 1001, which is valid for three years.
Professional and Business Taxes:
The federal government and some states charge annual fees or taxes for authorization
to practice certain professions or run certain kinds of businesses. It is unlikely
that a student or scholar will be in such a situation, but if you plan to open
a business or become self-employed you need to investigate not only the consequences
to your status, but also the taxation and licensure issues of such an action.
Resident:
An individual who is a U.S. citizen, a U.S. permanent resident, or a non-immigrant
who has been in the United States sufficiently long to be considered a resident.
Residency is determined by the Substantial Presence Test (see below).
Resident Aliens:
Individuals who would otherwise be considered resident aliens also may benefit
from some provisions of the treaties and should consult the appropriate publications.
Resident for Tax Purposes:
A resident for tax purposes is a person who is not a U.S. citizen and who meets
either the "green card" test or the "substantial presence" test
described in Publication 519, U.S. Tax Guide for Aliens. With regard to residency
determination for tax purposes:
- F and J students visa holders are generally considered residents after their first five (5) calendar years in the United States.
- J non-students (researchers, scholars, teachers, etc.) are generally considered residents after their first two (2) calendar years in the United States.
- H-1s are considered residents once they meet the "substantial presence" test.
Social Security:
A term used to describe an agency, a card, and two types of tax. The Social
Security Administration (SSA) is an agency of the U.S. Department of Health
and Human Services. The card bears a unique nine-digit identification number
and is issued to qualified individuals primarily to determine eligibility
for social benefits earned through various forms of employment. The number
on the card is also used by the IRS for data collection and record keeping.
The taxes, known as FICA (Federal Insurance Contribution Act) and Medicare,
are withheld by employers from workers wages and paid to the federal government
for redistribution to workers after their retirement. The FICA amount withheld
from wages is 7.65 percent of total earnings up to a certain salary level.
State Taxes on Income:
Each state makes its own rules on the taxation of individuals and business.
Some states have no income tax and others have tax systems which are quite
different from the federal system. Florida does not have a state income tax.
Substantial Presence Test:
A formula devised by the Internal Revenue Service to determine whether an alien
is a resident or nonresident for tax purposes. F, J, and M students do not
use the test during their first five calendar years in the United States.
After that time, individuals who spend 183 days a year or more in the United
States become "residents for tax purposes" for that year.
Tax
Treaty:
An agreement between the United States and another country to determine how
the country's nationals will be taxed when temporarily in the United States.
A treaty can confer certain tax benefits. A note of caution, however. Tax treaties
are very specific. Not all residents of a tax-treaty country will qualify for
tax benefits.
Withholding:
Deduction of a given amount of an individual's salary for purposes of meeting
that individual's income-tax obligation. Amounts are deducted by the employer
and paid directly to the U.S. Treasury on the individuals behalf. Employers
are required to deduct a certain amount from each employee's paycheck to
cover the individual's estimated tax liability. They must withhold an amount
equal to 90 percent of the current year's estimated tax or 100 percent of
the prior year's liability, whichever is lower. Withholding is not automatic.
Employees must fill in form W-4 and submit it to the employer to declare
their tax status (resident or non-resident) and instruct the payroll office
how much to withhold. Extreme caution should be exercised in filling out
the form, as errors could result in having to pay back taxes, fines or penalties.