Hella Guys,
I decided to avoid writing these kind of articles. But, I see lot of chaos in the tax filing process for F-1 students here in USA. Then, I felt why not write about it?
Disclaimer: I am not a CA/laywer. This article is purely what I understood from my experience.
Some context:
I have been staying in maryland since 2018 – so paying both Federal and State taxes. But, at the end of every financial year, this crazy task of tax filing comes. I had no clue what this tax returns, how tax refund is calculated and lot more details while filing. It took time for me to understand, but I want to you to don’t waste time like me. So read further-more, and be well-informed.
What the hell is withholding:
Wherever you are working – you might have most probably filled federal and state tax forms – one of which is called (W4 – Employee’s Withholding Allowance Certificate). I pulled my hair to understand what this is means – because most of the times, you would either fill it with 0 or 1.
‘0’ indicates that the employer whom you are working for will keep maximum amount of money from your paycheck (for paying federal and state taxes) – this means you may receive a refund at the end of the year. This depends on federal income tax calculated and amount of tax withheld. That can be your refund.
‘1’ indicates that employer whom you are working for will keep less money with him for paying federal and state taxes. This means, you will get maximum amount of money in your pay check. But end of the financial year, you may need to pay federal and state tax – which is basically the difference between the tax amount calculated and how much your employer held.
Understanding little more about tax:
This article is about F-1 students – who are non-resident aliens. Hence, tax filing should be done with 1040-NR. Residency test is not applicable to F-1 visa.
Few lines about W2:
Once you reach the end of financial year, you will get your W-2 to your company tax account like ADP account/to your mail box. W-2 is consolidated preview of all the income you earned from the employer along with the federal and state taxes withheld. W-2 also contains information about insurance, 401k, HSA (in Box 12b,c and d). But I am mostly gonna talk about the filing stuff, you can visit this page to understand more about W-2.
Remember, W-2 is employer specific – if you work with multiple employers, you will get those many W-2s. You will need to receive all W-2s mostly by February.
What are these 1099 forms?
Form 1099s also indicate the income you have earned throughout the year. There are different kind of 1099 forms, some common ones are:
1099-B: Generally comes from stock brokers (like Robinhood, Fidelity etc), containing any of your short term/long term stock selling information and
1099-DIV : This form is about the dividends received in a year (generally, you will get dividend from holding a stock and company decides to give away some portion of their profits per share, to share holders).
1099-INT: I know, savings account interest rates in USA is a joke. But still, if you get interest from your deposited money in any bank. You will gonna get this form.
1099-NEC: NEC is Non-Employee compensation. If you work as contractor/self-employed – you would receive this form.
1099-MISC: Income from miscellaneous sources.
Generally, income on 1099 is without tax cuts. Tax brokers, banks or any other business not gonna withhold some of your profits/income and pay your federal/state taxes like your employer (W2).
How tax refund is calculated?
I know this is the sweet part. But there is something we need to know here before diving into the refund part. USA has tax treaty with many countries, India is one of them. This treaty says, that income of around 12k-13k can be exempted from tax. (May differ based on time, holds accurate as of 2021)
Let’s take an example, if Amitabh came from India to study in USA – let’s say he earned income of around 50k in a year and paid taxes around 9k to federal. This is – how tax refund calculation works –
Total Income: 50,500
Federal Tax Amount withheld: 9,000
Tax Treaty with India - 12,550 (As of 2021-22)
Total Taxable Income - 38,000 (50,500 - 12,500)
Federal Tax on Taxable Income - 4,364
Tax Refund - 4636 (9,000 - 4,364)Federal tax on taxable income has been pre-calculated here. You can use this form to calculate your federal tax amount using this form (from IRS). This form is accurate as of 2021.
What about state tax?
State taxes are generally filled after federal tax and can be e-filed easily. Many states have their free e-filing services available for tax filing, like maryland state has this ifile service.
Some states charge county/local taxes as well – state taxes on W-2 are inclusive of those county taxes.
What services can I approach to do my tax filing?
I would recommend Sprint tax – solely for non-resident tax return – Fairly easy process, and reasonable charge. But, if your total income is less than 73,000 dollars – you may use free IRS provided tax filing services for your return.
Better approach would be, check if your state has free e-filing service. Then, do federal with sprint tax and use state efiling service. I personally won’t like getting my taxes filed by any tax agents because of transparency issues.
Some important points:
- IRS allows federal e-Filing for non-residents.
- If you are mailing tax returns, I would recommend USPS – send a certified mail with tracking (costs around 5$).
- Great, if mailed tax returns are delivered before or on the tax filing end date. In case of delay, make sure to mail before the tax filing end date, so that mail will have that timestamp.
This is what I got for this article. Hope you got what you wanted on taxes.
See you on next one!
engineeringvsme 