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Am I still a non-resident alien? This question haunts many international students in their fifth and sixth years in the U.S. Tax software may ask for Form 1040 or 1040-NR. Friends give conflicting advice. University tax workshops provide generic information that doesn't answer your specific situation. Your F-1 visa status hasn't changed, yet your tax residency status may have. The confusion stems from the IRS using completely different rules than immigration—you can be a non-immigrant for visa purposes but a resident alien for tax purposes. Getting this wrong triggers audits, penalties, and unexpected tax bills when the IRS determines you filed the wrong form for the third consecutive year.
If you know resident alien tax rules correctly it can help you understand how filing Form 1040 differs from Form 1040-NR and what changes, which benefits you gain and lose when becoming a resident alien, your worldwide income reporting obligations including foreign accounts, and how Social Security and Medicare taxes apply to resident alien students. In this blog we explain when international students become resident aliens and the substantial presence test rules, how Form 1040 filing differs from Form 1040-NR for resident aliens.
When international students become resident aliens
Tax residency is determined by the substantial presence test, but F-1 students have a special exemption for the first five calendar years.
The 5-year exempt individual rule
F-1 students are "exempt individuals" for their first five calendar years in the United States, meaning they don't count days for the substantial presence test during this period and are automatically non-resident aliens for tax purposes.
Calendar year counting: The five years are calendar years, not continuous 12-month periods. Any part of a calendar year counts as one year.
Example: You arrived on F-1 visa on August 20, 2021:
- Year 1: 2021 (even though only 4.5 months)
- Year 2: 2022
- Year 3: 2023
- Year 4: 2024
- Year 5: 2025
- Year 6: 2026 (exemption expires—you apply substantial presence test)
In 2026, you're no longer exempt and must determine if you meet the substantial presence test.
Substantial presence test in year 6 and beyond
Starting in your 6th calendar year, you apply the substantial presence test to determine tax residency.
Test requirements: You're a resident alien if:
- You were present in the U.S. for at least 31 days during 2025, AND
- The sum of days present equals 183 or more using this formula:
- All days present in 2025
- Plus 1/3 of days present in 2024
- Plus 1/6 of days present in 2023
Example: In your 6th year (2026), you were present:
- 2026: 300 days
- 2025: 320 days
- 2024: 340 days
Calculation: 300 + (320 × 1/3) + (340 × 1/6) = 300 + 107 + 57 = 464 days
You meet the substantial presence test (464 ≥ 183) and are a resident alien for 2026.
Most F-1 students in year 6: If you remain in the U.S. continuously pursuing your degree, you'll almost certainly meet the substantial presence test in year 6 and become a resident alien.
Closer connection exception
Even if you meet the substantial presence test, you can claim "closer connection" to a foreign country if you were present in the U.S. fewer than 183 days during the current year and maintain closer ties to your home country than the U.S.
Requirements:
- Present in U.S. less than 183 days during current year
- Maintain tax home in foreign country
- Have closer connection to that country (family, property, bank accounts, driver's license, etc.)
Form 8840: File Form 8840 (Closer Connection Exception Statement) to claim the exception and remain a non-resident alien despite meeting the substantial presence test.
Limitation: This exception rarely applies to students in year 6+ who are present in the U.S. full-time for their studies.
Filing Form 1040 as a resident alien
Resident aliens file Form 1040 (the same form U.S. citizens use) instead of Form 1040-NR.
Key differences from Form 1040-NR
Income reporting: Resident aliens report worldwide income on Form 1040, not just U.S.-source income. This includes:
- Foreign bank interest
- Foreign investment income
- Income earned in your home country during the tax year
- All foreign-source income
Standard deduction: Resident aliens can claim the full standard deduction. For 2025, the standard deduction is approximately $14,600 for single filers (indexed annually for inflation).
Tax rates: Resident aliens use the same graduated tax brackets as U.S. citizens (10%, 12%, 22%, 24%, 32%, 35%, 37% for 2025).
Tax credits: Resident aliens can claim all tax credits available to U.S. citizens: Earned Income Tax Credit, Child Tax Credit, American Opportunity Tax Credit, Lifetime Learning Credit, etc.
Filing status: Resident aliens can use any filing status (single, married filing jointly, married filing separately, head of household, qualifying surviving spouse) if they meet requirements. Non-residents are generally limited to "married filing separately" even if married.
Example: Tax calculation comparison
As non-resident alien (Form 1040-NR):
- U.S.-source income: $25,000
- Treaty exemption (India student wage exemption): $9,000
- Taxable income: $16,000
- Standard deduction: $0 (not available)
- Tax on $16,000: Approximately $1,840
- No education credits available
As resident alien (Form 1040):
- U.S.-source income: $25,000
- Foreign bank interest: $400
- Total worldwide income: $25,400
- Standard deduction: $14,600
- Taxable income: $10,800
- Tax on $10,800: Approximately $1,080
- Potential American Opportunity Tax Credit: Up to $2,500 (refundable)
- Net tax after credit: $0 (refund of withholding plus additional refundable portion of credit)
The resident alien saves $1,840+ despite losing treaty exemption, through standard deduction and education credits.
Loss of treaty benefits
When you become a resident alien, you generally lose treaty benefits for scholarship, fellowship, and wage exemptions.
Exception: Some treaties have specific provisions allowing treaty benefits to continue for a limited time after becoming a resident alien. Check your specific country's treaty.
India treaty example: India-U.S. treaty Article 21 benefits (scholarship and $9,000 wage exemption) generally end when you become a resident alien, though the 5-year limit for benefits often coincides with the 5-year non-resident period anyway.
Worldwide income reporting requirements
Resident aliens must report all income from worldwide sources on Form 1040.
Foreign bank accounts and interest
Reporting requirement: All interest from foreign bank accounts must be reported on Form 1040 Schedule B (Interest and Ordinary Dividends).
Foreign account reporting: Even if interest is minimal or zero, foreign accounts may trigger FBAR (FinCEN Form 114) filing requirements.
FBAR (Report of Foreign Bank and Financial Accounts)
If the aggregate balance of all your foreign financial accounts exceeds $10,000 at any time during the year, you must file FinCEN Form 114 (FBAR).
$10,000 threshold: This is the combined total of all foreign accounts. If Account A has $6,000 and Account B has $5,000, you exceed the threshold ($11,000 total) and must file FBAR.
"At any time" rule: The $10,000 threshold is tested on any day of the year. Even if accounts were only above $10,000 for one day, FBAR filing is required.
What counts as foreign accounts:
- Bank accounts in your home country
- Investment accounts abroad
- Savings accounts held with foreign banks
- Any financial account maintained outside the U.S.
Filing deadline: FBAR is due April 15 with automatic extension to October 15. It's filed separately from your tax return through FinCEN's BSA E-Filing System.
Penalties for non-filing: FBAR penalties are severe—up to $10,000 for non-willful violations, up to 50% of account balance for willful violations. File FBAR if required.
Foreign income earned during the tax year
Example: You're in your 6th year as a resident alien. During summer break (June-August), you returned to your home country and worked, earning $5,000. This income is reportable on your U.S. Form 1040 as worldwide income.
Foreign tax credit: If you paid taxes to the foreign country on that income, you can claim a Foreign Tax Credit (Form 1116) on your U.S. return to avoid double taxation.
Form 8938 (FATCA reporting)
Separate from FBAR, resident aliens may need to file Form 8938 (Statement of Specified Foreign Financial Assets) if foreign assets exceed certain thresholds.
Thresholds for unmarried individuals living in the U.S.:
- $50,000 on the last day of the year, OR
- $75,000 at any time during the year
What's reportable: Foreign financial accounts, foreign stocks and securities, interests in foreign partnerships and corporations, and other specified foreign financial assets.
Filing: Form 8938 is filed with your Form 1040, not separately like FBAR.
Tax benefits available to resident aliens
Becoming a resident alien provides access to tax benefits not available to non-residents.
Standard deduction
For 2025, the standard deduction for single filers is approximately $14,600 (indexed annually for inflation). This significantly reduces taxable income.
Impact: Most students with income under $30,000 will have minimal or zero federal tax liability after the standard deduction, even without treaty exemptions.
Education tax credits
American Opportunity Tax Credit (AOTC): Up to $2,500 per year for the first four years of undergraduate education. Partially refundable (40% of the credit, up to $1,000, can be refunded even if you owe no tax).
Lifetime Learning Credit: Up to $2,000 per year for undergraduate, graduate, or professional degree courses. Non-refundable (only reduces tax owed).
Requirements: You must be degree-seeking, enrolled at least half-time (for AOTC), and meet income limits.
Example: You paid $8,000 in qualified tuition and fees. You're in your first four years of undergraduate study. You claim AOTC: 100% of first $2,000 ($2,000) + 25% of next $2,000 ($500) = $2,500 credit. If you owed $1,500 in tax, the credit eliminates it and provides $1,000 refund (40% of remaining $2,500 credit).
Retirement account contributions
IRA deductions: Resident aliens can contribute to Traditional IRAs and deduct contributions (subject to income limits), reducing taxable income by up to $7,000 for 2025.
Roth IRA: Resident aliens can contribute to Roth IRAs (post-tax contributions, tax-free growth). Not available to non-resident aliens.
Child and dependent care credits
If you have qualifying dependents, resident aliens can claim Child Tax Credit, Child and Dependent Care Credit, and Earned Income Tax Credit (if eligible).
Filing status options
Resident aliens can file as married filing jointly (if married), which provides higher standard deductions ($29,200 for 2025) and potentially lower overall household tax through income splitting.
Social Security and Medicare taxes (FICA)
Resident alien students face different Social Security and Medicare tax rules than non-residents.
FICA exemption during F-1 status
F-1 students remain exempt from Social Security and Medicare taxes on on-campus employment, practical training (CPT/OPT), and work authorized due to economic hardship, even after becoming resident aliens for income tax purposes.
Important: Tax residency (resident alien for Form 1040) is separate from FICA exemption. You can be a resident alien for income tax but still exempt from FICA taxes while on F-1 visa.
When FICA exemption ends: The exemption ends when you change to H-1B or other non-student visa status, or when you become a lawful permanent resident (green card holder).
Employment off-campus or after status change
If you work off-campus without authorization, or if you change to H-1B status, you must pay Social Security (6.2%) and Medicare (1.45%) taxes, totaling 7.65% of wages. Your employer pays a matching 7.65%.
The dual-status year
The year you transition from non-resident to resident alien, you're "dual-status"—non-resident for part of the year, resident for the remainder.
How dual-status works
Residency starting date: The first day you meet the substantial presence test becomes your residency starting date. In many cases, this is January 1 of your 6th calendar year, but if you were not physically present in the U.S. at the start of the year, your residency start date will be the first day you were actually present in the U.S. during that year. Your residency cannot begin on a day when you were not physically in the United States.
Filing requirement: File Form 1040 with "Dual-Status Return" written across the top. Attach a statement showing:
- Income as a non-resident (before residency starting date)
- Income as a resident (after residency starting date)
Two sets of rules: You apply non-resident rules to income earned before the residency date, and resident alien rules to income earned after.
Example: You become a resident alien on July 1, 2025. January 1-June 30: non-resident rules apply (report only U.S.-source income, can claim treaty benefits). July 1-December 31: resident alien rules apply (report worldwide income, claim standard deduction).
First-year choice election
If you're a non-resident at the start of the year but meet the substantial presence test by year-end, you can elect to be treated as a resident for the entire year.
Requirements:
- Present in U.S. for at least 31 consecutive days during the year
- Present in U.S. for at least 75% of days between the first day of the 31-day period and year-end
Benefit: File simpler Form 1040 for full year instead of complex dual-status return. Claim standard deduction for full year.
Drawback: Lose treaty benefits for the entire year (even the non-resident portion). Must report worldwide income for full year.
When to make this election: If treaty benefits are minimal or expired, and the standard deduction exceeds treaty benefits, making the first-year choice simplifies filing and may reduce overall tax.
Common mistakes and strategies
Mistake #1: Continuing to file Form 1040-NR after becoming resident alien
Many students don't realize they've crossed into year 6 and continue filing Form 1040-NR, claiming treaty exemptions they're no longer entitled to. This triggers audits when the IRS's systems flag the inconsistency.
Solution: Track your calendar years carefully. In your 6th calendar year, apply the substantial presence test and file Form 1040 if you meet it.
Mistake #2: Not filing FBAR for home country accounts
Students don't realize their bank accounts in their home country require FBAR filing once they become resident aliens and the accounts exceed $10,000 aggregate.
Solution: Track maximum balances in all foreign accounts throughout the year. If the total exceeds $10,000 on any day, file FBAR by October 15.
Mistake #3: Not claiming education credits
Resident alien students don't realize they qualify for American Opportunity Tax Credit or Lifetime Learning Credit worth $2,000-$2,500 annually.
Solution: Claim education credits on Form 1040. These often exceed the value of lost treaty benefits.
Mistake #4: Using tax software incorrectly
Standard tax software (TurboTax, H&R Block) works for resident aliens but may not properly handle dual-status situations or first-year choice elections.
Solution: For dual-status years, consider professional tax preparation or use specialized software understanding dual-status complexities.
Strategy 1: Maximize education credits
In your first year as a resident alien, ensure you claim all eligible education credits. The American Opportunity Tax Credit alone can provide $2,500 annual benefit.
Strategy 2: Consider IRA contributions
If you have earned income, contribute to a Traditional IRA to reduce taxable income. For 2025, you can contribute up to $7,000, potentially eliminating federal tax liability entirely if your income is modest.
Strategy 3: File FBAR proactively
Don't wait for the IRS to discover unreported foreign accounts. File FBAR voluntarily if required. The penalties for non-filing far exceed the effort of filing.
Strategy 4: Keep treaty exemptions separate from resident alien benefits
If you're in a dual-status year, maximize treaty benefits for the non-resident portion and maximize standard deduction/credits for the resident portion. Don't mix the two.
Strategy 5: Plan the transition
If you know you'll become a resident alien in your 6th year, plan accordingly:
- Time income and deductions to benefit from whichever status is more favorable
- Understand which treaty benefits you'll lose
- Calculate whether education credits offset lost treaty benefits
- Prepare for worldwide income reporting by gathering foreign account information
How NSKT Global can help with resident alien tax filing
NSKT Global specializes in resident alien tax preparation for international students, helping students navigate the transition from non-resident to resident alien status and optimize their tax situations.
We offer comprehensive resident alien tax services including Form 1040 preparation for resident aliens reporting worldwide income and claiming all available deductions and credits, substantial presence test calculation determining your exact residency starting date and tax status for the year, dual-status return preparation filing complex dual-status returns for transition years with proper allocation of income, and first-year choice analysis evaluating whether electing resident status for the full year reduces overall tax compared to dual-status filing.
Whether you're entering your 6th calendar year on F-1 visa and need to determine if you're now a resident alien, became a resident alien and need Form 1040 preparation including worldwide income reporting, have foreign bank accounts exceeding $10,000 requiring FBAR filing, or are in a dual-status transition year needing specialized return preparation, our expertise ensures you correctly determine tax residency status using substantial presence test rules, file appropriate Form 1040 returns reporting worldwide income and claiming all available credits and deductions, maintain FBAR and Form 8938 compliance for foreign financial accounts, and optimize your tax situation by maximizing education credits, standard deductions, and other resident alien benefits.
