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Three international students arrive in the U.S. on August 1, 2023 for graduate programs. Student A files Form 1040 as a resident alien, paying $3,200 in taxes on $18,000 of fellowship income that's actually treaty-exempt. Student B doesn't file anything, assuming international students don't pay U.S. taxes, and receives IRS notices two years later demanding $2,800 plus penalties. Student C correctly files Form 1040-NR claiming treaty exemption under Article 20 of the India-U.S. tax treaty, pays zero tax on the same fellowship income, and remains compliant. Same school. Same visa. Same income. Three completely different tax outcomes based purely on understanding non-resident alien filing requirements and treaty benefits.
In this article, you'll learn who qualifies as a non-resident alien for tax purposes and the substantial presence test rules, how Form 1040-NR differs from Form 1040 and when to file each, what tax treaty benefits exist for students and how to claim them, which income sources require U.S. tax filing for international students, and common mistakes that cause students to overpay taxes or face compliance penalties.
Who is a non-resident alien for tax purposes?
Your immigration status (F-1, J-1 visa) doesn't automatically determine your tax status. Tax residency is determined by the substantial presence test and special rules for students.
Non-resident alien definition
A non-resident alien is someone who is neither a U.S. citizen nor a resident alien for tax purposes. Non-resident aliens are taxed only on U.S.-source income and at different rates than residents.
Key difference from immigration: You can be a "non-immigrant" for immigration purposes (F-1, J-1 visa holder) but be a "resident alien" for tax purposes. The two systems use different definitions.
The substantial presence test
The substantial presence test determines whether you're a resident alien based on days present in the U.S. over a three-year period.
Formula: You're a resident alien if:
- You were present in the U.S. for at least 31 days during the current year, AND
- The sum of days present equals 183 or more using this calculation:
- All days present in current year
- Plus 1/3 of days present in first preceding year
- Plus 1/6 of days present in second preceding year
Example: In 2025, you were present:
- 2025: 120 days
- 2024: 180 days
- 2023: 90 days
Calculation: 120 + (180 × 1/3) + (90 × 1/6) = 120 + 60 + 15 = 195 days
You meet the substantial presence test (195 ≥ 183) and are a resident alien for 2025.
Exempt individual exception for students
F-1 and J-1 students are "exempt individuals" for the first five calendar years of presence in the U.S., meaning they don't count days for the substantial presence test.
What this means: During your first five calendar years in F-1 or J-1 status, you're automatically a non-resident alien for tax purposes regardless of how many days you're present in the U.S.
Calendar year counting: The five-year period is based on calendar years (any part of a year counts), not continuous 12-month periods.
Example: You arrive on F-1 visa on August 15, 2021. Your five calendar years are: 2021, 2022, 2023, 2024, 2025. In 2026 (your 6th calendar year), you're no longer exempt and must apply the substantial presence test.
J-1 exemption: J-1 students and scholars are exempt for 2 calendar years (not 5), then must apply the substantial presence test.
What happens in year 6 and beyond
Starting in your 6th calendar year of F-1 presence (3rd for J-1), you apply the substantial presence test. If you meet the test, you become a resident alien for tax purposes even though you're still an F-1 non-immigrant for immigration.
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. You file special dual-status returns.
Form 1040-NR: Non-resident alien tax return
Non-resident aliens file Form 1040-NR (U.S. Nonresident Alien Income Tax Return) instead of Form 1040.
What income is reportable on Form 1040-NR
Non-resident aliens report only U.S.-source income on Form 1040-NR, not worldwide income.
U.S.-source income includes:
- Wages from U.S. employers (on-campus jobs, CPT/OPT employment)
- Scholarship and fellowship income for study in the U.S.
- Interest from U.S. banks (though often exempt)
- Dividends from U.S. corporations
- Capital gains from U.S. property sales
- Rental income from U.S. real estate
Foreign-source income: Not reportable on Form 1040-NR. Income earned abroad, from foreign employers, or foreign investments isn't taxed by the U.S. for non-resident aliens.
Income types and tax treatment
Effectively Connected Income (ECI): Income from services performed in the U.S. (wages, self-employment income) is taxed at graduated rates (10%, 12%, 22%, etc.) like U.S. residents.
Fixed, Determinable, Annual, or Periodical (FDAP) income: Passive income like interest, dividends, royalties, pensions. Taxed at flat 30% rate (or lower treaty rate) with no deductions allowed.
Example: You earned $20,000 in wages (ECI) and $1,000 in dividends (FDAP). Wages are taxed at graduated rates (likely 10-12% bracket). Dividends are taxed at 30% ($300 tax) unless a tax treaty reduces the rate.
Standard deduction for non-resident aliens
Most non-resident aliens cannot claim the standard deduction. The return calculates tax on gross income with limited deductions.
Exceptions: Students from India and certain other countries can claim standard deduction under tax treaty provisions.
Itemized deductions: Non-resident aliens can claim limited itemized deductions (state and local taxes, casualty losses, charitable contributions to U.S. organizations) but these rarely exceed the benefit of treaty exemptions.
Filing deadline
Form 1040-NR is due April 15 for wage earners. Students with only scholarship/fellowship income and no wages have a June 15 deadline.
Extensions: File Form 4868 to request automatic 6-month extension to October 15 (or December 15 for June 15 filers).
Tax treaty benefits for students
Most countries have tax treaties with the U.S. providing exemptions or reduced rates for student income.
Common treaty provisions for students
Article 20 (education articles): Most treaties have an "education article" (often Article 20 or 21) exempting scholarship, fellowship, and grant income received by students.
Wage exemptions: Some treaties provide limited exemptions for student wages. For example, the India-U.S. treaty Article 21 exempts up to $9,000 annually in wages earned by Indian students (in addition to scholarship exemptions).
Time limits: Treaty benefits often have time limits (5 years, 6 years, etc.). After the time limit, treaty benefits expire even if you remain a non-resident alien.
How to claim treaty benefits
Form 8233: For treaty-exempt wages, provide Form 8233 (Exemption From Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual) to your employer before earning wages. The employer won't withhold taxes on treaty-exempt amounts.
Form W-8BEN: For treaty-exempt scholarship/fellowship payments, provide Form W-8BEN to the university before receiving payments.
Form 1040-NR reporting: Report treaty-exempt income on Form 1040-NR but claim the treaty exemption, resulting in zero tax on that income. Attach Form 8833 (Treaty-Based Return Position Disclosure) if required.
Treaty statement: Attach a statement to Form 1040-NR explaining which treaty article applies, the income amount, and why you qualify for exemption.
Treaty examples
India-U.S. Treaty: Article 21(2) exempts scholarship/fellowship income. Article 21(3) exempts up to $9,000 annually of wage income for students. 5-year limit for both benefits.
China-U.S. Treaty: Article 20 exempts scholarship/fellowship income and up to $5,000 annually of wage income. 5-year limit.
South Korea-U.S. Treaty: Article 20 exempts scholarship/fellowship income. No specific wage exemption for students.
No treaty: If your country doesn't have a tax treaty with the U.S., no treaty exemptions apply. You pay tax on all U.S.-source income.
Verifying treaty benefits
Check the IRS tax treaty tables (Publication 901) or the full text of your country's tax treaty with the U.S. Treaty provisions vary significantly by country.
Filing requirements for different income types
On-campus employment and wages
- Reportable: All wages from on-campus jobs, CPT, or OPT employment are U.S.-source income reportable on Form 1040-NR.
- Form W-2: Your employer issues Form W-2 showing wages and withholding. Report this on Form 1040-NR.
- Tax treatment: Wages are effectively connected income taxed at graduated rates. You can claim treaty exemptions if your country's treaty provides wage exemptions for students.
- Standard deduction: Generally not available unless your country's treaty specifically allows it (India treaty does).
Scholarships and fellowships
- Qualified vs. non-qualified: Scholarships/fellowships for tuition and required fees are tax-free. Amounts for room, board, and living expenses are taxable.
- Form 1042-S: Universities issue Form 1042-S reporting scholarship/fellowship payments and any withholding.
- Treaty exemptions: If your treaty exempts scholarship income (most do), report it on Form 1040-NR but claim treaty exemption, resulting in zero tax.
- Box 1 vs. Box 2: Form 1042-S shows gross scholarship in Box 1 and taxable portion in Box 2. Report Box 2 amount (or claim treaty exemption on the entire amount if eligible).
Teaching or research assistantships
- TA/RA payments: Compensation for teaching or research services is wages (effectively connected income), not scholarship income.
- Tax treatment: Taxed at graduated rates like regular wages. Treaty exemptions may apply if your treaty has student wage provisions.
- Reporting: TA/RA payments appear on Form W-2 (not Form 1042-S) because they're wages for services.
Investment income (interest, dividends)
Interest from U.S. banks: Generally exempt for non-resident aliens (portfolio interest exemption).
Dividends from U.S. stocks: Subject to 30% withholding (or lower treaty rate). Report on Form 1040-NR and pay applicable tax.
Capital gains: Generally not taxed for non-resident aliens unless the student was present in the U.S. 183+ days during the year.
Foreign income
Not reportable: Income from foreign sources (foreign bank interest, foreign employment, income in home country) is NOT reportable on Form 1040-NR.
Exception: If you become a resident alien, you must report worldwide income on Form 1040.
Common mistakes and how to avoid them
Mistake #1: Filing Form 1040 instead of Form 1040-NR
Many tax software programs default to Form 1040, causing students to file as resident aliens when they're actually non-residents. This causes incorrect tax calculations and loss of treaty benefits.
Solution: Verify your tax status. If you're in your first 5 calendar years on F-1 visa (or 2 years on J-1), you're a non-resident and must file Form 1040-NR.
Mistake #2: Not claiming treaty benefits
Students don't realize their country's tax treaty exempts scholarship or wage income, paying unnecessary taxes.
Solution: Review your country's tax treaty with the U.S. (IRS Publication 901 or the full treaty text). Claim all applicable exemptions on Form 1040-NR.
Mistake #3: Not filing when required
Some students assume they don't need to file because taxes were withheld or income was small. But non-resident aliens must file if they had U.S.-source income.
Solution: File Form 1040-NR if you had any U.S.-source income, even if small. You may be due a refund of withheld taxes due to treaty exemptions.
Mistake #4: Counting days incorrectly for substantial presence test
Students count their first year in the U.S. as "year one" rather than understanding that any part of a calendar year counts as a year for the 5-year exemption.
Solution: Count calendar years, not 12-month periods. If you arrived in December 2021, that's year 1, even though you were only present for 20 days.
Mistake #5: Not filing FBAR for foreign accounts
If you have foreign bank accounts exceeding $10,000 at any time during the year, you must file FinCEN Form 114 (FBAR) regardless of your tax residency status.
Solution: Track maximum balances in all foreign accounts. If the aggregate exceeds $10,000 at any point, file FBAR by April 15 (automatic extension to October 15).
Mistake #6: Incorrect Form 8843 filing
All non-resident aliens (even with no income) must file Form 8843 (Statement for Exempt Individuals) explaining their exempt individual status.
Solution: File Form 8843 every year you're a non-resident alien, even if you had zero income and aren't filing Form 1040-NR.
Transitioning from non-resident to resident alien
When you exceed the 5-year exemption period (or 2 years for J-1), you apply the substantial presence test and may become a resident alien.
Dual-status year
The year you transition, you're dual-status: non-resident for part of the year, resident alien for the remainder.
Filing: File Form 1040 with "Dual-Status Return" written across the top. Attach a statement showing your income as a non-resident (first part of year) and as a resident (latter part of year).
Treaty benefits: Generally end when you become a resident alien, though some treaties have specific provisions for the transition year.
First-year choice
If you're a non-resident at the start of the year but meet the substantial presence test by year-end (and were present for 31+ consecutive days and present for 75% of days after that period), you can elect to be treated as a resident for the entire year.
Benefit: File Form 1040 (simpler than dual-status), claim standard deduction.
Drawback: Lose treaty benefits, must report worldwide income.
How NSKT Global can help with non-resident alien student tax filing
NSKT Global specializes in non-resident alien tax preparation for international students, helping F-1 and J-1 students file correct Form 1040-NR returns and maximize treaty benefits.
We offer comprehensive non-resident alien tax services including Form 1040-NR preparation completing accurate non-resident returns reporting U.S.-source income, treaty benefit analysis reviewing your country's tax treaty and claiming all applicable scholarship and wage exemptions, substantial presence test calculation determining your tax residency status and whether you're resident or non-resident, and Form 8843 filing completing exempt individual statements for students with no income or supplementing Form 1040-NR filings.
Our student tax planning includes visa status tracking monitoring your exemption period and advising when you'll transition from non-resident to resident alien, dual-status return preparation filing complex dual-status returns for transition years, treaty optimization timing income and treaty claims to maximize 5-year treaty benefit periods, and FBAR compliance filing FinCEN Form 114 for foreign financial accounts exceeding $10,000.
Whether you're an F-1 student in your first five years needing Form 1040-NR preparation, have scholarship or fellowship income and want to claim treaty exemptions, received wages from on-campus work or OPT/CPT employment, or transitioning from non-resident to resident alien status and need dual-status return preparation, our expertise ensures you file correct Form 1040-NR returns avoiding Form 1040 mistakes, maximize treaty benefits claiming all scholarship and wage exemptions available under your country's tax treaty, properly report U.S.-source income while excluding foreign income, and maintain compliance with filing requirements including Form 8843 and FBAR when applicable.
