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Internal Revenue Service Wage and Investment Stakeholder Partnerships, Education and Communication Spring 2008. Income Tax Workshop for Resident Filers. Note: This workshop will explain only the basic rules of resident income tax filing.

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Internal Revenue ServiceWage and InvestmentStakeholder Partnerships,Education and CommunicationSpring 2008


Note this workshop will explain only the basic rules of resident income tax filing l.jpg

Income Tax Workshop

for Resident Filers

Note: This workshop will explain only the basic rules of resident income tax filing.


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Please NoteThis workshop is for students onF-1 or J-1 visas who have beenin the U.S. for 5+ years.It is also for scholars on J-1 visas who have beenin the U.S. for 2+ yearsout of the last 6 years ANDfor employees on H-1B visas.


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Internal Revenue Service

  • The taxation agency of the U.S. Government to which you

    • File your personal Income Tax Return


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State Tax Departments

  • The taxation agency of the State Government to which you may need to

    • File your personal Income Tax Return

  • If you resided in New York State in 2007, you may need to file a NYS Income Tax Return.

  • If you lived in another State, you may need to file that State’s Income Tax Return.

  • If you lived in two States, you may need to file two State Income Tax Returns.


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Basic Tax Vocabulary

  • Alien:generally, any person who is not a U.S. citizen

  • Student:person temporarily in the U.S. on an F, J, Q or M visa

  • Scholar:person who is not a student & who is temporarily in the U.S. on a J or Q visa


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Basic Tax Vocabulary (cont.)

  • Resident or Non-resident:refers to one’s tax filing status (Nothing else!)

  • IRS:Internal Revenue Service

  • Income Tax Return:statement filed (submitted) by individual taxpayer to the IRS


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Basic Tax Vocabulary(cont.)

  • Compensation/Earnings:wages, salaries, tips

  • Income:wages, salaries, tips, interest, dividends, some scholarship/fellowship grants


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Do I file as a Non-Resident or Resident?


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Residency Rulesfor FilingU.S. Income Tax Returns


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Determinationof Residency Status

Do not confuse

Federal Tax Residency with

Immigration Permanent Residency

OR

New York State Residency requirements for in-state tuition rates


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Federal Tax Residency Rules

  • For Federal Tax purposes, foreign nationals are classified as:

    • Resident Aliens OR

    • Nonresident Aliens (anyone who is not a resident alien)

  • Note: There are also “Dual Status” aliens who are considered as residents for part of the year and nonresidents for part of the year.


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    Resident or Nonresident?

    The following determines whether you are a resident or nonresident for federal tax purposes:

    • Green Card Test

    • Substantial Presence Test

    • Residency Through Marriage


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    Who is a Resident for Tax Purposes?

    1) “Green Card”Test

    • Lawful Permanent Resident of the U.S.


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    Green Card Test

    • Your residency starting date for tax purposes is based on the date your status changed to Lawful Permanent Resident.

      Remember: There is no option. If you are a Lawful Permanent Resident, you are a resident for tax purposes.


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    Who is a Resident for Tax Purposes?

    2) “Substantial Presence” Test

    Calculation that takes into consideration presence in the U.S. during the current year and two immediately preceding years


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    ”Substantial Presence” Test

    How Do I Count?

    31 days during the current year

    and

    183 days based on a calculation that considers presence during the current year and two preceding years


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    Substantial Presence Test

    • Current year (2007) days in U.S. x 1 = ___days

      Must have at least 31 days in current year

    • 1st preceding year (2006) days in U.S. x 1/3 = ___days

      C. 2nd preceding year (2005) days in U.S. x 1/6 = ___days

      D. Total “Days in U.S.” A+B+C = ___days

      If Line D equals or exceeds 183, 183-day test is passed.

      Must pass both 31-day and 183-day tests.


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    Substantial Presence Test

    • If Line A equals or exceeds 31 days and Line D equals or exceeds 183 days, then you are a Resident Alien for federal tax purposes.

    • If not, then you are a Nonresident Alien for federal tax purposes anddo not need this workshop.


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    Substantial Presence Test

    Some individuals are exempt from counting days toward the Substantial Presence Test.

    • Days of an “EXEMPT” individual

    • Commuter from Canada or Mexico

    • Others (see Publication 519)


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    Who are Exempt Individuals?

    • F, J, M & Q students (who have been in U.S. for less than 6 years)

    • J & Q Scholars (who have been in U.S. for less than 3 years out of last 6 years)

      Note: Not exempt from taxation


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    Residency through Marriage

    3) A nonresident spouse can be treated as a resident for tax purposes

    • You are required to file jointly with your U.S. Citizen or U.S. Resident (for tax purposes) spouse.

    • You must report world-wide income.


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    Duel-status Aliens

    Dual-status Aliens

    • Taxpayer has two residency statuses during the same tax year

    • Therefore, taxpayer

      • Must file two income tax returns AND

      • Split income between the two income tax returns based on residency status.

        Note: See Publication 519 for more information.


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    Establishing a Closer Connection

    If you want to remain a non-resident for tax purposes by claiming a closer connection to your country, you can if you:

    • are present in the U.S. less than 183 days in the current year AND

    • have a tax home in a foreign country AND

    • file Form 8840.

      Note: There are other criteria. Please see Form 8840 instructions.



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    Residency Starting Date

    Residency starting date under

    green card test

    If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on which you were present in the U.S. as a Lawful Permanent Resident.


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    Residency Starting Date

    Residency starting date undersubstantial presence test

    Your residency starting date is generally the first day you were present in the U.S. during that calendar year.


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    Residency Starting Date

    When both the Substantial Presence Test and Green Card Test apply, use the earlier of the two dates.


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    Tax Treatment of Resident Aliens


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    Tax Treatment of Resident Aliens

    • Resident Aliens are taxed on worldwide income, just as U.S. Citizens are.

    • Dual Status Aliens are taxed as either residents or nonresidents depending on which part of the year their income was realized.


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    Tax Treatment of Resident Aliens

    WHICH INCOME DO I REPORT?

    • Are you a Resident Alien for tax purposes?

      • Resident Aliens report their entire worldwide income like U.S. Citizens.

      • Resident Aliens may not claim exclusions of income based on Tax Treaties (with some exceptions stated in some tax treaties – visit:

        www.irs.gov/businesses/international/article/0,,id=96739,00.html


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    WHICH INCOME TO REPORT? (cont.)

    • Are you a Dual Status Alien?

      • Dual Status Aliens report their entire worldwide income for that portion of the year during which they are Resident Aliens, and report only income that is sourced in the U.S. or that is effectively connected with a U.S. trade or business for that portion of the year in which they are Nonresident Aliens.



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    Do you have to file?

    • If your gross income is over the dollar amounts listed on the chart, you must file a U.S. Federal Income Tax Return.

    • If you have overpaid taxes, you must file an income tax return in order to receive an income tax refund.


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    2007 Filing Requirements for Resident Aliens


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    What is Gross Income?


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    Gross Income

    • Wages, salaries and tips

    • Bank interest

    • Investment Income (taxable)

    • Taxable Scholarship/Fellowship

      Note: These are only a few examples.


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    Wages, Salaries and Tips

    Amounts you receive from an employer

    • You should receive a Form W-2 at the end of the year reporting the annual amount of wages you received.


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    Taxable Scholarship and Fellowship

    • Scholarship and fellowship grants are not included in taxable income if used for tuition, fees, books, supplies and equipment required for courses AND if the student is pursuing a degree.

    • Any portion of scholarship or fellowship received for room & board or in exchange for teaching or research is included in taxable income.


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    You call it:

    Internal Revenue calls it:

    What is a Scholarship or Fellowship?

    Tuition Waiver

    Non-taxable Scholarship

    (No work required)


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    What is a Scholarship or Fellowship?

    • You call it:

    • Internal Revenue calls it:

    Room and Board

    Waiver

    Taxable Scholarship


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    What is a Scholarship or Fellowship?

    • You call it:

    • Internal Revenue calls it:

    Teaching or Research

    Assistantship Stipend

    (recipient performs work)

    Taxable Wages



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    What forms should I fill out?

    • Resident aliens file Forms 1040, 1040A or 1040-EZ.


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    More Tax Forms

    • W-2:Wage and Tax Statement

    • 1040 or 1040A:U.S. Resident Alien Income Tax Return

    • 1040-EZ:U.S. Income Tax Return for certain resident aliens who have no dependents

      Note:See IRS Publication 17 to find the easiest form for you to file.


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    More Tax Vocabulary

    • Withholding:

      • U.S. income tax automatically taken from your paycheck

        Note: U.S. Social Security and Medicare are also taken from your paycheck.


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    Forms W-2

    • You could have one W-2 or more from different employers

    • The form was prepared by your employer and mailed to you.

    • You do not write anything on this form.

    • You use this form as a reference when you prepare your income tax return.

    • When finished, you attach this form to your income tax return.


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    010-00-0101

    16-0000000

    6000

    540

    STATE UNIVERSITY

    345 UNIVERSITY ST

    ALBANY, NY 12700

    JOY KIM

    123 UNIVERSITY LANE

    COLLEGETOWN, NY 00000

    NY 16-6000000

    6000.00 240.00

    SAMPLE W-2 FORM


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    How do I file a Resident income tax return (Form 1040-EZ)?

    First, learn the following tax vocabulary . . .


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    More Tax Vocabulary

    • Standard Deduction: standard amount that individuals may subtract from income before calculating taxes owed

    • Itemized Deductions: allowable amounts that individuals may subtract from income before calculating taxes owed

      • Examples: charitable contributions, state & local taxes withheld, etc.

        Note: No one can have both a standard deduction and itemized deductions. You have to choose one.


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    Standard Deduction Amount (for most people)

    • Single $ 5,350

    • Married Filing Joint $10,700

    • Married Filing Separate $ 5,350

    • Head of Household $ 7,850

    • Qualifying Widow(er) $10,700

      with Dependent Child


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    More Tax Vocabulary(cont.)

    • Personal Exemption: amount deducted from income for yourself and/or your dependents

      For 2007, the amount is $3,400.


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    Which Residents can use Form 1040-EZ?

    • Individuals

      • who do not claim any dependents

      • whose taxable income is less than $100,000

      • who do not claim any itemized deductions

      • who had only wages, taxable scholarship or fellowship grants, and whose taxable interest was not over $1,500

      • Miscellaneous other reasons (see Form 1040-EZ instructions)



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    010-00-0101

    16-0000000

    6000

    540

    STATE UNIVERSITY

    345 UNIVERSITY ST

    ALBANY, NY 12700

    JOY KIM

    123 UNIVERSITY LANE

    COLLEGETOWN, NY 00000

    NY 16-6000000

    6000.00 240.00

    FORM W-2

    Used for 1040-EZ Example


    Form w 2 used for 1040 ez example l.jpg

    010-00-0101

    16-0000000

    1

    4000

    424

    UNIVERSITY of CALIFORNIA

    456 UNIVERSITY ST

    COLLEGETOWN, CA 00000

    JOY KIM

    789 UNIVERSITY AVE

    COLLEGETOWN, CA 00000

    CA 45-6000000

    4000.00 200.00

    FORM W-2 Used for 1040-EZ Example





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    Earned Income Tax Credit

    • If you qualify for Earned Income Tax Credit, consult the chart on page 14 in the Form 1040-EZ Instructions booklet to find out how much.




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    When do I file a resident income tax return?



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    Where do I file my Resident income tax return?


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    For more information, call

    1-800-829-1040

    or visit

    www.irs.gov

    www.buffalo.edu/intlservices/tax.html


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