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Income Tax Preparation Workshop for Visiting Scientists and Fellows at the National Institutes of Health PowerPoint Presentation
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Income Tax Preparation Workshop for Visiting Scientists and Fellows at the National Institutes of Health

Income Tax Preparation Workshop for Visiting Scientists and Fellows at the National Institutes of Health

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Income Tax Preparation Workshop for Visiting Scientists and Fellows at the National Institutes of Health

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  1. Income Tax Preparation Workshop for Visiting Scientists and Fellows at the National Institutes of Health Presented By: Goodman & Company, LLP Craig A. Rosin, CPA crosin@goodmanco.com 240.403.3722 Craig Wilhoit, CPA cwilhoit@goodmanco.com 757.457.8485

  2. Factors to Consider Before Preparing Your Tax Return • Resident or Nonresident Alien? • Visiting Scientist or Visiting Fellow? • Included Income or Excluded Income? • Tax Treaty Implications • Source of income • What, Where, and When to file tax returns

  3. Tax Resources & Information • Federal Tax • IRS Website www.irs.gov: source for federal tax forms, instructions, and publications • Useful IRS Publications • Publication 519, U.S. Tax Guide for Aliens • Publication 901, U.S. Tax Treaties • Publication 17, Your Federal Income Tax • Publication 501, Exemptions, Standard Deduction, and Filing Information • Publication 525, Taxable and Nontaxable Income • Publication 529, Miscellaneous Deductions • Publication 552, Recordkeeping for Individuals

  4. Tax Resources & Information • Federal Tax (continued) • Important IRS Forms and Instructions • 1040 U.S. Individual Income Tax Return • 1040NR U.S. Nonresident Alien Income Tax Return • 4868 Application for Automatic Extension of Time to File U.S. Individual Tax Return • 8833 Treaty-Based Return Position Disclosure • 8840 Closer Connection Exception Statement for Aliens • 8843 Statement for Exempt Individuals and Individuals With a Medical Condition • TD F 90.22-1 Report of Foreign Bank and Financial Accounts (FBAR)

  5. Tax Resources & Information • Maryland Tax • Maryland Website www.Marylandtaxes.com: source for Maryland tax forms, instructions, and tax information • Useful Maryland Tax Forms and Instructions • 502 Maryland Resident Income Tax Return • 502D Maryland Personal Declaration of Estimated Income Tax • 502E Maryland Application for Extension to File Personal Income Tax Return • 505 Maryland Nonresident Income Tax Return

  6. Tax Resources & Information • District of Columbia Tax • DC Website www.otr.cfo.dc.gov: source for DC tax forms, instructions, and tax information • Useful DC Tax Forms and Instructions • D-40 Individual Income Tax Return • FR-127 Extension of Time to File a DC Income Tax Return • D-40ES Estimated Payment for Individual Income Tax

  7. Tax Resources & Information • Virginia Tax • Virginia Website www.tax.virginia.gov: source for VA tax forms, instructions, and tax information • Useful VA Tax Forms and Instructions • VA760 Individual Income Tax Return • 760PY Virginia Part-Year Resident Income Tax Return • 760/IP Individual Payment for Automatic Extension • 760ES Virginia Estimated Income Tax Payment Voucher and Worksheet

  8. Tax Resources & Information • North Carolina Tax • North Carolina Website www.dor.state.nc.us: source for NC tax forms, instructions, and tax information • Useful NC Tax Forms and Instructions • D-400 Individual Income Tax Return • D-410 Application for Extension for Filing Individual Income Tax Return • NC-40 Individual Estimated Income Tax

  9. Important Filing Dates • April 15, 2010 • Filing deadline for federal individual income tax returns of • all Resident Aliens, and • those Nonresident Aliens who were employees and received wages subject to U.S. income tax withholding • Filing deadline for Maryland, DC, and North Carolina individual income tax returns • Automatic six-month extensions are allowed. Tax payments must still be made by April 15, 2010. • Due date for the first quarter estimated tax payment for 2010 for federal , MD, DC, and NC

  10. Important Filing Dates • May 3, 2010 • Filing deadline for Virginia individual income tax returns • Automatic six-month extension is allowed. Tax payments must still be made by May 3, 2010. • Due date for the first quarter estimated tax payment for 2010 for VA

  11. Important Filing Dates • June 15, 2010 • Filing deadline for federal and state individual income tax returns of Nonresident Aliens who did not receive wages as employees subject to U.S. income tax withholding • Filing deadline for federal, MD, DC, and NC individual income tax returns of Resident Aliens and U.S citizens who are traveling outside the U.S. on April 15, 2010. Tax payments must still be made by April 15, 2010. • Due date for the second quarter estimated tax payment for 2010 for federal , MD, DC, NC, and VA • June 30, 2010 • Filing deadline for Report of Foreign Bank and Financial Accounts of U.S. citizens and U.S. residents

  12. Important Filing Dates • July 1, 2010 • Filing deadline for VA individual income tax returns of Resident Aliens and U.S citizens who are traveling outside the U.S. on May 3, 2010. • September 15, 2010 • Due date for the third quarter estimated tax payment for 2010 for federal , MD, DC, NC, and VA • October 15, 2010 • Extended filing deadline for federal, MD, DC, and NC individual income tax returns

  13. Important Filing Dates • November 3, 2010 • Extended filing deadline for VA individual income tax returns • December 15, 2010 • Extended filing deadline for federal and state individual income tax returns of Nonresident Aliens who qualified for the June 15, 2010 original filing deadline • January 15, 2011 • Due date for the fourth quarter estimated tax payment for 2010 for federal , MD, DC, NC, and VA

  14. Resident or Nonresident Alien? • Residency Status Determines: • What tax return forms to file • What income is taxed • What tax rates apply • What deductions against income are allowed • Where to file tax returns

  15. Resident or Nonresident Alien? • Taxation of Resident Aliens: • Generally taxed in the same way as U.S. citizens • Worldwide income is subject to U.S. tax and is reportable on U.S. tax return (Form 1040) • Worldwide income is subject to graduated tax rates that apply to U.S. citizens

  16. Resident or Nonresident Alien? • Taxation of Nonresident Aliens: • Generally taxed only on U.S.-source income • Tax rates depend on whether or not income is effectively connected with a U.S. trade or business • Effectively connected income (ECI) is taxed at graduated tax rates • Income that is not ECI is taxed at a flat 30% (or lower treaty) rate • Personal services are usually considered to be ECI

  17. Resident or Nonresident Alien?

  18. Resident or Nonresident Alien? • Determining Residency Status: • An alien is an individual who is not a U.S. citizen • An alien is a resident alien if he or she meets either the green card test or the substantial presence test • An alien is a nonresident alien if he or she does not meet one of these two tests

  19. Resident or Nonresident Alien? • Green Card Test • A green card gives an individual the right to reside permanently in the U.S. as an immigrant • A permanent resident is a resident for tax purposes • Resident status continues unless it is taken away or is administratively or judicially determined to have been abandoned

  20. Resident or Nonresident Alien? • Substantial Presence Test • Arithmetic test based on the number of days physically present in the U.S. • The test is met for 2009 if an individual was physically present in the U.S. for at least 31 days during 2009 and 183 days during the 3-year period that includes 2009, 2008, and 2007 • The 183-day test counts 100% of the days present in 2009, 33.33% of the days present in 2008, and 16.67% of the days present in 2007 (See Chart) • A day of presence in the U.S. means being physically present in the country at any time during the day • Exceptions to the test apply for certain exempt individuals with type “F”, “J”, “M”, or “Q” visas

  21. Resident or Nonresident Alien? • Substantial Presence Test

  22. Resident or Nonresident Alien? • Substantial Presence Test (continued) • Even if an individual meets the substantial presence test, he can be treated as a nonresident if • He is present in the U.S. for less than 183 days in 2009 • He maintains a tax home in a foreign country during the year, and • He has a closer connection to that foreign country than to the U.S. • Substantial Presence Test: Example • Maria was physically present in the U.S. on 120 days in each of the years 2007, 2008, and 2009. To determine if she meets the substantial presence test for 2009, she counts the full 120 days of presence in 2009, 40 days in 2008 (33.33% x 120), and 20 days in 2007 (16.67% x 120). Because the total for the 3-year period is 180 days, she is not considered a resident under the substantial presence test for 2009.

  23. Resident or Nonresident Alien for 2009? Start here to determine your status for 2009 1 If this is the first or last year of residency, dual status may occur. 2 In some circumstances, a person may still be considered a nonresident alien under an income tax treaty between the United States and the country of citizenship. Check treaty provisions carefully. 3 See Days of Presence in the United States in chapter 1 of IRS Pub. 519 for situations where days do not count as days of presence in the U.S. Note that days as an exempt individual do not count. Also, individuals who regularly commute from their residence in Canada or Mexico to work in the U.S. generally do not count commuting days. 4 If the substantial presence test is met for 2010, a choice might be available as a part-year U.S. resident alien for 2009.

  24. Resident or Nonresident Alien? • Dual-Status Tax Years • Applies when an individual is both a resident alien and a nonresident alien in the same year • Usually occurs in the year of arrival into or departure from the U.S. • For the part of the year an individual is a resident alien, income from all sources is subject to tax • For the part of the year an individual is a nonresident alien, only income from U.S. sources and other income considered to be ECI is subject to tax • Restrictions apply as to allowable deductions, exemptions, filing status, and tax rates • Dual-status aliens can choose resident alien status in the first year of residency if certain conditions are met • Residency status on the last day of the year determines the tax forms to be filed

  25. Resident or Nonresident Alien? • Reporting Income in Dual-Status Tax Years: Resident Aliens • Individuals who are resident aliens at the end of the year file Form 1040 (marked as “Dual-Status Return” across the top) reporting income from all sources for the residency portion of the year • Attach Form 1040NR (marked as “Dual-Status Statement” across the top) showing U.S.-source income for the non-residency portion of the year • File return and statement with the Department of the Treasury; Internal Revenue Service Center; Austin, TX, 73301-0215 U.S.A.

  26. Resident or Nonresident Alien? • Reporting Income in Dual-Status Tax Years: Nonresident Aliens • Individuals who are nonresident aliens at the end of the year file Form 1040NR (marked as “Dual-Status Return” across the top) reporting U.S.-source income for the non-residency portion of the year • Attach Form 1040 (marked as “Dual-Status Statement” across the top) reporting income from all sources for the residency portion of the year • File return and statement with the Department of the Treasury; Internal Revenue Service Center; Austin, TX, 73301-0215 U.S.A.

  27. Visiting Fellows • Visiting Fellows are individuals participating in a research program at the NIH who are awarded a fellowship grant to provide for their expenses • Visiting Fellows are not employees of the NIH and do not perform services • Fellowship grants are not considered “earned income”, although they are generally subject to U.S. income tax • Because the fellowship grants are not earned income, tax deductions or credits that require the presence of earned income – such as moving expenses, contributions to an IRA, and the childcare credit – are not allowed • Because the fellowship grants are not earned income, they are not subject to Social Security and Medicare taxes • The amount of fellowship grants paid and federal taxes withheld are reported to recipients on Form 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding”

  28. Visiting Scientists • Visiting Scientists include the following categories of individuals: Staff Clinician, Investigator, Adjunct Investigator, Senior Investigator, Clinical Fellow, and Staff Scientist • Visiting Scientists are considered employees performing services for the NIH and are paid wages • Wages paid are considered “earned income” subject to income, Social Security, and Medicare taxes • The amount of wages paid and taxes withheld are reported to recipients on Form W-2, “Wage and Tax Statement”

  29. Tax Treaty Implications • Application of Tax Treaties • The U.S. has income tax treaties with approximately 60 countries • Under these treaties, residents of foreign countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain items of U.S.-source income • Reduced rates and exemptions vary among countries and items of income • Tax treaties may or may not be recognized by individual states of the U.S., so income that is exempt from U.S. tax under treaty may still be taxed by an individual state • Maryland does not recognize federal tax treaties; income excluded by the federal government under a tax treaty is taxable in Maryland • District of Columbia, North Carolina, and Virginia recognize federal tax treaty agreements

  30. Tax Treaty Implications • Tax Treaty Benefits: Visiting Fellows • Treaty benefits for Visiting Fellows and grant recipients are generally included in treaty articles that apply to Students and Trainees • Most treaties extend Student and Trainee benefits to include individuals who perform public research as recipients of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary, or educational organization • Amounts received from the NIH under provisions of the Visiting Fellows Program are generally treated as a grant, allowance, or award for purposes of whether an exemption is provided by treaty • Under some treaties, Students and Trainees are exempt from tax for a certain period of time on amounts received; periods of exemption vary and specific treaty provisions should be consulted

  31. Tax Treaty Implications • Tax Treaty Benefits: Visiting Scientists • In limited circumstances, treaty benefits for Visiting Scientists are included in treaty articles that apply to Professors and Teachers • Under many tax treaties, compensation paid to nonresident alien Professors or Teachers who temporarily visit the U.S. to teach or conduct research at an accredited educational institution is not subject to U.S. income tax for the first 2 or 3 years • Some tax treaties extend the exemption to individuals working at a research institution • The IRS does not consider the NIH not be an educational institution • Amounts received from the NIH under the Visiting Scientist Program are not exempt from U.S. tax as a grant, allowance, or award, so the Students and Trainees exemption does not apply

  32. Tax Treaty Implications • Claiming Treaty-Exempt Income: Nonresident Aliens • Income exempt from tax by an income tax treaty is reported on Form 1040NR, line 23 • Tax treaty information, including the Treaty Country, specific tax treaty article, and amount are reported in item L on page 5 of Form 1040NR

  33. Tax Treaty Implications • Claiming Treaty-Exempt Income: Resident Aliens • Generally, only nonresident aliens can claim tax treaty exemptions • Once an individual becomes a resident alien, tax treaty exemptions can no longer be claimed unless specific exceptions apply • Most tax treaties have a “saving clause” that saves the right of each country to tax its own residents as if no tax treaty were in effect. For example, once one becomes a resident alien of the U.S., he generally loses any tax treaty benefits that relate to his income. • Many tax treaties have exceptions to the saving clause, allowing an individual to continue to claim certain treaty benefits even after becoming a resident alien. For example, Visiting Fellows who claim the Student and Trainee exemption can do so usually for 4 or 5 years, even if they are resident aliens

  34. Tax Treaty Implications • Claiming Treaty-Exempt Income: Resident Aliens (continued) • Income reported on Forms W-2, 1042-S, 1099, or other information return should be reported on the appropriate line of Form 1040 and subtracted out on line 21 for Other Income, identified as “Exempt Income”. The name of the treaty country and the tax treaty article should also be reported on line 21.